WT/DS267/RW 
Page A-1 
 
 
 
 
ANNEX A 
 
FIRST WRITTEN SUBMISSIONS OF PARTIES  
AND THIRD PARTIES 
 
 
Contents Page 
Annex A-1 Executive Summary of the First Written Submission of Brazil 
(Executive summary submitted on 24 November 2006)  A-2 
Annex A-2 Executive Summary of the First Written Submission of the 
United States (Including Request for preliminary rulings) – (Executive summary submitted on 22 December 2006) A-9 
Annex A-3 Third Party Submission of  Argentina – 5 January 2007 A-18 
Annex A-4 Third Party Submission of  Australia – 5 January 2007 A-22 
Annex A-5 Third Party Submission of Canada – 5 January 2007 A-31 
Annex A-6 Third Party Submission of Chad – 5 January 2007 A-38 
Annex A-7 Third Party Submission of the People's Republic of China – 
5 January 2007 A-52 
Annex A-8 Third Party Submission of the European Communities – 
5 January 2007 A-57 
Annex A-9 Third Party Submission of Japan – 5 January 2007 A-72 
Annex A-10 Third Party Submissi on of New Zealand – 5 January 2007 A-79 
 
 WT/DS267/RW  
Page A-2  
 
ANNEX A-1 
 
EXECUTIVE SUMMARY OF THE FIRST WRITTEN  
SUBMISSION OF BRAZIL 
 
(Executive summary submitted on 24 November 2006) 
 
 
1. This dispute results from the United States' fa ilure to implement, in a timely and complete 
manner, the recommendations and rulings of the Dispute Settlement Body ("DSB") in U.S. – Upland 
Cotton .  Brazil challenges both the existence  and consistency  of U.S. measures taken to comply with 
the "adverse effects"- and "export credit guarantee"-rela ted recommendations and rulings of the DSB.   
 
BRAZILIAN CLAIMS CONCERNING ADVERSE EFFECTS -RELATED RECOMMENDATIONS AND 
RULINGS OF THE DSB 
 
2. In its adverse effects-relate d recommendations and rulings, the original panel, as affirmed by 
the Appellate Body, found that the price-contingent  U.S. marketing loan program, counter-cyclical 
payment program and Step 2 program of the FSRI Act of 2002 caused significant price suppression in the world market for upland cotton, in violation of Articles 5(c) and 6.3(c) of the Agreement on 
Subsidies and Countervailing Measures  ("SCM Agreement ").  The panel found that "the United States 
is obliged to take action concerning its present stat utory and regulatory framework as a result of our 
'present' serious prejudice findings."
1  The Dispute Settlement Body adopted the panel and Appellate 
Body reports that obliged the United States to remove  the adverse effects caused by the subsidies, or 
to withdraw the subsidies, by 21 September 2005. 
 3. The United States did not repeal or amend any of the three price-contingent subsidy programs 
until 1 August 2006, when it finally discontinued solely  the Step 2 program.  The far larger marketing 
loan and counter-cyclical payment programs have not been removed or amended to this day.  Brazil 
asserts four claims related to adverse effects implementation.    
 4. First , Brazil claims that between the expiry of the implementation period on 
21 September 2005 and elimination of Step 2 paym ents on 1 August 2006, there did not "exist" any 
U.S. "measures taken to comply" with the adverse effects-related recommendations and rulings of the 
DSB.
2 
 5. Second , Brazil claims that the non-repealed price-contingent U.S. marketing loan and 
counter-cyclical payment programs cause present serious prejudice in the form of 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), 6.3(c) and 6.3(d) of the  SCM Agreement .  In other words, Brazil claims that, 
to the extent measures taken to comply with the adverse-effects related recommendations and rulings 
of the DSB exist ( i.e., the repeal of Step 2 and the non-repeal of the marketing loan and counter-
cyclical payment programs), those measures continue  to result in inconsistencies with the covered 
agreements, within the meaning of Article 21.5 of the DSU.
3   
 6. Brazil establishes serious prejudice to its in terests based on data for the most recently 
completed marketing year ("MY") – MY 2005.  Full-y ear data on marketing loan and counter-cyclical 
payments to U.S. upland cotton farmers for MY 2006 – the first year in which Step 2 is not provided – 
                                                     
 
1 Panel Report, U.S. – Upland  Cotton , para. 7.1501. 
2 See Section 6 of Brazil's First Written Submission. 
3 See Section 7 of Brazil's First Written Submission.  WT/DS267/RW 
Page A-3 
 
 
will not be available until Septem ber 2007.  Nevertheless, the compliance Panel, like the original 
panel, can use a counter-factual analysis to evaluate  the effects of marketing loan and counter-cyclical 
payments alone, and factor out any additional effects of Step 2 (or other subsidy) payments made in 
MY 2005. 
7. As a preliminary step, Brazil establishes that the marketing loan and counter-cyclical payment 
programs of the FSRI Act of 2002 constitute subsid ies that are specific, within the meaning of 
Articles 1 and 2 of the SCM Agreement .4  In addition, upland cotton from Brazil continues to be a like 
product with subsidized U.S. upland cotton and there continues to be a world market and the A-index 
continues to constitute the world market price for upland cotton.5   
 
8. To demonstrate a causal link between U.S. ma rketing loan and counter-cyclical payments and 
significant price suppression, within the meaning of Article 5(c) and 6.3(c) of the SCM Agreement , 
Brazil examines the same factors relied upon by the original panel.   
 9. As the largest exporter of upland cotton in the world, the United St ates remains the single 
most important market influencing world market pric es.  Changes in the volume of U.S. production, 
carry-over stocks, and exports have a significant impact on world market prices.
6  I n  a d d i t i o n ,  
movements in U.S., Brazilian, A-Index and futures mark et prices continue to show a broad similarity 
and remain low relative to long term averages. 7   
 
10. The magnitude of marketing loan and counte r-cyclical payments in MY 2005 was massive, 
amounting to $2.17 billion, or 42 percent of the market value of U.S. upland cotton production.8  As 
the original panel found, the structure, design and operation of these subsidies continue to insulate 
U.S. upland cotton producers from market forces9, leading to high levels of U.S. planted acreage, 
production and exports and, ultimately, suppressed world market prices.10  Thus, there remains a 
discernable temporal coincidence between these s ubsidies and suppressed world market prices.11   
 
11. Over the long term (six years), U.S. costs of production for upland cotton continue to greatly 
exceed market revenues.  Without subsidies, th e average acre planted to upland cotton between 
MY 2000-2005 would have lost $663, or $9.84 billi on for all acres.  However, when revenue from 
marketing loan and counter-cyclical payments is included with market re venue, the average acre 
would have made a total six-year profit of $127, or $1. 44 billion in aggregate.  These facts succinctly 
demonstrate that the effect of marketing loan and co unter-cyclical payments is to sustain higher levels 
of output than would otherwise exist.12 
 
12. Economic studies by leading academics show that marketing loan and counter-cyclical 
payments continue to stimulate U.S. production and exports and result in lower world market prices 
than would prevail in their absence.  Professor Dani el Sumner finds that the world market price of 
upland cotton would have been between 9 and 11 pe rcent higher in MY 2005 in the absence of these 
two U.S. subsidy programs. 13  
 
                                                      
4 See Section 7.3 of Brazil's First Written Submission. 
5 See Section 7.4 of Brazil's First Written Submission. 
6 See Section 7.5 of Brazil's First Written Submission. 
7 See Section 7.6 of Brazil's First Written Submission. 
8 See Section 7.7 of Brazil's First Written Submission. 
9 See Section 7.8 of Brazil's First Written Submission. 
10 See Section 7.9 of Brazil's First Written Submission. 
11 See Section 7.10 of Brazil's First Written Submission. 
12 See Section 7.11 of Brazil's First Written Submission. 
13 See Section 7.12 of Brazil's First Written Submission.  WT/DS267/RW  
Page A-4  
 
13. In view of the size and nature of U.S. upland cotton subsidies and the commanding U.S. market share, the price suppression is unmistakably significant.
14  Any price-suppressing effects of 
Step 2 payments do not diminish the significan t and independent price-suppressing effects of 
marketing loan and counter-cyclical payments.  Indeed, the U.S. Congressional Budget Office 
concludes that counter-cyclical pa yments will be even larger in the absence of Step 2 payments. 15  
Similarly, other non-subsidy factors that impact  the world market price of upland cotton do not 
account for the price suppression caused by marketing loan and counter-cyclical payments.16  
 14. Brazil also claims that the U.S. marketing loan and counter-cyclical payments cause serious 
prejudice to the interests of Brazil by increasing th e U.S. share of the world upland cotton market, 
within the meaning of Article 5(c) and 6.3(d) of the SCM Agreement .  The U.S. world market share of 
upland cotton increased from an average of 19. 32 percent in MY 2002-2004 to 20.85 percent in 
MY 2005, or from 16.98 percent in MY 2002-2004 to  17.44 percent in MY 2005, depending on 
approach used to measure supply.  The same effects from marketing loan and counter-cyclical 
payments that stimulate excessive U.S. productio n and exports and lower world market prices – 
despite high costs and low market revenue and pri ces – also causes the increase in U.S. world market 
share.
17 
 15. In sum, Brazil requests the compliance Panel to find that the U.S. measure eventually taken to 
comply, i.e., the amendment of the FSRI Act of 2002 to repeal Section 1207(a), providing for Step 2 
payments, is insufficient to ensure compliance wi th the recommendations and rulings of the DSB, 
because the resulting basket of measur es is inconsistent with Articles 5(c), 6.3(c) and 6.3(d) of the 
SCM Agreement .   
 16. Third , Brazil claims that despite the repeal of the Step 2 program, the marketing loan and 
counter-cyclical payments mandated under the FSRI  Act of 2002 to be made in MY 2006, and 
beyond, cause a threat of serious prejudice to the interests of Brazil, within the meaning of 
Articles 5(c) and 6.3(c), as well as footnote 13 of the SCM Agreement .  Brazil again claims that, to the 
extent measures taken to comply with the adverse- effects related recommendations and rulings of the 
DSB exist ( i.e., the repeal of the Step 2 program and the non-repeal of the marketing loan and 
counter-cyclical payment programs), those measures ar e deficient, and result in inconsistencies with 
the covered agreements, within the meaning of Article  21.5 of the DSU.  Brazil notes that this claim is 
contingent on the compliance Panel not being able to  find that the marketing loan and counter-cyclical 
payment programs cause present serious prejudice (Br azil's second adverse effects-related claim).  
 
17. Key evidence supporting Brazil's threat claim in cludes the fact that th e two remaining subsidy 
programs – the marketing loan and counter-cycli cal payment programs – are mandatory, result in 
guaranteed high levels of U.S. planted acreage, production and exports and have caused significant 
price suppression throughout the history of the FSRI Act of 2002.  With the repeal of the Step 2 program and the resulting lower domestic  market prices in the United States, the effects of the 
remaining two price-contingent U. S. subsidy programs will be, if anything, bigger in MY 2006, and 
beyond.  In fact, USDA and FAPRI projections re garding U.S. subsidy outlays under these programs, 
upland cotton production, exports, pr ices and developments in U.S. cost of production for upland 
cotton support a finding of a threat of serious prejudice from the U.S. marketing loan and counter-cyclical payments for upland cotton.  These tw o subsidy programs under the FSRI Act of 2002 
constitute a continuing threat of significantly suppressed world mark et prices for Brazilian and other 
developing country producers that will continue  until these measures are repealed or significantly 
                                                     
 
14 See Section 7.13 of Brazil's First Written Submission.  
15 See Section 7.14 of Brazil's First Written Submission. 
16 See Section 7.15 of Brazil's First Written Submission. 
17 See Section 7.17 of Brazil's First Written Submission.  WT/DS267/RW 
Page A-5 
 
 
amended.  Indeed, these subsidies caused serious prejudice during the first four years of the FSRI Act of 2002, continue to cause present serious prej udice, and continue to cause a threat thereof.
18 
 
18. Fourth , Brazil claims, on a contingent basis, that during the period 21 September 2005 to 
31 July 2006, all three of the price-contingent subsidy programs of the FSRI Act of 2002, mentioned 
above, have caused serious prejudice to Brazil.  Br azil requests that the compliance Panel address this 
claim only if it rejects Brazil's first, second and thir d claim, as outlined above.  Brazil claims that the 
failure of the United States to take any measures to  remove the adverse effects or withdraw the three 
price-contingent subsidy programs during this period  has caused serious prejudice to the interests of 
Brazil, in violation of Articles 5(c), 6.3(c) and 6.3(d) of the SCM Agreement .19   
 
19. In sum, with respect to the adverse effect s-related recommendations and rulings of the DSB, 
Brazil requests the compliance Panel to conclude th at the original recommendation adopted by the 
DSB – to "remove the adverse effects or [to] the subsidy" under Article 7.8 of the SCM Agreement  – 
remains in effect, and applies to the full extent  of the findings requested by Brazil in these 
Article 21.5 proceedings.20 
 
BRAZILIAN CLAIMS CONCERNING EXPORT CREDIT GUARANTEE -RELATED RECOMMENDATIONS 
AND RULINGS OF THE DSB 
 
20. The DSB recommended that the United States withdraw the three export credit guarantee 
("ECG")subsidies maintained by the U.S. Commodity Credit Corporation ("CCC") – the GSM 102, 
GSM 103 and SCGP programs – and othe rwise bring itself into complian ce with its obligations by the 
implementation deadline of 1 July 2005.  To im plement the DSB's recommendations and rulings, the 
United States announced, on 1 July 2005, that CCC woul d no longer take applications for ECGs under 
GSM 103, which underwrote credit for 3- to 10 -year periods, and amended the fee schedules for 
ECGs issued under the GSM 102 and SCGP programs.21  Brazil raises two claims with respect to the 
U.S. measures taken to comply with the ECG-re lated recommendations and rulings of the DSB.   
 
21. First , with respect to ECGs issued under the GSM 102, GSM 103 and SCGP programs prior 
to 1 July 2005, but still outstanding subsequent to  1 July 2005, the United States has taken no action 
whatsoever to withdraw the subsidy and otherwise bri ng itself into conformity with its obligations.  In 
regard to these outstanding ECGs, Brazil claims that measures taken to comply do not exist.22 
 
22. Second , with respect to ECGs issued subsequent to  1 July 2005, they continue to be export 
subsidies, and continue to be provi ded in a manner that results in circumvention of the United States' 
export subsidy commitments.  In this regard, th e United States' measures taken to comply are not 
consistent with Articles 10.1 and 8 of the Agreement on Agriculture  and Articles 3.1(a) and 3.2 of the 
SCM Agreement .23 
 
23. Since 1 October 2005 – the beginning of FY 2006 – the United States has not issued any 
SCGP ECGs.  Nor have any GSM 103 ECGs been issued since 1 July 2005, the implementation 
deadline.  Thus, Brazil's second claim, of continued inconsistency with the Agreement on Agriculture 
and the SCM Agreement , applies solely to GSM 102, and not to GSM 103 or SCGP.24   
 
                                                      
18 See Section 8 of Brazil's First Written Submission. 
19 See Section 9 of Brazil's First Written Submission. 
20 See Section 10.3.3 of Brazil's First Written Submission. 
21 See Section 10.2 of Brazil's First Written Submission. 
22 See Section 10.3.1 of Brazil's First Written Submission. 
23 See Section 10.3.2 of Brazil's First Written Submission. 
24 See Section 10.3.2 of Brazil's First Written Submission. WT/DS267/RW  
Page A-6  
 
24. GSM 102 ECGs guarantee the repayment of cr edit made available to finance commercial 
exports of U.S. agricultural products.  The guarant ees cover 98 percent of the principal and a portion 
of the interest, and have a duration of 30 days to three years.  GSM 102 operates solely in 
circumstances where a foreign bank could not, with out the U.S. government's assistance, secure the 
credit necessary to on-lend to its customer , the purchaser of U.S. agricultural exports.
25   
 25. Using the context of Articles 1 and 3.1(a) of the SCM Agreement , GSM 102 ECGs constitute 
export subsidies for the purposes of Article 10.1 of the Agreement on Agriculture .  Specifically, 
GSM 102 ECGs (i) are "financial contributions" (ii) th at confer "benefits", and (iii) are contingent in 
law on export performance.
26 
 
26. With respect to the first element , Article 1.1(a)(1)(i) of the SCM Agreement  includes as a 
"financial contribution" "potential direct transfers of funds or liabilities ( e.g. loan guarantees)."  
GSM 102 ECGs fall squarely within this definition.  The third element  is similarly straightforward.  
Article 3.1(a) of the SCM Agreement  prohibits "subsidies contingent, in  law or in fact, whether solely 
or as one of several other conditions, upon expor t performance …."  GSM 102 ECGs are expressly 
conditioned on the export of elig ible U.S. agricultural products.27   
 
27. Turning to the second element , Article 1.1(b) of the SCM Agreement  provides that a "benefit" 
must be conferred by virtue of the financial contri bution.  The appropriate standard for determining 
the existence of a benefit is whether the financial co ntribution has left the recipient better off than it 
would otherwise have been.  In the case of loan gu arantees, panels have adopted two approaches to 
applying this standard.  Under either appro ach, GSM 102 and GSM 102 ECGs are provided on terms 
that constitute "benefits."28 
 
28. The first approach seeks to determine whet her the government guarantee improves the terms 
of the underlying loan compared to the terms that  could have been secured without the government 
guarantee.  This approach builds on the benef it valuation principle in Article 14(c) of the 
SCM Agreement .  Article 14(c) calls for an examination focused 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 gove rnment guarantee.  Article 14(c) presumes, of 
course, that a commercial loan could be secured by a recipient in the absence of the government 
guarantee.  If no loan would be available without the government guarantee – as U.S. regulations 
establish is the case with transactions covere d by the GSM 102 program – a benefit exists per se .  
This is in keeping with Article 1.1(b) of the SCM Agreement , because if a "financial contribution" 
enables the recipient to obtain a co mmercial loan that could not be otherwise obtained, an advantage 
beyond what is available in the marketplace, or  in other words, a "benefit", is conferred.29   
 29. The second approach builds on Article 1.1(b) of the SCM Agreement , and seeks to determine 
whether the government guarantee is available on terms better than a market-based guarantee.
30  
Brazil compares GSM 102 fees with fees for comparable instruments offered by the Export-Import Bank of the United States ("ExIm Bank"), the offi cial export credit agency of the United States.  
Although ExIm bank is not a commercial operator, and indeed, assumes risk the private sector is 
unable or unwilling to assume, the exercise offers a useful set of comparison points.  Of the 
1071 comparison points generated by the benc hmarking exercise, GSM 102 fees were below 
comparable ExIm Bank fees 98 percent of the time.  ExIm Bank fees exceeded GSM 102 fees by an 
                                                     
 
25 See Section 10.3.2.1 of Brazil's First Written Submission. 
26 See Section 10.3.2.2 of Brazil's First Written Submission. 
27 See Section 10.3.2.2.1 of Braz il's First Written Submission. 
28 See Section 10.3.2.2.1 of Braz il's First Written Submission. 
29 See Section 10.3.2.2.1.1 of Brazil's First Written Submission. 
30 See Section 10.3.2.2.1.2 of Brazil's First Written Submission.  WT/DS267/RW 
Page A-7 
 
 
average of 112 percent for transactions involving an nual repayment of principal, and 97 percent for 
transactions involving semi-annual repayment of princi pal.  Accordingly, by comparison with fees 
charged by ExIm Bank for comparable products, GSM 102 ECGs provide a considerable "benefit," 
under Article 1.1(b) of the SCM Agreement .31 
 
30. A further examination of GSM 102 ECGs shows that they are not designed  to charge fees that 
are consistent with market.  The CCC does not take a ccount of the full costs of all of the risks it bears 
in a GSM 102 transaction.  In fact, by USDA's own admission, CCC is unable to do so given the one-
percent fee cap mandated by U.S. law.  The CCC is limited by the program's structure and design 
from taking full account of the risks that would be factored into pricing decisions by market-based 
guarantors.  It is, therefore, no surprise that th e fees for GSM 102 ECGs are provided on terms better 
than could be secured by recipients were they to look for similar protection in the market.32   
 
31. In sum, using the context of Articles 1 and 3.1(a) of the SCM Agreement , GSM 102 ECGs 
constitute export subsidies for th e purposes of Article 10.1 of the Agreement on Agriculture .   
 
32. Brazil notes that in the original proceedings, both the panel and the Appellate Body relied on 
the context offered by item (j) of the Illustrative List  to inform the interpretation of the term "export 
subsidies" in Article 10.1 of the Agreement on Agriculture .  As was the case before the original panel, 
GSM 102 fees continue to be insufficient to cove r the long-term operating costs and losses of the 
program.33  Brazil requests that the compliance Panel only consider this alternative claim under 
item (j) if it finds that GSM 102 ECGs are not export subsidies by virtue of the fact that they are 
"financial contributions" that confer "benefits" and that are export contingent, under Articles 1.1 
and 3.1(a) of the SCM Agreement . 
 
33. Although GSM 102 ECGs issued in Fiscal Years (FY) 2006 and 2007 are subject to the 
amended GSM 102 fee schedule, the United States nevertheless projects that the CCC will suffer 
losses by the time the 2006 and 2007 "cohorts" – or class of GSM 102 ECGs issued in those years – close.  Specifically, CCC projects losses of USD 125 million and USD 114 million, respectively, for GSM 102 ECGs issued in FY 2006 and FY 2007 (before accounting for the costs of administering the 
program).  In other words, the United States itself does not believe that the new GSM 102 fee 
schedule will result in income suffi cient to absorb total losses incurre d on the ECGs to which that fee 
schedule applies. 
 
34. Brazil notes, moreover, that fees for GSM 102 ECGs fall below the minimum premium rates 
("MPRs") provided in the Organization for Econom ic Co-operation and De velopment's ("OECD") 
Arrangement on Officially Supported Export Cr edits (the "Arrangement").  Brazil calculates 
1064 comparison points between GSM 102 fees a nd MPRs.  In 1063 of those 1064 comparisons, 
GSM 102 fees fall below the Arrangement's MPRs.  The Arrangement's MPRs are on average 106 
percent greater than GSM 102 fees, meaning that GSM 102 fees are strikingly "inadequate to cover 
long-term operating costs and losses associated with the provision of export credits". 
 
35. Finally, for the same reasons indicated in th e previous "benefit" analysis (see paragraph 30), 
Brazil contends that the structure, design and operation of the GSM 102 program under its amended 
fee schedule are such that fees remain inadequate  to cover long-term operating costs and losses.  
 
36. Having shown that GSM 102 ECGs are expor t subsidies, Brazil demonstrates that the 
United States has applied these export subsidies in a manner that results in circumvention of its export 
subsidy commitments.  Brazil demonstrates that ci rcumvention has occurred with respect to all 
                                                     
 
31 See Section 10.3.2.2.1.2.1 of Brazil's First Written Submission. 
32 See Section 10.3.2.2.1.2.2 of Brazil's First Written Submission. 
33 See Section 10.3.2.2.2 of Braz il's First Written Submission. WT/DS267/RW  
Page A-8  
 
unscheduled products and three scheduled products – ri ce, pig meat and poultry meat – in violation of 
Article 10.1 of the Agreement on Agriculture .
34   
 
37. In sum, Brazil demonstrates  that the GSM 102 program, as maintained by the United States 
subsequent to 1 July 2005, is inconsistent with the Agreement on Agriculture .  As a result, the 
United States is not due the full protection of the safe harbor accorded by the exception in the opening 
clause of Article 3.1 of the SCM Agreement , and the prohibition in Articles 3.1(a) and 3.2 applies.35 
 
38. For the same reasons that the GSM 102 program and GSM 102 EC Gs constitute export 
subsidies under the Agreement on Agriculture , they similarly constitute prohibited export subsidies 
under Articles 3.1(a) and 3.2 of the SCM Agreement .  Brazil requests that the compliance Panel so 
find. 
 39. In sum, with respect to the ECG-related r ecommendations and rulings of the DSB, Brazil 
requests the compliance Panel to conclude that th e original recommendation adopted by the DSB – to 
"withdraw the subsidy without delay" under Article 4.7 of the SCM Agreement  – remains in effect, 
and applies to the full extent of the findings re quested by Brazil in these Article 21.5 proceedings.
36 
 
 
                                                      
34 See Section 10.3.2.3 of Brazil's First Written Submission. 
35 See Section 10.3.3 of Brazil's First Written Submission. 
36 See Section 10.3.3 of Brazil's First Written Submission.  WT/DS267/RW 
Page A-9 
 
 
ANNEX A-2 
 
EXECUTIVE SUMMARY OF THE FIRST WRITTEN  
SUBMISSION AND REQUES T FOR PRELIMINARY  
RULINGS OF THE UNITED STATES 
 
(Executive Summary submitted on 22 December 2006) 
 
 1. The United States requests that the Panel reject  Brazil's claims and find that the United States 
has complied with the DSB's recommendations and ruli ngs and, further, that the U.S. measures taken 
to comply are not inconsistent with the SCM Agreement  or the Agreement on Agriculture .  The Step 2 
program for users and exporters of U.S. cotton, worth hundreds of millions of dollars  annually, was 
not the only program that the United States ceased to operate.  It also ceased issuing guarantees under 
two export credit guarantee programs, namely, the GSM 103 program and the Supplier Credit 
Guarantee Program ("SCGP") program, under which th e United States had been issuing applications 
for guarantees covering hundreds of millions of dollars  of export transactions; the United States now 
issues no guarantees under either of the two programs.  The third export credit guarantee program at 
issue in the underlying proceeding, the GSM 102 program, has been substantially modified and does 
not constitute an export subsidy.  Further, the Un ited States requests the Panel to make a preliminary 
ruling (as explained below) that certain measures and claims relating to export credit guarantees are not within the scope of this proceeding.   
2. With respect to the Dispute Settlement Body's ("DSB") recommendations and rulings on 
actionable subsidies, the panel's finding of "presen t" serious prejudice in the original proceeding 
applied to a package of payments made under the Step 2, marketing loan, and counter-cyclical 
payment programs in marketing years ("MY")1999-2002.  Those payments were, thus, the only 
measures subject to the DSB's recommendation under Article 7.8 of the SCM Agreement  that the 
United States "take appropriate steps to remove the adverse effects or . . . withdraw the subsidy."  
Brazil submits no evidence whatsoever  as to the present effects, if any, of the payments that were 
subject to the original panel's finding and thus app ears to concede that these payments no longer have 
any effect.  The United States requests the Panel to  make preliminary rulings (as explained below) 
that certain measures and claims relating to certain U.S. programs  are not within the scope of this 
proceeding.  Without prejudice to those requests, th e United States demonstrates that Brazil's claims 
with respect to U.S. programs also fail to withstand scrutiny.  
 3. Export credit guarantees – GSM 102 guaran tees have been provided subsequent to 
1 July 2005 consistently with U.S. WTO obligations.    Brazil fails to make a prima facie  case that 
GSM 102 export credit guarantees were provided subse quent to 1 July 2005 in a manner inconsistent 
with Articles 3.1 and 3.2 of the SCM Agreement.  Article 3.1(a) of the SCM Agreement  prohibits 
"subsidies contingent, in law or in fact, whether solely or as one of several other conditions, upon 
export performance, including those illustrated in Annex I."  Item (j) of the Illustrative List of Export 
Subsidies in Annex I "illustrates" or "makes clear" the conditions under which export credit 
guarantees may be considered export subsidies within the meaning of Article 3.1(a).  Item (j) was the 
basis of the DSB's recommendations and rulings w ith respect to the U.S. export credit guarantee 
programs and, thus, it was the provision of the SCM Agreement  that provided guidance to the 
United States in determining how to implement th e DSB's recommendations and rulings.  Item (j) is 
also the item that most directly addresses the issue in  this dispute.  Accordingly, in this case, it is 
item (j) that provides the basis for assessing wh ether or not GSM 102 export credit guarantees are 
export subsidies within the meaning of Articles 3.1(a) and 3.2 of the SCM Agreement . 
 WT/DS267/RW  
Page A-10  
 
4. The approach advocated by Brazil – to  assess whether GSM 102 guarantees are export 
subsidies within the meaning of item (j) in the "altern ative," only if the Panel finds that they are not 
'financial contributions' that confer 'benefits' and that are export contingent under Articles 1.1 and 3.1(a) of the SCM Agreement  – would lead to the fatally flawed result that a measure that was 
specifically found to fall outside  the definition of an export subsidy could then be found to be an 
export subsidy. 
 5. In addition to ceasing to issue guarantees under the GSM 103 and SCGP, the United States 
has taken a number of steps to ensure that the graduated risk-based fee structure of the GSM 102 
program covers the program's long-term operating costs and losses.  Fees for the program now 
increase with both risk category and tenor (the length of the loan).  The United States also reclassified 
into an ineligible risk category a large number of  countries previously eligible under the programs.  
These changes made to implement the DSB's recomme ndations and rulings bolster other disciplines 
already in place.  
6. The U.S. budget accounting data that has beco me available since the original proceeding 
show that, for all programs, for the fourteen-year period commencing with fiscal year 1992, the export 
credit guarantee programs received hundreds of millions of  dollars more in premia and interest than 
required to pay out in operating costs and losses, in cluding interest.  These numbers indicate that the 
United States earned a substantial profit  on its programs even under the fee structure preceding the 
changes implemented on July 1, 2005 .  With respect to the GSM 102 program, alone, the budget data 
also reflects that for every fiscal year cohort si nce 1992 the net lifetime re-estimates have been 
negative.  Given that the programs charged premium rates more than  adequate to cover the long-term 
operating costs and losses of the programs even be fore any changes were made to implement the 
DSB's recommendations and rulings, the changes can only result in even more favorable financial 
results. 
 
7. Brazil's emphasis on the original subsidy estimates for the 2006 and 2007 cohorts in the 
U.S. budget data – and the alleged "guaranteed lo an subsidy" for the GSM 102 program – cannot be 
credited.  The original "subsidy" estimate is made we ll before virtually any activity in the program has 
occurred in the fiscal year and begins with a histor ically overly-optimistic proj ection of actual use of 
the program.  The requirement to use government-w ide estimation rules – including mandated risk 
assessment country grades – without regard to th e actual experience specific to the CCC export credit 
guarantee programs routinely results in initial overes timation of both utilization of the programs and a 
corresponding overestimation of gua ranteed loan subsidy estimates. 
 8. There is also no textual basis for Brazil's suggestion that an appropriate method of assessing 
"benefit" under Article 1.1(b) of the SCM Agreement  is simply to compare fees of different 
guarantees, and it ignores the myriad reasons why f ees might be different for different guarantees.  A 
difference in fees does not necessarily reflect that any "benefit" is being conferred.  Brazil's comparison of GSM 102 fees to Ex-Im Bank fees is flawed, all the more so given that Brazil has not even taken into account other guarantees available in the marketplace. 
 
9. – The United States has not provided ex port credit guarantees under the GSM 102 
program inconsistently with Articles 10.1 and 8 of the Agreement on Agriculture .  Article 10.1 of 
the Agreement on Agriculture  prohibits the provision of export s ubsidies (other than those listed in 
Article 9.1) "in a manner which results in, or whic h threatens to lead to, circumvention of export 
subsidy commitments."  While Article 1(e) of the Agreement on Agriculture defines "export 
subsidies" as "subsidies contingent upon export perfo rmance," there is no further elaboration as to the 
kinds of measures that meet this definition.  Acco rdingly, the panel in the original proceeding found 
that the SCM Agreement
 – which also includes provisions dealing with export subsidies – could 
provide useful "contextual guidance."  The fact that the GSM 102 export credit guarantees are not export subsidies within the meaning of item (j) is relevant to the question under the Agreement on  WT/DS267/RW 
Page A-11 
 
 
Agriculture , and supports a finding that GSM 102 guarantees are not export subsidies for purposes of 
Articles 8 and 10.1 of that Agreement.  10. – The United States has "taken action" to withdraw the subsidy with respect to 
GSM 102, GSM 103, and SCGP export credit guarantees issued prior to 1 July 2005.   There are 
no export credit guarantees "still outstanding" under th e SCGP program.  To the extent there are any 
export credit guarantees outstanding under the GSM 102 and GSM 103 programs, the United States 
has "taken action" with respect to them by changing the cost and fee structure of the entire portfolio of 
programs of which they are part.  The United Stat es ceased to provide "export credit guarantee . . . 
programs at premium rates which are inadequate to  cover the long-term operating costs and losses of 
the programs" and, thus, withdrew the subsidy with respect to these export credit guarantees 
regardless of when they were issued.  11. Actionable Subsidies – Brazil fails to substantiate its arguments that the effects of 
eliminating the Step 2 program are "relatively modest."   Brazil fails to substantiate its claims that 
the elimination of the Step 2 program is insufficient to meet the U.S. obligation "to remove the 
adverse effects [of]" the subsidy found to cause seri ous prejudice in the original proceeding.  Brazil's 
primary argument is that the counter-cyclical paymen t rate will increase due to a drop in U.S. farm 
prices following elimination of the Step 2 program .  However, Brazil cannot show that this will 
happen in the current marketing year ( i.e., in the year that is relevant for Brazil's "present" serious 
prejudice claims).  To the contrary, the season average farm price is projected to be below the 
marketing loan threshold of 52 cents/lb in the cu rrent marketing year (and would likely have been 
below the threshold even if the Step 2 program were  in effect).  In these ci rcumstances, the marketing 
loan rate – and not the season average farm price – is factored into the calculation of the counter-
cyclical payment rate and no drop in the season averag e farm price (whether due to elimination of the 
Step 2 program or any other reason) will result in any change in the counter-cyclical payment rate.  
Moreover, even in future years, any possible increase is likely to be small and less than the price 
effect of the elimination of the Step 2 program.   12. Brazil also fails to explain that elimin ation of the Step 2 program likely has caused lower  
marketing loan program payments because of a resulti ng increase in world prices and, thus, also in the 
adjusted world price (or "AWP") that is calculat ed on the basis thereof.  Since marketing loan 
payments are calculated as the difference between  the AWP and the 52 cents/lb marketing loan 
threshold, an increase in the AWP results in a concurrent decrease in payments under the marketing 
loan program.  Thus, elimination of the Step 2 program is likely to minimize  any adverse effects that 
Brazil claims are being caused by the marketing loan program.  Any positive effect of reducing the 
amount of marketing loan payments, in turn, further amplifies the impact on the market of eliminating 
the Step 2 program. 
 13. In addition, Brazil argues that the effect of  eliminating the Step 2 program is allegedly 
"relatively modest" because the program is smaller in size than the counter-cyclical payment program 
and marketing loan program.  However, Brazil has acknowledged before that the focus of the serious 
prejudice analysis is on the effect of the challenged subsidy, not its size (and that size does not 
necessarily say anything about effect).  Indeed, in the original proceeding, Brazil considered that the 
Step 2 program had the second largest impact on world prices and exports, even though payments 
were smaller under that program than others.  Braz il also ignores its own earlier arguments that the 
"production effects" of the Step 2 program are onl y one way in which, in Brazil's view, Step 2 
payments could have affected world market prices.  Brazil fails to take into account the other effects it 
alleged in the original proceeding, including the alleged "export-enhancing" nature of the program.  
Moreover, to the extent that it is even possible to dr aw conclusions from the data available for the first 
three months of MY 2006, the data do not appear to  support Brazil's conclusion that elimination of the 
Step 2 program has had "relatively modest" e ffects on production, exports, and world prices. 
 WT/DS267/RW  
Page A-12  
 
14. Brazil does not demonstrate that the marketing loan or counter-cyclical payment 
program mandate a breach of U.S. obligations under Articles 5(c) and 6 of the SCM Agreement .  
Brazil appears to be challenging, as such, the U. S. marketing loan and counter-cyclical payment 
programs , which the United States understands to be th e legal/regulatory provisions for the grant or 
maintenance of the subsidies.  As Brazil has r ecognized both in this dispute and others, it is 
established under WTO law that a Member can only challenge measures of another Member per se  
(i.e., "as such") if such measures mandate a viola tion of the WTO Agreement.  Brazil has not shown 
that the legal/regulatory provisions for the grant or maintenance of marketing loan and counter-
cyclical payments mandate a breach of Articles 5(c) and 6.3(c) or 6.3(d) of the SCM Agreement . 
 
15. Brazil fails to make a prima facie  case of WTO-inconsistency under Articles 5(c) 
and 6.3(c) of the SCM Agreement.   Brazil fails to make a prima facie  case that "the effect" of the 
marketing loan and counter-cyclical payment progr ams is "significant price suppression" within the 
meaning of Article 6.3(c) of the SCM Agreement .  That is, therefore, not a basis for a finding of 
serious prejudice within the meaning of Article 5(c) of the SCM Agreement . 
 
16. – Evidence regarding the structure, design, and operation of the counter-cyclical and 
marketing loan payment programs do not support Brazil's claims.   Although Brazil asserts that 
"the nature" of the counter-cyclical payment program , in terms of its struct ure, design and operation, 
provides evidence of a causal link between the pr ogram and the alleged present "significant price 
suppression," Brazil fails to take into account the recent empirical research finding that there is no 
evidence that counter-cyclical paym ents are the cause of any signifi cant changes in plantings.  This 
empirical research was not available at the time the original panel reviewed the counter-cyclical 
payment program.    17. There also continues to be substantial evid ence showing that decoupled payments, such as 
counter-cyclical payments, are capitalized into land values and land rents.  Where land is rented – and 
the data show that a substantial portion (almost half) of all U.S. fa rmland was rented in 2005 – some 
amount of the value of decoupled payments is tran sferred from operators (to whom the payments are 
actually made) to the owners of base acres in the form of higher rents and sales values, thereby minimizing further any possible effects that counte r-cyclical payments may have on production.   
 
18. The empirical research regarding the mini mal production effects of the counter-cyclical 
payment program is bolstered by data that show that traditional U.S. cotton farms receiving cotton 
counter-cyclical payments planted approximately 40 percent fewer cotton acres  over MY 2002-2005 
than they had in the period used to  calculate cotton base acres.  This decline in cotton planted acres on 
traditional U.S. cotton farms reflects the fact that other factors, such as weather and competing crops 
drive planting, not counter-cyclical payments. 
 19. In the case of marketing loan payments, Br azil has acknowledged (throug h its economist) that 
whether marketing loan payments have  any effect on production depends on, inter alia , producers' 
expectations at the time of planting  both as to prices for the harvested crop and of payments.  Despite 
this, to support its arguments about the effects of  the marketing loan program, Brazil points to data 
showing that the actual AWP rates in MY 1999-present have been below the loan rate in a number of 
years.  Since farmers did not know at the time of planting what the 
actual  AWP would be during the 
marketing year commencing up to seven months later, however, a comparison of the actual  AWP to 
the loan rate says nothing about whether th e marketing loan program actually affected 
farmers' planting decisions from MY 1999 to the pre sent.  An examination of the planting decisions 
made by U.S. producers in the light of the actual c onditions as they existed as of the time of planting 
shows that in many of the marketing years sin ce MY 1999 – including the present marketing year 
(MY 2006) – expected prices were higher than the loan rate .  Under these conditions, it cannot be 
said that the marketing loan distorted U.S. produc ers' production decisions.  Even in other years, 
however – in which marketing loan payments co uld possibly have had an effect on planting –  WT/DS267/RW 
Page A-13 
 
 
information about actual planting decisions show that th ey were, in fact, shaped by market factors, not 
the expectation of marketing loan payments.  20. Brazil's emphasis on what it terms variously th e "large," "very large," "huge," and "massive" 
government outlays under the marketing loan and count er-cyclical payments programs is misplaced.  
The size of government outlays alone says nothing about  their effect, if any, on world market prices.  
Moreover, Brazil's allegations of the "advantag e" given by the counter-cyclical payment and 
marketing loan payment programs to U.S. producers and exporters to lower their prices and increase 
their market share are unsubstantiated and do not support Brazil's claim of significant price suppression. 
 
21. – The facts demonstrate that U.S. producers  and exporters have reacted to market 
signals and are not "insulated" by the market ing loan and counter-cyclical payment programs.   
The facts do not support Brazil's argument that th e marketing loans and counter-cyclical payment 
programs "fuel" plantings and pr oduction by "insulating" U.S. producers and exporters from normal 
market signals.  To the contrary, U.S. share of world production has been stable over the life of the 
FSRI Act.  This reflects the fact that U.S. production has increased and decreased in much the same 
way as production elsewhere in the world.  Similarly, U.S. share of world exports has been stable over 
the life of the Farm Security and Rural Investment  Act of 2002 ("the FSRI Act").  Even the increase 
in U.S. share of world market exports that o ccurred between MY 1999 and MY 2002 is the result of 
market conditions (primarily, the decline in U.S. mill use and corresponding increase in consumption 
elsewhere), not "the effect" of the counter-cyclical  payment and marketing loan payment programs.  
Thus, neither U.S. production nor U.S. export beha vior supports the claim that U.S. producers and 
exporters are insulated from market forces as Brazil alleges.  22. Contrary to Brazil's assertions, Brazil do es not demonstrate a "strong link" between the 
counter-cyclical payment and marketing loan paym ent programs, on the one hand, and world market 
prices, on the other, through its attempts to show the absence  of a "link" between "prices" and U.S. 
planted acreage, production, and exports.  Brazil's ar gument about the absence of such a link seems to 
be inconsistent with its arguments elsewhere that  the U.S. market is the "single most important 
market" in influencing cotton prices.  Moreover, Brazil's analys is of the sensitivity of U.S. planted 
acreage, production, and exports to prices is flawed.   
 
23. First
, Brazil's comparison of planted acreage to New York futures prices for cotton alone 
ignores the fact that the cotton futures prices is not the sole basis for a farmer's planting decision; 
other factors including, inter alia , the futures prices of competing cr ops are important considerations.  
Second , Brazil's comparison of U.S. upland cotton production to actual prices  again assumes, 
incorrectly, that planting decisions could be explai ned through an examination of cotton prices alone.  
It also assumes incorrectly that U.S. farmers know at the time that they plant (in January-March of a 
given year) what the actual farm price will be in  the upcoming marketing year, which does not even 
start until August.  Third , Brazil's comparison of upland cotton e xports and farm price fails to take 
into account the market conditions – for example, important developments in the U.S. textile and 
apparel industry – that were responsible for the ch anges in U.S. export patterns in the period MY 1998 
to 2002.  It also fails to address the fact that since the FSRI Act came into effect , U.S. share of world 
exports has been fairly stable, showing that U.S. exporters have reacted to market conditions in the 
same general way as foreign exporters.  24. – "Absolute" increases in U.S. production are "t he effect" of improvements in yields, not the 
marketing loan and counter-cyclical payment program s.  Brazil argues erroneously that an increasing 
"absolute " volumes of U.S. production of upland cotton from MY 2002-2005 are indicative of alleged 
trade-distortive effects of the U.S. marketing loan and counter-cyclical payment program.  The 
increasing absolute  volumes of production were the result of record U.S. yields  in the period from 
MY 2002 though 2004, not the counter-cyclical paym ent and marketing loan payment programs.  WT/DS267/RW  
Page A-14  
 
There is no basis for Brazil's argument that any increase due to yield improvements should 
nonetheless be attributed to the counter-cyclical payment and marketing loan payment programs. 
 25. – Brazil fails to demonstrate a "temporal coincidence" between marketing loan 
payments and counter-cyclical paymen ts and the alleged price suppression.   Contrary to Brazil's 
assertions, it does not identify facts that "reinforce"  the original panel's finding of a discernable 
temporal coincidence between U.S. subsidies and pr ice suppression.  Instead, consideration of each of 
the factors reviewed by the original panel in coming to this conclusion demonstrate that there is no such temporal coincidence now.  First
, U.S. planted acreage has been stable for the entire period that 
the FSRI Act has been in effect and is lower no w than in the period examined in the original 
proceeding; there has been no "overall increase" in pl antings similar to that observed by the panel in 
the original proceeding.  Second , U.S. share of production has not increased over the period of the 
FSRI Act, as it appeared to do between MY 1998 and MY 2002, the period examined by the original 
panel.  Third , the U.S. prices received by U.S. upland cotton producers have not decreased since the 
FSRI Act came into effect.  Fourth , while the A-Index in MY 2002-2005 was lower than the 
1980-2001 average, this is not evidence of price suppression .  Moreover, the fact that the A-Index has 
trended downwards for more than 25 years – from well before the FSRI Act came into effect – and 
that the A-Index has gone up from the levels that prevailed before  the FSRI Act came into effect 
would tend to suggest that, to the extent there is any price suppression , it is not "the effect" of the 
marketing loan and counter-cyclical payment programs.  Fifth , while the absolute volume of U.S. 
exports went up over the period of the FSRI Act, U.S. share of world exports did not increase.  This 
shows that U.S. export behavior is shaped by the same market forces that  shape the behavior of 
foreign producers and exporters, not by "U.S. subsidies."  Sixth , there have been low levels of U.S. 
cotton imports for decades; this has little to do with the programs under the 2002 FSRI Act.  In short, 
none of these factors support a finding of a "temporal coincidence" now with respect to the marketing 
loan and counter-cyclical payment programs. 
 
26. – Brazil does not demonstrate that U.S. pr oducers would "switch to alternative crops" 
in the absence of payments under the marketing loan and counter-cyclical payment programs.   
Brazil fails to show that "but for" the marketi ng loan and counter-cyclical payment programs, many 
upland cotton producers would have had to disc ontinue growing upland cotton and switch to 
alternative crops.  Brazil's argument is based on the incorrect assumption that decisions about whether 
to plant cotton or an alternative crop are made  by reference to the "long-term total costs of 
production" of upland cotton.  That assumption is inconsistent with the accepted principle in 
agricultural economics that the measure producers use when deciding what crops to grow is variable 
costs of production, not "long-term total costs of pr oduction."  The data show that, in the period 
MY 2002 to 2005, U.S. producers have not only covere d variable costs but in almost all years have 
covered most if not all of their total costs of growing cotton as well.   
 27. Total costs may be relevant, for example, to such long-term decisions as whether to continue 
or exit cotton farming.  However, those decisions  are not made on the basis of a segmented cotton-
only analysis of costs and returns that Brazil presen ts in its first written submission.  Rather, those 
types of whole-farm decisions will be made taking into consideration whole-farm costs and returns, 
including, for example, costs and revenue generate d from other crops that have been (or may be) 
grown as well as off-farm revenues.  Brazil has provided no analysis of whole farm costs and revenues that would support its conclusion that, absent payments under the marketing loan and 
counter-cyclical payment programs, certain cott on producers in the United States would exit cotton 
farming altogether. 
 
28. Brazil's analysis also ignores entirely the s ubstantial number of producers who do not receive 
payments.  Moreover, Brazil does not address the possi bility that any exit of high-cost U.S. producers 
would be offset by the expansion of the productio n of more efficient lower-cost U.S. producers, 
leaving U.S. plantings and production at the same levels overall. 
  WT/DS267/RW 
Page A-15 
 
 
29. – Brazil attempts to attribute the price effect s of other factors to the marketing loan and 
counter-cyclical payment programs.   Brazil's claim that the U.S.  marketing loan and counter-
cyclical payment programs are "fueling" U.S. planting, production, and exports and thereby 
significantly suppressing world market prices is also premised on an overly-simplistic view of the 
world cotton market.  Brazil ignores – and, in fact, attempts to attribute to the marketing loan and 
counter-cyclical payment programs – the effects of ot her factors, including, importantly, China's trade 
in cotton.  While Brazil fails to provide evidence th at the United States "drives" world market prices 
for upland cotton, there is substantial evidence of  a close correlation between China's net trade in 
cotton and the A-Index.  Thus, contrary to Braz il's assertions, the United States is not the most 
important market influencing cotton prices throughout the world, nor the "driver" of the world market 
price.  Brazil's attempts to ascribe price-suppressive effects to the marketing loan and counter-cyclical 
payment programs on the basis of these repres entations – without properly addressing and 
distinguishing the effects of such other factors as th e impact of China's net trade and trade policies – 
are untenable.  
30. Indeed, what Brazil believes is the measure of  the "world price" itself – the A-Index – has 
been changed to reflect the importance of China in  the world cotton market.  The A-Index is now no 
longer calculated on the basis of prices of cotton delive red to Northern Europe.  Rather, the A-Index is 
now calculated on the basis of cotton delivered to Far East ports .  This is not a mere "technical 
change," as Brazil alleges.  The fact that such a shift was necessary to a llow proper measurement of 
"international cotton price movements" and that this shift was driven primarily by the impact on the 
market of a single country – China – confirms what  the market reports overwhelmingly recognize: the 
price trends for upland cotton cannot be explaine d except by accounting for China's influence on the 
market.  31. Moreover, contrary to Brazil's assertions, downward pressure on prices results from 
uncertainty about the reliability of China' s supply and demand statistics as well as ad hoc  changes in 
government policies.  Uncertainty leads to increa sed price volatility and risk to world market 
participants.  These effects are reflected in prices.  This is even confirmed by the market reports that 
Brazil itself submits.  32. – The econometric modeling cited by Brazil is flawed and greatly exaggerates any effects 
of removing the programs.   Even based on a preliminary revi ew of the econometric model submitted 
by Brazil, it is apparent that the model relies on a series of flawed economic assumptions that grossly overstate any possible effect of removing the market ing loan and counter-cyclical payment programs.  
Contrary to Brazil's assertions, the important parame ters used in the model are not commonly used by 
U.S. Department of Agriculture ("USDA") or Food and Agricultural Policy Research Institute 
("FAPRI") economists.  Indeed, the parameters in Br azil's new model are even more exaggerated than 
the parameters used in what Brazil termed was th e "FAPRI-like" model presented in the original 
proceeding.  Brazil now ascribes to the marketing loan and counter-cyclical payment programs almost 
the same price effects that it had previously ascribed to six programs (the marketing loan and counter-
cyclical payment programs plus four others).  The marketing loan and counter-cyclical payment 
programs have not changed; what has changed are the assumptions that Brazil makes to produce the 
more egregious effects. 
 33. The United States demonstrates that, when cer tain "key elasticities" and some other basic 
assumptions are re-calibrated to actually  reflect FAPRI and other well- established parameters, the 
price effects predicted by Brazil's new model de cline sharply (ranging, for example, from only 
0.96 percent to 1.52 percent over the period MY  2006-2008).  More detailed analysis and re-
calibration would presumably reduce the price effect s even more.  Both this model and the World 
Bank study to which Brazil also cites greatly ex aggerate any possible impact of removing the 
marketing loan and counter-cyclical payment programs.  They are, thus, also inconsistent with other 
recent studies showing only minimal price impacts from removing those programs. 
 WT/DS267/RW  
Page A-16  
 
34. – Brazil has not demonstrated that "the effect" of the marketing loan and counter-
cyclical payment program is "significant" price suppression.   T h e  SCM Agreement  does not 
define "significant" price suppression.  The ordinary meaning of significant, however, is "important, notable; consequential," which suggests that any pr ice suppression must reach a level at which it is 
important, notable, and consequentia l in order to be inconsistent with Article 6.3(c).  Brazil does little 
more than cite back to the same arguments it ma kes in its causation discussion to attempt to show 
"significant" price suppression.  In so doing, Brazil effectively writes "significant" out of Article 6.3(c) altogether.  Brazil does not explain how any of the arguments it makes in its causation 
discussion demonstrate that the degree of the alleged price suppression is "important, notable; 
consequential." 
 
35. – Brazil fails to make a prima facie  case of WTO-inconsistency under Articles 5(c) 
and 6.3(d) of the SCM Agreement .  Brazil fails to make a prima facie  case that the United States is 
causing "serious prejudice" to Brazil's interests within the meaning of Articles 5(c) of the 
SCM Agreement  because "the effect" of U.S. marketing loan and counter-cyclical payment programs 
under the FSRI Act is an increase in the U.S. world ma rket share within the meaning of Article 6.3(d) 
of the SCM Agreement .  Even leaving aside the lack of lega l basis for Brazil's claims against the 
programs, as such, Brazil does not demonstrate that all of the elements of Article 5(c) and 6.3(d) are satisfied.    36. In the original proceeding, the panel interpre ted "world market share" under Article 6.3(d) to 
mean "share of the world market supplied by th e subsidizing Member of the product concerned."  
Brazil has proposed two different measures of "suppl y" – either production in a marketing year or 
production plus beginning stocks in a marketing year.  It is not necessary for the Panel to decide, for 
purposes of this proceeding, which is the more appropriate measure because Brazil's claim fails under 
either approach .  First
, while Brazil asserts its cl aim in respect of MY 2005, Brazil fails to segregate 
from the adverse effects it alleges any effects of the Step 2 program.  Second , Brazil fails to 
demonstrate that the slight increase in share of world production or productio n plus beginning stocks 
over the average share in MY 2002-2004 "follows a consistent trend over a period when subsidies 
have been granted."  To the contrary, the data show cl early that it is a part of the ordinary fluctuations 
in U.S. share of world production.  This is true no matter how far back in ti me one looks.  There is, 
therefore, no basis for Br azil's claim under Articles 5(c) and 6.3(d) of the SCM Agreement . 
 
37. Requests For Preliminary Rulings – Brazil's claims relating to GSM 102 guarantees in 
respect of exports of pig meat and poultry me at are outside the scope of this proceeding.   
GSM 102 guarantees in respect of exports of pig meat  and poultry meat have never been found to be 
WTO-inconsistent nor been subject to any DSB recommendation.  Under these circumstances, the 
GSM 102 guarantees in respect of exports of pig meat and poultry meat are not measures taken to 
comply with the recommendations and rulings of th e DSB and are not measures within the scope of 
this proceeding.  Further, Brazil's claims under Articles 10.1 and 8 of the Agreement on Agriculture  
and Articles 3.1(a) and 3.2 of the SCM Agreement  are outside the scope of this proceeding to the 
extent that they relate to GSM 102 guarantees in respect of exports of pig meat and poultry meat.  
There is no merit to Brazil's argument that it is entit led to re-assert its claims in respect of these GSM 
102 guarantees because it "successfully appealed" the panel's findings regarding the GSM 102 
guarantees in respect of exports of pig meat and poultry meat.  Even though the original panel's 
findings were reversed, that changes nothing about th e fact that the Appellate Body did not complete 
the legal analysis and, thus, made no finding of  WTO-inconsistency against the measures (and the 
DSB also issued no rulings and recommendations addressed to them).  
 
38. – Brazil's claims in respect of the marketing loan and counter-cyclical payment 
programs are outside the scope of this proceeding.   To the extent that Brazil's claims of serious 
prejudice and threat of serious prejudice are against the marketing loan and counter-cyclical payment programs under the FSRI Act, the claims are outside the sc ope of this proceeding.  The original panel 
made only one actionable subsidy finding – with respect to Brazil's claim of "present" serious  WT/DS267/RW 
Page A-17 
 
 
prejudice under Articles 5(c) and 6.3(c) of the SCM Agreement against certain payments made in MY 
1999-2002.  The marketing loan and counter-cyclical payment programs were not subject either to a 
finding of WTO-inconsistency or any DSB rulings and recommendations.  They are, therefore, not 
measures within the scope of this proceeding.  Moreover, Brazil's claims relating to these programs under Articles 5 and 6 of the SCM Agreement are not within the scope of this proceeding. 
 
39. – Brazil's claims against the marketing loan  program and the counter-cyclical program 
are outside the scope of this dispute because these measures were not "taken to comply" under 
DSU Article 21.5.   Brazil's claims against the marketing loan and counter-cyclical payment programs 
are also outside the scope of these proceedings because the programs have not been changed in 
response to DSB recommendations and rulings or othe rwise.  Brazil may not renew in an Article 21.5 
proceeding claims made in the original proceeding ag ainst a measure which is the same measure as in 
the original proceeding.  In the present case, Brazil may not raise again the claims of serious prejudice 
or threat of serious prejudice under Article 5(c) and 6.3(c) and (d) of the SCM Agreement  against the 
marketing loan payment program and the counter-cyc lical program.  These claims are outside the 
scope of this Article 21.5 proceeding. 
 40. – Brazil's claims that there were no measures ta ken to comply in a past period are not 
within the scope of the proceeding.   Brazil claims that the United St ates failed to take measures to 
comply with the DSB's actionable subsidy-related recommendation in a timely fashion and seeks a finding that there was a period in the past (21 September 2005 to 31 July 2006) in which no measure 
taken to comply existed.  However, as Brazil does not dispute that measures taken to comply exist, 
there is no "disagreement" (as required by Article 21.5) over the "existence" of measures taken to comply.  There is also no textual basis for an ex ercise such as the one Brazil is seeking and it would 
seem contrary to the statement in DSU Article 3.7 that "the aim of the dispute settlement mechanism 
is to secure a positive solution to a dispute."  Thus , Brazil's claim that there were no U.S. measures 
taken to comply between 22 September 2005 and 31 July 2006 is not within the scope of this 
proceeding. WT/DS267/RW  
Page A-18  
 
ANNEX A-3 
 
THIRD PARTY SUBMISSION OF ARGENTINA 
 
(5 January 2007) 
 
 
 
TABLE OF CONTENTS 
 
Page  
I. INTRODUCTION ..................................................................................................................1 9 
II. ARGUMENTS ...................................................................................................................... ..19 
A. DEFICIENCY OF THE UNITED STATES ' MEASURES REGARDING ACTIONABLE 
SUBSIDIES ............................................................................................................................... ..19 
B. INADEQUACY OF THE UNITED STATES ' MEASURES REGARDING PROHIBITED 
SUBSIDIES ............................................................................................................................... ..20 
III. CONCLUSION ..................................................................................................................... ..21 
  WT/DS267/RW 
Page A-19 
 
 
I. INTRODUCTION 
 1. Argentina is grateful for this opportunity to give  its views as a third party in this dispute.  It 
will be making a series of comments on some of the arguments put forward by Brazil and the United States in their respective written submis sions of 7 November and 15 December, without 
prejudice to any further comments at the meeting of  the Panel with the parties and third parties. 
 
2. Argentina will be referring to th e following matters in particular: 
 
(a) Deficiency of the measures taken by the United States to implement the DSB's 
recommendations and rulings rega rding the actionable subsidies
 found to be 
inconsistent with the WTO Agreements. 
 
(b) Inadequacy of the measures taken by the United States to implement the DSB's 
recommendations and rulings rega rding the prohibited subsidies  found to be 
inconsistent with the WTO Agreements. 
 
II. ARGUMENTS 
 A. D
EFICIENCY OF THE UNITED STATES ' MEASURES REGARDING ACTIONABLE SUBSIDIES  
 
3. Argentina agrees with Brazil that the Unite d States has not fulfilled its obligation under 
Article 7.8 of the SCM Agreement in respect of the price-contingent subsidy programmes for upland 
cotton implemented under the Farm Security and Ru ral Investment (FSRI) Act of 2002, since the 
programmes have been neither withdrawn nor significantly changed. 
 
4. Argentina agrees with Brazil that the measures ta ken by the United States are deficient in that, 
although the user marketing (Step 2) payments progr amme has been repealed, the marketing loan and 
counter-cyclical payments programmes remain intact. 
 5. In this regard, a recent document of the C ongressional Research Service is enlightening in its 
statement that "... additional permanent modificati ons to US farm programs may still be needed to 
fully comply with the 'actionable subsidies' portion of the WTO ruling."
1 
 
6. Brazil produced conclusive evidence that  the marketing loans and counter-cyclical 
programmes continue to have a dverse effects on the interests of Brazil and other cotton-producing 
countries, such as Argentina, in the form of seri ous prejudice caused by significant price suppression. 
 
7. Furthermore, following Brazil's assertion that  withdrawal of the Step 2 programme could 
result in higher payments under the marketing loan  and counter-cyclical programmes, in July 2005 
Keith Collins, Chief Economist of the USDA, suggest ed that "... ending the Step 2 program would 
result in slightly lower domestic prices – by tw o to three cents per pound – and higher export prices 
for US cotton.  […] that declines in producer prices would be lik ely to trigger an increase in counter-
cyclical payments (CCP) to US cotton farmers that would offset losses from lower prices".2 
 
8. Consequently, Argentina is of the view that  the United States is not implementing the DSB's 
recommendation regarding the measures identified as actionable subsidies. 
                                                      
1 Congressional Research Servi ce, RS22552, December 11, 2006, "A gricultural Issues in the 110th 
Congress", Ralph M. Chite, Specialist in Agricultural Policy Resources, Science, and Industry Division. 
2 Congressional Research Service, RS22187, Septembe r 8, 2006, "U.S.  Agricultural Policy Response 
to WTO Cotton Decision".  Randy Schnepf Specialist in  Agricultural Policy Resources, Science, and Industry 
Division. WT/DS267/RW  
Page A-20  
 
B. I
NADEQUACY OF THE UNITED STATES ' MEASURES REGARDING PROHIBITED SUBSIDIES  
 
9. In its written submission3, the United States asserts that export credit guarantees have been 
provided under the GSM-102 programme subsequent to 1 July 2005, consistently with the 
United States' WTO obligations.  
 10. Argentina demurs:  as Brazil held
4, the United States' "measures taken to comply" fail to 
implement adequately the recommendations and rulings of the DSB. 
 
11. Argentina would point out that the original Panel found (and its finding was later confirmed 
by the Appellate Body) that the export cred it guarantee programmes maintained by the US 
Commodity Credit Corporation (CCC) – the Gene ral Sales Manager 102 (G SM-102), General Sales 
Manager and the Supplier Credit-Guarantee (SCGP)  programmes (GSM-103) – pertaining to exports 
of upland cotton and other agricultural products not included in the Schedule of Commitments 
supported under the programmes and one scheduled co mmodity (rice), are export subsidies applied in 
a manner which results in circumvention of the Un ited States' export subsidy commitments within the 
meaning of Article 10.1 of the Agreement on Agricultur e, and are therefore inconsistent with Article 8 
of that Agreement.  The Panel further found that such programmes constitute per se  export subsidies 
prohibited by Article 3.1(a) and 3.2 of the SCM Agreement. 
 
12. On the strength of those findings the DSB recommended that the United States withdraw the 
prohibited subsidies without delay  in accordance with Article 4.7 of the SCM Agreement, and by 
1 July 2005 at the latest. 
 
13.  Argentina's first observation is that alt hough the United States was under an obligation to 
withdraw them "without delay" the programmes were still intact at 1 July 2005.  Furthermore, the 
GSM-102, GSM-103 and SCGP programmes have still not been withdrawn in the strict sense of the 
term. 
 
14. It is Argentina's understanding that, properly construed, the rule in question requires the 
United States not only to "withdraw" the prohibited subsidies but also to take steps to that end 
"without delay";  so for the obligation here, fulfilmen t is subject to a time factor.  Argentina therefore 
believes that the time taken to implement "wit hdrawal" of the measure cannot be overlooked in 
assessing compliance with the above-mentioned requirements. 
 
15. Secondly, Argentina points out that despite the DSB's recommendations and the provisions of 
Article 4.7 of the SCM Agreement, as con cerns the GSM-103 and SCGP programmes the 
United States merely announced that no more a pplications would be accepted under the programmes 
as from 1 July 2005 and 1 October 2005 respectively.  In Argentina's view, to stop there would be a 
lowering of standards in terms of the obligation laid down in Article 4.7 of the SCM Agreement 
which expressly prescribes "withdrawal" of the measure and not merely "non-acceptance of new applications", which appears to be the United Stat es' interpretation judging from its assumption that 
by not accepting new applications it would be comply ing with the above-mentioned rule and with the 
DSB's recommendations.
5 
 
16. In Argentina's view, the negative consequences of allowing that assumption need to be 
stressed, since the prohibited subsidy still exists an d so too, therefore, does its inconsistency with 
WTO rules. 
 
                                                      
3 First Written Submission of the United States, point V.A. (page 30). 
4 First Written Submission of Brazil, point 10 (page 130).  
5 First Written Submission of the United States, pages 2, 8 and 66.  WT/DS267/RW 
Page A-21 
 
 
17. The Appellate Body's observation in Brazil – Aircraft  (Article 21.5 – Canada) is enlightening 
in this regard: 
 
"Turning to the ordinary meaning of 'withdraw al', 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 suggests that 'withdrawal' of a subsidy, under 
Article 4.7 of the SCM Agreement , refers to the 'removal' or the 'taking away' of that 
subsidy. ... In our view, to continue to  make payments unde r an export subsidy 
measure found to be prohibited is not cons istent with the obligation to 'withdraw' 
prohibited export subsidies, in the sense of 'removing' or 'taking away'".6 
18. In Argentina's view, it needs to be made clear that although in the dispute cited above 
payments continued to be made under an export s ubsidy measure found to be prohibited and in the 
present dispute the United States has announced that  it will not continue to grant export credit 
guarantees, this does not exempt the United States from complying properly and without delay with 
the obligation laid down in Article 4.7 of the SCM Agreement. 
 19. In short, for Argentina, withdrawal of  the measure as meant by the Panel in its 
recommendation implies terminating the programme
 and not merely suspending payments or refusing 
new applications. 
 20. Thirdly, Argentina agrees with Brazil that th e changes introduced by the United States in the 
GSM-102 programme are insufficient to comply with the Panel's recommendation to withdraw  the 
prohibited subsidies without delay , and are moreover inconsistent  with Articles 10.1 and 8 of the 
Agreement on Agriculture and Article 3. 1(a) and 3.2 of the SCM Agreement. 
 21. The GSM-102 programme constitutes a "finan cial contribution" "contingent upon export 
performance" which confers a "benefit" on the recipien ts, despite the changes in  rates introduced by 
the United States, as Brazil shows in its written submission.
7  Consequently, the GSM-102 
programme constitutes an export subsidy within th e meaning of Articles 1 and 3.1(a) of the SCM 
Agreement, circumvention of the United States ' reduction commitments under Article 10.1 of the 
Agreement on Agriculture in respect of upland cotton  and other unscheduled ag ricultural products and 
in respect of certain products in the Schedule of Commitments (particularly rice), as well as a breach 
of Article 8 of the Agreement on Agriculture. 
 
22. Furthermore, Argentina does not share the Un ited States' interpretation in its assertion that 
GSM-102 export loan guarantees are not export subsid ies under Articles 8 and 10.1 of the Agreement 
on Agriculture.8 
 23. Argentina accordingly considers that the United States is not complying with the DSB's 
recommendation to "withdraw without delay" the above-mentioned programmes identified as 
prohibited subsidies. 
 
III. CONCLUSION 
 
24. In the light of the foregoing, Argentina c onsiders that the United States has not fully and 
properly complied with the DSB's recommendations, pa rticularly:  (a) the recommendations regarding 
the actionable subsidies, because  the measures adopted are defici ent;  and (b) the recommendations 
regarding the prohibited subsidies, because the meas ures applied by the United States, are inadequate. 
                                                     
 
6 Report of the Appellate Body in Brazil – Aircraft  (Article 21.5 – Canada), paragraph 45. 
7 First Written Submission of Brazil, point 10.3.2.2.1. 
8 First Written Submission of the United States, point V.A.2. WT/DS267/RW  
Page A-22  
 
ANNEX A-4 
 
THIRD PARTY SUBMISSION OF AUSTRALIA 
 
(5 January 2007) 
  
 
TABLE OF CONTENTS 
 
 
Page
 
 TABLE OF CASES  
 23 
 
INTRODUCTION   24 
 A. S
COPE OF ARTICLE 21.5  PROCEEDINGS – REQUESTS FOR PRELIMINARY RULINGS   24 
 
1. Request relating to GSM 102 programme in respect of pig meat and poultry 
meat   25 
 2. Request concerning Brazil's claims against the marketing loan and 
counter-cyclical payment programmes  
 26 
 
3. Request concerning Brazil's claims that there were no measures taken to 
comply between 21 September 2005 and 31 July 2006   27 
 
B. C LAIMS CONCERNING EXPORT CREDIT GUARANTEES (EXPORT SUBSIDIES )   28 
 
C. C LAIMS CONCERNING ACTIONABLE SUBSIDIES   28 
 
CONCLUSION   30 
  
  WT/DS267/RW 
Page A-23 
 
 
TABLE OF CASES 
 
Short Title Full Case Title and Citation 
Australia – Salmon 
(Article 21.5 - Canada) Panel Report, Australia – Measures Affec ting Importation of Salmon – 
Recourse to Article 21.5 by Canada , WT/DS18/RW, adopted 20 March 
2000, DSR 2000:IV, 2031 
Brazil – Aircraft 
(Article 21.5 – Canada I) Appellate Body Report, Brazil – Export Financing Programme for 
Aircraft –Recourse by Canada to Article 21.5 of the DSU , 
WT/DS46/AB/R, adopted 4 August 2000, DSR 2000:VIII, 4067 
Brazil – Aircraft 
(Article 21.5 – Canada I) 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, as modified by the Appellate Body Report, WT/DS/46/AB/R, DSR 2000:IX, 4093 
Canada – Aircraft (Article 21.5 - Brazil)  Appellate Body Report, Canada – Measures Affecting the Export of 
Civilian Aircraft – Recourse by Brazil to Article 21.5 of the DSU , 
WT/DS70/AB/RW, adopted 4 August 2000, DSR 2000:IX, 4299 
Chile – Price Band 
System (Article 21.5 - 
Argentina) 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, 8 December 2006  
EC – Bed Linen 
(Article 21.5 - India) Appellate Body Report, European Communities – Anti-Dumping Duties 
on Imports of Cotton-Type Bed Li nen from India – Recourse to 
Article 21.5 of the DSU by India , WT/DS141/AB/RW, adopted 24 April 
2003, DSR 2003:III, 965 
Korea - Vessels Panel Report, Korea – Measures Affecting Trade in Commercial 
Vessels , WT/DS273/R, adopted 11 April 2005 
US – Softwood 
Lumber IV (Article 21.5 
– Canada) 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 
US – FSC  Appellate Body Report, United States – Tax Treatment for "Foreign 
Sales Corporations" WT/DS108/AB/R, adopted on 20 March 2000, 
DSR 2000:  III, 1619 
US – FSC (Article 21.5 – 
EC 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, 14 March 2006 
US – Shrimp 
(Article 21.5 - Malaysia) 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 
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R, adopted 21 March 2005 
US – 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 A-24  
 
INTRODUCTION 
 
1. Australia considers that these proceedings under Article 21.5 of the Understanding on Rules 
and Procedures Governing the Settlement of Disputes (DSU) raise a number of issues of systemic 
importance and legal interpretation, which Australia  will address in this written submission.  These 
issues are:   
 
(a) The scope of Article 21.5 proceedings, in  relation to the United States requests for 
preliminary rulings; 
 
(b) the order of analysis concerning Articles 1. 1 and 3.1(a) and item (j) of the Illustrative 
List of the Agreement on Subsidies and Countervailing Measures (SCM Agreement), 
in relation to the prohibited subsidies claims, including whether an a contrario 
interpretation of item (j) is permissible;  and  
 
(c) in relation to the actionable subsidies claims, whether the United States, by repealing 
the Step 2 payment programme, but mainta ining the two other price-contingent 
subsidies (payments under the marketing loan and counter-cyclical payment programmes), has taken appropriate steps to remove the adverse effects of the subsidies or to withdraw the subsidies, within the meaning of Article 7.8 of the 
SCM Agreement  in accordance with the recommendations and rulings of the Dispute 
Settlement Body (DSB) with respect to those subsidies .   
 
Australia reserves the right to raise other issu es in the third-party hearing with the Panel. 
 A. S
COPE OF ARTICLE 21.5  PROCEEDINGS – REQUESTS FOR PRELIMINARY RULINGS  
 
2. The United States, in its First Written Submis sion, requests a number of preliminary rulings 
that raise important systemic issues concerning the scope of Article 21.5 proceedings and require 
careful consideration of relevant jurisprudence of the Appellate Body and Article 21.5 Panels. 
 3. Australia recalls that Article 21.1 expr essly provides that "prompt compliance with 
recommendations or rulings of the DSB is essential in order to ensure effective resolution of disputes 
to the benefit of all Members."  Thus, one of the objectives of Article 21.5 is to "avoid a complaining 
Member having to initiate dispute settlement proceed ings afresh when an original measure found to 
be inconsistent has not been brought into confor mity with the recommendations and rulings of the 
DSB."
1  Australia submits that were the United States requests for preliminary rulings to be granted, 
Brazil would be forced to initiate dispute settlement  proceedings afresh in respect of claims which 
properly would fall within the scope  of these Article 21.5 proceedings. 
 4. Australia recalls that the scope of proceed ings under Article 21.5 is to determine "the 
existence or consistency with a covered agr eement of measures taken to comply with the 
recommendations and rulings" of the DSB.  The use of the disjunctive 'or' makes clear that 
Article 21.5 proceedings can address two different situ ations.  The first is the 'existence' of measures 
taken to comply with DSB recommendations and ruli ngs.  Accordingly, a panel may consider a claim 
that a Member has not taken measures to comply.  The second is the 'consistency' with a covered 
agreement of measures taken to comply with DS B recommendations and ruli ngs.  Accordingly, a 
panel may consider a claim that implementing measures taken by a Member are inconsistent with a 
covered agreement.
2 
 
                                                      
1 US - Softwood Lumber IV (Article 21.5 – Canada) , para. 72. 
2 See EC – Bed Linen (Article 21.5 - India), para. 79.  WT/DS267/RW 
Page A-25 
 
 
5. In considering the phrase 'measures ta ken to comply', the Appellate Body in Canada – 
Aircraft (Article 21.5 – Brazil)  expressed the view that: 
 
… the claims, arguments and factual circumstances which are pertinent to the "measure taken to comply" will not, neces sarily, be the same as those which were 
pertinent in the original dispute.  Ind eed, the utility of the review envisaged under 
Article 21.5 of the DSU would be seriously u ndermined if a panel were restricted to 
examining the new measure from the perspective of the claims, arguments and factual circumstances that related to the origin al measure, because an Article 21.5 panel 
would then be unable to examine fully the "consistency with a c overed agreement of 
the measures taken to comply", as required by Article 21.5 of the DSU.
3 
 6. Moreover, a Panel constituted under Artic le 21.5 of the DSU should consider the new 
measure "in its totality."
4  The fulfilment of this task requires that a panel consider both the measure 
itself and the measure's application provided that th e specific claim has been made by the complainant 
when the matter is referred by th e DSB for an Article 21.5 proceeding.5 
 7. The Appellate Body has identified situati ons where measures fall outside the scope of 
Article 21.5 proceedings.  It has held that:  
[i]t 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.
6 
 1. Request relating to GSM 102 programme in respect of pig meat and poultry meat  
8. Taking this jurisprudence into account, Aust ralia submits that Brazil's claims relating to 
General Sales Manager (GSM) 102 guarantees issued by the United States Commodity Credit Corporation in respect of exports of pig meat a nd poultry meat may properly be considered by the 
Panel. 
 
9. Australia does not agree with the United St ates' submission that because there is neither a 
finding that GSM 102 guarantees in respect of pig meat and poultry meat are WTO-inconsistent nor 
that they are the subject of a DSB recommendation, that Brazil's claims concerning the application of 
the new measure in respect of pig meat and pou ltry meat fall outside the scope of Article 21.5 
proceedings.
7 
 10.  The situation in the present case is not th at of a measure that was not challenged in the 
original proceedings or, if challenged, was address ed in those proceedings and not found to be WTO-
inconsistent.
8  The claim specifically made by Brazil in its request for establishment of this Panel 
relates to the WTO-consistency of a new meas ure – guarantees issued under the revised GSM 102 
                                                      
3 Canada – Aircraft  (Article 21.5 – Brazil) , para. 41.  See also  US - FSC (Article 21.5 – EC II),  
para. 93. 
4 US - Shrimp, (Article 21.5 - Malaysia) , para. 87. 
5 Ibid. 
6 EC –Bed Linen (Article 21.5 - India), para. 98. 
7 United States First Written Submission, paras. 27 and 28. 
8 Compare with Chile – Price Band System (Article 21.5 – Argentina) , in which the Panel, at 
para. 7.141, set out the conditions under which an Article 21.5 panel may consider new claims which were not 
raised before the original panel.   WT/DS267/RW  
Page A-26  
 
programme – the revisions to which, as the Un ited States acknowledges, were implemented in 
response to the rulings and recommendations of the DSB.
9  Brazil is entitled to request, and the 
Article 21.5 Panel is required to consider, the new measure in its totality, including the measure's 
application.  Thus, while Brazil alleges that it is  "entitled to re-assert" its claim concerning actual 
circumvention with respect to pig meat and poultry meat, in effect Brazil's claim relates to the WTO 
consistency of a new measure (the revised GSM 102 programme) implemented in response to the 
DSB rulings and recommendations which was not before the original panel.10 
 11. Australia therefore submits that the United Stat es' request that the Panel reject Brazil's claims 
relating to GSM 102 guarantees in respect of exports of pig meat and poultry meat should be refused. 
 
2. Request concerning Brazil's claims against the marketing loan and counter-cyclical 
payment programmes 
 
12. The United States also seeks a preliminary ru ling that Brazil's claims against the marketing 
loan and counter-cyclical payment (CCP) programm es fall outside the scope of the Article 21.5 
proceedings on two grounds – that the two prog rammes were not subject to any finding of 
WTO-inconsistency or any DSB recommendations, a nd those programmes were not "measures taken 
to comply" within the meaning of Article 21.5.  13. The United States argues that the marketing loan and the counter-cyclical payment 
programmes are not measures to which the DSB r ecommendations and rulings were addressed since 
those recommendations and rulings concerned th e programmes as applied and not as such, and 
therefore that Brazil's claims in relation to tho se programmes fall outside the scope of Article 21.5 
proceedings.    
14. Australia agrees that the Panel's findi ngs of WTO inconsistency contained in 
paragraph 8.1(g)(i) of its Report related to the "m andatory price-contingent  United States subsidy 
measures – marketing loan programme payments , user marketing (Step 2) payments, MLA 
[marketing loan assistance] payments and CCP payments" rather than to the programmes as such.
11 
 15. However, Australia does not agree with the Un ited States that Brazil is seeking to challenge 
the marketing loan and counter-cyclical payment programmes per se .  Australia is of the view that the 
focus of the case under Articles 5 and 6 of the SCM Agreement  is the continuing effects of the 
unamended programmes (that is, payments made unde r the programmes) rather  than the programmes 
as such.  Australia submits that it is impossible to an alyze the price-contingent subsidy measures 
(marketing loan programme payments and CCP paym ents) still in existence in isolation from the 
programmes that govern those measures.  In so far as a consideration of those programmes is 
necessary to determine whether the continuing pric e-contingent subsidy measures cause significant 
price suppression causing serious prejudice to Brazil's interests, then Australia submits that such programmes may properly be consider ed by the Article 21.5 Panel.   
 16. Australia further submits that the fact that the marketing loan and counter-cyclical payments 
programmes have not changed does not prevent them from being considered by an Article 21.5 Panel 
in the context referred to above, when determining the existence or consistency of measures taken to 
                                                     
 
9 United States First Written Submission, para. 72. 
10 Compare with Canada – Aircraft (Article 21.5 - Brazil),  paras. 36-37. 
11 In an exercise of judicial econo my, the Panel did not address Brazil's per se claims relating to the 
measures [allegedly mandatory legislative provisions an d implement regulations providing for the payment of 
Step 2 payments, marketing loan pr ogramme payments, direct payments, counter-cyclical payments and crop 
insurance payments] under Articles 5(c) and 6.3(c) and (d) of the SCM Agreement  and Articles XVI:1 
and XVI:3 of the GATT 1994 :  US – Cotton , para. 7.1511.  WT/DS267/RW 
Page A-27 
 
 
comply with the recommendations and rulings co ncerning payments made under those programmes 
(the measures at issue in the original proceedings).  17. Australia therefore submits that the United States' requests concerning the marketing loan and 
counter-cyclical payment programmes should be refused. 
 
3. Request concerning Brazil's claims that there were no measures taken to comply 
between 21 September 2005 and 31 July 2006 
 
18. The United States seeks a preliminary ruling to th e effect that Brazil's claims that there were 
no measures taken to comply in a past period (21 September 2005 to 31 July 2006) are not within the 
scope of these Article 21.5 proceedings.  The United States argues that "DSU Article 21.5 does not provide that the task of the Panel is to decide – or, rather, declare – whether measures were taken to 
comply 'in a timely fashion.' In fact, DSU Article 21.5 does not refer to the issue of "timeliness" of 
implementation at all."
12 
 
19. Australia notes that the role of an Article  21.5 Panel is to examine the existence or 
consistency of measures taken to co mply, and submits that an examination of "existence" of measures 
taken to comply can encompass a finding that no m easures taken to comply exist within the meaning 
of Article 21.5 of the DSU.  Such a finding was made by the Panel in Australia – Salmon (Article 21.5 
– Canada) .  In that case, the Panel found that because the date of entry into force of measures taken to 
comply by Australia occurred subsequent to th e date upon which the reasonable period of time for 
implementation expired, for the period of time that the new measures did not apply subsequent to that date, "no measures taken to comply ex isted … in the sense of Article 21.5."
13 
 20. Australia submits that a preliminary ruling ca nnot be granted in a way that would void rights 
under Article 22 of the DSU.  This is because  Article 3.2 of the DSU makes clear that 
"recommendations and rulings of the DSB cannot a dd to or diminish the rights and obligations 
provided in the covered agreements."  Pursuant to Article 1.2 of the DSU, the rules and procedures of 
the DSU, including those contained in Article 22 , apply to disputes brought under the covered 
agreements "subject to such special or additiona l rules and procedures on dispute settlement … as are 
identified in Appendix 2." Australia notes that both Articles 7.8 and 7.9 of the SCM Agreement are 
listed in Appendix 2 to the DSU as "special or a dditional rules and procedures" on dispute settlement 
contained in the covered agreements.  These Articl es do not preclude the application of Article 22 of 
the DSU.  Indeed, Article 22 rights would logica lly ensue from findings of inconsistency with 
Articles 7.8 and 7.9 of the SCM Agreement ,
14 which are findings that are entirely within the Panel's 
mandate to make.   
 
21. Australia therefore submits that the Panel s hould refuse the request of the United States for 
preliminary rulings with respect to Brazil's clai m concerning the United States' failure to take 
measures to comply within the period 21 Septem ber 2005 – 1 August 2006, as this could diminish 
Brazil's rights under Article 22 of the DSU.  
                                                     
 
12 United States First Written Submission, para. 51. 
13 Australia – Salmon (Article 21.5 - Canada) , para. 7.30. 
14 Australia notes that this position is consistent with the actions of both Brazil and the United States 
with respect to Brazil's request for authorization to take  countermeasures pursuant to Article 22.2 of the DSU 
and Article 7.9 of the SCM (WT/DS267/26) and the United States' request for arbitration under Article 22.6 of 
the DSU and Article 7.10 of the SCM Agreement (WT/DS267/27). WT/DS267/RW  
Page A-28  
 
B. C
LAIMS CONCERNING EXPORT CREDIT GUARANTEES (EXPORT SUBSIDIES ) 
 
22. Brazil alleges that despite changes introdu ced by the United States on 1 July 2005 to the 
General Sales Manager 102 (GSM 102) export cred it guarantee programme, that programme and the 
guarantees issued thereunder continue to constitute export subsidies under Articles 1, 3.1(a) and 3.2 of 
the SCM Agreement , as well as under item (j) of the Illustra tive List of Export Subsidies included as 
Annex 1 to the SCM Agreement  ("Illustrative List").  Further, sinc e 1 July 2005, Brazil alleges that the 
United States has applied those export subsidies in  a manner that results in circumvention of the 
United States' export subsidy commitments for unsch eduled products and three scheduled products – 
rice, pig meat and poultry meat, in violation of Articles 10.1 and 8 of the Agreement on Agriculture .15 
Brazil argues that the Panel should only consider its cl aim under item (j) in the Illustrative List in the 
alternative, if the Panel finds that GSM 102 ex port credit guarantees are not export subsidies under 
Articles 1.1 and 3.1(a) of the SCM Agreement.  The United States argues that the analysis of the 
revised GSM 102 programme should proceed from item (j) of the Illustrative List.  
 
23. Australia submits that as the complaining part y, Brazil has the right to identify a measure as 
an export subsidy according to a particular definiti on (for example, pursuant to Articles 1.1 and 3.1(a) 
of the SCM Agreement) and then to argue under another definition "in the alternative".  Australia 
therefore submits that the Panel should address the argument made by Brazil relating to item (j) "in 
the alternative" after the principal claim under Articles 1.1 and 3.1(a) of the SCM Agreement .16 
 
24. Australia further submits that even if the United States' approach were to be adopted, a 
finding by the Panel that the GSM 102 programme, as amended, did not fall within the terms of 
item (j) of the Illustrative List would not necessarily be determinative of whether the GSM 102 programme otherwise constituted an export subs idy under the relevant provisions of the 
SCM Agreement.  In other words, an a contrario  interpretation of item (j) is not permissible
17, and the 
Panel would not be precluded by such a finding from examining the consistency of the revised 
GSM 102 with Articles 1.1 and 3.1(a) of the SCM Agreement.18  As has been recognized in a number 
of proceedings, the Illustrative List is just that – it is a purely illustrative list and does not, as the 
United States acknowledges, purport to be an exhaustive list of export subsidies.19 
 
C. C LAIMS CONCERNING ACTIONABLE SUBSIDIES  
 
25. Australia submits that in relation to Brazi l's actionable subsidies claims, the Panel should 
consider whether the United States, by repealing the Step 2 payment programme, but maintaining the 
two other price-contingent subsidies (payment s under the marketing loan and counter-cyclical 
payment programmes), has taken appropriate steps to re move the adverse effects of the subsidies or to 
withdraw the subsidies, within the meaning of Article 7.8 of the SCM Agreement  in accordance with 
the DSB's recommendations and rulings with respect to those subsidies . 
 
                                                      
15 Brazil First Written Submission, paras. 348-350. 
 16 In US – FSC , the Appellate Body at para. 89 found no legal error in the Panel adopting the order in 
which the European Communities as claimant had pres ented its arguments under Articles 1 and 3 of the 
SCM Agreement , and rejected the United States' assertion that  the analysis should have proceeded from 
footnote 59 to item (e) of the Illustrative List. 
17 Korea – Vessels , para. 7.207.  In that case, the Panel foun d that Korea had failed to demonstrate that 
item (j) was applicable as an affirmative defence for th ose measures that were found to be in violation of 
Article 3.1(a) of the SCM Agreement:  Ibid. para. 7.202.  In reaching its conclusions, the Panel adopted the 
approach taken by the Panel in Brazil – Aircraft (Article 21.5 - Canada I) at paras. 6.37 ff. 
18 In Brazil – Aircraft (Article 21.5 – Canada I), the Panel acknowledged that it was legally possible 
that there existed prohibited export subsidies within the meaning of Article 3.1(a) that did not fall within the 
scope of Annex I:  see para. 6.30. 
19 Ibid.  WT/DS267/RW 
Page A-29 
 
 
26. Australia recalls that the Panel found that:    
the effect of the mandatory price-contingent United States subsidy measures – marketing loan programme payments, u ser marketing (Step 2) payments, MLA 
[marketing loan assistance] payments and CCP [counter-cyclical payment] payments 
– is significant price suppression in the same world market within the meaning of 
Articles 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.
20 
 
27. In the light of this conclusion, the Pane l recalled that, pursuant to Article 7.8 of the 
SCM Agreement  "upon adoption of this report, the United States is under an obligation to 'take 
appropriate steps to remove the adver se effects or … withdraw the subsidy'".21 
 28. Australia notes that the United States eliminated  the Step 2 payments in response to the DSB's 
recommendations and rulings.  The other two "manda tory price-contingent United States subsidy 
measures" that were the subject of the Panel's fi ndings remain in existence.  Australia therefore 
submits that in so far as these measures still exist,  the Panel may properly consider whether the United 
States has fulfilled its obligations under Article 7.8 of the SCM Agreement.   
 29. Australia recalls that in making the findings  referred to above, the original Panel examined 
each price-contingent subsidy measure in turn
22 and made a number of findings relating to the effect 
of each measure individually, before considering th e collective operation of those measures.  It is 
clear from the Panel's analysis that each of the pr ice-contingent measures individually were found to 
have a trade-distorting effect.23  With respect to the marketing loan programme payments, the Panel 
stated that: 
 
We have no doubt that the payments stim ulate production and exports and result in 
lower world market prices than would preva il in their absence.  Moreover, the text of 
the measure indicates that the payments are mandatory, where certain market conditions prevail.
24 
  The Panel further found that: 
 
… the structure, design and operation of th e marketing loan programme has enhanced 
production and trade-distorting effects.  The payments stimulate production and 
exports and result in lower world market prices than would prevail in their absence.
25 
 
 On counter-cyclical payments , the Panel concluded that: 
 
… CCPs may influence production decisions indirectly by reducing total and per unit revenue risk associated with price vari ability in some situations … We have 
confirmed a strong positive relationship be tween upland cotton (base acre) producers 
receiving annual payments and upland cotton pr oduction.  Moreover, the payments are 
mandatory, under certain market conditions.
26 
 
                                                      
20 US – Cotton , para. 8.1(g)(i);  see also para. 7.1416. 
21 Ibid., para. 8.3(d). 
22 Ibid., para. 7.1290. 
23 Ibid., paras. 7.1290–1303.   
24 Ibid., para. 7.1291 (footnote omitted). 
25 Ibid., para. 7.1295. 
26 Ibid., para. 7.1302. WT/DS267/RW  
Page A-30  
 
 Australia submits that these findings re main relevant to the present proceedings. 
 30. Australia therefore submits that the present Panel should, as part of its consideration of 
whether the United States has complied with its oblig ations under Article 7.8, determine whether the 
continued existence of the two price-contingent subs idy measures that were the subject of the original 
Panel's finding cause significant price suppression constituting serious prejudice to the interests 
of Brazil.  31. In other words, the Panel should examine whet her repeal of the Step 2 programme together 
with the continued existence of the other two pr ice-contingent subsidy measures resulted in full 
compliance with the United States' obligation to remove the adverse e ffects or withdraw the subsidies 
found by the Panel to exist with respect to all three price-contingent subsidies.  Australia submits that 
this is consistent with the approach that Brazil has taken in this dispute. 
 
CONCLUSION 
 
A. Scope of Article 21.5 proceedings - Requests for preliminary rulings  
32. For the reasons set out in this subm ission, Australia requests that the Panel:  
 
(a) refuse the United States' request that the Panel reject Brazil's claims relating to GSM 
102 guarantees in respect of exports of pig meat and poultry meat; 
 (b) refuse the United States' requests for pr eliminary rulings concerning the marketing 
loan and counter-cyclical payment programmes;  and  
 
(c) refuse the request of the United States for preliminary rulings with respect to Brazil's 
claim concerning the United States' failure to take measures to comply within the 
period 21 September 2005 – 1 August 2006.  
 
B. Claims concerning export credit guarantees (export subsidies)  
33. For the reasons set out in this submission, Australia submits that the Panel should address the 
argument made by Brazil relating to item (j) "in the alternative" after the principal claim under 
Articles 1.1 and 3.1(a) of the SCM Agreement . 
 34. If, however, the Panel were to adopt the order of analysis proposed by the United States, a 
finding by the Panel that the GSM 102 programme, as amended, did not fall within the terms of 
item (j) of the Illustrative List would not preclude  the Panel from examining the consistency of the 
revised GSM 102 with Articles 1.1 and 3.1(a) of the SCM Agreement.   
 
C. Claims concerning actionable subsidies 
 35. For the reasons set out in this submission, Australia submits that in so far as the price-
contingent subsidy measures still ex ist, the Panel may properly consider whether the United States has 
fulfilled its obligations under Article 7.8 of the SCM Agreement .  As part of its consideration of 
whether the United States has complied with its obligations under Article 7.8, Australia further 
submits that the Panel should determine whether th e continued existence of the two price-contingent 
subsidies that were the subject of the original  Panel's finding cause significant price suppression 
constituting serious prejudice to the interests of Brazil.  WT/DS267/RW 
Page A-31 
 
 
ANNEX A-5 
 
THIRD PARTY SUBMISSION OF CANADA 
 
(5 January 2007) 
 
 
 
TABLE OF CONTENTS 
 
Page  
 
I. EXECUTIVE SUMMARY  32 
 II. INTRODUCTION AND BACKGROUND  
32 
 
A. F INDINGS OF THE PANEL AND APPELLATE BODY 32 
 B. M
EASURES TAKEN BY THE UNITED STATES  33 
 
III. ARGUMENT 33 
 
IV. LEGAL ANALYSIS 34 
 
A. S COPE OF PROCEEDING  34 
 
B. O RDINARY MEANING OF "THREAT " IN PART III OF THE SCM  AGREEMENT  34 
 
V. CONCLUSION 37 
 
  
 WT/DS267/RW  
Page A-32  
 
I. EXECUTIVE SUMMARY 
 
1. Canada agrees with Brazil that the Unite d States has failed to fully implement the 
recommendations and rulings of the Dispute Settleme nt Body (DSB), and that the United States 
continues to provide subsidies that cause and thr eaten to cause serious prejudice within the meaning 
of Articles 5 and 6 of the Agreement on Subsidies and Countervailing Measures  (SCM Agreement ) 
and Article XVI:1 of the General Agreement on Tariffs and Trade 1994  (GATT 1994).   
 2. Canada makes submissions with respect to tw o issues:  the U.S. contention that marketing 
loan and counter-cyclical payment programmes should not  properly be the subject of this proceeding;  
and the standard for threat of serious prejudice under Article 5(c) and footnote 13 of the 
SCM Agreement , and Article XVI:1 of the GATT 1994.   
 3. On the first issue, the United States argues th at as an Article 21.5 proceeding applies only to 
"measures taken to comply with the recommendati ons and rulings" of the DSB, the panel cannot 
consider unchanged measures.  This  fails to recognize that a panel in an Article 21.5 proceeding is 
required to consider the context, and not merely individual measures, when determining compliance.  
The Panel here cannot properly evaluate U.S. co mpliance without considering the effect of the 
U.S. failure to do anything about the marketing lo an and counter-cyclical payment programmes.   
 4. On the question of "threat", Canada submits that  the ordinary meaning of the term, read in the 
context of the SCM Agreement  and considered in the light of that agreement's object and purpose, 
supports this finding.  By contrast, there is nothing in the SCM Agreement  to support the 
U.S. contention that "a clearly foreseen and imminent  likelihood of future serious prejudice", such as 
that required in Article 15.7 of the SCM Agreement , is required  for a finding of threat of serious 
prejudice under Article 5(c) and footnote 13.  The notion of threat is a flexible one, sufficiently 
flexible to address programmes that give rise to  a constant and high probability of support to 
U.S. farmers, which in turn constitutes a permanent threat of serious prejudice.  
II. INTRODUCTION AND BACKGROUND 
 
5. Canada appreciates th e opportunity to participate in this proceeding under Article 21.5 of the 
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), having 
participated in previous proceedings befo re the original panel and Appellate Body.
1 
 A. F
INDINGS OF THE PANEL AND APPELLATE BODY 
 
6. On 3 March 2005, the Appellate Body upheld the original panel's finding, inter alia , that 
particular U.S. measures set out in the Farm Security and Rural Investment Act of 2002  (FSRI Act ) 
were subsidies causing adverse effects, contrary to Articles 5 and 6 of the SCM Agreement . 
 7. Specifically, the Appellate Body upheld the or iginal panel's finding in respect of so-called 
"price-contingent subsidies".
2  These subsidies – marketing loan programme payments, user 
marketing (Step 2) payments, marketing loss assi stance payments and counter-cyclical payments – 
were found to result in significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement , and thus constitute serious prejudice w ithin the meaning of Article 5(c).   
 
                                                     
 
1 United States – Subsidies on Upland Cotton , Report of the Panel, WT/DS267/R, adopted 
21 March 2005 [" United States – Upland Cotton , Panel Report"] and United States – Subsidies on Upland 
Cotton , Report of the Appellate Body, WT/DS267/AB/R, adopted 21 March 2005 [" United States – Upland 
Cotton, Appellate Body Report"]. 
2 United States – Upland Cotton, Appellate Body Report, at para. 763(c)(i).  WT/DS267/RW 
Page A-33 
 
 
B. M EASURES TAKEN BY THE UNITED STATES  
 8. The United States claims that it has comp lied with the recommendations and rulings of 
the DSB.  On 8 February 2006, the United States announced the repeal, effective as of 1 August 2006, 
of the Step 2 payment programme for upland cotto n, one of the programmes found to be causing 
serious prejudice.  This is the only measure th e United States has taken to comply with the 
recommendations and rulings respecting serious prejudice.
3 The United States argues that the original 
panel was considering the collective effect of these payments and not the programmes in themselves.  
As a result, the United States argues, Brazil's clai m that U.S. measures taken to comply in some 
respects do not exist, and to the extent they do exist, are not consistent with the Agreement on 
Agriculture  and the SCM Agreement,  are without basis.4 
 
III. ARGUMENT 
 
9. Brazil argues that the U.S. counter-cyclical and marketing loan payment programmes have an 
ongoing, pernicious effect on the world cotton market, which arises in part from the threat that these 
programmes will provide seemingly-unlim ited support to U.S. cotton producers.  At issue is whether 
these programmes (under which payments made were  found to be mandatory price-contingent 
subsidies causing significant price suppr ession, thus constituting serious prejudice)5 threaten to cause 
serious prejudice simply by virtue of their existence.    
10. The standard to be applied for a determinati on of threat of serious prejudice is not necessarily, 
as the United States has argued, a "clearly fores een and imminent likelihood of future serious 
prejudice" akin to that in Article 15.7 of the SCM Agreement .
6  Canada submits that there is no single 
test for establishing the existence of a "threat".  Rather, "threat" may be analyzed both as a temporal 
concept as in Article 15.7, and as a probability of occurrence.  Certain subsidy programmes, by their 
very nature, give rise to a constant likelihood of sup port that results in a permanent threat of serious 
prejudice.  This stems from the fact that when cer tain economic conditions ex ist – conditions that we 
know will re-occur simply by virtue of the vagaries of the market and fact that the United States itself 
may at its discretion set the threshold for payments  – the subsidies will necessarily be distributed. 
 11. In this regard, there is no uncertainty.  Th e marketing loan and counter-cyclical programmes 
create a constant likelihood of suppor t for U.S. farmers, thus having the very real potential to distort 
international trade.  These progra mmes were found by the original pane l and the Appellate Body to be 
subsidies causing serious prejudice.  And these programmes must  pay to producers when certain 
conditions exist.  If such programmes do not constitut e a threat of serious prejudice, it is difficult to 
conceive of any subsidy that could have the potenti al to distort international trade and constitute a 
threat of serious prejudice to the interests of other Members.   
 
                                                     
 
3Deficit Reduction Act of 2005 , U.S. Public Law 109-171, Section 1103, online:  
http://www.access.gpo.gov/n ara/publaw/109publ.html .  See also First Written Submission of the 
United States (21.5), 15 December 2006, at paras.  1-11 ["U.S. First Written Submission (21.5)"]. 
4 U.S. First Written Submission (21.5), at paras. 3-10. 
5 United States – Upland Cotton , Appellate Body Report, at para. 763(c)(i), upholding the original 
panel's finding, at para. 8.1(g)(i). 
6 Second Written Submission of the United Stat es, September 30, 2003, ["U.S. Second Written 
Submission"] at para. 115. WT/DS267/RW  
Page A-34  
 
IV. LEGAL ANALYSIS 
 
A. S
COPE OF PROCEEDING  
 12. The United States argues that the programm es are outside the scope of this proceeding 
because Article 21.5 applies only to "measures ta ken to comply with the recommendations and 
rulings" of the DSB.  As the United States admits that it has not taken any measures to change these 
programmes, "Brazil may not in these Article 21. 5 proceedings again make these claims against 
unchanged measures".
7 
 
13. The U.S. reading of Article 21.5 ignores the fa ct that the scope of an Article 21.5 proceeding 
mandates scrutiny of the overall effect of the measures taken to comply.  A panel must "assess measures taken to comply in their full context, in cluding how such measures are introduced into, and 
how they function within, the particular system of the implementing Member".
8  That context here 
necessarily includes the continued existence of meas ures the original panel and Appellate Body found 
to be causing serious prejudice. 
 14. Significantly, the Appellate Body has also found that measures at issue in an Article 21.5 
proceeding could encompass not only positive acts, but also  omissions .
9  The United States admits 
that it has done nothing respecting marketing loan payment and counter-cyclical payment programmes to remove the adverse effects or withdraw  these subsidies, but that the repeal of Step 2 
has been sufficient to constitute  compliance with the serious prejudice recommendations and rulings 
of the DSB.
10  The United States argues that the original pa nel was considering the collective effect of 
U.S. subsidy programmes, and that it need do nothing with respect to the marketing loan payment and 
counter-cyclical payment programmes.  Yet Article 7.8 of the SCM Agreement  states that a finding of 
serious prejudice requires the non-complying Member to  take appropriate steps to remove the adverse 
effect or withdraw the subsidy.  The United Stat es bears the burden of demonstrating that the adverse 
effects no longer exist as a result of taking no actio n to modify or withdraw the two programmes at 
issue and this Panel has clear authority to consider this lack of action in determining whether there is 
indeed compliance under Article 21.5.  B. O
RDINARY MEANING OF "THREAT " IN PART III OF THE SCM  AGREEMENT  
 
15. Article 5 of the SCM Agreement  prohibits adverse effects to the interests of other Members 
through the use of a subsidy;  one such adverse e ffect is serious prejudice.  Footnote 13 in turn 
specifies that "'serious prejudice to the interests of another Member' is used in this Agreement in the 
same sense as it is used in paragr aph 1 of Article XVI of the GATT 1994, and includes threat of 
serious prejudice " (emphasis added).  Article XVI:1 makes clear that a Member can cause, and also 
threaten, serious prejudice.    16. While the concept of threat may be expressed in various ways, it concerns an indication of 
something undesirable coming.
11  The use of the verb "threaten" in Article XVI:1 of the GATT 1994 
indicates that the very existence of a programme, a nd not necessarily its application, could constitute 
an infringement of that provision.  As the Appella te Body in this case has observed, the ordinary 
                                                      
7 U.S. First Written Submission (21.5), at para. 48. 
8 United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber 
from Canada, Recourse by Canada to Article 21.5 , Report of the Appellate Body, WT/DS257/AB/RW, adopted 
20 December 2005, at para. 67.   
9 Ibid., at para. 67. 
10 See U.S. First Written Submission (21.5), at paras. 1-11. 
11 Shorter Oxford English Dictionary , 5th ed., W.R.  Trumble, A. Stevenson (eds.) (Oxford University 
Press, 2002, at 3251 ("threat").  WT/DS267/RW 
Page A-35 
 
 
meaning of "threaten" does not connote certainty, but relates to the likelihood of something happening 
in the future.12  
 17. Further analysis of the text of the SCM Agreement  supports this ordinary meaning.  Article 5 
prohibits the use of a subsidy to the extent that  such use causes, or th reatens to cause, serious 
prejudice to the interests of another Member.  "Subsidy" is defined in Article 1 of the 
SCM Agreement ;  a subsidy is deemed to exist if "a government practice involves […] potential direct 
transfers of funds or liabilities (e.g., loan gua rantees)" and a benefit is thereby conferred.
13  In other 
words, the existence of a programme that has the  potential  to transfer funds, whether or not an actual 
transfer occurs, constitutes a subsid y pursuant to Article 1 of the SCM Agreement .14  It follows that 
such a potential transfer could constitute a threat of serious prejudice. 
 18. The opening phrase of Article XVI:1 of the GA TT 1994, refers to "any contracting party 
[that] grants or maintains any subsidy".  As that article makes clear, it is not only the actual grant of a 
subsidy that allows for serious prejudice to be found.  Merely maintaining  a programme  that 
mandates payments deemed to be a subsidy causi ng adverse effects may therefore cause serious 
prejudice, and indeed will cause serious prejudice when the sp ecified market conditions arise. 
 19. Considering this, the U.S. proposition that the standard for threat of serious prejudice should 
be imported from Article 15.7 cannot be correct.  Article 15.7 of the SCM Agreement  concerns a 
different legal concept, namely the threat of materi al injury.  Where a standard from another article or 
other agreement is to be used, the SCM Agreement  identifies that standard.   
 20. This is evident through an ex amination of the notes to Article 5.  Footnote 11 in Article 5(a), 
for example, states that "[t]he term  'injury to the domestic industry' is used here in the same sense as it 
is used in Part V".  Footnote 12 in paragraph (b) stat es that "[t]he term 'nullification or impairment' is 
used in this Agreement in the sa me sense as it is used in the relevant provisions of GATT 1994, and 
the existence of such nullification or impairment shall be established in accordance with the practice 
of application of these provisions".  Footnote 13, as quoted above, also incorporates a definition from 
the GATT 1994 into the SCM Agreement . 
 21. Neither Article 5 or 6 of the SCM Agreement  set out a specific standard that is to be applied in 
an analysis of threat of serious prejudice.  In other WTO agreements, as with Article 15.7, the 
standard applied when considering wh ether a threat of a particular dele terious result exists is set out in 
clear terms.  For example, threat of se rious injury in Article 4(1)(b) of the Safeguards Agreement  
means "serious injury that is clearly imminent […] based on facts and not merely on allegation, 
conjecture or remote possibility".  The Antidumping Agreement  specifies that "[a] determination of a 
threat of material injury shall be based on facts and not merely on allegation, conjecture or remote 
possibility.  The change in circumstances which would create a situation in which the dumping would cause injury must be clearly foreseen and imminent " (emphasis added). 
 22. These examples support the conclusion that one must look to the specific language and 
context of an agreement to determine the standard to be applied to a given analysis.  What is clear is 
that the scope of the term "threat" in Articles 5 and 6 of the SCM Agreement  may be considerably 
broader than that contemplated in Article 15.7. 
                                                     
 
12 United States - Upland Cotton,  Appellate Body  Report, at para. 704.   
13 SCM Agreement , subparagraph 1.1(a)(1)(i) [emphasis added]. 
14 As we understand the U.S. measures at issue, the terms of the "potential direct transfer" will 
necessarily result in a benef it to the recipient because th at recipient would receive a financial contribution on 
terms more favourable than would otherwise be available to the recipient in the market.  The nature of this benefit may vary, but could take the form of financial security provided by the very existence of the 
programmes. WT/DS267/RW  
Page A-36  
 
23. This is consistent with th e interpretation given by panels and the Appellate Body to other 
"threats".  The Appellate Body reviewed the meaning of "threat of circumvention" in the context of the Agreement on Agriculture in this case.
15 It found that while "threaten" had a variety of possible 
meanings, Article 10.1 of the Agreement on Agriculture  "is concerned not with injury, but rather with 
'circumvention'".  Given the ordinary meaning of "t hreaten", the phrase 'threaten[] to lead to ...  
circumvention' would imply that the export subsidies ar e applied in a manner that is 'likely to' lead to 
circumvention of a WTO Member 's export subsidy commitments.16  The Appellate Body did not 
import the standard of "clearly foreseen and imminent" into the standard for "threat" in the Agreement 
on Agriculture .17  In fact, it emphasized that "threat" did not connote a sense of certainty and refers 
only to a likelihood of something happening.   
 
24. That the meaning of threat is flexible is supported by two decisions concerning the consistency of the EC's sugar programme w ith Article XVI of the GATT 1994.  In both EC – Sugar 
(Australia)  and EC – Sugar (Brazil) , the panels found that the EC ha d structured its sugar programme 
so as to constitute a permanent source of uncertainty in world sugar markets, which given the facts of 
those cases, gave rise to a threat of seri ous prejudice in the sense of Article XVI:1.
18  Key to these 
findings was the lack of pre-established limitations on production, price or the amounts of exports in 
the Community system, very similar problems faced  here by competitors to U.S. cotton farmers.19  
 25. It is not only the terms of the SCM Agreement  read in context, but also the Agreement's very 
object and purpose that demonstrates that the standard  for threat of serious prejudice may be distinct 
from that of threat in the case of material injury.  In Canada – Aircraft , the panel noted that the object 
and purpose of the SCM Agreement  could be summarised as "the  establishment of multilateral 
disciplines 'on the premise that some forms of governme nt intervention distort international trade, [or] 
have the potential  to distort [international trade]'".
20  
 
26. As noted, the marketing loan and counter-cycli cal programmes have the very real potential to 
distort international trade, and preventing the seri ous prejudice that will be caused when payments are 
made under these programmes is precisely what was intended by including Article 5 in the SCM Agreement .  In its report, the original panel found that Part III of the SCM Agreement  and 
Article XVI:1 of the GATT 1994 "expressly provides Members with a right to take action against 
serious prejudice which may not yet have occurred".
21 Further, the original panel found nothing in the 
text indicating that the right to take action against serious prejudice that may not yet have occurred is 
limited to a window of subsidies provided in the past  but which cause serious prejudice in the future.  
If a Member were unable to bring an action against subsidies until these were actually paid , the Panel 
                                                      
15 United States – Upland Cotton , Appellate Body Report, at paras. 696-719. 
16 Ibid., at para. 704. 
17 Similarly, in  India – Quantitative Restrictions on Imports of Agricultural, Textile and Industrial 
Products , Report of the Panel, WT/DS90/R, adopted 22 September 1999,  India argued that the "threat of […] a 
serious decline in [a Member's] monetary reserves" in the context of Article XVIII:9 of GATT 1994 did not 
require an imminent  threat of a serious decline in reserves, as do es Article XII:2(a).  In this regard, the Panel 
stated at para. 5.197 that their interpretation would not "introduce an additional condition to Article XVIII:9", by 
introducing the condition of imminence into the concept of "threat" in that Article.   
18 See European Communities – Refunds on Exports of Sugar , GATT Panel Report, adopted 
6 November 1979, BISD 26S/290, at para. (h) of conclusion [" EC – Sugar Exports I  (Australia) "] and 
European Communities – Refunds on Exports of Sugar – Complaint by Brazil , GATT Panel Report, adopted 
10 November 1980, BISD 27S/69, at para. (h) of conclusion [" EC – Sugar Exports (Brazil) "].   
19 Brazil, in Section 8 of its First Written Submission,  explains how those same factors are present in 
the U.S. programmes at issue and results in a permanen t source of uncertainty in the world cotton market.  
Canada agrees with that analysis. 
20 Canada – Measures Affecting the Export of Civilian Aircraft , Report of the Panel, WT/DS70/R, 
adopted 20 August 1999, at para. 9.119 [emphasis added]. 
21 United States – Upland Cotton , Panel Report, at para. 7.191.  WT/DS267/RW 
Page A-37 
 
 
reasoned, it would undermine the object in Part III of preventing  adverse effects to a Member's 
interests.  27. The subsidy programmes at issue are mandatory when certain events take place, in this case 
when upland cotton prices reach a certain level.  If a Member were obliged to wait until a payment 
was actually made to bring a complaint, then th e adverse effects of the subsidy could never be 
prevented and the ability to defend against a "threat " of serious prejudice would be rendered inutile.  
The original panel's finding, that Part III of the SCM Agreement  and Article XVI of the GATT 1994 
must allow a Member to prevent the serious prejudi ce caused by the application of programmes such 
as marketing loan and counter-cyclical payments, is  consistent with the inclusion of the words 
"maintain" in GATT Article XVI:1 and "pot ential" in Article 1.1(a)(1)(i) of the SCM Agreement .
22 
28. Whether as a consequence of the very architecture of the SCM Agreement  – Part III concerns 
the adverse effects of subsidies in the context of multilateral action by Members, whereas Part V 
concerns the actions of domestic investigating authorities in countervailing duty actions – it is clear on 
its face that the standard for threat of serious prejudice in Part III is not circumscribed by a "clearly 
foreseen and imminent" standard.23  And, in Canada's view, that "clearly foreseen and imminent" 
standard should not and indeed cannot legally be imputed to Part III simply because the word "threat" 
appears there.  
V. CONCLUSION 
 29. Accordingly, Canada respectfully requests th at the Panel find that the United States continues 
to use subsidies that threaten to cause serious prejudice, through its marketing loan and counter-
cyclical programmes, in violation of Articles 5 and 6 of the SCM Agreement . 
                                                     
 
22 See paras. 17-18 above on the use of "potential" and "maintain" in these articles. 
23 A legal term may be set out in various places  in a WTO agreement without having the same 
meaning.  See, for example, th e Appellate Body's analysis of the term "like products" in European Communities 
– Measures Affecting the Prohibition of Asbestos and Asbestos-Containing Products,  Report of the Appellate 
Body, WT/DS135/AB/R, adopted 5 April 2001.  The Appellate Body reasoned at paras. 88-89 that as a term 
must be interpreted in light of the context and of the object and purpose of the provision at issue, it follows that the meaning of "like products" in Article III:4 need not be identical to, e.g., the meaning given the same term in 
Article III:2. WT/DS267/RW  
Page A-38  
 
 ANNEX A-6 
 
THIRD PARTY SUBMISSION OF CHAD 
 
(5 January 2007) 
 
 
 
TABLE OF CONTENTS 
 
Page  
 
I. INTRODUCTION  40 
A. B ACKGROUND  40 
B. C HAD'S INTEREST IN THESE PROCEEDINGS  40 
II. LEGAL ARGUMENT  44 
A. T HE UNITED STATES HAS NOT TAKEN STEPS TO  IMPLEMENT THE RULINGS AND 
RECOMMENDATIONS OF THE DSB   44 
1. The United States has not properly implemented the panel's findings regarding 
the Marketing Loan and Counter-Cyclical Payment Programmes  45 
2. The United States has not removed the adverse effects of the Marketing Loan 
and Counter-Cyclical Payment Programmes  47 
3. Payments to be made in Marketing Year 2006 threaten to cause serious 
prejudice  49 
B. T HE PANEL SHOULD ANALYSE THE EXPORT  CREDIT GUARANTEE PROGRAMMES  
UNDER ARTICLE 1.1( B) OF THE SCM  AGREEMENT   50 
III. CONCLUSION  51 
 
   WT/DS267/RW 
Page A-39 
 
 
 TABLE OF CASES 
 
Short Title Full Case Title and Citation 
US – Upland Cotton or the "Appellate 
Body Report" Appellate Body Report, United States – Subsidies on 
Upland Cotton , WT/DS267/AB/R, adopted 21 March 2005. 
US – Upland Cotton or the "Panel 
Report" Panel Report, United States – Subsidies on Upland Cotton , 
WT/DS267/R, and Corr.1, adopted 21 March 2005, 
modified by Appe llate Body report, WT/DS267/AB/R 
Brazil – Aircraft  
(Article 21.5 – Canada)  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, as modified by the 
Appellate Body Report, WT /DS46/AB/RW, DSR 2000:IX, 
4093 
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 (Artic le 21.5 – Brazil)  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 Re port, WT/DS70/AB/RW, 
DSR 2000:IX, 4315 
EC – CVDs on DRAMs  Panel Report, European Communities – Countervailing 
Measures on Dynamic Random Access Memory Chips 
from Korea, WT/DS299/R, adopted 3 August 2005  
Mexico – Corn Syrup (Article 21.5 – US)  Appellate Body Report, Mexico – Anti-Dumping 
Investigation of High Fructose Corn Syrup (HFCS) from the 
United States – Recourse to Article 21.5 of the DSU  by the 
United States , WT/DS132/AB/RW, adopted 
21 November 2001, DSR 2001:XIII, 6675 
United States – Oil Country Tubular 
Goods Sunset Reviews (Article 21.5 – 
Argentina) Panel Report, United States – Sunset Reviews of Anti-
Dumping Measures on Oil C ountry Tubular Goods from 
Argentina – Recourse by Argentina to Article 21.5 of the DSU , WT/DS268/RW [not yet adopted] 
US – Softwood Lumber VI (Article 21.5 – 
Canada)  Appellate Body Report, United States – Investigation of the 
International Trade Commission in Softwood Lumber from 
Canada – Recourse by Canada to Article 21.5 of the DSU , 
WT/DS277/AB/RW, adopted 9 May 2006 WT/DS267/RW  
Page A-40  
 
 [O]ur countries are not asking for charity, neither 
are we requesting preferential treatment or additional aid. We solely de mand that, in conformity 
with WTO basic principles, the free market rule be applied. Our producers are ready to face competition 
on the world cotton market – under the condition that 
it is not distorted by subsidies.  
 H.E. President Blaise Compaoré of Burkina Faso
1 
  
I. INTRODUCTION 
 A. B
ACKGROUND  
 1. On 21 March 2005, the Dispute Settlement Body (the "DSB") adopted th e reports of the panel 
and the Appellate Body in the dispute United States – Subsidies on Upland Cotton .
2  These reports 
concerned a case brought by Brazil regarding vari ous subsidies granted to United States cotton 
producers.  In accordance with the findings in these reports and the DSB's recommendations and 
rulings, the United States was obliged, inter alia , under Article 7.8 of the Agreement on Subsidies and 
Countervailing Measures (the " SCM Agreement ") either to withdraw subsidies that were found to 
cause serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the 
SCM Agreement  or to remove the adverse effects caused by those subsidies.3   
 
2. On 18 August 2006, pursuant to Article 21.5 of the Understanding on Rules and Procedures 
Governing the Settlement of Disputes (the "DSU"), Brazil requested that the DSB establish a panel to 
determine whether the United States had complied w ith the rulings and recommendations of the DSB. 
The Panel was established upon Brazil's second request  on 28 September 2006, and composed by the 
Director-General on 25 October 2006.4  Argentina, Australia, Canada , Chad, China, the European 
Communities, India, Japan, New Zealand, and Tha iland reserved their rights to participate in the 
Panel's proceedings as third parties.5 
 3. Chad appreciates the opportunity to present its views to the Panel in this written submission 
and at the meeting of the Panel with third par ties, currently scheduled for 27 February 2007.  
 B. C
HAD'S INTEREST IN THESE PROCEEDINGS  
 
4. Chad is one of the very few least-developed countries ("LDCs") to have participated in 
a WTO dispute settlement proceeding since the or ganization was established in 1995.  Chad 
participated in the original dis pute in this case, and continues to  participate in these proceedings, 
because of the critical importance of the cotton sect or to Chad's economy and the ongoing damage to 
that sector caused by U.S. subsidies.   
 
5. Chad notes that this dispute has arisen in  the broader context of the commitment of WTO 
Members in the July Framework and reiterated at the Hong Kong Ministerial Conference to address 
cotton "ambitiously, expeditiously and specifically " with a view to achieving more ambitious 
                                                      
1 Address to the Trade Negotiations Committee, 10 June 2003, www.wto.org . 
2 Panel Report;  Appellate Body Report.   
3 Panel Report, paras. 8.2(g)(i), 8.3(d).  
4 WT/DS267/31. 
5 Ibid.   WT/DS267/RW 
Page A-41 
 
 
 reductions of trade-distorting domes tic subsidies for cotton production.6  While that commitment was 
made without prejudice to actions of the Dispute Settlement Body, it provides important context to 
guide the Panel's consideration of the issues before it.   The protection of Chad's cotton industry is also 
consistent with the fulfilment of many of the Mille nnium Development Goals, in that it can assist in 
reducing poverty, improving health and reducing child mortality, and developing a global partnership 
for development, based on a rules-based trading system that addresses the special needs of least-
developed countries, such as Chad.   
 6. As Chad has reiterated in the context of  its Trade Policy Review to be held on 
22-24 January 2007, cotton production in Chad affe cts approximately 3 million people, out of a total 
population of about 8.1 million.
7  The cotton-producing region of Chad is located in the southern part 
of the country, in an area covering about 127,000 square kilometres.  Cotton is generally grown on 
small farms of usually no more than one or two hect ares by farmers who rely on rain for irrigation and 
animals for traction when working the cotton fields during the sowing season.8 Cotton exports are 
Chad's third largest export, accounting for 5 per cent of GDP, and representing 60 per cent of all non-
oil export earnings.9  Cotton is, therefore, one of Chad's main sources of income, and sustains the 
livelihood of a large portion of its population.10   
 7. As Chad explained in its report for its fort hcoming Trade Policy Review, cotton is a strategic 
product that contributes not only to economic development but also social development.
11  Produced 
rurally on small farms, its positive effects on reduc ing poverty are felt most in those regions.  Thus, 
cotton is "not only a source of revenue for these ru ral regions but also a tool for modernisation, 
diversification, and the financing of social activ ities and other needs of rural peasant societies".12  
These observations corroborate the findings of the Overseas Development Institute, which notes that: 
 
In a low-income economy where most of th e poor live in rural areas, income from 
export crops is one of the best short-term measures to alleviate poverty.  Smallholder 
cash-crop producers … spread [ ] the benefits  to other poor households. Cotton is 
relatively labour intensive and may also ge nerate employment. In African countries, 
                                                      
6 See Doha Work Programme – Ministerial Declaration Adopted on 18 December 2005, 
WT/MIN(05)/DEC, para. 11. 
7 Trade Policy Review of Chad, Report by Govern ment, WT/TPR/G/174, 11 December 2006, para. 28. 
According to the World Bank, there are roughly 400,000 farm households in the cotton-producing areas of Chad, of which about 60 per cent grow cotton. An average farm household has 5 to 6 people.  See World Bank, 
Chad Cotton Sector Reform:  A Case Study on Poverty and Social Impact Analysis, available at 
http://poverty.worldbank.org/files/13138_chadcottonreform.pdf
. 
8 See Third Party Submission of Benin and Third Party Submission of Chad, Annex E-4 to the Panel 
Report.  
9 Trade Policy Review of Chad, Report by Govern ment, WT/TPR/G/174, 11 D ecember 2006, para. 28.  
See also P. Fortucci, The Contributions of Cotton to Economy and Food Security in Developing Countries ,  
Food and Agriculture Organization of the United Nations (July 2002). 
10 As the WTO Secretariat has recently reported, "[a] griculture, mainly livest ock breeding and cotton, 
is an activity of vital importance for Chad". Trade Policy Review of Chad, Repo rt by the Secretariat, 
WT/TPR/S/174, 11 December 2006, pp. ix – x.  Similarl y, a United States agency has acknowledged the vital 
role played by cotton in Chad's ag ro-based economy:  "over 80% of Chad's population relies on subsistence 
farming and livestock raising for its livelihood… Cotton, cattle, and gum arabic provide the bulk of Chad's non-
oil export earnings".  See The World Factbook, available at 
https://www.cia.gov/cia/publications/factbook/geos/cd.html .  
11 Trade Policy Review, Report of Chad, WT /TPR/G/174, 11 December 2006, para. 28. 
12 Ibid. (unofficial transla tion from the French). WT/DS267/RW  
Page A-42  
 
 cotton production is concentrated in poorer regions so higher cotton incomes 
contribute to poverty reduction.
13     
8. Chad is one of the poorest countries in the world.  In the United Nations Development 
Programme's Human Development Report of 2005, Chad is ranked as the 173rd out of 177 countries 
based on human development indicators that include life expectancy at birth, the infant mortality rate, 
and the maternal mortality ratio.14  In these circumstances, it is imperative that the cotton farmers of 
Chad reap the benefits of the implementation of  the DSB's rulings and recommendations in this 
dispute by the United States.  Proper compliance would stabilise and increase the incomes of Chad's 
cotton farmers and help to develop the economy of Chad as a whole.  
9. Full implementation by the United States of the DSB's recommendations and rulings in this 
case would have very significant benefits for Chad and the other Sub-Saharan African cotton-
producing countries (Chad, Benin, Mali and Burkina Faso together comprise the "Cotton Four" or "C-4" countries).  For example, a recent World Bank project study by Kym Anderson and Ernesto Valenzuela titled "WTO's Doha Cott on Initiative:  A Tale of Two Issues"
15 specifically estimates what 
is at stake in terms of cotton production, trade, and economic welfare in S ub-Saharan Africa were the 
United States to comply fully with the rulings and recommendations of the DSB and remove the 
adverse effects of the non-repealed programmes.16  The study finds that the removal of all cotton 
subsidies and import tariffs would boost global economic welfare by $283 million per year and would 
raise the price of cotton in international markets by almost 13 per cent.  The authors note that:  
 
what is striking about the welfare effects is their distribution among developing 
countries… [e]specially noteworthy is the relatively large benefit bestowed on Sub-Saharan Africa of $147 million per year. Th is is driven by an estimated increase 
in Sub-Saharan African cotton output and value added of nearly one-third, and in the real value of the region's cotton exports of more than 50 per cent… That would raise 
Sub-Saharan Africa's share of global cotton exports from 12 to 17 per cent, and the 
share of all developing countries from 52 to 72 per cent.
17    
10. The potential impact of these welfare effects on incomes for cotton farmers in Chad cannot be 
understated:  "[c]rucially they would rise by a huge 30 per cent in Sub-Saharan Africa and around 
40 per cent in West Africa in particular – more than  three-quarters of which is due to cuts in domestic 
support programs".18  The World Bank Trade Note 27 of 30 March 2006 suggests that similar effects 
would be expected in the specific context of US  compliance with the panel and Appellate Body 
Reports, stating that "the national welfare gains and boost to cotton farmers' incomes from partial 
reform are still concentrated in Su b-Saharan Africa and Central Asia".19 
 11. At the International Conference on Cott on: The Next Steps for Africa held in 
Washington D.C. on 26 October 2006
20, Professor Daniel Sumner presented findings regarding the 
                                                      
13 Overseas Development Institute (ODI) Annual Report 2005, page 10, available at 
http://www.odi.org.uk/annual_report/ar2005/ODI_AR2005.pdf   
14 Human Development Report 2005, published for the United Nations Development Programme. 
15 Kym Anderson and Ernesto Valenzuela, "WTO's Do ha Cotton Initiative:  A Tale of Two Issues", 
Development Research Group, World Bank, Washington DC, February 2006 (the "Anderson and Valenzuela 
study"). 
16 Ibid. , pages 1–2. 
17 Ibid. , page 7. 
18 Ibid. , page 9. 
19 World Bank Trade Note 27, 30 March 2006, page 4. 
20 Daniel Sumner, Farm Programs and the Economies of LDC Cotton, Slide Show presented at the 
International Conference on Cotton:  The Next Steps for Africa, Washington, D.C., 26 October 2006.  Available 
  WT/DS267/RW 
Page A-43 
 
 
 impact of the US subsidies on the C-4 countries.  He found that the average gain from elimination of 
US subsidies on cotton would be a world price increase of about $0.05 per pound,  which he calculates 
would "raise an annual revenue of about $75 to $100 million or more in the C-4 countries alone".21  A 
World Bank economist has concluded that "the pr ice prospects for cotton (and consequently the 
export shares of low-cost producers, including many African countries, could be improved 
considerably if developed countries substantially reduced or eliminated  support and if the benefits of 
world price changes are fully transmitted to producers . . ."22 
12. All of these changes would have an extrem ely positive effect on both the cotton sector and the 
economy as a whole in the C-4 countries.  The C-4 countries' share of world cotton exports decreased from 10.05 per cent in 1998 to 8.57 per cent in 2002.  It has continued to decrease since the original 
panel rulings to 7.35 per cent in 2005.
23  Chad's own share of cotton exports shows a similar trend, 
decreasing from 1.23 per cent in 1998 to 0.99 per cent in 2002 and 0.74 per cent in 2005.24  These 
trends are in stark contrast to the United States' continuing increasing  share of world cotton exports, 
which has grown from 18.27 per cent in 1998 to 39.24 per cent in 2002 and 39.72 per cent in 2005.25   
 
13. Gobind Nankani, World Bank Vice President  of the African Region, confirmed in a 
presentation at the October conference that after the difficult 2004/5 season, initial World Bank staff 
estimates for the 2005/6 ginning season show that production in the C-4 fell by 15 per cent, producer 
pricers fell by an average of 18 per cent, and the cotton sector's deficits remained at an estimated US$68 million for the four C-4 countries.
26 
 14. At that same conference, the Interna tional Cotton Advisory Committee stated that: 
 
From the perspective of cotton producers in  Africa and other developing countries, 
the key issue at hand is trade distorting ag ricultural subsidies that continue depressing 
world cotton prices, hurting millions of cotton farmers in Africa and elsewhere. The 
losses in income, employment, and foreign revenues far outnumber all of the assistance committed so far.
27 
15. The United Nations Development Progra mme's Human Development Report for 2005 
highlights the effect of subsidies on cotton producer s in poor countries, and concludes that in 2005, 
"the 20 000 cotton farmers in the United States will receive government paymen ts in 2005 equivalent 
                                                                                                                                                                     
at:  http://www.agritrade.org/events/s peeches/CottonConference/Sumner.ppt  (the "Sumner Presentation").  For 
full materials of the conference, see:  http://www.ideascentre.ch/ConferenceWashington.htm   
21 Sumner Presentation, at slide 19.  
22 John Baffes, "The Cotton Problem," World Bank Research Observer 20(1):  109-44, Spring 2005, at 
page 132. 
23 Daniel Sumner, "U.S. Farm Programs and African Cotton:  Discussion Paper Prepared for the 
'International Conference on Cotton:  The Next Steps for Africa' Washington, D.C., October 26, 2006", 
International Food & Agricultural Trade Policy Council Discussion Paper, Washington, DC. (forthcoming) (the 
"Sumner Discussion Paper"), Table 2 (sourced from:  USDA FAS Production, Supply and Distribution Database, available at:  http://www.f as.isda.gov/psdonline/psdDownload.aspx
) 
24 Ibid.  
25 Ibid.  
26 Gobind Nankani, World Bank Vice President of the African Region, Development of the Cotton 
Sector in West and Central Africa, Slide Show at the International Conference on Cotton:   
The Next Steps for Africa,  Washington, D.C., 26 October 2006, available at 
http://www.agritrade.org/ events/speeches/CottonC onference/Nankani.ppt . 
27 International Cotton Advisory Committee, The Importance of Cotton in Africa, presentation at the 
International Conference on Cotton:  The Next Steps for Africa, Washington, D.C., 26 October 2006, available 
at http://www.agritrade.or g/events/speeches/Cott onConference/Townsend.pdf  WT/DS267/RW  
Page A-44  
 
 to the market value of the crop and more  than US aid in Sub-Saharan Africa."
28  The report also notes 
that "subsidies [of the order of the US subsidies] are reminiscent of the state planning systems that 
characterized the former Soviet Union".29   
 
16. In these circumstances, it is eviden t that the proper implementation of the 
DSB's recommendations and rulings is of paramount importance to Chad and its fellow C-4 countries, 
which are some of the most vulnerable economies in th e world.  It is of critical importance to these 
countries and, indeed, to the multilateral trading sy stem as a whole, that this compliance Panel 
carefully and stringently review the measures ta ken by the United States to comply with those 
recommendations and rulings to ensure that the rules governing the provision of subsidies are properly applied and followed. 
 
17. As explained in this subm ission, and in more detail in Brazil's first written submission
30, the 
United States subsidies at issue in this dispute have had and continue to cause significant price suppression.  This price suppression has an adverse impact on Chad's cotton farmers and on 
Chad's economy as a whole.  And, as Brazil argues in its first submission, and Chad maintains below, 
the United Sates has not properly implemented the DSB recommendations and rulings regarding the 
adverse effects of these subsidies. 
 
18. In assessing the impact of these subsidies on Chad, and the arguments that Chad makes in 
these proceedings, Chad requests that the Panel take note of Article 24 of the DSU, which states that: 
"[a]t all stages of the determination of the causes of a dispute, and of dispute settlement procedures 
involving a least-developed country Member, particular consideration shall be given to the special 
situation of least-developed country Members".  For the reasons explained above, Chad's reliance on 
its cotton industry to generate exports and fight pove rty constitutes just such a special situation.  The 
Panel should give due consideration to this speci al situation by making recommendations and rulings 
that will lead to a competitive world cotton market  that is not distorted by WTO-inconsistent 
subsidies. 
 
II. LEGAL ARGUMENT 
 
A. T
HE UNITED STATES HAS NOT TAKEN STEPS TO  IMPLEMENT THE RULINGS AND 
RECOMMENDATIONS OF THE DSB 
 19. The original panel found that the effect of several mandatory price-contingent U.S. subsidy 
programmes, including user marketing (or "Step 2") payments, marketing loan payments and 
counter-cyclical payments, caused significant price suppression in the world market for upland cotton, and thereby caused adverse effects to Brazil, in violation of Articles 5(c) and 6.3(c) of the 
SCM Agreement .
31  In its implementation of the DSB recommendations and rulings, however, the 
United States merely discontinued the Step 2 pr ogramme as of August 2006, while leaving unchanged 
the marketing loan and counter-cyclical payments.32  As explained in more detail below, however, the 
                                                      
28 Human Development Report 2005, page 132. 
29 Ibid. , page 131. 
30 First Written Submission of Brazil to the Panel, 17 November 2006 ("First Written Submission of 
Brazil"). 
31 Panel Report, para. 8.1(g)(i). 
32 See Exhibit Bra-435 (Deficit Reduction Act of 2005, U.S. Public Law 109-171, Section 1103, 
available at http://www.access.gpo.gov/nara/publaw/109publ.html ).  The United States Congress bill that 
repeals the Step 2 subsidy program for upland cotton was signed into law on 8 February 2006, and took effect 
on 1 August 2006.  See Minutes of DSB Meeting, WT/DSB/M205, 17 February 2006, para. 92 and Exhibit Bra-441 ("House approves Byrd repeal, elimination of step 2 cotton program", Inside US Trade, 
3 February 2006).  WT/DS267/RW 
Page A-45 
 
 
 Step 2 programme accounted for, at most, one sev enth of the aggregate subsidies to U.S. cotton 
production.  Hence, the vast majority of the benef its of implementation were expected to come from 
the termination of the domestic support programmes. 
 
20. Chad recalls that Article 7.8 of the SCM Agreement  requires that the "Member granting or 
maintaining [any subsidy that has resulted in advers e effects to the interest of another Member] shall 
take appropriate steps to remove the adverse effects or shall withdraw the subsidy". 
 
21. Chad submits by simply ending Step 2 paym ents and leaving in place the other programmes 
found to cause adverse effects, the United States cannot be found either to have withdrawn the 
subsidies or to have removed the adverse effects thereof.   
 
1. The United States has not properly implemented the panel's findings regarding the 
Marketing Loan and Counter-Cyclical Payment Programmes  
 22. It is undisputed that the marketing loan and counter-cyclical payment programmes have not 
been withdrawn.  To the contrary, the United St ates argues that these programmes were not subject 
either to a finding of WTO inconsistency or any DSB recommendations.
33  The United States requests 
the Panel to find that the marketing loan and c ounter-cyclical payment programmes are not measures 
to which the recommendations and rulings of the DSB were addressed and, therefore, that these 
measures are not within the scope of the present proceedings.34   
 
23. Chad disagrees with the United States' interp retation of the original panel's findings and 
the DSB recommendations and rulings.  The original panel found that "the effect of the mandatory 
price-contingent measures" was significant price supp ression within the meaning of Article 6.3(c) that 
constituted serious prejudice to the interests of Br azil within the meaning of Article 5(c) of the 
SCM Agreement .35   
 
24. The panel clearly described the measures at issue as including the "legislative and regulatory 
provisions currently providing for the payment of  measures" including marketing loan and counter-
cyclical programme payments.36  
 
25. In its analysis of Brazil's claims under Articles 6.3(c) and 5(c) of threat of serious prejudice 
regarding the same measures, the panel also stated  that there were "two main measures providing for 
the payment of the United States subsidies in ques tion," which it described as the "FRSI Act of 2002 
and implementing regulations" and "legislation providing for crop insurance subsidies prior to and 
since MY 2002."37  The panel explained the consequences of  its findings of present serious prejudice 
regarding these measures as follows:  
 
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 ac tion 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 
                                                      
33 First Submission and Request for Preliminar y Rulings of the United States of America, 
15 December 2006 (the "U.S. First Submission"), para. 37. 
34 Ibid. , para. 44.  
35 Panel Report, paras. 7.14.16, 8.1(g)(i). 
36 Ibid. , para. 7.1107(ix). 
37 Ibid. , para. 7.1498. WT/DS267/RW  
Page A-46  
 
 an obligation to 'take appropriate steps to remove the adverse effects or … withdraw 
the subsidy.'
38 
26. Thus, the panel clearly considered that its  findings regarding "present" serious prejudice 
applied not just to payments, but to the statutor y and regulatory framework of the FSRI Act of 2002 
and its implementing regulations.   
 
27. Moreover, the panel relied on the scope of its findings regarding "present" serious prejudice 
to decline to address Brazil's claims of threat of serious prejudice under Articles 5(c) and 6.3(c) of the 
SCM Agreement : 
 
We consider that, upon required implementation by the United States of this Panel's 
prohibited subsidy findings and present serious prejudice findings , the basket of 
measures in question may be so significantly transformed or manifestly different from 
the measures that are currently in question that it is not necessary or appropriate to 
address Brazil's claims of threat of serious prejudice.39 
28. Thus, the original panel clearly considered that its findings included not simply the payments 
themselves under the marketing loan and counter-cycli cal payment programmes, but also the statutory 
and regulatory measures under which th ose payments were mandated.   
29. The United States' arguments that the statut ory and regulatory aspects of these measures were 
not covered by the Panel's findings are twofold.  First, the United States argues that the panel's 
findings in paragraph 8.1(g)(i) of its report refe rred to "payments" not "programs" in the phrase 
between dashes.  The United States' argument ignores that the panel described the payments at issue 
as "mandatory."  This description necessarily implies th at the measure at issue was not limited to the 
actual payments themselves, but included the stat utory and regulatory framework that made those 
payments "mandatory."  Accordingly, Chad does not  consider the panel's failure to use the word 
"programmes" in paragraph 8.1(g)(i) of its repor t to be sufficient grounds to ignore the panel's 
description of the measures at issue and the Panel' s explanation of what steps it considered necessary 
to implement quoted above. 
30. Second, the United States argues that the panel did not address Brazil's per se or "as such" 
claims regarding these programmes, or Brazil's claims regarding threat of serious prejudice, and, 
therefore, the Panel's findings were strictly limited to the payments themselves.  However, Brazil is 
not precluded from pursuing before this compliance panel claims regarding the threat of serious 
prejudice that the original panel declined to address.40  These claims raise substantially the same 
issues regarding the statutory and regulatory fra mework for these programmes as Brazil's claims 
regarding the implementation of the panel's findings regarding present serious prejudice. 
 31. The United States' argument appears to confu se the issue of whether a statutory provision is 
challenged "as such" with the altogether separate issue of whether a statutory provision mandating 
certain payments can be found to cause serious prejudi ce.  Brazil's claims before the original panel 
were that these payments, including the "legislativ e and regulatory provisions currently providing for 
the payment[s]" were actually causing serious prej udice.  In other words, these claims were "as 
applied" claims regarding measures that include d legislative and regulatory provisions.  The 
distinction sometimes made in WTO proceedings be tween "as such" and "as applied" claims does not 
                                                     
 
38 Ibid. , para. 7.1501 (original footnote omitted) (emphasis added). 
39 Ibid. , para. 7.1503 (emphasis added).   
40 See, e.g., Panel Report, United States – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – 
Argentina) , paras. 7.90-7.94.  WT/DS267/RW 
Page A-47 
 
 
 mean that statutory or regulatory provisions cannot be challenged on an "as applied" basis or that "as 
applied" claims are necessarily limited to the paym ents themselves to the exclusion of measures 
mandating those payments.  Where a party includ es statutory or regulatory measures in an "as 
applied" claim, as Brazil did before the original panel, implementation of the panel's findings with 
respect to that claim cannot be limited to one aspect of the measure (the payments) to the exclusion of 
other aspects (the governmental mechanisms whereby the payments are made).   
 32. For these reasons, the Panel should reject the Un ited States' arguments that the marketing loan 
and counter-cyclical payment programmes are not within the scope of this proceeding.   
 33. The United States' failure to take implemen ting measures regarding the marketing loan and 
counter-cyclical payment programmes is within the scope of these proceedings.  As explained above, 
the original panel's findings covered those program mes.  Article 21.5 review includes both measures 
taken to implement and a failure to implement.  In U.S. – Softwood Lumber VI (21.5) , the Appellate 
Body confirmed that "[t]he word "existence" s uggests that measures falling within the scope of 
Article 21.5 encompass not only positive acts, but also omissions ."
41  Thus, where an implementing 
Member fails to adopt "measures taken to comply" within the implementation period, it has made a 
failure or omission enabling a panel under Article 21.5 to conclude that no measures "exist" to 
implement the recommendations and rulings of the DSB. 
 34. As the only action undertaken by the United States was the repeal of the Step 2 programme on 
1 February 2006 with effect from August 2006, it is cl ear that the United States  has not withdrawn or 
amended the marketing loan or counter-cyclical pa yment programmes found to be inconsistent with 
the United States' WTO obligations.  
 
2. The United States has not removed the adverse effects of the Marketing Loan and 
Counter-Cyclical Payment Programmes  
 35. As noted above, the United States has not taken any steps to address the adverse effects 
caused by the marketing loan and counter-cyclical payments.   
 36. Moreover, the withdrawal of the Step 2 paym ents cannot be said to have removed the adverse 
effects of the marketing loan and counter-cyclical payments. 
 37. The vast majority of the price suppressi on and adverse effects caused by the impugned 
U.S. programmes was and continues to be caused by  the marketing loan and counter-cyclical payment 
programmes, rather than the Step 2 payments.  The Anderson and Valenzuela study discussed above 
confirms this.
42  The study underlines that the repeal of the Step 2 programme is equivalent, at best, to 
"a one-seventh reduction in the aggregate subsidy to US cotton production" and, if the support were 
re-instrumented to direct production subsidies, "there  would effectively be no global market impact of 
the repeal".43  In contrast, if the counter-cyclical payment and marketing loan programmes were to be 
counted as part of the US amber box measures, they  would be required to be cut by US$1 billion, 
which would be "more than twice the amount associated with repealing the Step 2 program".44 
 38. These findings accord with those of Daniel Su mner who has also provided estimates of the 
effects of individual programmes.  He notes that the Step 2 programme alone accounts for only about 
15 per cent of the total subsidy impact, however "t he major farm bill programs, marketing loans and 
                                                     
 
41 See Appellate Body Report, U.S. – Softwood Lumber VI (Article 21.5 -- Canada) , para. 67. 
42 Anderson and Valenzuela study, page 10.    
43 Ibid.  
44 Ibid.  WT/DS267/RW  
Page A-48  
 
 counter-cyclical payments, account for mo st of the remaining subsidy effect".
45  Professor Sumner 
concludes that if the US were to implement fu lly the recommendations and rulings of the DSB by 
removing these programmes, LDCs would benefit from substantial price and production increases 
would be available to least-developed countries.46 
 
39. Thus, the US domestic support programmes, rather than export subsidies under the Step 2 
programme, are most detrimental to Chad.  Usi ng the GTAP database and model, the Anderson and 
Valenzuela study demonstrates that over 80 per ce nt of the benefits from removal of all cotton 
subsidies and import tariffs will come from cutti ng domestic support programme s rather than export 
subsidies which will "contribute almost none  of the global benefits of reform".47 
 
40. Chad submits that in addition to the effect  of the subsidies on Brazil, the US subsidies 
continue to cause adverse effects within th e meaning of Article 5(c) and 6.3 of the SCM Agreement  on 
the world market for upland cotton, and, consequently , to the interests not just of Brazil of Chad and 
other cotton-producing African countries. 
 41. The original panel has already found that: 
 
[T]he effect of the mandatory price-con tingent United States subsidy measures – 
marketing loan programme payments, u ser 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 .
48 
 
42. Chad submits that the findings and analysis of the original panel continue to be relevant to 
this analysis because these proceedings are part of a "continuum of events".49  The Appellate Body 
in United States – Softwood Lumber VI (21.5)  stated that a panel operating under Article 21.5 of 
the DSU cannot perform its task of "in abstracti on from the measure that was the subject of the 
original proceedings",50 and that "doubts could arise about th e 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 absence of any finding in the underlying evidence."51  As the Appellate Body 
stated: 
Article 21.5 panels can be expected to re fer to their original panel reports, in 
particular, when matters before them are clo sely related to the matters before original 
panels.52 
43. This reasoning also applies to this dispute.  The claims of serious prejudice in this dispute as 
they relate to the marketing loan and counter-cyc lical payments involve the same subsidy programmes 
that were at issue before the original panel.  As  the United States has not changed those measures that 
                                                      
45 Sumner Discussion Paper, page. 20. 
46 Ibid.  
47 "[E]xport subsidy removal would contribute almost none of the global benefits of reform, and cotton 
tariff removal would account for only one-nineth of the global gain, with the other eight-nineths due to cutting 
domestic support programs", p. 8.  See also World Bank Trade Note 27, 30 March 2006, p. 2. 
48 Panel Report, para. 8.1(g)(i). 
49 See Appellate Body Report, Mexico – Corn Syrup  (Article 21.5 – US), para. 121. 
50 Appellate Body Report, United States – Softwood Lumber VI (21.5) , para. 102. 
51  Ibid. , para. 103. 
52 Ibid.,  para. 105.  See also Appellate Body Report, Mexico – Corn Syrup  (Article 21.5 – US), 
para. 121  WT/DS267/RW 
Page A-49 
 
 
 were found to cause serious prejudice by the original panel, this Panel should rely on the factual and 
legal conclusions concerning the existence, natu re and potential for price suppression of those 
measures in the original panel report.  Chad refers the Panel to the relevant findings of the original 
panel on those matters.53 
 
44. As noted above, the marketing loan and counter-cyclical payments account for the vast 
majority of the adverse effects identified by the original panel.  The failure to implement the original 
panel's findings with regard to these subsidies has th erefore deprived cotton expo rters such as Chad of 
the benefits of the panel's findings and has resulte d in the ongoing harm to a critically-important 
sector of Chad's vulnerable economy described above.  In these circumstances, taking note of Chad's 
special situation, this Panel should follow the reasoni ng of the original panel an d find that the adverse 
effects continue, and have not changed.  Chad, th erefore, supports the arguments of Brazil that the 
marketing loan and counter-cyclical paym ent programmes under the FSRI Act of 2002 alone  cause 
present serious prejudice and requests the Panel to find accordingly.54 
 
45. Moreover, as explained above in paragraphs I.B.12 and I.B.13, and as Brazil notes in its first 
written submission to the Panel, the price effects of  the U.S. subsidies have continued and, indeed, 
gotten worse since the original panel's rulings.  Ch ad and the other C-4 countries have continued to 
lose market share in cotton exports, even while the United States' market shar e continues to increase.  
In addition, C-4 cotton production and producer pri ces have continued to decrease substantially, 
by 15 and 18 per cent respectively in 2005/05.  Brazil observes that, West and Central African 
countries' share of world production declined from 5.15 per cent in MY 2002 to 3.85 per cent in MY 2005 – a 25 per cent decrease.
55  The region's share of world exports declined from 13.51 per cent 
in MY 2002 to 11.10 per cent in MY 2005.  Indeed , the West and Central African countries share of 
world exports in MY 2005 was the lowest that it has been in the past 10 years.56 
 
46. For these reasons, therefore, Chad supports Brazil's claim that the "non-repealed price-
contingent U.S. marketing loan and counter-cyc lical payment programs under the FSRI Act of 2002 
cause present serious prejudice in the form of si gnificant price suppression in the world market for 
upland cotton, and an increase in the U.S. world mark et share, in violation of Articles 5(c), 6.3(c) 
and 6.3(d) of the  SCM Agreement ", and requests the Panel to find accordingly.57 
 3. Payments to be made in Marketing Year 2006 threaten to cause serious prejudice  
47. Chad also supports Brazil's claim that despite the repeal of the Step 2 program, the marketing 
loan and counter-cyclical payments mandated unde r the FSRI Act of 2002 to be made in MY 2006, 
and beyond, cause a threat of serious prejudice within  the meaning of Articles 5(c) and 6.3(c) as well 
as footnote 13 of the SCM Agreement .   
 
48. As established by the original panel, th e marketing loan and counter-cyclical payment 
programs are mandatory, have guaranteed high levels  of U.S. planted acreage, production and exports 
and have caused significant price suppression. The continued granting of these subsidies, which is 
                                                     
 
53 See Panel Report, paras. As read with the Appellate Body Report, para.  
54 First Written Submission of Brazil, para. 47 et seq . 
55 Compare West and Central Africa  production (Exhibit Bra-450 ("Cotton:  World Statistics," ICAC, 
September 2006, p. 26 and p. 28) with world upland cotton production (Exhibit Bra-447 (Upland Cotton Supply 
and Use)).   
56 Compare West and Central Africa exports (Exhib it Bra-450 ("Cotton:  World Statistics," ICAC, 
September 2006, p. 56 and p. 58) with world upland cotton exports (Exhibit Bra-447 (Upland Cotton Supply 
and Use)). 
57 First Written Submission of Brazil, para. 6. WT/DS267/RW  
Page A-50  
 
 mandated by law, constitutes a continuing threat of significantly suppressed world market prices for 
developing country cotton producers, and will conti nue until these subsidy programs are repealed or 
significantly amended.   
 
49. Chad refers to Brazil's arguments and supporti ng evidence on this claim, and asks the Panel to 
find that these subsidies cause present serious prejudi ce, and cause a threat thereof, in violation of 
Articles 5(c), 6.3(c) and footnote 13 of the SCM Agreement . 
 
B. T
HE PANEL SHOULD ANALYSE THE EXPORT CREDIT GUARANTEE PROGRAMMES UNDER 
ARTICLE 1.1( B) OF THE SCM  AGREEMENT  
 50. Chad also supports the arguments of Brazil re garding the United States' implementation of the 
recommendations and rulings of the DSB regardi ng the export credit guarantee programmes ("ECGs") 
maintained by the Commodity Credit Corporation.
58 
 
51. Chad considers that it is particularly important  that this Panel interpret strictly the provisions 
of the SCM Agreement and the Agreement on Agriculture governing ECGs.  As a practical matter, 
only developed country governments can effectively provide ECGs to promote their exports.  As a 
previous panel has noted:    
 
[T]hrough export credit guarantees, governments can effectively make their 
borrowing rates available to borrowers.  However, the borrowing rates for developed country governments are generally lower than those of developing country 
governments.  As a result, developing country Members . . . could never meet the 
financing terms secured by developed country Members through government 
guarantees.
59 
52. That observation applies a fortiori to a LDC such as Chad.  An ECG from an AAA-rated 
government enables exports from that country to be  made on financing terms normally available to 
borrowers with a AAA credit risk.  Thus, the purchasers of goods back ed by U.S. ECGs benefit from 
the United States government's credit rating, giving a competitive advantage to U.S. exporters.  In 
addition, ECGs are a relatively inexpensive means for developed countries to support their exports in 
that they involve no immediate cash outlay.   
 53. In contrast, countries like Chad do not have st rong enough credit ratings to be able to provide 
competitive ECGs.  They also lack the resources to  be able to provide ongoing funding for such 
programmes.  Thus, developing country Members, an d particularly LDCs, face permanent structural 
disadvantages compared to developed country  Members in providing export credit.    
 54. ECGs are subject to the disciplines of the SCM Agreement .  Panels and the Appellate Body 
have found that ECGs may be inconsistent with the SCM Agreement if: (a) a government ECG is 
offered on terms better than those available to the recipient for an equivalent guarantee that could 
have been obtained in the marketplace (thereby  conferring a benefit within the meaning of 
Article 1.1(b) of the SCM Agreement )
60;  (b) a government ECG improves the terms of an underlying 
loan compared to the terms that could have been  secured in the marketplace without the government 
ECG (based on Article 14(c) of the SCM Agreement )61;  and (c) a government ECG program charges 
                                                      
58 First Written Submission of Brazil, page 130 et seq.  
59 Panel Report, Brazil – Aircraft  (Article 21.5 – Canada) , footnote 98.  See also Panel Report, Canada 
– Aircraft (Article 21.5 -- Brazil) , para. 5.136. 
60 Panel Report, EC – CVDs on DRAMs , para. 7.189. 
61 Ibid.   WT/DS267/RW 
Page A-51 
 
 
 premium rates that are inadequate to cover the long-term operating costs and losses of the 
programmes (based on item (j) of the Illustrative List of Export Subsidies included as Annex I to the 
SCM Agreement ).62   
 
55. The structural disadvantages faced by Chad a nd other LDCs with respect to ECGs do not, of 
course, affect the right of other WTO Members to  provide ECGs consistent with the disciplines 
described above.  However, the special situation of LDCs as a result of these disadvantages should 
provide important factual context for the current Pane l in its interpretation of the relevant provisions 
of the SCM Agreement and its evaluation of the United States' measures.   
 
56. In particular, the Panel should not limit its review of the U.S. ECGs to the question of 
whether the rates at which ECGs are provided are inadequate to cover the long-term operating costs 
and losses of the programme within the meaning of ite m (j) of the Illustrative List.  In addition, the 
Panel should carefully review whether the U.S. EC Gs confer a "benefit" within the meaning of 
Article 1.1(b) of the SCM Agreement as interpreted by the Appellate Body in Canada – Aircraft .63   
 
III. CONCLUSION 
 
57. As Chad has stated above, the Panel should, under DSU Article 24, consider the interests of 
LDCs such as Chad in this proceeding.  Such cons ideration is particularly appropriate where, as here, 
WTO-inconsistent measures taken by an affluent developed country WTO Member continue to cause 
serious harm to an important subsistence farm ing sector in the economy of some of the very 
least-developed countries in the world.   
 
58. In requesting the Panel's care ful consideration of the special situation of Chad and its fellow 
C-4 countries in this proceeding, Chad does not ask  the Panel in any way to bend the rules of the 
WTO agreements to suit Chad.  Instead, to paraphrase former WTO Deputy Director-General 
Dr. Kipkorir Rana, Chad simply asks the Panel to en sure, through a careful review of the evidence 
and rigorous application of the law, that the rele vant WTO rules and disciplines are fully applied to 
the cotton sector so that a fair and market-oriented system can prevail, thereby eliminating wasteful 
subsidies that cause substantial harm to the poorest WTO Members. 64 
 
59. In Chad's view, Brazil has produced compe lling arguments and evidence to show that the 
United States price-contingent subsidy programs su pporting upland cotton under the FSRI Act have 
not been withdrawn or changed in any significant wa y.  Brazil has also shown that overproduction and 
excess exports, along with significantly suppressed world market prices for upland cotton, have 
continued following the adoption of the reports of th e original panel and the Appellate Body in this 
dispute.  As explained above, Chad's own expe rience confirms the evidence submitted by Brazil. 
 
60. Accordingly, Chad requests that the Panel make the findings requested in paragraph 462 of 
Brazil's First Submission and the recommendations requ ested in paragraph 463 of that submission.   
                                                      
62 See, e.g., Appellate Body Report, paras. 672 and 674 ;  Panel Report, paras. 7.867 and 7.869. 
63 Appellate Body Report, Canada –Aircraft , paras. 152 et seq. 
64 "[Benin, Burkina Faso, Mali and Chad] do not ask for aid, which is the World Bank's remit, nor do 
they make political appeals that belong to the United Nations. They have just asked that WTO rules and 
disciplines apply also in sectors of interest to the poor – that a fair and market-oriented system be established in 
agriculture and that rich countrie s' wasteful export and production subsidies be abolished and cease to 
undermine their comparative advantage."  Former WTO Deputy Director-General Dr. Kipkorir Rana,  
Address given to the Second East African Business Summit, "The Multilateral Trading System:  Why East 
Africa Must Remain Engaged" 18-21 September 2003, www.wto.org . WT/DS267/RW  
Page A-52  
 
 ANNEX A-7 
 
THIRD PARTY SUBMISSION OF  
PEOPLE'S REPUBLIC OF CHINA 
 
(5 January 2007) 
 
 
 
TABLE OF CONTENTS 
 
Page  
 1. INTRODUCTION  
53 
 
2. ARGUMENTS  53 
 
2.1 Whether the item (j) of the Illustrative List of SCM Agreement 
constitutes the complete basis for analysis of GSM102 as amended  53 
 
2.2 Whether the ML/CCP payment "pr ograms" are outside the scope of 
this proceeding   54 
 
3. CONCLUSIONS  56 
 
    WT/DS267/RW 
Page A-53 
 
 
 1. INTRODUCTION 
 
1. China appreciates this opportunity to presen t its views on implementation measures by the 
United States (the US) in accordance to the ru ling and recommendations adopted by the Dispute 
Settlement Body ("DSB") in the original proceedings. 
 
2. Pursuant to Article 10 of Understanding on Rules and Proce dures Governing the Settlement 
of Disputes ("DSU"),  China hereby makes its Third Party Submission. 
 3. In this submission, China w ill focus on the following issues: 
 
1) Whether the item (j) of the Illustrativ e List of SCM Agreement constitutes the 
complete basis for analysis of GSM102 as amended; 
 
2) Whether the ML/CCP payment "programs" are outside the scope of this proceeding; 
 
2. ARGUMENTS 
 
2.1 Whether the item (j) of the Illustrative Li st of SCM Agreement co nstitutes the complete 
basis for analysis of GSM102 as amended 
 4. In its submission, Brazil demonstrates that under Article 1.1 and 3.1(a) of the 
SCM Agreement, GSM 102 ECGs are "financial contri butions" that confer "benefits", and that these 
subsidies are contingent in law on export performance.
1  Furthermore, Brazil submits a alternative 
claim under item (j) that the program continues to co nstitute an export subsidy, since fees continue to 
be insufficient to cover the long-term operating costs and losses of the program.2 
 
5. The US rebuts Brazil's approach by claiming it would lead to the fatally flawed result that a 
measure that was specifically found to fall outside the definition of an export subsidy could then be 
found to be an export subsidy.  The US asserts that "it is item (j) that provides the basis for assessing 
whether or not GSM-102 export guarantees are export s ubsidies within the meaning of Article 3.1(a) 
and 3.2 of the SCM Agreement."3  In addition, the US appears to claims that, "in the case of measures 
identified in the Illustrative List, it is the specifi c provisions of the Illustrative List – and not the 
general subsidy provisions in the Articles 1.1 and 3.1(a) – that govern when the measures may be 
considered export subsidies."4  In sum, it appears that the US argued a contrario  interpretation of 
item (j) in order to justify its amended GSM-102 program.    
6. In this regard, China believes that the finding of the panel in Korea-Measures Affecting Trade 
in Commercial Vessels  can provide useful guidance.  In discu ssions concerning the item (j) defense, 
the panel pointed out that "Item (j) contains no such affirmative statement.  Item (j) merely describes 
certain circumstances in which particular programs shall constitute export subs idies.  Since item (j) 
therefore falls outside the scope of footnote 5, ite m (j) does not provide a basis on which to find that 
measures do not constitute prohibited export subsidies".
5  The panel further concluded that "on its 
face, item (j) defines certain circumstances in which export credit guarantee programs are  export 
subsidies.  Item (j) simply does not address export guarantee programs that do  cover their long-term 
                                                      
1 Brazil First written Submission, para. 361. 
2 Brazil First written Submission, para. 362. 
3 See First Submission and Request For Preliminary Rulin gs of The United States of America, para. 66. 
4 Ibid, para. 65. 
5 Panel Report on Korea-Measures Affecting Trad e in Commercial Vessels,  para. 7.178 WT/DS267/RW  
Page A-54  
 
 operating costs and losses."
6 Accordingly, the panel found that a contrario  interpretation of item (j) 
was not permissible.    7. Hence, item (j) is only a shortcut to determ ine an export credit guarantee constitutes an export 
subsidy when the guarantee does not cover its long- term operating costs and losses.  However, it is 
not a defense clause.  When a guarantee does cover its long-term operating costs and losses, it is still 
possible that the guarantee constitutes an export subsid y.  Namely, if requirements of item (j) are not 
met by a measure, the panel still needs to examine whether or not the measure is consistent with 
Article 1 and 3 of SCM, specifically, whether it constitutes a financial contribution that confers 
benefits.  In China's view, the sc ope of export subsides in the meani ng of Article 1 and 3 of SCM is 
broader than scope of item (j) of the illust rative list.  The complainant may raise a prima facie  case of 
export subsidy either by claiming an illustrative list violation or Article 1 a nd 3 of SCM violations.  
Nevertheless, non-existence of the illu strative list violation does not mean  that it also consistent with 
obligations under Article 1 and 3 of SCM.    
8. Thus, in the opinion of China, the US's appro ach of proceeding from item (j) is incomplete.  It 
is the provisions in the Agreement of Agriculture and SCM Agreement plus item (j) in the Illustrative 
List rather than the item (j) itself only can be taken as the complete basis for analyzing the nature of 
GSM 102 programs.  Even if the US could prove  GSM 102 programs' premium could cover the long-
term operating costs and losses of the programs, it s till has to prove that it is consistent with the 
discipline of export subsidy specified in the Articl es 1 and 3.1(a) of SCM Agreement and the relevant 
provisions in AoA.   
 
2.2 Whether the ML/CCP payment "programs" are outside the scope of this proceeding  
 
9. Brazil requests that the compliance panel to de termine that the US has failed to comply fully 
with its obligation, under Article 7.8 of SCM Agreement, to "withdraw the subsidy" or to "remove the 
adverse effects" with respect to the US price-contingent subsidy programs.
7 Brazil believes that the 
new basket of measures providing supp ort to the US upland cotton producers ( i.e., the marketing loan 
and counter-cyclical payment) con tinue to cause serious prejudice as well as a threat of serious 
prejudice to the interests of Brazil.    
10. On the other hand, the U.S.  argues that ML/CCP Programs  are outside the scope of this 
proceeding.
8 In the opinion of the U.S., (1) "the ma rketing loan and counter-cyclical payment 
programs  were not subject either to any findi ng of WTO-inconsistency or any DSB 
recommendations",(emphasis added)9 since "Brazil clearly distingui shed between claims against 
programs per se  and claims against specific payments under the programs ."(emphasis added)10;  and 
(2) since ML/CCP Programs have not been cha nged, in response to DSB recommendations and 
rulings or otherwise, they are not "measures taken to comply".11 
 11. China can not endorse the position of the US that the US needs to do nothing concerning 
the ML and CCP programs.  
12. In the first place, contrary to what the US asserted in its Submission, DSB did make rulings 
and recommendations in respect to ML/CCP programs in many occasions in the Panel Report, (1) the 
                                                     
 
6 Panel Report on Korea-Measures Affecting Trad e in Commercial Vessels,  para. 7.203 
7 Ibid, para. 29 
8 See U.S. First Written Submission, para. 44. 
9 Ibid, para. 37. 
10 Ibid, para. 32. 
11 Ibid, para. 45.  WT/DS267/RW 
Page A-55 
 
 
 panel found as one of the "measure at issue" th e "legislative and regulatory provisions currently 
providing for the payment of measures," including that of ML and CCP.12  This shows that 
"legislative and regulatory provisions" of ML/CCP are measures subject to rulings/findings by the 
panel.  (2) in discerning the specificity of the measures at issue, the panel found that "a textual analysis of 'the legislation pursuant to which the gr anting authority operates' leads us to conclude that 
such subsidies are 'specific' within the meaning of Article 2.1(a)."
13  This clarifies that the panel did 
make findings to some extent regarding to the le gislation authorizing ML/CCP subsidies.  (3) in 
establishing the causal links between the US subsid ies and the significant price suppression, the panel 
found that marketing loan program paym ents and CCP payments, among others, are  directly linked to  
world prices for upland cotton, thereby insulating US producers from low prices, and that the 
structure, design and operation of these measures  constitute evidence suppor ting a causal link with 
significant price suppression.14  These are explicit descriptions of  the ML/CCP programs in the sense 
that "directly linked to world price" is a mechanism by which a subsidy payment is to be made, rather 
than the payment per se, and that the phrase " structure, design and operation of these measures " is 
clearly synonymous to the programs.  In short, these findings clearly show that the original panel had 
made rulings on the ML/CCP programs.   
 13. In addition, in regard to its findings on "t hreat of" serious prejudice,  the Panel concluded by 
ruling explicitly that the United States is obliged to take action concerning its  present statutory and 
regulatory framework as a result of our 'present' serious prejudice finding."(emphasis added)
15  I n  
making its findings on Brazil's "claims of per se incons istency", the original Panel found that "In light 
of our findings above in Sections VII:E, F, G an d H, we do not believe that it is necessary to address 
Brazil's per se claims relating to these measures  under Articles 5(c) and 6.3(c) and (d) of the 
SCM Agreement and Articles XVI:1 and XVI:3 of the GATT 1994."(emphasis added)16 The 
quotations show that the panel assumed the statutor y and regulatory framework of the US should be 
changed and refrained itself from make fu rther elaboration in this regard.   
 
14. One step backwards, assuming that the orig inal panel did not make any recommendations in 
respect to ML/CCP programs  on the basis that it adopted judicial economy on Brazil's per se claim, 
the US still needs to take measures to remove a dverse effects caused by those subsidies including ML 
and CCP programs.  
15. Another claim by the US with regard to scope  of these compliance proceedings is that "Brazil 
may not in these Article 21.5 proceedings again make these claims against unchanged measures."
17  In 
this regard, China recalls that in paragraph 8.1(g)(i ) of its report, the original panel found that " 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 Br azil within the meaning of Article 5(c) of the 
SCM Agreement ."  The recommendations and rulings of the DSB obliged the United States, under 
Article 7.8 of the SCM Agreement , to remove the adverse effects caused by these subsidies, or to 
withdraw the subsidies.18 
 
                                                      
12 Panel Report on  U.S.  – Upland Cotton , para. 7.1107. 
13 Ibid, para. 7.1146. 
14 Ibid, para. 7.1349. 
15 See Panel Report,  U.S.  – Upland Cotton , para. 7.1501. 
16 Panel Report,  U.S.  – Upland Cotton , para. 7.1511. 
17 US First Submission, para. 48. 
18 Panel Report, U.S.  – Upland Cotton , para. 8.3(d).  Brazil recalls that the Panel and Appellate Body 
reports were adopted by the DSB on 21 March 2005. WT/DS267/RW  
Page A-56  
 
 16. As submitted by Brazil and admitted by the US, the only change made by the US concerning 
the actionable subsidies is repeal of Step 2 prog ram.  Nevertheless, the terms of reference of a 
compliance panel is not limited to what the respond ing party claims to be the measures taken to 
comply.  It is clear that the US shall take measu res to withdraw all three subsidies or remove the 
adverse effects caused by these subsidies.  In views of China, since the compliance panel is obliged to 
examine whether the measures taken by the US is consistent with the covered agreement, it is 
necessary for the panel to examine whether or not the remaining two programs (ML and CCP programs) are still causing serious prejudice.    
3. CONCLUSIONS 
 
17. To conclude, China requests the compliance panel to find that: 
1) it is the set of provisos in the Agreemen t of Agriculture(especially the Articles 10.1 
and 8)  and SCM Agreement (particul arly Articles 1, 3.1(a) and 3.2) plus item (j) in 
the Illustrative List that constitutes the co mplete basis for analyzing the nature of 
SGM 102 programs. 
 
2) ML/CCP payment programs are within th e scope of this compliance proceeding. 
 18. China reserves its right to address new argumen ts, and further develop the arguments set out 
herein, in its oral statement to the third party session of the first substantive meeting.  WT/DS267/RW 
Page A-57 
 
 
 ANNEX A-8 
 
THIRD PARTY SUBMISSION OF  
THE EUROPEAN COMMUNITIES 
 
(5 January 2007) 
 
 
 
CONTENTS 
 
Page  
 I. INTRODUCTION  
 59 
II. PANEL COMPOSITION   59 
A. I NTRODUCTION   59 
B. R E-COMPOSITION OF PANEL NOT NECESSARY   60 
C. C ITIZENS OF THIRD PARTIES   60 
D. R OLE OF ARTICLE 8.7 DSU    61 
E. U NATTRACTIVE PRECEDENT   62 
F. P ANEL SHOULD MAKE A FINDING OR RULING   62 
III. BURDEN OF PROOF   63 
IV. ADVERSE EFFECTS-RELATED RECOMMENDATIONS AND RULINGS 
OF THE DSB   64 
A. O BLIGATION TO IMPLEMENT   64 
B. P RESENT SERIOUS PREJUDICE   66 
C. T HREAT OF SERIOUS PREJUDICE   68 
V. ALLEGED SO-CALLED "MANDATORY-DISCRETIONARY" 
DISTINCTION   69 
 
  WT/DS267/RW  
Page A-58  
 
 Table of Cases 
 
Short Title Full Case Title and Citation 
Australia – Automotive 
Leather Australia – Subsidies Provided to  Producers and Exporters of Automotive 
Leather, WT/DS126/R, adopted on 16 June 1999.  
Canada – Aircraft 
(Article 21.5)  Canada – Measures Affecting the Export of Civilian Aircraft – Recourse by 
Brazil to Article 21.5 of the DSU, WT/DS70/AB/RW, adopted on 4 August 
2000.  
Guatemala – Cement I Guatemala – Anti-Dump ing Investigating Regarding Portland Cement 
from Mexico , WT/DS60/AB/R, adopted on 25 November 1998. 
Mexico – HFCS 
(Article 21.5) Mexico – Anti-Dumping Investigatio n 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 on 21 November 2001. 
Mexico – Rice AD Measures  Mexico – Definitive Anti-Dumping Measures On Beef And Rice, 
Complaint With Respect To Rice , WT/DS295/AB/R, adopted on 20 
December 2005. 
US – 1916 Act United States – Anti-Dumping Act of 1916, WT/DS136/AB/R, adopted on 
26 September 2000.  
US-Corrosion-Resistant Steel United States – Sun set Review of Anti-Dumping Duties on Corrosion-
Resistant Carbon Steel Flat Products from Japan , WT/DS244/AB/R, 
adopted on 9 January 2004. 
US – Shirts and Blouses  United States – Measures Affecting Imports of Woven Wool Shirts and 
Blouses from India , WT/DS33/AB/R, adopted on 23 May 1997. 
US – Softwood Lumber VI  United States - Investigation of the International Trade Commission in 
Softwood Lumber From Canada, WT/DS277/R, adopted on 26 April 
2004. 
US - Softwood Lumber VI (Article 21.5) United States - In vestigation of the International Trade Commission in 
Softwood Lumber from Canada, Recourse  to Article 21.5 of the DSU by 
Canada , WT/DS277/RW, adopted on 9 May 2006. 
US – Upland Cotton  United States – Subsidies on Upland Cotton,  WT/DS267/AB/R, adopted on 
21 March 2005.  
US-Zeroing United States – Laws, Regulations and Methodology for Calculating 
Dumping Margins ("Zeroing"), WT/DS294/AB/R, adopted on 9 May 
2006. 
 
  WT/DS267/RW 
Page A-59 
 
 
 I. INTRODUCTION 
 1. The European Communities welcomes this opportunity to present its views on the legal 
claims by Brazil and the United States in rela tion to alleged non-compliance with the Dispute 
Settlement Body ("DSB") Recommendations and Rulings in " United States –  Subsidies on Upland 
Cotton ". 
 
2. In the original panel proceedings the Eur opean Communities decided to intervene as a third 
party because of its systemic interest in the correct  interpretation of the relevant WTO provisions, as 
well as in the correct application of the Understanding on Rules and Procedures Governing the 
Settlement of Disputes  ("DSU").  At the DSB's meeting of 28 September 2006 the European 
Communities declared that it reserved its third-party rights in relation to the recourse to Article 21.5 
of the DSU  by Brazil.
1 
 
3. As a third party, the European Communiti es does not necessarily comment on every detail of 
the parties' submissions.  The fact that the Eur opean Communities has not commented on a particular 
argument of the parties, or on the legal reasoning a nd findings in the Panel Re port or Appellate Body 
Report should not be taken as an endorsement of su ch arguments, reasoning or findings.  As is 
customary, the European Communities will refrain fro m analysing the facts of the case in detail but 
will present its views on a number of issues which raise systemic questions.   
 
4. There are a number of systemic issues that arise from the parties' submissions and on which 
the European Communities wishes to comment.  They will be dealt with under the following 
headings:   
 
• Panel composition; 
• Burden of proof;   
• Adverse effects-related recommendati ons and rulings of the DSB:   
- Obligation to implement; - Present  serious prejudice;   
- Threat of  serious prejudice;  and 
• Mandatory/discretionary. 
 
5. There are other issues, including the United St ates request for certain preliminary rulings, on 
which the European Communities intends to comme nt, and reserves its right to make further 
comments at the third party session of the Panel's firs t substantive meeting with the parties, once the 
parties' rebuttals are available. 
 
II. PANEL COMPOSITION  
 
A. I NTRODUCTION  
 6. The European Communities would like to make a submission in relation to the statement 
made by Brazil at the meeting of the DSB on 26 Oc tober 2006, regarding the composition of the Panel 
established on 28 September 2006 pursuant to Article 21.5 of the DSU  in this case. 
 
7. Brazil had made a request under Article 8.7 of the DSU  for the composition of a compliance 
panel.  In its request, Brazil had asked the Direct or-General to nominate the three members of the 
panel in the original proceedings.  Although all thr ee members of the panel were available for service 
                                                     
 
1 WTO Doc. WT/DSB/M/220 of 2 November 2006, paragraph 50. WT/DS267/RW  
Page A-60  
 
 in the Article 21.5 proceedings, the Director-General elected to call only one of the panellists back to 
service, and to nominate two new panellists. 
8. In a letter to the Director-General following Brazil's request for composition under Article 8.7 
of the DSU , the United States objected to the re-nomination of two of the original panellists, on the 
basis that they are nationals of third parties to th e dispute.  Brazil found the United States' objection 
"curious" and set out a number of reasons to jus tify its opinion in its statement on 26 October 2006. 
 B. R
E-COMPOSITION OF PANEL NOT NECESSARY  
 9. Article 21.5 DSU  states that: 
 
Where there is disagreement as to the ex istence or consistency with a covered 
agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, 
including wherever possible  resort to the original panel.  … (emphasis added) 
10. A plain reading of the text of Article 21.5 DSU  conveys the intention of the drafters of 
the DSU  that if the original panel is availabl e then it shall deal with the Article 21.5 DSU  proceedings.  
If the original panel is available, it follows that th ere is no requirement for it to be re-composed, as it 
already exists and is available.  It also follows th at where the original panel is available, there is 
certainly no requirement for a new panel to be composed.    
11. There are, however, certain limited circumst ances in which the original panel would be 
unavailable.  It would not be possible to refer the ma tter to the original panel if, for example, one of 
the panellists had resigned or died or was otherwise un available.  It would also not be possible to refer 
the matter to the original panel if one of the pane llists had a conflict of interest, for instance, if a 
panellist had acquired an equity stake in a United St ates or Brazilian cotton company.  In such a case 
the panellist would be bound to resign and thus b ecome unavailable.  However, the European 
Communities is of the view that a panellist being a citi zen of a third party to the dispute pursuant to an 
agreement already given under Article 8.3 of the DSU  cannot for that reason alone require him to 
resign at the implementation stage.  Where a panellist has the citizenship of a third party to the dispute 
then the presumption and starting point is that the parties should resort to the original panel.  
12. If a panellist is unavailable the par ties should apply Article 9.3 of the DSU  by analogy so that 
"to the greatest extent possible the same persons sh all serve as panellists".  So the starting position 
should be that if one panellist is unavailable, then the other two pa nellists continue to serve on the 
panel.    
C. C
ITIZENS OF THIRD PARTIES  
 13. Article 8.3 of the DSU  states that: 
 
Citizens of Members whose governments
6 are parties to the dispute or third parties as 
defined in paragraph 2 of Article 10 shall not serve on a panel concerned with that 
dispute, unless the parties to the dispute agree otherwise. 
6 In the case where customs unions or common markets are parties to a dispute, this provision 
applies to citizens of all member countries of the customs unions or the common markets. 
14. The first clause of Article 8.3 of the DSU  thus prohibits citizens of third parties from serving 
on "a panel concerned with that dispute".  Ho wever, the second clause of Article 8.3 of the DSU  
permits the parties to agree that this prohibition does not apply.    WT/DS267/RW 
Page A-61 
 
 
 15. The original panel had a Polish Chairman w ith Chilean and Australian (Mr. Daniel Moulis) 
Members.   
 16. Australia had reserved its th ird party rights when the orig inal panel was established on 
18 March 2003.  It necessarily follows that Brazil and the United States must have (or must be deemed to have) entered into an unconditional agre ement that the prohibition contained in the first 
clause of Article 8.3 did not apply to Mr. Moulis .  Brazil and the United States thus agreed that 
Mr. Moulis was not to be prohibited from serving on "a panel concerned with that dispute", even 
though Australia was a third party.  This must be so, otherwise the original panel (and presumably the 
original Panel Report) would be inc onsistent with Article 8.3 of the DSU . 
 
17. Both parties (the United States and Brazil) ha ving entered into such an agreement that the 
prohibition in the first clause of Article 8.3 (precluding Mr. Moulis from serving on "a panel 
concerned with that dispute") was not applicable, th ere is no basis in the DSU for such agreement to 
be withdrawn at any time solely on the basis that Mr. Moulis is a national of a third party.  The 
United States or Brazil or indeed both of them might subsequently have had "second thoughts", and 
might have wished Mr. Moulis to resign or to sack him.  Perhaps as a result of a preliminary ruling;  
or after a hearing;  or following questions;  or following the issuance of the factual part or the interim 
report.  But the DSU affords the parties no such right, and with good reason.  It would obviously be 
deeply destructive to the independence of panellists, and intolerable from a systemic point of view, if 
either party could unilaterally sack a panellist, citing only as a reason th at the panellist is a national of 
a third party, when agreement under Article 8.3 of the DSU  has already been given.   
 18. The text of Article 8.3 DSU  unequivocally supports the Eur opean Communities' interpretation 
on this matter.  It states that "…third parties … shall not serve on a panel concerned with that 
dispute , unless the parties to the dispute agree otherwise."  The use of the words "a panel concerned 
with that dispute" indicates that the drafters of this article intended that the rule in Article 8.3 (that is, 
both the prohibition and the agreement) are to apply more broadly than to their participation in the 
original proceedings ("the [original] dispute").  Article 21.5 DSU  proceedings are certainly 
"concerned with" the original dispute.  It therefor e follows that the general prohibition on citizens of 
third parties serving as panellists a pplies in relation to their serving on panels considering Article 21.5 
DSU  proceedings;  and the same must therefore be tr ue of the agreement referred to in the second 
clause of Article 8.3 of the DSU .   
 19. Crucially, nothing in Article 8.3 DSU  provides for a party to "the dispute" or "concerned with 
that dispute" to withdraw the consent ("agree[d] ot herwise"), once given, for a citizen of a third party 
to serve on a panel concerned with that dispute.  It is therefore not open to the United States to 
withdraw its consent in Article 21.5 DSU  proceedings, in the same way as it would have been unable 
to withdraw its consent after the interim report was published or just before the final hearing of the 
original panel. 
 20. If a Member is free to object to the compositi on of a panel in such circumstances then there 
will be a strong perception amongst other Members th at the Member has object ed since it disagrees 
with the original panel's findings.  This perception will be underlined by the fact that an objection was 
not made under Article 8.3 DSU  in respect of the composition of the original panel. 
 D. R
OLE OF ARTICLE 8.7 DSU 
 
21. Article 8.7 of the DSU  states that if the parties to the dispute cannot agree on the panellists the 
Director-General shall determine the panel's compos ition "in accordance with any relevant special or 
additional rules or procedures of the covered agreem ent or covered agreements which are at issue in 
the dispute".  The European Communiti es submits that Article 21.5 of the DSU  represents such a WT/DS267/RW  
Page A-62  
 
 relevant special rule.  The Director-General, in  exercising his discretion under Article 8.7 of the DSU , 
is therefore obliged to have regard to the provisions of Article 21.5 of the DSU . 
 
22. Article 21.5 of the DSU states that an implementation "dispute shall be decided … wherever 
possible [by] resort to the original panel". 
23. The European Communities agrees with Brazil that Article 21.5 DSU  provides for resort to 
the original panel because the aim of Article 21.5 DSU  proceedings is that they be dealt with as 
expeditiously as possible given that the dispute has already been settled by the panel (and in this case 
also by the Appellate Body).   
 24. The European Communities agrees with Brazil th at "To facilitate the expeditious disposal of 
Article 21.5 proceedings, the provision calls for reso rt to the original panel in all but those narrow 
circumstances in which it is impossible for the original panellists to serve."
2  For the reasons set out 
above, in this particular case the United States should not have been able to successfully withdraw its 
agreement to an existing panellist continuing to serve  on any panel concerned with the dispute solely 
on the grounds that he is a national of a third party. 
 
25. It is the European Communities' view that in applying Article 8.7 of the DSU , in light of 
Article 21.5 of the DSU , the Director General was obliged to reject the United States attempt to 
withdraw its agreement under Article 8.3 of the DSU  solely on the grounds that an existing panellist is 
a national of a third party. 
 E. U
NATTRACTIVE PRECEDENT  
 
26. The European Communities agrees with Brazil that the circumstances of this case set an 
unattractive precedent.  The European Communities ag rees with Brazil that this precedent could be 
invoked in other cases, because implementing Members could always object to the participation, in Article 21.5 DSU  proceedings, of panellists who ruled ag ainst them in the original dispute. 
 F. P
ANEL SHOULD MAKE A FINDING OR RULING  
 
27. The European Communities realises that it is not self-evident that this Panel should make 
findings or rulings regarding the propriety of its own composition.  However, the European 
Communities believes that there is pr ecedent for such a proposition, and that it is highly desirable in 
this case given the systemic importance of the issue. 
 
28. The European Communities submits that the Pane l has the authority to rule on the propriety 
of its own composition.  Authority for this can be found in the Australia – Automotive Leather  case.  
In that case the panel considered an Australian request that the panel terminate its work and, in effect, 
disestablish itself.  In addition, the panel did not ru le out the fact that, once the DSB has established a 
panel, the panel so established has the authority to rule on the propriety of its own establishment.3   
 
29. Furthermore, the European Communities submit s that, even if the parties do not address this 
issue directly in their submissions, the Panel has a duty to address it, as it is of fundamental 
importance for the correct interpretation of the DSU  and for the smooth and equitable operation of 
                                                      
2 Statement made by Brazil at the M eeting of the DSB on 26 October 2006. 
3 Panel Report, Australia – Automotive Leather, paragraphs 9.10 to 9.13.  WT/DS267/RW 
Page A-63 
 
 
 the WTO dispute settlement system.  In the Mexico – HFCS (Article 21.5) case the Appellate Body 
held that4: 
… panels have to address and dispose of certa in issues of a fundamental nature, even 
if the parties to the dispute remain silent on those issues.  In this regard, we have 
previously observed that "[t]he vesting of  jurisdiction in a panel is a fundamental 
prerequisite for lawful panel proceedings."34  For this reason, panels cannot simply 
ignore issues which go to the root of their jurisdiction – that is, to their authority to 
deal with and dispose of matters.  Rather, panels must deal with such issues – if 
necessary, on their own motion – in order to satisfy themselves that they have authority to proceed. 
34 Appellate Body Report, United States – 1916 Act , supra, footnote 32, para.54. 
30. The European Communities subm its that these cases provide authority for the view that the 
Panel should make findings on an anal ogous and very important systemic  issue in the interpretation of 
the DSU .  Indeed, the European Communities submits th at it is vitally important that the Panel 
delivers a finding or ruling on this systemic issue to avoid the perception that Members can always 
object to the participation, in Article 21.5 DSU  proceedings, of panellists who ruled against them in 
the original dispute. 
 
III. BURDEN OF PROOF 
 
31. The European Communities submits that Br azil, as the applicant in these Article 21.5 DSU  
proceedings, bears the burden of proving its assertions  that the United States has failed to implement, 
in a timely and complete manner, the r ecommendations and rulings of the DSB. 
 32. The general principles applicable to burden of proof, as stated by the Appellate Body in US – 
Shirts and Blouses , require that a party claiming a violation of a provision of the WTO Agreement by 
another Member must assert and prove its claim.
5  In the present Article 21.5 DSU  proceedings the 
European Communities submits that it is Brazi l, which has challenged the United States' 
implementation of the recommendations and rulings of the DSB, that bears the burden of proving that 
the United States has not implemented them in a timely and complete manner.  It is therefore the 
responsibility of Brazil to submit evidence sufficient to establish a prima facie  case that the 
United States has not implemented the recommenda tions and rulings of the DSB in a timely or 
complete manner.  Once Brazil has done so, it is fo r the United States to subm it evidence sufficient to 
rebut that prima facie  case.   
 33. The European Communities also  recalls that the Appellate Body has observed that various 
international tribunals, including the International C ourt of Justice, have ge nerally and consistently 
accepted that the party that asserts a fact, whether cl aimant or respondent, is responsible for providing 
proof thereof.
6   
 
                                                      
4 Appellate Body Report, Mexico – HFCS (Article 21.5),  paragraph 36. 
5 Appellate Body Report, US – Shirts and Blouses , pages 14 to 16. 
6 Appellate Body Report, US – Shirts and Blouses , page 14. WT/DS267/RW  
Page A-64  
 
 IV. ADVERSE EFFECTS-RELATED RECOMMENDATIONS AND RULINGS OF 
THE DSB 
 
A. O
BLIGATION TO IMPLEMENT  
 
34. Brazil claims that between the expiry of the implementation period on 21 September 2005 
and the elimination of Step 2 payments on 1 Augu st 2006, there did not "exist" any United States 
"measures taken to comply" with the adverse effects-related recommendations and rulings of 
the DSB.7 
 
35. In the view of the European Communities,  one of the tasks incumbent on the present 
Article 21.5 DSU  Panel is to examine whether by taking no positive action the United States could 
nevertheless be "in conformity with" its obligations under the SCM Agreement .  As the Appellate 
Body in Canada – Aircraft (Article 21.5)  held: 
 
Proceedings under Article 21.5 do not concern just any measure of a Member of 
the WTO;  rather, Article 21.5 proceed ings 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 measu res 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 measur e 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 original recommendations and rulings of  the DSB, and the "measures taken to 
comply" which are – or should be – adopted to implement  those recommendations 
and rulings.
8   
36. However, from the text of Article 7.8 of the SCM Agreement  it is not clear that the 
United States even had to actually do anything to comply with the findings and recommendations of 
the original panel. 
 
37. Article 7.8 of the SCM Agreement  states that: 
 
Where a panel report or an Appellate Body re port is adopted in which it is determined 
that any subsidy has resulted in adverse e ffects to the interests of another Member 
within the meaning of Article 5, the Memb er granting or maintaining such subsidy 
shall take appropriate steps  to remove the adverse effects9 or shall withdraw the 
subsidy. 
38. Thus, 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 recommendati ons and rulings under Article 7.8 
of the SCM Agreement  actually has to do anything.  Article 7.8 of the SCM Agreement  gives the 
implementing Member two choices as to how to implement DSB recommendations and rulings.  It 
can "take appropriate steps to remove the adverse e ffects [of the subsidy]".  On the other hand, an 
implementing Member also has the choice to comply with the DSB's recommendations and rulings by "withdraw[ing] the subsidy". 
 
                                                     
 
7 Section 6 of Brazil's First Written Submission. 
8 Appellate Body Report, Canada – Aircraft (Article 21.5) , paragraph 36. 
9 European Communities' emphasis added.  WT/DS267/RW 
Page A-65 
 
 
 39. It is clear that between the implementati on date of 21 September 2005 and 31 July 2006 the 
United States did not withdraw any of the subsidies in question.  However, this does not automatically 
mean that the United States has not complied w ith the DSB's recommendations and rulings as it was 
open for the United States to choose instead to "take appropriate steps to remove the adverse effects". 
 
40. The European Communities submits that in "tak [ing] appropriate steps to remove the adverse 
effects" an implementing Member can exercise its di scretion as to how best to remove those adverse 
effects.  It could choose to do so by enacting new le gislation, amending current legislation, or by an 
executive order or other types of administrative ac tion.  These are all examples of positive acts which 
could be taken by an implementing Member. 
 
41. However, the European Communities further s ubmits that "tak[ing] appropriate steps" may 
also include, in certain cases, taking no positive action at all;  in other words, doing nothing.  The test 
which taking no positive action has to meet in order to comply with the SCM Agreement  is that it 
constitutes "appropriate steps to remove the adver se effects".  The question as to whether taking no 
positive action actually is "appropriate" and actually  does "remove" the adverse effects should be 
judged by a careful analysis of the particular facts and circumstances of each case.  It may be in certain cases that other facts and circumstances ha ve changed to such an extent that the adverse 
effects of the subsidies have stopped;  for instan ce, a subsidy may have e xpired and adverse effects 
may have stopped. 
 
42. If there are three subsidies at issue and the or iginal panel holds that they cumulatively had an 
adverse effect, it is possible that the removal of one of those subsidies could remove the adverse 
effect. 
 
43. In a case where the subsidy or adverse ef fects are discontinued th e European Communities 
submits that the complaining party in Article 21.5 DSU  proceedings is bound to analyse whether the 
implementing party has taken appropriate steps to remove the adverse effects with reference to 
"present" circumstances rather th an the possibly rather different circumstances which may have 
existed when the DSB made its original rulings and recommendations.  However, analysis of the 
"present" circumstances and context will invariably en tail analysis of the latest relevant statistical and 
financial information and reports, so in this sense the analysis cannot be absolutely contemporaneous 
with the position on the ground.  However, the complaining party in Article 21.5 DSU  proceedings 
should ensure that its analysis is as up to date  as is possible and the European Communities would 
expect that the Panel will employ a "reasona bleness" test in its analysis thereof. 
 
44. In the US – Softwood Lumber VI, (Article 21.5)  panel report it was noted that,  
 
[t]he role of a panel in an Article 21.5 pa nel proceeding is to evaluate the challenged 
measure to determine its consistency with  the defending Member's obligations under 
the relevant WTO Agreements.
10 
45. Thus, it said, the panel,  
 
is not limited by its original analysis and decision – rather, it is to consider, with a 
fresh eye, the new determination before it, and evaluate it in light of the claims and 
arguments of the parties in the Article 21.5 proceeding.11   
                                                      
10 Panel Report, US – Softwood Lumber VI (Article 21.5),  paragraph 7.12. 
11 Panel Report, US – Softwood Lumber VI (Article 21.5),  paragraph 7.12. WT/DS267/RW  
Page A-66  
 
 46. The European Communities submits that the panel's reasoning in US – Softwood Lumber VI 
(Article 21.5) on this point should apply in the present case.   Although the United States may not have 
taken any positive action to comply with th e panel and Appellate Body's findings and 
recommendations between the implementation date of  21 September 2005 and 31 July 2006, the Panel 
cannot, subject to the principle of res judicata , be limited by the earlier panel and Appellate Body 
reports as it must make a new determ ination in the present Article 21.5 DSU  proceedings.   
 
47. In US – Softwood Lumber VI (Article 21.5) , the panel also observed that,  
 
[w]hile we cannot preclude the possibility that a Member might implement a DSB 
recommendation by specifically answering points raised by a panel (or the Appellate 
Body) in the relevant decisions, this is by no means required by the DSU.
12   
48. On appeal the Appellate Body concluded that the panel's statements in this regard did not 
violate Article 11 of the DSU .  Again, this case demonstrates that  the lack of positive action taken by 
the United States to comply with the panel an d 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.  As stated above, subject to the principle of res judicata , the Panel cannot be restricted by the 
earlier panel and Appellate Body reports as it mu st make a new determination in the present 
Article 21.5 DSU  proceedings. 
 B. P
RESENT SERIOUS PREJUDICE  
 
49. In its adverse effects-relate d recommendations and rulings, the original panel, as affirmed by 
the Appellate Body, found that the price-continge nt United States marketing loan program, counter-
cyclical payment program and Step 2 program of the FSRI Act of 2002 caused significant price suppression in the world market for upland cotton, in violation of Articles 5(c), 6.3(c) and 6.3(d) of 
the SCM Agreement.  The panel found that: 
 
the United States is obliged to take action concerning its present statutory and 
regulatory framework as a result of our "present" serious prejudice findings.
13 
50. The DSB adopted the panel and Appellate B ody reports that obliged the United States to 
remove the adverse effects caused by the subs idies, or to withdraw the subsidies by 
21 September 2005. 
 
51. In the present Article 21.5 DSU  proceedings Brazil claims that the United States did not 
repeal or amend any of the three price-conti ngent subsidy programs until 1 August 2006, when it 
finally discontinued solely the Step 2 program.  Braz il claims that the far larger marketing loan and 
counter-cyclical payment programs have  not been removed or amended. 
 
52. In the second of Brazil's claims concerning adverse effects-related recommendations and 
rulings of the DSB, Brazil claims that the non-rep ealed price-contingent United States marketing loan 
and counter-cyclical payment programs under the FSRI Act of 2002 cause present14 serious prejudice 
in the form of significant price suppression in the world market for upland cotton, and an increase in 
the world market share, in violation of Articles 5(c), 6.3(c) and 6.3(d) of the SCM Agreement .  In 
other words, Brazil claims that, to the extent me asures taken to comply with the adverse-effects 
related recommendations and rulings of the DSB exist (i.e., the repeal of Step 2 and the non-repeal of 
                                                      
12 Panel Report, US – Softwood Lumber VI (Article 21.5), paragraph 7.12. 
13 Panel Report, US – Upland Cotton,  paragraph 7.1501. 
14 European Communities' emphasis added.  WT/DS267/RW 
Page A-67 
 
 
 the marketing loan and counter-cyclical payment pr ograms), those measures are deficient, and result 
in inconsistencies with the covered agreements , within the meaning of Article 21.5 of the DSU . 
 53. With the exception of those circumstances set out in Part IV.C of this submission of the 
European Communities, in order for Brazil to be able to make a successful claim that the price-
contingent United States marketing loan and c ounter-cyclical payment pr ograms have caused it 
serious prejudice, it must be able to evidence that the serious prejudice is actually present . 
54. In establishing its claim, Brazil relies on data  covering the marketing year 2005 – as well as 
additional available data since marketing year 2002, the first marketing year under the FSRI Act 
of 2002.
15  Brazil states in its first written submission that in order to establish "present" serious 
prejudice the complaining party must use data fro m the most recently completed marketing year.16  
However, the European Communities submits that, in establishing a claim of present serious 
prejudice, Members are obliged to rely on the most recent relevant  data reasonably available  to them.  
For instance, the first quarter of the United Stat es' marketing year 2006 for upland cotton runs from 
1 August 2006 until 31 October 2006.  It is the Euro pean Communities' view that, if the data for the 
first quarter of marketing year 2006 was relevant and reasonably available to Brazil, it would have 
been obliged to establish any claim of present  serious prejudice with reference to that data in its first 
written submission on 17 November 2006,  a date which is almost three weeks after the end of the first 
quarter of marketing year 2006. 
 55. The United States, as the defending party in this dispute, is also obliged to respond to any 
complaint of present  serious prejudice with reference to the most recent reasonably available relevant 
data.  Even if the data for the first quarter of ma rketing year 2006 had not been reasonably available to 
Brazil, but it became reasonably available to the United States in the period between the lodging of 
Brazil's first written submission and the lodging of the United States' first written submission, the 
United States would be obliged to refer to it in responding to a complaint of present  serious prejudice.  
The first written submission of a defendi ng party in a matter brought under the DSU  is not a rebuttal, 
so the defending party is obliged to set out its ar guments and, in responding to any complaint of 
present  serious prejudice, to refer to the most r ecent reasonably available and relevant data 
notwithstanding the data which the complaining party has referred to. 
 56. Support for the European Communities' appro ach can be seen in the panel's and Appellate 
Body's approach to the analogous concept of "pr esent injury" in anti-dumping cases.  For instance, 
in US – Softwood Lumber VI the panel stated that it must be clear from an authority's determination of 
threat of material injury that th e authority has evaluated "how the future will be different from the 
immediate
 past, such that the situation of no present ma terial injury will change in the imminent 
future to a situation of material injury . . . .".17  This also applies to consid erations of present injury.  
As the panel stated in Mexico – Rice AD Measures : 
 
An authority that fails to examine data  that includes the most recent available 
information will not be in a position to ma ke judgments about the immediate past.  
The same can be said about findings of presen t injury.  An authority can only make 
                                                      
15 The United States' marketing year for upland cotton runs from 1 August to 31 July.  The 2005 
marketing year covered the period from 1 August 2005 until 31 July 2006. 
16 Paragraph 212 of Brazil's First Written Submission. 
17 Panel Report, US – Softwood Lumber VI,  paragraph 7.58. WT/DS267/RW  
Page A-68  
 
 objective determinations about the present, or the imminent future, if it is examining a 
period that includes
 the most recent available information.18 
57. The European Communities subm its that the Panel can apply the above reasoning in relation 
to "present injury" in anti-dumping cases to the interpretation of "present serious prejudice" in 
subsidies cases such as the present case.  The two concepts are very similar and have similar objects and effects within their respective agreements wh ich are annexed to the WTO Agreement.  Indeed, 
while Article 3.1 of the Anti-Dumping Agreement  and Article 15.1 of the SCM Agreement  require that 
a determination of injury be based on "positive evidence", Article 6.8 of the SCM Agreement  states 
that the existence of serious prejudice should be determined "on the basis of the information submitted to or obtained by the panel".  The Appe llate Body has confirmed that the reference to 
"positive evidence" within the meaning of Article 3.1 of the Anti-Dumping Agreement  necessitates a 
"sufficiently relevant nexus between the data re lating to the period of investigation and current 
injury".
19  Similarly, the existence of "present serious prejudice" can only be properly determined if 
such a sufficiently relevant nexus exits between data submitted to or obtained by the Panel and 
present serious prejudice. 
 58. The European Communities would submit that th e more recent the data, the more convincing 
will be the demonstration of present  serious prejudice.  For instance, if the most recently completed 
marketing year for which figures are available is from ten years ago then the European Communities 
would submit that this would clearly be unreasonabl y old data to be used in calculating whether a 
measure constituted "present" serious prejudice.  In the majority of cases involving a "marketing year" the European Communities would expect that the "m ost recently completed marketing year" would be 
interpreted by a panel as meaning the data for th e marketing year directly preceding the current 
marketing year, or the data for the quarterly or si x monthly periods in the current marketing year.  
Only in very special cases should the Panel consid er making an exception to this general principle. 
 C. T
HREAT OF SERIOUS PREJUDICE  
 59. In section 8 of Brazil's first written submission, Brazil seems to evidence the threat  of serious 
prejudice on the basis of "projections" of the United States' subsidy outlays going forward.   
 60. The European Communities recalls  the findings by the original panel with respect to Brazil's 
claims of the threat  of serious prejudice in those proceedings.  In contrasting " threat  of serious 
prejudice" with " present  serious prejudice," the original panel found as follows:   
 
We believe that "threat" of serious prejudice refers to something distinct from serious 
prejudice.  However, in terms of the ri sing continuum of seriously prejudicing 
another Member's interests, that ascends from a "threat" of serious prejudice up to 
"serious prejudice," we see "serious prejudice" as necessarily including the concept of 
a "threat" and exceeding  the presence of a "threat" for purposes of answering the 
relevant inquiry.  This is confirme d by the text of footnote 13 of the SCM Agreement , 
which indicates that serious prejudice "includes" threat of serious prejudice.
20  
61. In this respect, the European Communities c oncurs with Brazil's statement in its first written 
submission in this case that present serious prejudice would normally be preceded in time  by a 
                                                      
18 Panel Report, US - Rice AD Measures , paragraph 4.410.  See also:  Appellate Body Report, US - Rice 
AD Measures , paragraph 167. 
19 Appellate Body Report, US - Rice AD Measures , paragraph 167. 
20 Panel Report, US – Upland Cotton , paragraph 7.1495.  WT/DS267/RW 
Page A-69 
 
 
 prejudice that threatens to become serious, and serious prejudice would be the realisation of a threat of 
serious prejudice.   
 62. The text of the cited legal provisions leads th e European Communities to conclude that either 
serious prejudice, or threat of serious prejudice, or both in combination, may trigger the remedies 
available in Article 7 of the SCM Agreement .  The existence of either one, or the other, is both a 
necessary and sufficient condition, in and of itself, to achieve this.
21 
 63. The European Communities ag rees with the original panel' s conclusion that a finding of 
present serious prejudice includes the concept of threat of serious prejudice.  The European 
Communities also agrees with the original pane l's conclusion that a finding of present serious 
prejudice is a sufficient condition to trigger th e remedy available in Article 7.8 of the 
SCM Agreement . 
 
V. ALLEGED SO-CALLED "MANDATORY-DISCRETIONARY" DISTINCTION 
 
64. The United States submits that, since Brazil is making an "as such" claim against the US 
marketing loan and counter-cyclical payment "pr ograms", in order to succeed, Brazil must "show"  
that the measure "mandates" a breach of Articles 5(c) and 6.3(c) or 6.3(d) of the SCM Agreement .  
The United States does not refer to any provision of WTO law to support its submission.  Rather, the 
United States asserts that such a requirement "h as been consistently applied in GATT and WTO 
dispute settlement proceedings".  The United States submits that the panel in the original dispute 
appeared to confuse the "mandatory-discretionary" distinction with the different question of whether 
something can be challenged as a measure if it has no binding legal effect.  The United States further 
submits "more specifically" that Brazil would have to demonstrate that the measure mandates actions "that will necessarily cause the kind of effects allege d by Brazil under Article 6. 3(c) and 6.3(d) of the 
SCM Agreement ." According to the United States, the provision in question "simply sets out the 
conditions" under which payment will be made, and for that reason does not "mandate" anything;  and 
thus cannot be WTO inconsistent.
22 
 
65. The European Communities disagrees with th e United States submissions.  The European 
Communities considers that no such requirement can be derived from the text of the SCM Agreement  
or any other WTO agreement, nor from the case la w.  The European Communities observes that the 
United States does not actually explain what, acco rding to the United States, the content of the 
distinction is supposed to be.  Evidently, it is no t and cannot be co-extensive with the question of 
causation.  Nor can it be that a measure is automatically WTO consistent merely because it contains 
conditions.  Contrary to what the United States subm its, this matter was litigated at length before the 
Appellate Body in US-Zeroing , and the arguments of the United States were not accepted. 
 66. Referring to and summarising its submission in  that case, the Europ ean Communities recalls 
that the legal basis for, origins, evolution and content of the so-called mandatory/discretionary 
doctrine are obscure.  The United States cites no legal basis for the alleged rule in the 
WTO Agreements.  A careful review of past GA TT and WTO panel reports reveals that under the 
heading "mandatory/discretionary" one will not in fact find a homogenous, systematic and consistent 
articulation of the same point or principle.  Rath er, one finds slightly different ideas or concepts, 
                                                     
 
21 Panel Report, US – Upland Cotton , paragraphs 7.1495 to 7.1497. 
22 United States first written submission, paragraphs 196 to 202. WT/DS267/RW  
Page A-70  
 
 applied to disparate factual situations, and often leading to rather different results.
23  T h e  
mandatory/discretionary rule is not anywhere articul ated in the WTO agreements, and certainly not in 
the general, abstract and mechanistic terms in whic h it is invoked by the United States.  Rather, its 
alleged existence is entirely based on the alle ged "consistent practice" of past GATT and WTO 
panels.  But there is no such "consistent practice". 
 67. One-by-one, some of the things that it h as from time-to-time been suggested the so-called 
mandatory/discretionary rule might stand for have, particularly on review by the Appellate Body, 
fallen by the way-side.  There is, for example,  no need that the measure be adopted by the 
"legislature" as opposed to the "executive".  Any m easure imputable to a Memb er is susceptible to 
review.
24  There is, for example, no need that the measure  is "binding" in municipal law.  Even "non-
binding" measures are susceptible to review.25  It is irrelevant, for example, if the measure can be 
changed, or how it might be changed.26  A measure may be inconsistent even if it has not yet been 
applied (although evidence of its "as applied" use may evidence a finding of inconsistency).27  Also 
irrelevant is the assertion that the municipal law measure is allegedly susceptible to various interpretations by the municipal courts.
28 
 68. The United States has in the past asserted that  the "mandatory/discretionary" rule means that 
the measure must in all cases  require WTO-inconsistent action before it can be impugned.  The 
European Communities does not agree th at such a rule exists or is to be mechanistically applied.  
With the possible exception in practi ce of numbers, it is never possible
 to say that two general and 
normative rules not expressed in identical terms will always  produce the same result when applied to 
any set of facts.  It is always possible to imagine a set of facts to which the application of the two rules 
will produce different results.  This simply results from the fact that there is a penumbra associated 
with all language, especially when used in relatively abstract terms.  The mechanistic  application of 
an "in all cases" test thus stands for the propos ition that general municipa l measures should never or 
almost never be found "as such" inconsistent;  a pr oposition that flatly contradicts the provisions of 
the SCM Agreement  and the WTO Agreement .  In the light of Article XVI:4 of the WTO Agreement 
and Article 32.5 of the SCM Agreement , Members must ensure conformity with WTO law, either 
through direct effect, or through implementing measures that are themselves in conformity with WTO law. 
 69. The European Communities believes that, just as the "mandatory/discretionary" rule is not, in 
truth, borne of any abstract basic principle e xpressed in the WTO agreement or elsewhere, but has 
rather been puffed-up by dubious assertion based on sp ecific past cases;  so we may expect, quite 
appropriately, to witness its demise, on a case-by-case basis.  The Appellate Body could confirm, 
                                                     
 
23 See, for example,  Mandatory and Discretionary Legislation:  the Continued Relevance of the 
Distinction under the WTO , Sharif Bhuiyan, Journal of International Economic Law 5(3), 571-604;  and The 
Mandatory/Discretionary Doctrine in WTO Law, The US-Section 301 Case and its Aftermath , Yoshiko Naiki, 
Journal of International Economic Law 7(1), 23-72. 
24 Such a requirement was sometimes alleged based on the wording of a GATT Working Party Report 
commenting on the GATT Protocol of Provisional Application, suggesting that a "mandatory" measure 
"imposes on the executive  authority requirements which cannot be modified by executive  action".  Such an 
assertion does not hold good under WTO law (Appellate Body Report, US-Corrosion-Resistant Steel , 
paragraph 81). 
25 Appellate Body Report, US-Corrosion-Resistant Steel , paragraph 38 (US "non-binding" argument) 
and paragraph 85;  Appellate Body Report, Guatemala – Cement I , paragraph 69, footnote 47.  The US now 
agrees with the EC and the Appellate Body on th is point (US first written submission, footnote 286). 
26 Appellate Body Report, US-Corrosion-Resistant Steel , paragraph 39 (US "modification" argument) 
and paragraphs 81 to 101. 
27 Appellate Body Report, US-Corrosion-Resistant Steel , paragraph 82. 
28 Appellate Body Report, US-1916  Act , paragraph 90.  WT/DS267/RW 
Page A-71 
 
 
 once and for all, that there is, in truth, no su ch principle.  In the opinion of the European 
Communities, that is what it has effectively done by finding that  such a "rule" is not to be 
mechanistically applied.  Alternatively, the Appe llate Body may, in one successive case after another, 
explain why the rule does not avert an "as such" fi nding of inconsistency in the particular case.  
Whether it's a quick execution or a slow and painful death, the end result is the same.  This view is 
confirmed by the Appellate Body Report in US-Zeroing .29 
                                                      
29 Appellate Body Report, US-Zeroing , paragraphs 62 and 208 (summarising US argument);  
paragraphs 67, 68 and 210 (summarising EC argument) and paragraphs 211 to 214 (Appellate Body findings). WT/DS267/RW  
Page A-72  
 
 ANNEX A-9 
 
THIRD PARTY SUBMISSION OF JAPAN 
 
(5 January 2007) 
 
 
 
TABLE OF CONTENTS 
 
Page  
 
I. INTRODUCTION   73 
 
II. ARGUMENT   73 
 A. T
HE THREAT OF SERIOUS PREJUDICE STANDARDS DISCUSSED BY BRAZIL ARE 
FLAWED    73 
 
1. The Proposal Brazil Ascribes to the United States is Flawed – The Threat 
Standard of Part V of the Agreement on Subsidies and Countervailing 
Measures Should Not Be Imported to Part III   74 
 
2. Brazil's Proposed Standard Does Not Explicitly Include an Evidentiary 
Requirement   75 
 
3. Final Comments on Threat of Serious Prejudice   76 
 
B. T HE U.S.  ARGUMENT THAT THE PANEL LACKS THE AUTHORITY TO ISSUE A 
RULING WHERE A PARTY HAS TAKEN NO ACTION TO BRING A MEASURE INTO 
COMPLIANCE IS FLAWED AND SHOULD BE REJECTED    76 
 
C. C ONCERNS RAISED BY THE PARTIES ' USE OF OUTSIDE SOURCES    77 
 
1. Brazil's Use of the OECD Arrangem ent on Officially Supported Export 
Credits   77 
 
2. The U.S. Use of the Internationa l Cotton Advisory Committee Report   78 
 
III. CONCLUSION   78 
 
   WT/DS267/RW 
Page A-73 
 
 
 I. INTRODUCTION 
 
1. Japan welcomes the opportunity to present its views to the Compliance Panel in this dispute, 
which was brought by Brazil to challenge th e implementation by the United States of the 
recommendations and rulings of the Dispute Settlement Body (DSB) in United States – Subsidies on 
Upland Cotton  (Upland Cotton ). 
 2. As a third party, Japan's comments stem from its systemic interest in ensuring objective and 
consistent interpretation of the WTO agreements , in particular the Agreement on Subsidies and 
Countervailing Measures (ASCM) and the Dispute Settlement Understanding (DSU).  Japan would 
like to address the following issues discussed in the First Written Submissions of Brazil and the 
United States:  
• The standards discussed by Brazil for establishing  "threat of serious prejudice" under 
Part III of the ASCM; 
 
• The U.S. argument that the Panel lacks the authority to issue a ruling where a party 
has taken no action to bring a measure into compliance;  and 
 
• The importance of ensuring that, when a Me mber resorts to an outside source or 
index, it fully explains its rationale for doing so. 
 
II. ARGUMENT 
 
A. T HE THREAT OF SERIOUS PREJUDICE STANDARDS DISCUSSED BY BRAZIL ARE FLAWED  
 
3. Japan is of the view that the most important i ssue of general interest raised in this dispute is 
the appropriate standard for establishing threat of serious prejudice under Part III of the ASCM.1  As 
at least one panel has recognized, neither Article 5(c) nor footnote 13 of the ASCM "defines or 
elaborates" on the concept of "serious prejudice" to  the interests of another Member, much less the 
concept of "threat".2  Reflecting the lack of textual guidance,  Brazil discusses two markedly different 
standards for adoption by the Panel.  First, Braz il presents for adoption a standard of "'significant 
likelihood' of serious prejudice in the future".3  Second, based on the United States position in the 
original proceeding, Brazil ascribes to the Unite d States a standard based on Article 15.7 of 
the ASCM.4  As explained below, in Japan's view, each proposal has attributes, but ultimately both 
are flawed and should be rejected. 
 
4. This issue is exceedingly important and has fa r-reaching implications.  Japan asks the Panel to 
scrutinize the two proposals, taking into c onsideration the comments set forth below. 
 
                                                      
1 See Agreement on Subsidies and Counterv ailing Measures, Art.  5(c) and n.13. 
2 Korea – Measures Affecting Trade in Commercial Vessels , WT/DS273/R (7 March 2005), 
para. 7.529. 
3 United States – Subsidies on Upland Cotton ;  Recourse by Brazil to Article 21.5 of the DSU , 
WT/DS267, Brazil's First Submission, para. 259. 
4 Id. at paras. 254 – 258.  See ASCM, Article 15.7. WT/DS267/RW  
Page A-74  
 
 1. The Proposal Brazil Ascribes to the United States is Flawed – The Threat Standard of 
Part V of the Agreement on Subsidies a nd Countervailing Measures Should Not Be 
Imported to Part III 
 
5. The standard Brazil ascribes to the United States is drawn from Article 15.7 of the ASCM.  
The standard has two-parts as follows: 
1. The "change in circumstances which woul d create a situation in which the subsidy 
would cause [serious prejudice] must be clearly foreseen and imminent";  and 
2. The threat determination "shall be b ased on facts and not merely on allegation, 
conjecture or remote possibility".
5 
 
In essence, this proposal would import the threat of material injury standard from Part V to 
Part III of the ASCM for the purposes of determining "threat of serious prejudice".  6. As discussed in Section II.B.2. below, Japan agrees that an evidentiary requirement is an 
important part of a threat standard.  However, as  explained below, Japan would reject this legal 
standard.  7. Brazil, in its First Submission, demonstrates that textual reasons
6 and practical reasons7 
militate against adopting the "clearly foreseen and i mminent" legal standard.  For the sake of brevity, 
Japan will not repeat them. 
 
8. There is another important reason to reject this proposal.  Parts III and V of the ASCM serve 
markedly different purposes.  The Part V legal st andard for "threat" reflects this difference and, 
therefore, is an inappropriate standard for "thr eat of serious prejudice" under Part III.  Part V 
addresses countervailing measures.  It cabins the di scretion granted to national authorities to conduct 
investigations and impose counter vailing duties (CVDs).  Article 15 of Part V sets out requirements 
for injury determinations by national authorities.  Article 15.7, inter alia, establishes a rigorous two-
part standard that must be met before a CVD can be applied on the basis of an alleged "threat" of 
material injury.  One part of the standard is an  evidentiary requirement ensuring that a finding of 
"threat" is based on facts.8  The other part is a strict legal standa rd stating the conditions that must be 
met before an affirmative finding of "threat" can be made.9 
 
9. As compared to the concept of actual "injury" , the concept of "threat of material injury" by 
nature is less defined.  Indeed, in the anti-dum ping context, the Appellate Body has referred to 
"threat" findings as involving "intrinsic uncertainty".10  In Part V of the ASCM, Articles 15.7 and 15.8 
address this difference.  Along with the exhortation of Article 15.8 that national authorities exercise 
"special care" in threat cases, the two parts of th e Article 15.7 standard work together to limit the 
discretion of national authorities and guarantee against misuse.11 
                                                      
5Id. 
6 Id., para. 255. 
7 Id., para. 256. 
8 See ASCM, Article 15.7, first sentence. 
9 Id., second sentence. 
10 Mexico – Anti-Dumping Investigatio n of High Fructose Corn Syrup (H FCS) from the United States;  
Recourse to Article 21.5 of the DSU by the United States , WT/DS132/AB/RW (22 October 2001), para. 85. 
11 See, e.g., 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 (13 April 2006), para. 96 
(Article 15.7 of the ASCM "enjoin[s] a panel to scrutinize carefully  the inferences and explanations of the 
  WT/DS267/RW 
Page A-75 
 
 
 10. The original Panel in this proceeding properly recognized that ASCM Part V, for a variety of 
reasons, may not be proper context for interpreting and applying Part III.12  The Panel recognized the 
significant differences in the purposes and instrument s of Part III, which addresses WTO claims of 
"serious prejudice", and Part V, which addresses na tional authorities' conduct of CVD investigations 
and imposition of CVDs, even though both Part III and Part V address subsidies. 
 
11. In this specific case, Part III issues are completely devoid of concerns relating to limiting the discretion of national authorities to prevent mi suse thereof in the conduct of domestic CVD 
investigations set forth above that apply to Part V.  In a "threat of serious prejudice" claim under Part III, the provisions and standards are applied by panels and the AB.  No  national authority is 
involved. 
 12. The Panel should reject the standard Brazil as cribes to the United States for this reason, as 
well as those set out by Brazil in paragraphs 255-256 of its Firs t Submission relating to textual 
analysis of ASCM Article 5(c), accompanying note 13 and Article 15.7 and to the possible effect of 
precluding remedies for certain types of subsidy programs. 
 
2. Brazil's Proposed Standard Does Not Exp licitly Include an Evidentiary Requirement 
 
13. Brazil proposes a separate, less stringent st andard for establishing "threat of serious 
prejudice".  Brazil proposes that the Panel find that a "threat of serious prejudice" exists where there is 
a "'significant likelihood' of serious prejudice in th e future."13  As an initial matter, Japan notes that 
this proposal is incomplete as it does not include an explicit evidentiary requirement.
14  An explicit 
evidentiary requirement such as that set fort h in the first sentence of ASCM Article 15.715 is a crucial 
component of any "threat" standard.  It is necessary to tie to real world facts what otherwise is an 
amorphous concept. 
                                                                                                                                                                     
investigating authority in order to ensure that any projections or assumptions made by it, as to likely future 
occurrences, are adequately explained and supported by  positive evidence on the record" (emphasis added;  
referring also to Article 3.7 of the Agreement on Impl ementation of Article VI of the General Agreement on 
Tariffs and Trade 1994 (AD Agreement)) citing United States – Safeguard Measures on Imports of Fresh, 
Chilled  or Frozen Lamb Meat from New Zealand and Australia , WT/DS177, 178/AB/R (1 May 2001), 
para. 136;  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 (22 October 2001), para. 85. 
Panels have rigorously applied the standard governing "threat" in the safeguard context under 
Articles 4.1(b) and 4.2(a) of the Agreement on Safeguards and in the anti-dumping context under Article 3.7 of 
the AD Agreement.  See, e.g., Argentina – Definitive Safeguard Measure on Imports of Preserved Peaches , 
WT/DS238/R (14 February 2003), paras. 7.83 – 7.133 (rejecting affirmative threat finding of national authority);  Chile – Price Band System and Safeguard Measures Relating to Certain Agricultural Products , 
WT/DS207/R (3 May 2002), paras. 7.163 – 7.174 (same);  Argentina – Safeguard Measures on Imports of 
Footwear , WT/DS121/R (25 June 1999), paras. 8.281 – 8.286 (same);  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 (22 October 2001), paras. 76  – 101 (upholding Panel's rejection of national 
authority's affirmative threat finding). 
12 See, e.g., United States – Subsidies on Upland Cotton , WT/DS267/R (8 September 2004), 
para. 7.1167. 
13 Brazil's First Submission, para. 259. 
14 Japan notes, however, that, after setting out the proposed standard, Brazil lis ts a number of factors 
for consideration, which indicates an appreciation of the evidentiary concerns  raised by the amorphous nature of 
threat claims.  See id ., para. 260. 
15 See also  Agreement on Safeguards, Article 4.1(b) ("A de termination of the existence of a threat of 
serious injury shall be based on facts and not merely on allegation, conjecture or remote possibility");  AD Agreement, Article 3.7 ("A determination of a threat  of material injury shall be based on facts and not 
merely on allegation, conjecture or remote possibility"). WT/DS267/RW  
Page A-76  
 
 14. Japan recognizes that this position could be criticized as inappropriately importing a provision 
from Part V, contrary to (or inconsistent with) Jap an's argument in Section II.A.1. above.  However, 
in this instance, the importation makes sense.  Any type of threat determination – whether it be of 
serious prejudice, material injury or seri ous injury – must be grounded in fact. 
 
15. Turning to Brazil's proposed legal standard – "significant likelihood" – Japan is of the view 
that the standard is more balanced than the lega l standard of Article 15.7 of the ASCM.  However, 
Brazil's proposed standard offers little concrete guidance – what, exactly, constitutes a significant 
likelihood?  Japan notes that panels  previously have had occasion to discuss "likely" and "likelihood".  
In a proceeding involving the AD Agreement, the pane l examined the meaning of "likely" as it is used 
in Article 11.2 in the phrase "whether the inju ry would be likely to continue or recur".
16  In a later 
proceeding, a panel examining a threat determin ation under Article 4.1(b) of the Agreement on 
Safeguards examined the phrase "clearly imminent", concluding that it signaled that an affirmative 
threat finding required the existence of a "high degr ee of likelihood that the an ticipated serious injury 
will materialize in the very near future."17  The inclusion of the word "s ignificant" suggests a stricter 
standard than that examined by the panel in U.S. – DRAMS  and comes closer to a "high degree of 
likelihood" as discussed in Preserved Peaches , but the question remains as to what exactly would 
constitute a "significant likelihood".  In any case, the se earlier panel reports might be of assistance in 
evaluating Brazil's proposal.  
3. Final Comments on Threat of Serious Prejudice 
 
16. When the Panel addresses the issue of the appropriate standard for "threat of serious 
prejudice", Japan understands it will proceed in accord ance with Article 3.2 of the DSU and Section 3 
of the Vienna Convention on the Law of Treaties.  
17. In addition, Japan asks the Panel to consider th at the "threat" standard must be applicable to 
circumstances that are very different from those in this case.  As Brazil notes, the standard must not, 
by its very structure, ignore an entire class of thr eat cases, especially cases in which serious prejudice 
had been established in an earlier proceeding.
18  At the same time, though, the standard must be strict 
enough to discourage specious threat claims.  
B. T
HE U.S.  ARGUMENT THAT THE PANEL LACKS THE AUTHORITY TO ISSUE A RULING WHERE 
A PARTY HAS TAKEN NO ACTION TO BRING A MEASURE INTO COMPLIANCE IS FLAWED AND 
SHOULD BE REJECTED  
 18. The United States argues that the Panel lack s the authority to address Brazil's arguments 
regarding the U.S. Marketing Loan Program and Countercyclical Program.
19  Under scrutiny, the U.S. 
argument reduces to a position that is indefensible – the U.S. would subject to Article 21.5 review a 
Member that in good faith attempts  to alter a non-compliant measure to bring it into compliance, but 
would insulate from Article 21.5 review a Member  that takes no action to bring a non-compliant 
measure into conformity with WTO provisions.  
                                                     
 
16 See United States – Anti-Dumping Duty on Dynamic Random Access Memory Semiconductors 
(DRAMS) of One Megabit or Above from Korea , WT/DS99/R (29 January 1999), paras. 6.44-6.51. 
17 Argentina – Definitive Safeguard Measure on Imports of Preserved Peaches , WT/DS238/R 
(14 February 2003), para. 7.120. 
18 Cf. Brazil's First Submission, paras. 256-258. 
19 See U.S. First Submission, paras. 45 – 48;  see also  id., paras. 49 – 56.  WT/DS267/RW 
Page A-77 
 
 
 19. The United States cites the Appellate Body re port in EC – Bed Linen 21.5 to support its 
position20, but the citation is unavailing.  The U.S. char acterization of the Appellate Body report is 
questionable.  The most pertinent part of the report is the following statement: 
 
87. We conclude, therefore, that, in the se Article 21.5 proceedings, India has raised 
the same  claim under Article 3.5 relating to "other  factors" as it did in the original 
proceedings.  In doing so, India seeks to cha llenge an aspect of the original measure 
which has not changed, and which the European Communities did not have to 
change , in order to comply with the DSB recommendations and rulings to make that 
measure consistent with the Eur opean Communities' WTO obligations.21 
Thus, the situation in EC – Bed Linens 21.5  is not analogous to the instant proceeding. 
 20. The U.S. argument, if accepted, could cr eate an endless loop of litigation where a Member 
refused to alter a measure found to be non- compliant.  By cutting off access to review under 
Article 21.5, the U.S. argument would require the Me mber that won the original challenge to bring a 
separate dispute regarding the unchanged measure.  In  Japan's view, this result is to be avoided. 
 21. Japan asks the Panel to reject this U.S. argument. 
C. C
ONCERNS RAISED BY THE PARTIES ' USE OF OUTSIDE SOURCES  
 22. In a case as complex as Upland Cotton , the parties of necessity resort to non-WTO related 
sources to advance their positions.  To ensure that ea ch outside source is properly used, panels and the 
Appellate Body should scrutinize each source and its relationship to the proposition it is alleged to 
support.  23. This proceeding presents many examples of th is practice.  Japan wishes to focus on two in 
particular – Brazil's reliance on the OECD Arra ngement on Officially Supported Export Credits 
(OECD Arrangement)
22 and the U.S. use of a report by the International Cotton Advisory Committee 
(ICAC).23 
 
1. Brazil's Use of the OECD Arrangement on Officially Supported Export Credits 
 24. Brazil relies on the OECD Arrangement for the limited purpose of establishing that fees for 
Export Credit Guarantees (ECGs) under the U.S. Gene ral Sales Manager (GSM) 102 program are less 
than the minimum premium rates (MPRs) in the Ar rangement (and, to simplify Brazil's argument, are 
thus below market).
24   
 
25. In Japan's view, the OECD Arrangement appear s to be an inappropriate reference in this 
proceeding.  First, the OECD Arrangement does no t cover agricultural products.  Second, as Brazil 
recognizes elsewhere (in explaining its use of a nother outside index), the risks of financing 
arrangements for bulk agricultural commodity products , such as cotton, are not only substantial, but 
                                                      
20 Id., para. 46, citing 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 (24 April 2003), para. 87. 
21 EC – Bed Linens – 21.5 AB , para. 87 (first emphasis in original;  second emphasis added). 
22 See Brazil's  First Submission, paras. 438 – 443, citin g Exhibit Bra – 546 (OECD document TD/PG 
(2005) 38/FINAL, 5 December 2005). 
23 See U.S. First Submission, para. 60, quoting "Cotton:  Review of the World Situation", ICAC, p. 11 
(May – June 2006) (BRA – 485). 
24 See Brazil's First Submission, paras. 438 – 443. WT/DS267/RW  
Page A-78  
 
 also unique.  Brazil notes that the tenor for Lette r of Credit Insurance (LCI) granted by the 
Export-Import Bank of the United States (Ex-Im Bank) is capped at 180 days for bulk agricultural products.
25  Furthermore, the scope of application of the OECD Arrangement is export credits with 
repayment terms of two years or more. Thus, Brazil's use of the OECD Arrangement in this case is inappropriate. 
 
26. Japan urges the Panel to closely examine Brazil's rationale for its use of the OECD 
Arrangement MPRs. 
 
2. The U.S. Use of the Internationa l Cotton Advisory Committee Report 
 
27. Japan also takes issue with th e use by the United States of an ICAC report.  The United States 
quotes the ICAC report for the proposition that, foll owing the 1 July 2005 modifications, the U.S. 
government's export credit guarantee programs "' comply with the WTO ruling .'"
26 
 
28. The ICAC is not empowered to determine whether a WTO Member's measures comply with 
a WTO provision or whether changes to a non-compliant measure have brought the measure into compliance.  Therefore, Japan is of the view that c itations such as this are not relevant to the instant 
dispute.  29. Japan urges the Panel to closely exam ine the U.S. use of the ICAC Report. 
 
III. CONCLUSION 
 
30. Japan respectfully request s the Compliance Panel to exam ine carefully the facts and 
arguments presented by Brazil and the United States  in light of the comments above, in order to 
ensure objective and consistent in terpretation of the WTO agreements, particularly the ASCM and 
the DSU.  We welcome any questions that th e Panel may have regarding this submission. 
  
                                                     
 
25 See Brazil's First Submission, paras. 387 and 389. 
26 See U.S. First Submission, para. 60, quoting "Cotton:  Review of the World Situation", ICAC, p. 11 
(May – June 2006) (BRA – 485) (emphasis added by United States).  WT/DS267/RW 
Page A-79 
 
 
 ANNEX A-10 
 
THIRD PARTY SUBMISSION OF NEW ZEALAND 
 
(5 January 2007) 
 
 
 
CONTENTS 
 
Page  
 
I. INTRODUCTION   80 
 II. THE FINDINGS IN QUESTION AND THE ALLEGED MEASURES OF 
IMPLEMENTATION  
 80 
 
III. DSU ARTICLE 21.5 AND SCM AGREEMENT ARTICLE 7.8   81 
 
IV. THE PRELIMINARY RULINGS CLAIM   82 
 A. T
HE PAYMENTS /PROGRAMMES DISTINCTION    82 
 B. T
HE "MEASURES TAKEN TO COMPLY " ARGUMENT    83 
 
V. THE SUBSTANTIVE CLAIMS   83 
 
A. T HE UNITED STATES CLAIM THAT THE IMPACT OF THE REMOVAL OF STEP 2 
PAYMENTS IS NOT "RELATIVELY MODEST "   84 
 B. T
HE UNITED STATES CLAIM THAT MARKETING LOAN AND COUNTER -CYCLICAL 
PAYMENTS PROGRAMMES DO NOT MANDATE A BREACH OF THE 
WTO A GREEMENTS    86 
 C. T
HE UNITED STATES CLAIM THAT BRAZIL HAS FAILED TO MAKE A PRIMA FACIE  
CASE OF WTO  INCONSISTENCY OF THE MARKETING LOAN AND 
COUNTER -CYCLICAL PAYMENTS PROGRAMMES    86 
 
1. Counter-cyclical Payments   86 
 
2. Marketing Loan Payments   87 
 
3. Marketing Loan and Counter-Cyclical Payment Programmes and Market 
Signals    88 
 
4. The Reliability of the Econometric Modelling   89 
 
5. Increase in the World Market Share   90 
 
VI. CONCLUSION   90 
 WT/DS267/RW  
Page A-80  
 
 I. INTRODUCTION 
 
1.01 The rulings and recommendations of the panel and of the Appellate Body in United States – 
Subsidies on Upland Cotton  adopted by the Dispute Settlement Body ("DSB") on 21 March 2005 
constituted an important step in the interpreta tion and application of the provisions of the Agreement 
on Subsidies and Countervailing Measures  ("SCM Agreement") in respect of both prohibited and 
actionable subsidies.  In particular it clarified the meaning and scope of the concept of serious 
prejudice in Article 6 of the SCM Agreement.  Ne w Zealand was a third party in that case because of 
its systemic interest in the integrity of these  provisions.  As a leading agricultural exporter 
New Zealand has a particular interest in the app lication of the subsidies disciplines to agricultural 
products.  Thus, New Zealand welcomed the adopt ion of the panel and Appellate Body reports. 
 1.02 Brazil now brings the matter of United Stat es subsidies in respect of upland cotton back under 
Article 21.5 of the Dispute Settlement Understandi ng (DSU).  Brazil argues that the United States 
action and inaction in respect of the recommendations a nd rulings of the DSB puts it in violation of its 
obligations under Articles 5 and 7.8 of the SCM Agre ement.  Failure by the United States to remove 
the adverse effects or withdraw the subsidisi ng measures as required by Article 7.8 of the 
SCM Agreement, calls into question the very viabilit y of the disciplines in that Agreement.  As a 
result, New Zealand is exercising its right as a thir d party in this Article 21.5 compliance proceeding. 
 1.03  In New Zealand's view, the decision of  the panel in this case will have far-reaching 
implications.  Not only is the fact of non-complian ce a threat to the subsidy disciplines of the SCM 
Agreement, but the arguments put forward by the Un ited States in its response to the claim of Brazil 
have serious systemic implications for the future  application of the SCM Agreement.  New Zealand 
will elaborate on this aspect th roughout this submission.  
 II. THE FINDINGS IN QUESTION AND THE ALLEGED MEASURES OF 
IMPLEMENTATION 
 
2.01 In this submission New Zealand will focu s on the implementation of the recommendations 
and rulings of the DSB in respect of the subsidie s that were found by the panel in the original 
proceedings to be actionable.  The relevant part of  the panel's findings is paragraph 8.1(g)(i) which 
provides: 
 
the effect of the mandatory price-contingent United States subsidy measures – marketing loan programme payments, u ser 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 ; 
2.02 In paragraph 8.3 the panel went on to say in r espect of its finding in paragraph 8.1(g)(i), that 
in light of Article 7.8 of the SCM Agreement th e United States was under an obligation to "take 
appropriate steps to remove the adverse effects … or withdraw the subsidy".  The Appellate Body 
expressly upheld the finding of the panel in paragraph 8.1(g)(i). 
 2.03 As Brazil has pointed out, the only action taken by the United States in implementing the 
recommendations and rulings of the DSB on 21 Marc h 2005 has been the abolition of user marketing 
(Step 2) payments.  The progra mmes under the Farm Security and Rural Investment ("FSRI") Act 
of 2002 providing for marketing loan payments a nd counter-cyclical payments remain.  Since these 
were the major contributors to the price suppr ession and hence the serious prejudice found by the 
panel then, as Brazil argues, the United States has fail ed to remove the adverse effects as required by 
Article 7.8 of the SCM Agreement and thus remains in violation of Article 5 of the SCM Agreement.  WT/DS267/RW 
Page A-81 
 
 
 2.04 The United States response falls into two br oad areas.  First, the United States argues that 
certain claims made by Brazil are outside the scope  of DSU Article 21.5 proceedings and requests that 
the panel make preliminary rulings to that effect .  Second the United States claims that Brazil has 
failed to show that in the absen ce of the Step 2 payments, the ma rketing loan and counter-cyclical 
programmes cause serious prejudice either through price suppression or through an increase in world 
market share.  In New Zealand's view both of these arguments are flawed.  In this submission, 
New Zealand will provide some comments on the United States claims.  In respect of the request for 
preliminary rulings, New Zealand will focus on the cl aim that the marketing loan and counter-cyclical 
programs are outside the scope of these Article 21.5 proceedings.  III. DSU ARTICLE 21.5 AND SCM AGREEMENT ARTICLE 7.8 
 
3.01 Before addressing the United States preliminary rulings claim, New Zealand wishes to make some comments on the uniqueness of this case and the importance of its implications.  This 
Article 21.5 proceeding involves for the first time the question of compliance in respect of the 
obligation under Article 7.8 of the SCM Agreement either to withdraw the subsidy or to "take 
appropriate steps to remove the adverse effects".  He nce this panel is faced with the interpretation of 
both DSU Article 21.5 and Article 7.8 of the SCM Ag reement and with determining their relationship 
to each other.  3.02 DSU Article 21.5 mandates a panel to consid er "the existence or consistency of measures 
taken to comply with the recommendations and ruli ngs" of the DSB.  As the Appellate Body has 
pointed out, this provision entitles a panel to determ ine whether any measures exist to implement the 
recommendations and rulings of the DSB.
1  However, when compliance with Article 7.8 of the 
SCM Agreement is raised in an Article 21.5 proceedi ng, it is not just a question of the existence of 
measures or of their consistency with the recomme ndations and rulings of the DSB that has to be 
considered.  If the subsidising measures in question have not been withdrawn then there is the further 
question of whether "appropriate steps" have been  taken to remove the adverse effects of those 
measures.  3.03 In New Zealand's view, an enquiry to dete rmine whether Article 7.8 of the SCM Agreement 
has been complied with can involve a panel in looking at three things.  First, a panel must determine 
whether the subsidising measures have been withdr awn.  Second, if those measures have not been 
withdrawn, then the panel must consider whether any steps have been taken to remove the adverse 
effects.  Third, if the panel finds that steps have b een taken to remove the adverse effects, then it must 
determine whether those steps are "appropriate".  
3.04 In New Zealand's view, the steps would only be "appropriate" if they are capable of removing 
the adverse effects.  The Oxford English Dictionary  defines "appropriate" as meaning "specially 
fitted, suitable, proper".
2  A measure that is not capable of achieving its objective of removing the 
adverse effects would be neither suitable nor appr opriate.  As a consequence, steps taken by an 
implementing Member that are not capable of removi ng the adverse effects would not be "appropriate 
steps" within the meaning of Article 7.8 of the SCM Agreement.  
 
                                                      
1 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, 14 March 2006, 
para. 93. 
2 The Oxford English Dictionary  (2nd Edition) – Volume I, Clarendon Press, Oxford: 1989, p. 586. WT/DS267/RW  
Page A-82  
 
 IV. THE PRELIMINARY RULINGS CLAIM 
 
4.01 The United States claims that marketing loans and counter-cyclical programmes under 
the FSRI are "outside the scope" of the Article  21.5 proceeding. The United States presents 
two arguments in this respect.  First, it argues that the DSB ruling covered only certain "payments" 
under those programmes, not the programmes themselv es.  Second, the United States argues that these 
programmes do not constitute "measures taken to co mply" with the recommendations and rulings of 
the DSB and hence they fall outside the scope of DSU Article 21.5.  In New Zealand's view both 
arguments are unsupportable.  Moreover, if these argum ents were to be upheld, the actionable subsidy 
regime under the SCM Agreement w ould be completely undermined. 
 
4.02 New Zealand notes that the United States also requests a preliminary ruling that Brazil's claim 
that no action was taken by the United States in im plementation of the recommendations and rulings 
of the DSB between 21 September 2005 and 31 July  2006 is also outside the scope of these 
proceedings.  On this matter, however, Brazil is undoubtedly correct.  The United States cannot claim 
that since it took no implementing action until 1 August 2006, that period is outside the scope of these 
proceedings.  DSU Article 21.5 applies to the "exist ence" of measures not just to the consistency of 
measures actually taken to comply with th e recommendations and rulings of the DSB. 
 A. T
HE PAYMENTS /PROGRAMMES DISTINCTION  
 
4.03 The United States claim that the panel's findi ng in paragraph 8.1(g)(i) is limited to specific 
payments and did not cover the programmes that au thorise those payments involves a rewriting of the 
panel's findings.  The United States seeks to revise the finding of the panel in light of certain arguments made by Brazil in the panel proceedings , but there is no justification for rewriting the 
conclusions of the panel in this way. 
 
4.04 An examination of the panel's finding indicates that the United States contention simply has no basis.  In paragraph 8.1(g)(i) the panel made a finding about "the effect of the mandatory price-
contingent United States subsidy measures".  The finding was that these measures constituted 
"significant price suppression".  The descriptive refe rence to "marketing loan programme payments, 
user marketing (Step 2) payments, MLA payments and CCP payments" does not alter the nature of 
the finding.  Payments are not mandatory subsidy m easures; they are simply the means by which the 
subsidy measures are implemented.    4.05 Moreover, it is quite clear that the panel's analysis of the subsidy measures that caused price 
suppression was of the programmes under the FSRI  under which payments are made.  The panel 
determined that the marketing loan payments ar e mandatory by reference to the "text of the 
measure".
3  The "measure" here is the marketing loan programme, not the payment itself.  The panel 
states, "the structure, design and operation of th e marketing loan programme has enhanced production 
and trade-distorting effects"4.  Again, it is the programme under which the payments were made that 
was being considered by the panel, not just specific payments.  
4.06 The United States claims th at the statement of the panel in paragraph 7.1501 that "the 
United States is obliged to take action concerni ng its present statutory and regulatory framework as a 
result of our ‘present' serious prejudice finding" is not a recommendation of  the panel, and thus 
presumably is not binding on the United States.  What this argument ignores, however, is that although not a recommendation as such, the statement is  relevant to understanding the findings of the 
                                                     
 
3 Panel Report, United States – Subsidies on Upland Cotton  WT/DS267/R, 8 September 2004, 
paragraph 7.1291. 
4 Ibid, paragraph 7.1295.  WT/DS267/RW 
Page A-83 
 
 
 panel.  It gives meaning to the finding in paragr aph 8.1(g)(i) relating to the "United States subsidy 
measures" that constituted significant price suppression.  4.07  In short, read properly in the context of the panel's decision as a whole, the finding in 
paragraph 8.1(g)(i) is not limited to the specifi c payments in MY 1999-2002.  It applies to the 
measures under which those payments are authorised  and hence to the marketing loan and counter-
cyclical programmes themselves.  4.08 Moreover, the United States distinction be tween payments and programmes leads to an 
absurd result.  It means that serious prejudice would have to be proved annually in the light of 
payments that have been made by which time the adverse effects have already occurred and it would 
be too late to withdraw the measure that caused th em.  To argue that the panel was referring only to 
payments in MY 2002 makes nonsense out the pane l's own reference to Article 7.8 of the 
SCM Agreement and to the requirement to withdraw the subsidy.  How can a subsidy be withdrawn if 
in fact the subsidy is over and the subsidizing e ffect is past?  The United States arguments would 
simply undermine the disciplines on actiona ble subsidies in the SCM Agreement. 
 B. T
HE "MEASURES TAKEN TO COMPLY " ARGUMENT  
 4.09 The United States also argues that the ma rketing loan and counter-cyclical payments 
programmes are outside the scope of these Article 21.5 proceedings because they are not "measures 
taken to comply with the recommendations and rulin gs" of the DSB. According to the United States, 
"Article 21.5 applies only with respect to a disagr eement as to the existenc e or consistency of a 
measure taken to comply", hence it cannot apply to  programmes that existed at the time the matter 
came before the original panel and are unchanged.  Under the United States logic, any such challenge 
to these measures has to be the subject of a new complaint. 
 
4.10 In New Zealand's view, the United States argum ent ignores the fact that Article 21.5 is not the 
only relevant provision in these proceedings.  In respect of the panel's finding under 
paragraph 8.1(g)(i), the obligation on the United States is found in Article 7.8 of the SCM Agreement.  
This provision grants the United States the choice e ither to withdraw the measures in question or to 
remove the adverse effects.  Having chosen not to  withdraw the marketing loan and counter-cyclical 
payments programmes, the United States cannot now avoid its obligation under Article 7.8 of the 
SCM Agreement to remove the adverse effects of those subsidy programmes by claiming that they are 
not measures taken to comply within the meaning of DSU Article 21.5.  The United States cannot use 
the provisions of Article 21.5 to nullify its oblig ation under Article 7.8 of the SCM Agreement. 
 
4.11 As pointed out in paragraphs 3.03 a nd 3.04 above, in applying Article 7.8 of the 
SCM Agreement to the present case the panel has to determine whether the measures causing serious 
prejudice have been withdrawn.  In the case of the marketing loan and the counter-cyclical payments 
programmes they have not been withdrawn.  The pa nel must then determine whether steps have been 
taken to remove the adverse effects found to exist by  the original panel.  It must then determine 
whether any steps that have been taken are "appropri ate", that is whether they are measures that are 
capable of removing the adverse ef fects.  DSU Article 21.5 cannot be  invoked, as the United States 
seeks to do in this case, as a barrier to the panel conducting such an analysis. 
 
V. THE SUBSTANTIVE CLAIMS 
 5.01 Brazil argues that even in the absence of the Step 2 payments programme, marketing loan 
payments and counter-cyclical payments alone cause significant price suppression.  Indeed, Brazil 
argues that the removal of the Step 2 programme  could increase counter-cyclical payments, thus 
adding to the significant price depression.  Brazil also  argues that marketing loan and counter-cyclical WT/DS267/RW  
Page A-84  
 
 payments threaten to cause serious injury in MY 2006 and beyond.  New Zealand supports these 
claims.    5.02 The United States response falls into three broad categories.  First the United States argues 
that Brazil has not substantiated its claim that the effect of the Step 2 payments on price suppression 
was "relatively modest".  Second the United States cl aims that Brazil is in effect arguing that the 
marketing loan and counter-cyclical payments per se violate the WTO Agreements, and that this 
could only occur if the programmes "mandate a breach " of those agreements, which the United States 
claims that they do not.  Thirdly, the United States argues that Brazil has failed to make a prima facie  
case of the WTO inconsistency of the marketing lo an and counter-cyclical payments programmes. 
 
5.03 New Zealand will comment on each of these arguments, but before doing so will make a 
preliminary observation about the implications of the United States arguments in the context of an Article 21.5 case where the central question is whethe r there has been compliance with Article 7.8 of 
the SCM Agreement. 
 
5.04 The essence of the arguments of the United States is that Brazil has the burden of showing 
that in the light of the removal of the Step 2 payments programme the marketing loan and counter-
cyclical payments programmes cause or threaten ser ious prejudice, and it has failed to meet that 
burden.  There is no doubt that as complainant in this Article 21.5 proceeding Brazil bears the burden 
of proof.
5  The question is what does such a burden entail?   
 
5.05 In the present case, the DSB recommendations  and rulings of 21 Ma rch 2005 covered three 
programmes; the Step 2 payments programme, th e marketing loan payments programme and the 
counter-cyclical payments programme.  But having c hosen to remove only one of those programmes, 
the United States now claims that Brazil has the burden of showing that the remaining two 
programmes cause serious prejudice.  Thus, in substance the United States is claiming that Brazil 
must prove again what it had already proved and wh at has been already been found by the original 
panel to cause serious prejudice.  This cannot be the in tent of either DSU Article  21.5 or Article 7.8 of 
the SCM Agreement.  A Member should not have the burden of proving something that has already 
been decided by the original panel.  
5.06 In New Zealand's view, Article 7.8 of th e SCM Agreement operates to distribute the burden 
of proof somewhat differently.  Since an implemen ting Member has the option of either withdrawing 
the subsidising measure or removing the adverse effects, a Member that fails to withdraw the measure in question then should have the burden of showing that it has removed the adverse effects.  Thus, in 
the present case proof by Brazil that the measures found by the original panel to cause adverse effects 
have not been withdrawn should establish a prima facie  case that implementation has not occurred 
and the burden should then shift to the United States to prove that the adverse effects caused by those 
subsidising measures have been removed.  A. T
HE UNITED STATES CLAIM THAT THE IMPACT OF THE REMOVAL OF STEP 2 PAYMENTS IS 
NOT "RELATIVELY MODEST " 
 
5.07 Much of the United States argument that Br azil is incorrect in treating the impact of the 
removal of Step 2 payments as "relatively modest" is focused on what it perceived Brazil to be arguing before the original panel.  But this is simply  not relevant.  Rather, it is what the panel decided 
and the actual impact of the removal of the Step 2 payment programme that is relevant.  The original 
panel concluded that the marketi ng loan and counter-cyclical payments programmes contributed to 
                                                     
 
5 Appellate Body Report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses 
from India, WT/DS33/AB/R, 25 April 1997, p. 14.   WT/DS267/RW 
Page A-85 
 
 
 price suppression and serious prejudice.  In its Firs t Written Submission Brazil has demonstrated that 
notwithstanding the withdrawal of the Step 2 pa yments programme, payments under the marketing 
loan and counter-cyclical payments programmes caused price suppression in the world market in 
MY 2005 and an increase in United States world ma rket share in upland cotton in MY 2005.  Thus, 
there is serious prejudice within the meaning of SCM Article 5(c). 
 
5.08 The United States claim about the significan ce of the removal of the Step 2 payments 
programme is undermined by a comparison of th e amounts paid under the various programmes.  
Step 2 payments are small compared to marketing loan and counter-cyclical payments.  In the most 
recent year, 2005, for example, the Step 2 payments amounted to US$350 million.  In the same year, 
the marketing loan and counter-cyclical programme payments amounted to US$2,170 million.6  
Similar ratios existed in most other years.  There is no doubt that the removal of the Step 2 payment 
programme had some impact, but the United States cannot ignore the much larger volume of subsidisation under the two programmes that have not been withdrawn or modified. 
 
5.09 The United States also seeks to counter Brazi l's argument that eliminating Step 2 payments 
could result in a higher counter-cyclical payment rate by arguing that in the current year there could not be any increase in counter-cyclical payments.  But, this is because counter-cyclical payments are 
already at their maximum rate.
7  In other words, the United States is not arguing that the counter-
cyclical programme would not compensate for the elimination of the Step 2 payments;  rather, it is 
arguing that payments are already so high that unde r current conditions no further payments can be 
made.  None of this supports the United States c ontention that the programme does not have a price 
suppressing effect.   
 
5.10 The United States also contends that Brazil fa ils to recognize that the elimination of Step 2 
payments will result in a lowering of marketing lo an payments.  While this may be true because 
marketing loan payments are configured on world prices, which would increase with the elimination 
of Step 2 payments, what the argument ignores is  the fact that these programmes are distorting 
whether or not payments are made under them.  It  is the programmes themselves not the payments 
that create expectations.  Producers know that the lo an rate is there to support them, that there is a 
target price8 that they will receive either from the market or from the government.  Neither the 
elimination of Step 2 payments nor  any lowering of marketing loan payments in fact diminishes the 
distorting effect of the marketing loan and counter-cyclical programmes. 
 
5.11 Finally, even the United States own figures s how that the impact of the elimination of the 
Step 2 payment programme is modest.  On one occas ion it cites an increase of 0.4c/lb in the adjusted 
world price or $2.25 per ha9 and on another occasion it cites an increase in the world price of 1.4c/1b 
or $2.30 per ha.10  By comparison with the futures price in 2005-2006 (52.9-59.35 cents per pound)11, 
loan rate (52 cents per pound)12 or target price in the same period (72.4 cents per pound)13,  this effect 
on world prices of the elimination of the Step 2 pa yment programme is indeed "relatively modest". 
                                                      
6  United States – Subsidies on Upland Cotton  – Recourse by Brazil to Article 21.5 of the DSU  
(DS267), First Written Submission of Brazil, 17 No vember 2006, ("Brazil First Written Submission"), 
para. 111, and Table 6.  
7 United States – Subsidies on Upland Cotton  – Recourse by Brazil to Article 21.5 of the DSU  (DS267), 
First Submission and Request for Preliminary Rulings of  the United States, 15 December 2006, ("United States 
First Written Submission"), para. 162. 
8 United States First Written Submission, para. 161. 
9 United States First Written Submission, para. 174. 
10 United States First Written Submission, para. 169. 
11 United States First Written Submission, para. 231. 
12 Ibid. 
13 United States First Written Submission, para. 161. WT/DS267/RW  
Page A-86  
 
 5.12 The United States arguments leave intact the f undamental point made by Brazil, that even in 
the absence of the Step 2 payment programme, the marketing loan and counter-cyclical programmes 
still result in significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement 
and thus cause serious prejudice contrary to Article 5(c) of the SCM Agreement.  
B. T
HE UNITED STATES CLAIM THAT MARKETING LOAN AND COUNTER -CYCLICAL PAYMENTS 
PROGRAMMES DO NOT MANDATE A BREACH OF THE WTO  AGREEMENTS  
 5.13 The United States claims that Brazil cannot ch allenge the marketing loan and counter-cyclical 
payments programmes unless it can show that these programmes mandate a breach of the WTO 
agreements.  In the United States view, to do so Brazil would have to show that these programmes 
mandated actions that must lead to the effect of causing serious prejudice to Brazil, and Brazil has not 
done so.  5.14 Once again, the United States is ignoring the fact that the original panel had already 
determined that payments under the programmes in  question caused serious prejudice to Brazil.  
Equally, the United States is ignoring the fact th at the question in this case is not whether the 
programmes in question require th at adverse effects are caused to Brazil, but whether the 
United States has taken appropriate steps to remove the adverse effects found by the original panel to 
exist as a result of the operation of these programmes.   In this context, the mandatory/discretionary 
distinction called in aid by the United States is simply irrelevant. 
 
C. T
HE UNITED STATES CLAIM THAT BRAZIL HAS FAILED TO MAKE A PRIMA FACIE  CASE OF 
WTO  INCONSISTENCY OF THE MARKETING LOAN AND COUNTER -CYCLICAL PAYMENTS 
PROGRAMMES  
 
5.15 As pointed out earlier, the United States ar guments on the WTO-consistency of the marketing 
loan and counter-cyclical payments programmes are tantamount to placing on Brazil a burden to 
prove once again what it had already proved before the original panel.  In New Zealand's view such an 
approach to the application of Article 7.8 of the SCM Agreement risks depriving the actionable 
subsidies provisions of the SCM Agreement of thei r proper effect.  Furthermore, New Zealand sees 
many of the arguments of the United States as attemp ts to reargue what it argued before the original 
panel, and lost.  Again, such an approach is cons istent with the objectives of neither DSU Article 21.5 
nor Article 7.8 of the SCM Agreement.  
1. Counter-cyclical Payments 
 5.16 The United States attempts to counter Brazil' s arguments about the trade-distorting effects of 
counter-cyclical payments by blurring the line between counter-cyclical payments and decoupled 
payments.  Thus, it cites studies relating to decoupled  payments and says that they provide "valuable 
insights".
14  The United States also refers to studies concerning general wealth risks15, as if they were 
equally applicable to the revenue risk that c ounter-cyclical payments are concerned with, again 
treating counter-cyclical payments as co-extensive with decoupled payments.  But counter-cyclical 
payments are not real decoupled payments.    
 5.17 Real decoupled payments are green box measures and as defined in Annex 2 of the 
Agreement on Agriculture cannot be linked to the type  or volume of production (paragraph 6(b)), or 
be related to or based on prices (paragraph 6(c)). Counter-cyclical payments, by contrast, are clearly 
and explicitly linked to prices.  The fact that in many years such paymen ts are likely to be paid out at 
                                                     
 
14 United States First Written Submission, para. 213. 
15 United States First Written Submission, para. 209.  WT/DS267/RW 
Page A-87 
 
 
 the maximum rate16 does not change the fact that they are linked to prices.  The question is what 
would farmers do differently if there were no count er-cyclical payments and farmers were, essentially, 
"guaranteed" 13.73c/lb less for their cotton?  Counter-cyclical payments are clearly not green box measures and hence are presumptively trade distorting.  
5.18 The same fallacy of linking counter-cyclical payments to decoupled payments is found in the 
United States arguments about the increase in wea lth from counter-cyclical payments accruing to non-
operator landlords and hence capitalised into higher land values.
17  While this is certainly true of real 
decoupled payments, it is simply not plausible in the case of counter-cyclical payments.  What 
producer is going agree to the "modified rental  arrangements" that the United States refers to18, when 
counter-cyclical payments could be at 13 .73 c/lb one year and at zero the next? 
 
2. Marketing Loan Payments 
 
5.19 The United States claims that Brazil has faile d to demonstrate that marketing loan payments 
are having significant price-distorting effects.  Yet the proposition that market ing loan payments are 
distorting is almost self-evident.  Marketing loan  payments are amber box measures, the category in 
which are included the non-prohibited measures with  the most distorting effect on production and 
trade.    5.20 Moreover, the United States arguments about marketing loan payments ignore once again that 
it is the expectations of producers that are important  and that those expectations are generated because 
of the existence of the applied administrative pr ices under the marketing loan programme, not because 
of the financial transfers in any year.  Thus, the United States argument that since cotton futures prices 
in MY 2006 were higher than the loan rate then  the loan rate would have no effect on producers 
planting decisions
19 misses the point.  First, the loan rate w ill not always be below the futures prices; 
in some years there have been large amounts paid out under the marketing loan programme.20  
Second, the programme offers a guarantee by the government that producers will receive a particular price whether they are involved in the futures market or not. 
 5.21 Furthermore, the United States claims that at the time of planting producers " did not expect " 
that they would receive these payments on harvest
21 is a clever play on the word "expect".  No doubt 
producers hoped that they would receive a higher pri ce.  But what they certa inly expected was that 
they would receive at least the guaranteed price of 52c/lb, regardless of what happened in the market 
place, because that is what the law mandated.  As  the Appellate Body pointed out in the original 
proceeding22: 
 
… although farmers had expected higher prices in making their planting decisions, 
they were also aware that if actual prices were ultimately lower, they would be "insulated"
23 by government support, including not only marketing loan program 
payments but also counter-cyclical payments, … 
                                                      
16 United States First Written Submission, para. 211. 
17 United States First Written Submission, paras. 216-219. 
18 United States First Written Submission, para. 216. 
19 United States First Written Submission, para. 230. 
20 United States First Written Submission, para. 248. 
21 United States First Written Submission, para. 231. (Emphasis in original.) 
22 Appellate Body Report, United States – Subsidies on Upland Cotton , 3 March 2005, 
WT/DS267/AB/R, (" U.S. – Upland Cotton (AB) "), para. 445. 
23Panel Report, United States – Subsidies on Upland Cotton , 8 September 2004, WT/DS267/R, (" U.S. – 
Upland Cotton (Panel) "), para. 7.1294. WT/DS267/RW  
Page A-88  
 
 5.22 Thus, it was the guarantee of insulation that  was affecting planting decisions – whether the 
price was received from the market or the government was immaterial.  In fact, it is most unlikely that 
the farmers give the same weight to futures prices as  to the guaranteed loan rate.  To do so would 
require them to sell all their crops forward at the future rate and take the risk that their actual 
production would allow them to meet their forward commitments – in effect  to take the production 
risk from which marketing loan programme pa yments based on actual production was protecting 
them.  
3. Marketing Loan and Counter-Cyclical Payment Programmes and Market Signals 
 5.23 Much of the United States argument is di rected to trying to demonstrate a link between 
producer decisions and market signals.  However, the United States does not and cannot demonstrate 
that planting decisions of producers were shaped by market factors.  The United States failed to do so 
before the original panel and the Appellate Body , and its attempt to reargue the matter in these 
Article 21.5 proceedings is equally ineffective.   
 
5.24 The United States argues that the fact that the United States share of production has been 
stable over the life of the marketing loan and counter-cyclical programmes indicates that the programmes are not insulating producers from market signals.
24  But, the question is not whether 
United States share of production has been stable it is whether in the absence of the marketing loan 
and counter-cyclical payments programmes the United St ates market share would be at current levels.  
And the answer to that question would have to be no.   The United States says that Brazil's claim that 
"But for the effect of price-contingent U.S. marketing loan and counter-cyclical payments, it would be 
expected that non-subsidized producers, such as those in Brazil and West and Central African 
countries, would have significantly increased thei r share of production and exports in the world 
market"25 simply assumes its own conclusion.26  But this is just assertion not argument, and thus the 
United States has no response to Brazil's position. 
5.25 The United States argues that there is an inc onsistency between Brazil's assertion that there is 
no link between prices and United States acreage, production and exports, and its claim that the United States is the single most important market influencing world market prices.
27  If the 
United States is the single most important market influencing world prices, the United States says, then surely there must be a link between world prices and United States planted acreage, production 
and exports.  But the inconsistency is of the United States own making.  The link is not between world 
prices and United States production.  It is betw een domestic, guaranteed prices and United States 
production.  And, that of course, is the source of the problem.  5.26 The United States claim that at the time of planting a farmer "cannot know  what final prices 
and final costs will be,"
28 says less than meets the eye.  What the farmer does know is that for all 
cotton harvested the price will be at least the loan rate .  In addition, if market price is not significantly 
above the loan rate and the planting is on base acre s there will be a counter-cyclical payment top-up 
(albeit based not on actual production, but on average yields in earlier years).  So, if the farmer continues to produce cotton the expected return is  going to be around the target price for most 
production on base acres.  By contrast, cotton producers in Africa or Brazil know that they will get 
only the world price – whatever that is.   
 
                                                     
 
24 United States First Written Submission, para. 243. 
25 Brazil First Written Submission, para. 90. 
26 United States First Written Submission, para. 251. 
27 United States First Written Submission, para. 254. 
28 United States First Written Submission, para. 255. (Emphasis in original.)  WT/DS267/RW 
Page A-89 
 
 
 5.27 The United States contests Brazil's claim that the marketing loan and counter-cyclical 
payments programmes play an essential role in ensuri ng that producers cover their long-term costs of 
production and that in the absence of these progra mmes producers would switch to alternative crops.29  
It is, in the United States view, variable costs not long-term costs that influence the decision on 
whether to continue or exit cotton farming.  Howe ver, the United States claim that Brazil has provided 
no evidence that absent the payments farmers would exit cotton production30 ignores the evidence that 
Brazil provides in fact.  5.28 In paragraph 11 of its First Written Subm ission, Brazil provides a table indicating total 
United States subsidies for upland cotton from MY 1999 to the present which demonstrates that in 
some years over half of the revenue received by Un ited States cotton farmers comes from subsidies.  
The idea that if these subsidies were not there, pr oducers who have been deprived of half of their 
income would carry on planting cotton – business as us ual – is little short of absurd.  Brazil also 
points out that without marketing loan and counter-cyclical payments between MY 2000-2005 
United States cotton producers would have lost US$663 per acre.
31  No rational economic operator 
would continue to plant co tton under such conditions. 
 5.29 Furthermore, the United States claims that a substantial number of producers would not be 
affected by a reduction or elimination of payments because they plant on farms with no base acres or plant in excess of a farm's base acres
32, presents only part of the picture.  While base acre yields are 
the basis for determining eligibility for counter-cycli cal payments, they are irrelevant for determining 
marketing loan payments.  So the producers who the United States claims would not be affected by 
the reduction or elimination of payments would in fact miss out on marketing loan payments if they 
were reduced or eliminated.  
4. The Reliability of the Econometric Modelling 
 
5.30 The United States claims that the econometric modelling provided by Br azil is flawed, but the 
United States arguments are either an attempt to r eargue what was litigated before the original panel 
and the Appellate Body and lost, or are inconsequential.  New Zealand will offer a few observations 
on the United States claims in this regard.  
5.31 The United States makes much of the fact that  in his new model Dr. Sumner has increased his 
United States cotton supply elasticity to 0.8.
33  However, as an alternative model to capture long run 
effects the United States proposes the ATPSM mode l which also has a United States cotton supply 
elasticity of 0.8!34  Moreover, the United States conveniently ignores footnote 301 in Brazil's 
submission35 where it is stated "Brazil notes that Professor Sumner also ran 12 simulations using an 
even more conservative supply elasticity of 0.5.  The results of this exercise demonstrate the 
robustness of the supply and price effects…." 
5.32 The United States criticises Dr. Sumner for ma king a small change to the rest of the world 
(ROW) demand elasticity, -0.2 as opposed to -0.25. But this 0.05 change is a small change in relation 
                                                      
29 United States First Written Submission, para. 292. 
30 United States First Written Submission, para. 297. 
31 Brazil First Written Submission, para. 158. 
32 United States First Written Submission, para 298. 
33 Brazil First Written Submission, Annex I, paras. 10-21. 
34 United States First Written Submission, Annex I, Table A7. 
35 Brazil First Written Submission, para. 171. WT/DS267/RW  
Page A-90  
 
 to the alternatives that the United States then offers, i.e. a range of 0.45 between different scenarios.
36  
How can the United States claim that its own estimat es have a more solid statistical basis than those 
used by Dr. Sumner?  In fact, Dr. Sumner's dema nd elasticities are little different from those he used 
in the earlier proceeding, which were implicitly f ound to be credible by the original panel and 
Appellate Body.  
 
5.33 Although the United States notes that the couplin g factor used by Dr. Sumner is the same as 
the one he used in his original model37, it then goes on to criticize the si ze of that factor.  Once again, 
the United States is attempting to relitigate what ha d already been found to be credible by both the 
panel and Appellate Body in the original proceeding.   In any event, while the price effects are not 
enormous under the United States parameters, the e ffect on exports - especially in the long-term – 
certainly is.  
5. Increase in the World Market Share 
 5.34 The United States contests Brazil's claim that the effect of the marketing loan and counter-
cyclical payments programmes is to increase the United States world market share in upland cotton 
and hence constitutes serious prejudice within the m eaning of Article 6.3(d) of the SCM Agreement.  
But in seeking to show that there has been no incr ease in United States market share, the United States 
is once again addressing the wrong question.  
5.35 The essence of Brazil's argument is that the United States market share is higher than it would 
otherwise be and that this is because of the marketing loan and counter-cyclical payments 
programmes.  Thus, the United States arguments that its market share has not increased over the period in question are simply not relevant.  More over, the United States own analysis proves Brazil's 
point.  In its critique of Dr. Sumner's analysis, th e United States indicates that the long-term effect of 
the elimination of marketing loan and counte r-cyclical payments would be a reduction in 
United States cotton exports of up to 25 per cent in 2002-2005 and 17 per cent in 2006-2008.
38  That 
is a very clear measure of what United States worl d market share would be in the absence of the 
marketing loan and counter-cyclical payments programmes.  5.36 In short, the United States itself makes the prima facie  case under Article 6.3(d) of the 
SCM Agreement that it claims that Brazil has been unable to make. 
 
VI. CONCLUSION 
 
6.01 In conclusion, in New Zealand's view, Br azil has demonstrated that the United States has 
failed either to withdraw the marketing loan and counter-cyclical payments programmes or to remove 
the adverse effects of those programmes as requi red by Article 7.8 of the SCM Agreement.  
Accordingly, the United States has failed to co mply with the recommendations and rulings of 
the DSB of 21 March 2005.   
                                                     
 
36 The ROW demand elasticities used by the United States range from -0.39 to -0.84.  United States 
First Written Submission, Annex I, Table A7. 
37 United States First Written Submission, Annex I, para. 31. 
38 United States First Written Submission, Annex I, Table A8.  WT/DS267/RW 
Page B-1 
 
 
  
 
ANNEX B 
 
REBUTTAL SUBMISSIONS OF THE PARTIES 
  
Contents Page 
Annex B-1 Executive Summary of th e Rebuttal Submission of Brazil 
(Executive summary submitted on 18 January 2007) B-2 
Annex B-2 Executive Summary of the Rebuttal Submission of the 
United States (Executive summary submitted on 12 February 2007) B-8 
Annex B-3 Executive Summary of Brazil's Submission Regarding U.S. 
Request for Preliminary Ruling (Executive summary submitted on 23 January 2007) B-16 
 
 WT/DS267/RW  
Page B-2  
 
 ANNEX B-1 
 
EXECUTIVE SUMMARY OF THE  
REBUTTAL SUBMISSION OF BRAZIL 
 
(Executive summary submitted on 18 January 2007) 
  
1. Brazil's First Written Submission set out its clai ms regarding the existe nce and consistency of 
United States ("U.S.") measures taken to comply w ith the adverse effects- and export subsidy-related 
recommendations and rulings of the Dispute Settlement Body ("DSB") in this dispute.  In its Rebuttal 
Submission, Brazil demonstrates that none of the ar guments raised by the United States in its First 
Written Submission has merit or rebuts Brazil's claims.    
A
DVERSE EFFECTS -RELATED ARGUMENTS  
 2. With respect to the adverse effects-related arguments, Brazil addresses, first, four issues 
raised by the United States that cut across all of Brazil's adverse effects-related claims.  Brazil then 
rebuts the substantive arguments raised by the United States. 
 3. First , the United States asserts that the appropriate year for the compliance Panel to consider 
is marketing year ("MY") 2006.  Brazil disagrees.  The compliance Panel should conduct its analysis 
of Brazil's claims based on MY 2005, the most rece nt marketing year for which complete data is 
available.  The United States assertion that MY 2006 is a more appropriate year contradicts the 
United States' own view in the original proceedi ng that the most recent period for which complete 
data are available is the appropriate period.   
 
4. Second , the United States challenges, either directly or indirectly, a number of findings of the 
original panel regarding both the nature and the effects of the U.S. marketing loan and counter-
cyclical subsidies and the nature and extent of the influence of U.S. production and exports on the 
world market price of upland cotton.  In assessi ng Brazil's serious prejudice claims, the compliance 
Panel should rely on the findings of the original  panel and Appellate Body.  Article 21.5 of the 
Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") is not 
intended or designed to allow a Member to re-litigate findings by the original panel, as upheld by the Appellate Body.   5. Third , the United States argues that Brazil is rais ing an "as such" claim against the U.S. 
marketing loan and counter-cyclical payment programs,  and that Brazil has failed to demonstrate that 
these programs mandate a breach of Articles 5 and 6.3 of the Agreement on Subsidies and 
Countervailing Measures  ("SCM Agreement ").  However, Brazil's claims do not distinguish between 
the adverse effects caused by the statutory and regu latory framework of the programs under the Farm 
Security and Rural Investment Act ("FSRI Act") of  2002, and the adverse effects caused by the 
mandatory and price-contingent payments flowing therefrom.  Instead, Brazil's claims concern the 
adverse effects caused by U.S. "subsidies," in term s of their "effects" on U.S. production, exports and 
the world market price of upland cotton.  This appro ach is consistent with the provisions of Part III of 
the SCM Agreement  and the original panel's findings.   
 6. Fourth , the United States asserts that it did not have sufficient time to respond to Brazil's 
threat of serious prejudice claims and that it will respond in its forthcoming submission.  This 
unilateral decision by the United States violates the Working Procedures of the Panel  and prejudices 
Brazil's ability to rebut such U.S. arguments.  Br azil requests that the compliance Panel reject any  WT/DS267/RW 
Page B-3 
 
 
 factual evidence and accompanying arguments subm itted in the U.S. rebuttal submission regarding 
Brazil's claims that if faces a threat of serious prejudice.   7. Turning to the substantive issues regarding Br azil's adverse effects-related claims before the 
compliance Panel, the United States first asserts that th e removal of the Step 2 subsidy is sufficient to 
remove the adverse effects caused by the price-con tingent subsidies under the FSRI Act of 2002.  This 
U.S. argument implies that the Step 2 subsidy – but not the marketing loan or counter-cyclical 
subsidies – was the sole cause of the serious prejudice found by the original panel and Appellate Body 
to exist during the period MY 1999-2002, as well as the sole cause  of any serious prejudice that 
resulted from these three subsidies under the FSRI Ac t of 2002 during the period MY 2003-2005.  It 
also implies that the United States considers the fa r larger and more trade-distorting marketing loan 
and counter-cyclical subsidies, which accounted for 42 percent of the market value of upland cotton 
production in Marketing Year ("MY") 2005, to have no production, export or world price effects.  
Much of Brazil's rebuttal submission demonstrates that  this argument is false.  Marketing loan and 
counter-cyclical payments insulate U.S. producers fro m market forces, maintain high levels of upland 
cotton planted acreage, production and exports and significantly suppress world market prices.   
 8. The United States argues at length that the re peal of the Step 2 subsidy will not increase 
counter-cyclical payments in MY 2006 and will re duce marketing loan payments.  The United States 
also asserts that, since counter-cyclical subsidies ar e currently at their maximum level, they will not 
increase in the forthcoming year.  However, studies by both the Food and Agriculture Policy Research 
Institute ("FAPRI") and a U.S. government agency rev eal that the repeal of the Step 2 subsidy will not 
cause any meaningful reduction in U.S. marketing loan subsidies.  Moreover, the United States 
argument that counter-cyclical subsidies will be at there maximum, if anything, demonstrates that the 
removal of the Step 2 subsidy will be insufficient to remove adverse effects.  An examination of U.S. 
upland cotton producers' revenue demonstrates th e critical importance of marketing loan and 
counter-cyclical payments relative to Step 2 payments .  While the elimination of Step 2 payments is 
expected to reduce upland cotton producer's revenue by $9 per acre per year, marketing loan payments and counter-cyclical pa yments provided U.S. upland cotton producers with revenue of 
$84 per acre and $75 per base acre, respectively, in MY 2005.    9. The United States argues that the decline in U.S. exports in the beginning of MY 2006 
demonstrates that the removal of the Step 2 subsidy ha d a large impact.  The decline in U.S. exports in 
the first few months of MY 2006 can largely be explained by market conditions.  Any additional 
decline from the elimination of Step 2 payments is the result of a temporary surge of exports 
preceding the elimination of Step 2 subsidies and a subsequent lull following Step 2's elimination.  
Domestic mill users and exporters naturally sought to take advantage of a lucrative export subsidy 
while it lasted.  However, USDA predicts U.S. e xports to increase significantly in the remainder of 
MY 2006.  Indeed, USDA predicts U.S. upland cotton e xports will be the second largest on record in 
MY 2006, slightly less than the record established in MY 2005.      10. Finally, contrary to the United States' asserti on, Brazil's arguments about the effect of Step 2 
payments before this compliance Panel are consiste nt with Brazil's position be fore the original panel 
and Appellate Body.  The Step 2 subsidy had two principal effects.  One was to increase upland 
cotton producers' revenue.  However, this effect wa s indirect and much less important in stabilizing 
upland cotton producers' revenue than the far larger marketing loan and counter-cyclical subsidies.  A 
second effect of the Step 2 subsidy was to make U. S. upland cotton competitive in the world market at 
all times, thereby suppressing world market prices.  While the elimination of the Step 2 subsidy 
eliminated this second effect, upland cotton producers'  revenue is still insulated from market prices by 
marketing loan and counter-cyclical subsidies.  Th us, Brazil's assertion that the elimination of the 
Step 2 subsidy will have a rela tively modest impact on the volum e of U.S. upland cotton production 
and exports is consistent with a finding that the elimination may also increase world market prices.    WT/DS267/RW  
Page B-4  
 
 11. In its First Written Submission, the United States addresses some of Brazil's arguments 
establishing a causal link between marketing loan and counter-cyclical subsidie s and significant price 
suppression in the world market for upland cotton.    12. First , ignoring the findings of the original panel, the United States argues that marketing loan 
and counter-cyclical payments have no significant production, export or price effects.  The derelict 
U.S. argument that upland cotton producers do not e xpect to receive marketing loan payments was 
rejected by both the original panel and A ppellate Body.  Brazil demonstrates that U.S. producers have 
expected to receive marketing loan payments every year since MY 1999 .  The United States makes 
similarly shoddy arguments with respect to the effect of counter-cyclical payments.  Economic 
literature confirms that counter-cyclical payments  are trade-distorting and not generally capitalized 
into land values.  Finally, the (incomplete) data on base and planted acreage presented by the 
United States confirms that U.S. farmers conti nue to overwhelmingly plan t upland cotton on upland 
cotton base acreage.  Over 95 percent of farms that  grow upland cotton recei ve upland cotton counter-
cyclical payments.  
 
13. Second , the United States argues that Brazil solely  characterizes the size of marketing loan 
and counter-cyclical payments as "large," "very large," "huge" and "massive," but does not address 
their structure, design or operation.  This assertion is baseless.  Brazil established the structure, design 
and operation of marketing loan an d counter-cyclical payments in Section 7.8 of its First Written 
Submission.  In rebutting the U.S. arguments, Braz il elaborates on this further.  Furthermore, the 
magnitude of U.S. subsidies was an important factor in the original panel's price suppression analysis 
and continues to be an important fact or before this compliance Panel.   
 14. Third , relying on the stable U.S. share of world production and exports, the United States 
argues that U.S. upland cotton producers are not insulated  from market prices.  The 
United States' arguments ignore, and effectively ask  this compliance Panel to overturn, one of the 
central findings of the original panel and the Appellate Body –  that the structure, design, and 
operation of the marketing loan and counter-cyc lical subsidies "insulates" U.S. upland cotton 
producers from market forces by stabilizing their re venue at very high levels and allow them to 
sustain artificially high levels of pl anted acreage, production and exports.   
 
15. Fourth , the United States argues that there is no connection between large marketing loan and 
counter-cyclical payments and increased U.S. producti on of upland cotton.  Instead, the United States 
asserts that the increase can be attributed to high yields.  Brazil disagrees.  But for the challenged subsidies, no increased yields would have been ha rvested (because no upland cotton would have been 
planted) on a significant portion of U.S. upland co tton acreage.  This would have resulted in a 
significant drop in overall U.S. plante d acreage, production and exports.  
 16. Fifth , the United States argues that Brazil has failed to demonstrate a temporal coincidence 
between marketing loan and counter-cyclical subs idies and suppressed world market prices.  While 
many of the same factors relied on by the original  panel to make this de termination exist today 
(i.e., increasing absolute levels of U.S. production and exports), other factors, such as the U.S. share 
of world production and exports and prices have be en relatively stable under the FSRI Act of 2002.  
However, this stability does not indicate that market ing loan and counter-cyclical subsidies have little 
or no effects.  Rather, the constant stream of payments from these two mandatory, price-contingent 
subsidies has maintained existing significant price suppression.  It is remarkable that the United States 
would assert that this relatively stable state of affairs  
– which continues only because of the 
United States' failure to implement the recommendati ons and rulings of the DSB – somehow reflects 
the absence of a causal link between these subsidies and significant price suppression.  Indeed, 
Brazil's very claim in these proceedings is that the U.S. marketing loan and counter-cyclical subsidies 
have not changed, and continue to cause serious prejudice to the interests of Brazil.    WT/DS267/RW 
Page B-5 
 
 
 17. Sixth , the evidence before the compliance Pane l shows that the average upland cotton 
producer continues to be unable to cover its long-te rm total production costs with market revenue.  
While the United States acknowledges that producers must  cover their total costs in the long term, the 
United States asserts that upland cotton farmers cr oss-subsidize upland cotton production with returns 
from other crops and off-farm revenue.  Just as this ar gument was rejected by the original panel, so it 
should be rejected by the compliance Panel.  Fu rthermore, an examination of the United States 
Department of Agriculture ("USDA") cost of produc tion data demonstrates that a significant portion 
of U.S. upland cotton producers are unable to, and do not  expect to, cover even their variable costs of 
production, when adjusting for the improper U.S. defin ition of variable costs.  This suggests that, even 
in the short term, a significant portion of U.S. upland cotton production is not economically viable 
without marketing loan and counter-cyclical paymen ts.  Finally, the International Cotton Advisory 
Committee ("ICAC") comparison of production cost s in different countries does offer further 
confirmation that U.S. upland cotton farmers are high cost producers.    18. Seventh , the United States criticizes the results of the study by Professor Daniel Sumner, 
presented in Brazil's First Written Submission, as overstated and incons istent with economic 
literature.  However, a single study from the U.S. Jo urnal of Cotton Science cited by the United States 
provides no basis for this compliance Panel to ignore the substantial academic lite rature in agricultural 
economics that finds large world market price effect s arising from U.S. cotton subsidies.  Indeed, the 
general consensus of the economic literature is that U.S. cotton subsidies increase production and 
exports and drive down the world price of cotton.  While studies find effects of different magnitudes 
based on different assumptions, many economists agree that world prices would be some 10 to 
25 percent higher in the absence of cotton subsidies.  As the largest subsidizing country in the world, 
the United States accounts for the majority of these e ffects.  These results are consistent with and 
confirmed by Professor Sumner's 2003 and 2006 analyses.  
19. Eighth , whether Chinese supply, as the United States argued in the original proceeding, or 
Chinese demand, as the United States currently argues, is responsible for certain price movements in 
the world market for upland cotton is irrelevant to Br azil's claim.  What is important is whether large 
reductions in U.S. production and exports following a removal of marketing loan and counter-cyclical 
subsidies would result in significantly higher pri ces in the world market for upland cotton.  The 
original panel found that the United States had a su bstantial proportionate influence on prices in the 
world market for upland cotton.  Nothing has change d in this respect.  Large amounts of U.S. upland 
cotton continue to be produced and exported to wo rld markets.  China's emergence as a large importer 
of upland cotton does not in any way alter this dynamics.  20. Finally , the U.S. arguments do not refute the strong prima facie  case that marketing loan and 
counter-cyclical payments resulted in an increase d U.S. world market share of production, as 
established in Brazil's First Written Submission.  The United States does not dispute that there has been an increase in th e U.S. world market share of production in MY 2005, as compared to the three 
year average in MY 2002-2004.  Further, the evidence shows that but for the marketing loan and 
counter-cyclical payments in MY 2005, the U.S. ma rket share would not have increased, but, rather, 
would have fallen sharply.  Finally, none of the alternative periods offered by the United States to 
assess a consistent trend of increased market share covers periods relevant to an assessment of how 
the two subsidies at issue in this dispute – mark eting loan and counter-cyclical subsidies (or their 
predecessors) – distort U.S. production, exports, a nd the U.S. world market share of production. 
 
E
XPORT SUBSIDY -RELATED ARGUMENTS  
 21. In its First Written Submission, Brazil demonstr ated that the United States' "measures taken to 
comply" with the DSB's export credit guarantee (" ECG")-related recommendations do not exist in 
some respects, and to the extent they do exist, are not consistent with Articles 10.1 and 8 of the 
Agreement on Agriculture  and Articles 3.1(a) and 3.2 of the SCM Agreement .  As a result, the WT/DS267/RW  
Page B-6  
 
 United States has failed to implement the DSB' s recommendation that it withdraw the prohibited 
ECG-related subsidies without delay, under the SCM Agreement , and otherwise bring itself into 
conformity with its obligations, under the Agreement on Agriculture . 
 22. In its First Written Submission, the United States challenges Brazil's claim that, following 
adoption of the United States' implementation m easures, ECGs extended und er the General Sales 
Manager 102 ("GSM 102") program still constitute export subsidies.  In so doing, the United States 
wildly overstates the impact of its limited EC G-related "measures taken to comply" with the 
recommendations and rulings of the DSB in this di spute.  None of the facts highlighted by the 
United States demonstrates that the GSM 102 progra m, as amended by the United States' measures 
taken to comply:  (i) results in the provision of  GSM 102 ECGs on terms that are consistent with 
market; (ii) results in premium rates which are ad equate to cover the progr am's long-term operating 
costs and losses; or, (iii) avoids circumvention of the United States' export subsidy commitments.    23. The United States raises five principal argu ments in its First Written Submission.  Brazil 
addresses each of these arguments below. 
 24. First , the United States asserts that Brazil ma y not, in these Article 21.5 proceedings, 
challenge the United States' application of GSM 102 in  a manner that results in circumvention of U.S. 
export subsidy commitments for pig meat and poultry meat.  The United States asks for a preliminary 
ruling from the compliance Panel in this regard.  Brazil did not address the United States' request in 
this Rebuttal Submission, but instead replied to the U.S. arguments in a further submission on 
16 January 2007.  25. Second , the United States asks the compliance Panel to  reject Brazil's claim that no measures 
taken to comply exist with respect to ECGs i ssued under the GSM 102, General Sales Manager 103 
("GSM 103") or Supplier Credit Guarantee ("SCGP") programs prior to 1 July 2005, but still 
outstanding subsequent to that date, for two reas ons:  (a) a finding by the compliance Panel would be 
moot with respect to SCGP ECGs issued prior to 1 July 2005, since the maximum tenor for a 
SCGP ECG is 180 days and no such ECGs ar e therefore still outstanding; and, (b) the 
recommendations and rulings of the DSB required th e United States to "withdraw the subsidy," which 
the United States asserts it has effectively accomp lished by changing the fee structure for GSM 102 
and halting the issue of GSM 103 and SCGP ECGs.   
 26. Given the impact of "reschedulings" of debt  guaranteed by the program, SCGP ECGs issued 
prior to 1 July 2005 may well still be outstanding today.  Also, ECGs outstanding subsequent to 
1 July 2005 were issued under the fee schedule on which the original panel and the Appellate Body 
based a finding of export subsidization under item (j) of the Illustrative List of Export Subsidies in 
Annex I to the SCM Agreement  ("item (j)"), and therefore form an essential part of the 
recommendation to "withdraw the subsidy."  Paym ents or performance under those outstanding ECGs 
is inconsistent with the DSB's reco mmendation to "withdraw the subsidy." 
 27. Third , the United States asserts that item (j) constitutes the exclusive test to determine 
whether an ECG program constitutes an export subsid y.  The United States is essentially proposing an 
a contrario  reading of item (j), under which proof th at the GSM 102 program meets its long-term 
operating costs and losses would render the progra m immune from challenge as an export subsidy 
under the elements of Articles 1.1 and 3.1(a) of the SCM Agreement .   
 
28. The interpretation offered by the United St ates is not supported by footnote 5 to the 
SCM Agreement ; proving that GSM 102 charges fees sufficien t to meet its long-term operating costs 
and losses would not absolve the United States of the obligation to abstain from providing de jure 
export-contingent GSM 102 ECGs at fees that confer  "benefits" on U.S. exporters (to the extent doing 
so circumvents U.S. export subsidy commitments under the Agreement on Agriculture ).  Moreover,  WT/DS267/RW 
Page B-7 
 
 
 available data does not demonstrate, as the United States asserts, that the ECG programs are 
profitable.  The GSM 102 program is not structur ed, designed or operated to meet the long-term 
operating costs and losses of the programs.  29. Fourth , the United States appears to assert that, even  if the definition of export subsidy in 
Articles 1.1 and 3.1(a) of the SCM Agreement applies to ECGs, the only applicable standard to 
determine whether a "benefit" is conferred, within  the meaning of Article 1.1(b), is the standard 
embodied in Article 14(c) of the Agreement .  Article 14(c) calls for an assessment of the impact of a 
government guarantee on the cost of an underlying loan , relative to the cost of  the loan without the 
guarantee. 
 
30. The United States argues that Brazil's appro ach, which consists of comparing GSM 102 fees 
with fees for comparable (albeit also non-market) products offered by the United States Export-Import 
Bank ("ExIm Bank"), does not constitute a "marketp lace" comparison, since in this context, the 
"marketplace" contemplated under the SCM Agreement  is not the cost of obtaining a guarantee for a 
one-off transaction on the export of agricultural commod ities, but rather the total cost of funds at 
which borrowers and lenders are willing to enter commercial loans.  The United States then asserts, 
on the basis of three examples, that commercia l lenders provide loans to CCC-approved foreign 
obligors on better terms than available under the GSM 102 program.  31. In arguing that Article 14(c) is the exclusiv e standard by which to assess whether a "benefit" 
is conferred by a guarantee, the United States fails to recognize that there are a number of potential 
benefits and beneficiaries in a tr ansaction supported by a GSM 102 ECG:  the U.S. exporter; the U.S. 
bank; the foreign bank (referred to by Braz il as the "foreign obligor"); and the foreign 
purchaser/borrower.  In undertaking a comparis on between GSM 102 fees and fees for comparable 
ExIm Bank products, Brazil is undertaking to assess a severable "benefit" to the U.S. exporter.  
The U.S. exporter does not bear the costs or risk s of securing or extending financing to the foreign 
bank or the foreign purchaser/borrower.  Indeed, that  is the entire point of GSM 102 – it takes the U.S. 
exporter out of the equation.  Thus, the benefit to  the U.S. exporter can be measured through an 
assessment of how GSM 102 fees line up against the fees for similar instruments.  32. Further, the three examples offered by the United States – without any reference to primary 
documents and based solely on a 2-page letter from an  officer of a U.S. bank that participates in the 
GSM 102 program – do not demonstrate that the GSM 102 program is consistent with market even 
under the standard in Article 14(c).  33. Fifth , the United States argues that, in asserting that GSM 102 ECGs are unique financing 
instruments with no parallel at market, Brazil failed  to consider certain products offered by the Inter-
American Development Bank ("IDB"), the Intern ational Finance Corporation ("IFC"), and the 
European Bank for Reconstruction and Development ("EBRD").  The United States also suggests that 
Brazil should not have restricted its "benefit" assessment to a comparison between GSM 102 fees and 
fees for similar ExIm Bank products, but instead should also have compared GSM 102 fees to fees 
for IDB, IFC and EBRD products. 
 
34. Consideration of the IDB, IFC and EBRD products discussed by the United States does not 
affect Brazil's conclusion that GSM 102 ECGs are unique financing instruments with no parallel at 
market, because the IDB , IFC and EBRD are not commercial banks offering market products .  For 
this same reason, like ExIm Bank fees, IDB, IFC and EBRD fees are distorted by government 
intervention.  Providing additiona l comparisons between GSM 102 fees and IDB, IFC and EBRD fees 
is not necessary given the comparison Brazil has alr eady offered to fees charged by U.S.-based ExIm 
Bank.  In that regard, the United States offers  no credible evidence to counter the thorough 
comparative exercise undertaken by Brazil with respect to ExIm Bank products. WT/DS267/RW  
Page B-8  
 
 ANNEX B-2 
 
EXECUTIVE SUMMARY OF THE REBUTTAL SUBMISSION  
OF THE UNITED STATES 
 
(Executive summary submitted on 12 February 2007) 
  1. Preliminary Ruling Requests
 – Brazil has failed to rebut the U.S. showing that Brazil's 
claims relating to GSM 102 guarantees in respect of  exports of pig meat and poultry meat are 
outside the scope of this proceeding.   Brazil concedes that there have never been any findings 
of WTO inconsistency against the pig meat and po ultry meat GSM 102 guarantees, and that there 
consequently were no DSB recommendations and rulings against these measures with which the 
United States was obligated to comply.  Thus, th e claims made by Brazil against these measures are 
not properly the subject of a compliance proceedi ng under Article 21.5 of the DSU.  Although Brazil 
contends that "Appellate Body jurisprudence" provi des it with the right to "reassert" claims under the 
Agreement on Agriculture and the SCM Agreemen t with respect to these measures, Brazil is 
mistaken.  It simply misreads the Appellate Body's report in EC – Bed Linen (21.5 – India)  and 
continues to confuse two distinct issues – (a) the scope of a compliance proceeding pursuant to 
Article 21.5 of the DSU and (b) when a claim agains t a specific measure or aspect of a measure can be 
considered to be "finally resolved" for purposes of WTO dispute settlement. 
 
2. – Brazil has no basis to assert claims against either the marketing loan or 
counter-cyclical payment programs whether alone or in addition to payments under the 
programs.   Brazil clarifies in its rebuttal submission th at it makes claims against the marketing loan 
and counter-cyclical payment programs , as such,  in addition  to all payments authorized thereunder.  
Even if so, however, Brazil's claims are outside the scope of this proceeding.  First , there is no legal or 
factual basis for Brazil's argument that "[i]n the ci rcumstances of this dispute, a subsidy 'payment' 
cannot be divorced from a subsidy 'program'" and the argument is undermined by Brazil's own claims 
and arguments in the original proceeding.  Moreover,  contrary to Brazil's assertions, the original panel 
did not make any finding of WTO-inconsistency against the Step 2, marketing loan, and counter-cyclical payment programs alone or in addition to payments.  Consequently, there was also no 
actionable subsidy-related DSB r ecommendation with respect to these measures.  Brazil's claims on 
the basis of such a mis-characterized recommenda tion are not properly within the scope of this 
compliance proceeding.  3. Second
, the measures that Brazil seeks to challe nge – marketing loan and counter-cyclical 
payment programs in addition to payments – are not measures taken to comply.  Indeed, these 
measures have not been changed to implement any DSB recommendations and rulings or for any 
other reason;  they remain the same as they were in the original proceeding.  Under Article 21.5 of 
the DSU, claims of consistency with a covered agre ement can not be made in respect of measures that 
are not measures taken to comply and that are the same  measures as in an original proceeding.  For 
this reason too, Brazil's claims – whether agains t the marketing loan and counter-cyclical payment 
programs or the programs in addition to payments thereunder – are not properly within the scope of 
this proceeding.  4. – Brazil's claims regarding compliance in past periods remain outside the scope of this 
proceeding.   Brazil has yet to identify any legitimate text ual basis for its claims regarding compliance 
in past periods.  Rather, Brazil continues improperl y to conflate Article 7.9 of the SCM Agreement 
and Article 21.5 of the DSU.  Contrary to Brazil's assertions, the former provision does not establish the date for assessing compliance with DSU recommenda tions and rulings;  it simply set the date on  WT/DS267/RW 
Page B-9 
 
 
 which the complaining Member can seek authoriza tion to take countermeasures "commensurate with 
the degree and nature of the adverse effects determined  to exist," as Brazil alleges.  In addition, it is 
not relevant whether "the assessment [of] whethe r any proposed countermeasures are commensurate" 
is "tied to the date on which the implementation peri od expires."  In arguing that this provides a basis 
for assessing compliance  as of the date set in Article 7.9 of the SCM Agreement, Brazil confuses the 
mandate of an arbitrator under Article 22.6 of th e DSU with that of a compliance panel under DSU 
Article 21.5.  Neither argument provides a legitimate  basis for Brazil's claims regarding compliance in 
past periods.  5. Export Subsidies
 – The United States is not providing export credit guarantees in 
contravention of Articles 10.1 and 8 of the Agreement on Agriculture.   The United States has 
demonstrated that even before (1) elimination of  the GSM-103 program;  (2) cessation of the Supplier 
Credit Guarantee Program ("SCGP");  (3) remova l of the highest risk countries from program 
eligibility and (4) an average fe e increase of 46 per cent, prem ia collected for the GSM-102, 
GSM-103, and SCGP were more than adequate to  cover the long-term operating costs and losses of 
the programs.  Indeed, the current U.S. budget data  now reflects that for the cohorts 1992-2005, the 
applicable total net negative present value amount is $166,549,780  (i.e., reflecting a 'profit' – 
excluding administrative costs – to the United States  government).  Brazil's argument in response – 
asserting that these results were "specifically cr eated by the United States for purposes of this 
litigation" – are entirely baseless.  Moreover, Brazil' s attempts to have the Panel disregard the budget 
data is inconsistent with the a pproach taken by the original panel as well as Brazil's positions in the 
original proceeding.  Brazil's own constructed "cash-basis accounting methodology," which Brazil 
seeks to have the Panel use instead of the budget da ta provided by the United States, was not accepted 
by the original panel and is deeply flawed.  6. –  Contrary to Brazil's assertions, the GSM-102 Program is structured and designed to 
cover long-term operating costs and losses.   F i r s t
, the size of the cash recoveries in conjunction 
with the substantial modifications to the export cr edit guarantee programs belie Brazil's assertion that 
"the GSM 102 program is not structured or designed to meet long-term operating costs and losses."  Contrary to Brazil's assertions, the fact that CCC borrows from the U.S. Treasury in connection with 
the export credit guarantee programs does not mean the programs cannot satisfy the item (j) test.  In 
addition, the fact that there remains a statutor y one percent cap on fees under the export credit 
guarantee programs also does not affect the analys is;  CCC has accounted for this fact by eliminating 
from eligibility 22 countries  with respect to which participation in the program might require fees in 
excess of the statutory maximum.  And, finally, Brazil has no basis to argue that "prudent fiscal management" requires no only imposing the tight exposure limits that CCC employs, but also 
applying different fees for differe nt banks, as Brazil would prefer. 
 
7. Second
, Brazil is incorrect to assert that CCC pr edicts every year, including for FY 2006 
and 2007, that the export credit guarantee programs will incur losses.  Brazil assumes (1) the specific 
experience of the CCC programs in particular are th e historical experience used in the calculation of 
the original subsidy rates and (2) CCC itself provides the principal factors used in the calculation of 
the original subsidy rates.  Both of these assumptions  are false.  It is the Office of Management and 
Budget ("OMB") that determines expected loss rat es for CCC – and other government agencies – on a 
government-wide basis.  These rates – which are a pplied to virtually all U.S. agencies providing 
international credits – are based on assumptions re garding risk and recovery rates involving the 
highest-risk countries and overstate possible losse s in respect of CCC's export credit guarantees 
programs. 
 
8. – Whether or not any debt has been rescheduled under the SCGP is irrelevant to 
whether the United States has "withdrawn" any subsidy under the program.   There are currently 
no claims "outstanding" under the SCGP.  This mean s that the United States has paid all claims that 
were payable and is no longer exposed to any fu rther potential liability under the SCGP.  Brazil's WT/DS267/RW  
Page B-10  
 
 argument to the effect that claims may still be ou tstanding under the program if the United States has 
rescheduled debt under the program either before or after 1 July 2005 are baseless.  They betray a fundamental misunderstanding of the natu re of rescheduled debt, which is a receivable , pursuant to 
which CCC expects to receive – not pay  – money;  rescheduled debt is not an outstanding claim . 
 
9. – The GSM 102 Program does not confer any benefit under Articles 1 and 3 of the 
SCM Agreement.   Although Brazil continues to pursue its "claim" under item (j) in the "alternative," 
it provides no textual basis for doing so.  Brazil's approach does not comport with the text of the SCM Agreement or Brazil's own arguments in other disputes that, in the case of measures identified in the Illustrative List, it is the specific provisions of  the Illustrative List – and not the general subsidy 
provisions in Articles 1.1 and 3.1(a) – that gove rn when the measures may be considered export 
subsidies.  Nonetheless, the United States also shows that GSM 102 export credit guarantees do not confer a "benefit" within the meaning of Article 1.1( b) of the SCM Agreement.  This further confirms 
the fact that item (j) correctly  illustrates that GSM 102 export credit guarantees are not export 
subsidies. 
 
10. Although it purports to make a showing under Article 14(c) of the SCM Agreement, Brazil 
has made no attempt to make a particularized s howing that the overall cost, including fees, of a loan  
guaranteed by the government is less than th at the firm receiving the guarantee would pay on a 
comparable  commercial loan.  Instead, Brazil seeks to advance a flawed "severable 'benefit'" 
approach that ignores the fundamental fact that costs are distributed among the parties involved.  
Because costs and potential benefits can both be sh ared in various ways am ong all participants in a 
loan transaction covered by a government guarant ee, Article 14(c) focuses on the overall costs of the 
loan, including the guarantee fees, rather than any single "severable" component of the entire 
transaction.  Brazil's approach is, thus, undermined by the text itself.  
11. Unlike Brazil, the United States has provided sp ecific information to demonstrate that sources 
of financing and guarantees comparable to GSM-102 guarantees are available in the marketplace.  Brazil's attempts to discredit th e specific, real-world evidence submitted by the United States are 
entirely unavailing.  For example, Brazil attempts to dismiss the numerous examples of commercial products offered by the International Finance Co rporation ("IFC"), Inter-American Development 
Bank ("IDB"), and the European Bank for Reco nstruction and Development ("EBRD") that are 
directly comparable to GSM 102 guarantees.  Brazil asserts that, by definition, anything that the IDB, 
IFC, and EBRD do in the market cannot be commerc ial and cannot be considered as a benchmark.  
Once again, Brazil's argument is baseless as a matter of logic and – given the clear evidence of the 
commercial and profitable nature of these organizations – as a matter of fact.  
12. Actionable Subsidies
 –  Brazil's arguments about the "relatively modest" effects of the 
elimination of the Step 2 program continue to  be unsubstantiated and inconsistent with its 
earlier positions.   Brazil's fails to substantiate its argum ents aimed at minimizing the effects of 
eliminating the Step 2 program.  First , regardless of whether one considers Brazil's "present" or 
"threat" of serious prejudice claims, there is no merit to Brazil's suggestion that an increase in counter-cyclical payments will offset any positive impacts of  terminating the Step 2 program.  To the contrary, 
terminating the Step 2 program does result in a decline in marke ting loan payments in the few 
remaining years in which marketing loans are even projected to be paid.  Moreover, any increase is 
counter-cyclical payments is unlikely to take place in the "present" marketing year (MY 2006) and, in 
future marketing years, it is unlikely to be substa ntial.  This is irrelevant, in any regard, as both 
marketing loan and counter-cyclical payment prog rams are scheduled to expire at the end of 
MY 2007. 
 13. Second
, Brazil continues to argue that the termina tion of the Step 2 program has had allegedly 
"relatively modest" effects  because of the relatively smaller size of outlays under the Step 2, marketing 
loan, and counter-cyclical payment programs.  However, Brazil fails to explain why size is the  WT/DS267/RW 
Page B-11 
 
 
 determinative consideration in assessing their effects , especially given Brazil's arguments to the 
contrary to the Appellate Body as well as the disproportionate effects that Brazil attempted to 
attribute to the Step 2 program in the original proceeding. 
14. Third , Brazil's new emphasis on the allegedly "m odest revenue-enhancing effects" of the 
Step 2 program is undermined by its own arguments to the original panel that effects on revenue are 
only one way in which, in Brazil's view, Step 2 paym ents could have affected world market prices.  
Brazil argued before that "the export-enhancing nature  of the Step 2 program" was the other, primary, 
way in which the Step 2 program affected world marketing prices.  Indeed, although Brazil now attempts to downplay its attribution of an "expor t-enhancing" effect to the Step 2 program, these 
arguments are simply not credible. 
 
15. Finally
, data showing historically low export levels for MY 2006 continue to undermine 
Brazil's theory of a "relatively modest" impact of eliminating the Step 2 program.  Brazil points to the importance of other factors – including the "speci fic needs of China" – in assessing changes in the 
world cotton market since MY 2006.  However, even taking into consideration the impact of China's 
demand, U.S. exports appear to be at unusually low levels.  Moreover, U.S. share  of China's imports 
following termination of the Step 2 program are at unusually low levels.  Similarly, the data do not 
support Brazil's suggestion that the low export levels can be explained by "a temporary surge of U.S. 
exports in the months just prior to the eliminati on of the Step 2 subsidy with exporters cleaning out 
the stocks in their warehouses to take  advantage of the Step 2 subsidy." 
 
16. – Brazil has failed to make a prima facie  case of "present" serious prejudice within the 
meaning of Articles 5(c) and 6.3(c) of the SCM Agreement.   As a preliminary matter, the 
United States notes that the marketing year relevant to Brazil's "present" serious prejudice claims is 
MY 2006.  Where there is reliable data available fo r MY 2006, or any part thereof, there is no reason 
why the Panel should not consider that data and Brazi l has no basis for suggesting that the data is not 
relevant. 
 17. Brazil has not provided evidence regarding the structure, design, and operation of the 
marketing loan and counter-cyclical payment programs that supports its claims of significant price 
suppression :  Brazil has yet to submit any credible ev idence confirming the significant production 
effects from counter-cyclical payments or marketing loan payments that it alleges.  Moreover, Brazil 
has failed to rebut the U.S. evidence showing, with  respect to the counter-cyclical payment program, 
that the recent studies show, at most, minimal producti on effects.  Brazil attempts to discredit the U.S. 
studies by arguing, inter alia , that the studies do not deal specifically with upland cotton production.  
However, that is not a reason to preclude the Panel from considering the studies as being highly 
probative.  Moreover, Brazil submits no empirical evidence  of its own relating to upland cotton 
production that supports it claims.  Indeed, the only study that it submits that even deals with counter-
cyclical payments is not based on empirical eviden ce but, instead, was conducted in a computer lab at 
the University of Wyoming to test the responses of  economics students under certain parameters that 
were necessarily abstracted fro m actual features of the 2002 Farm Act and imposed a number of 
limiting assumptions that the authors themselves r ecognized affected the results of the study. 
 
18. In addition, Brazil fails to rebut the ev idence showing that a substantial amount of 
government payments, including counter-cyclical  payments, are "passed-through" to non-operator 
landowners in the form of higher land rent.  Braz il's response confuses the issues and asserts, without 
basis, that uncertainty about receiving payments  precludes capitalization into land values.  That 
argument is inconsistent with the economic literature, Brazil's own arguments regarding U.S. 
producers' decisions to plant on the expectation of counter-cyclical payments, and the original panel's 
own findings.  Brazil's assertions about the "relatively minor" effects of decoupled payments on 
land values are equally unfounded.  
 WT/DS267/RW  
Page B-12  
 
 19. Brazil also fails to rebut the acreage data showing that, in fact,  holding upland cotton base 
acreage has not induced upland cotton production  as Brazil alleges.  Brazil's attempts to dismiss these 
facts as "unimportant" are inexplicable and baseless.  In fact, these facts are "important" and 
undermine Brazil's theory of significant production effects, especially Brazil's unfounded assertions 
regarding producing for the possibility of base updating. 
20. With respect to marketing loan payments, Brazil fails to demonstrate that – taking into 
account the particular structure and design of the ma rketing loan program, and the way that it operates 
under the current market conditions – payments thereunder are in fact causing production effects that 
are so significant as to be suppressing the world market price for cotton.  In particular, Brazil fails to 
analyze properly the planting decisions made by U.S. producers in light of the market conditions and 
considerations that they actually  faced at the time of planting, even  as Brazil concedes that this is the 
appropriate inquiry.  Moreover, while Brazil attemp ts to discredit the U.S. analysis of producers' 
planting decisions, it has provided no legitimate basis for its arguments.  21. Brazil fails to provide any credible eviden ce showing that U.S. producers and exporters do 
not respond to market signals :  The empirical evidence fatally u ndermines Brazil's theory that 
marketing loan and counter-cyclical payments insu late U.S. producers and exporters from market 
signals.  Brazil has yet to provide any credible answ er to the fundamental question in this regard:  if 
U.S. producers continue to plant and produce,  and U.S. exporters continue to export, in 
circumstances where "any rational non-subsidi zed producer" would have "reduced plantings, 
production, and exports,"  why has U.S. share of world production and world exports not increased 
over the life of the FSRI Act of 2002 ?  Rather, Brazil attempts to confuse the issues by suggesting that 
the determinative question is whether marketi ng loan and counter-cyclical payments provide income 
support to U.S. producers.  It is not;  in fact, there is no WTO obligation to abstain from providing such support.  The question is whether a subsidy cau ses one or more of the four types of "effects" 
reflected in Article 6.3 of the SC M Agreement.  Brazil has submitted no empirical evidence that the 
marketing loan and counter-cyclical payments caus es these effects and, indeed, the empirical evidence 
that the United States has submitted flatly contradi cts Brazil's arguments in this regard.  Brazil's 
attempts to rebut that evidence – for example, by asserting that the stability in U.S. share of world 
production and exports are themse lves evidence of significant price suppression – are entirely 
unfounded.  
22. In addition, Brazil's attempts to demonstrate an alleged absence of a " link" between "prices, 
on the one hand, and [U.S.] planted acreage, production, and exports, on the other hand" do not 
withstand scrutiny.  Every comparison that Brazil h as made in this regard has been fundamentally 
flawed, including its latest attempt to plot U.S. planted acreage against foreign harvested acreage and 
upland cotton futures;  an approach that (a) improperly compares planted and harvested acreage, 
(b) ignores the fact that producers look at more than  upland cotton futures prices in determining what 
to plant, and (c) attempts to capitalize on differe nces that appear to exis t solely because of the 
particular graph utilized.  Brazil's attempts to compare changes in U.S. planted acreage , changes in 
foreign harvested  acreage, and changes  in the futures prices for upla nd cotton are equally flawed.  
What that comparison shows is that neither  U.S. nor foreign harvested acreage moves closely with 
futures prices of cotton alone .  Nonetheless, even if the comparison were valid (and it is not), it would 
show that, where changes in U.S. and foreign area diverge, U.S. harvested acreage tends to react more 
conservatively than foreign acreage to increasing prices. 
 23. Finally, Brazil continues to assert incorrectly that increases  in the absolute levels of U.S. 
production over the period from MY 2002-2005 were th e effect of the marketing loan and counter-
cyclical payment programs.  Brazil's arguments in th is regard are not even internally consistent, let 
alone supported by the facts.   WT/DS267/RW 
Page B-13 
 
 
 24. Brazil Fails to Show Any "Discernible Temporal Coincidence" :  Contrary to its assertions, 
Brazil had not "reinforce[d] the original panel's fi nding . . . of a discernible temporal coincidence of 
suppressed world market prices and the price-contingent  U.S. subsidies."  To the contrary, the factors 
considered by the original panel do not support finding of a "discernible temporal coincidence" 
between the marketing loan and counter-cyclical  payment programs and any "present" significant 
price suppression.  Brazil's new assertion that it should be excused from making even the minimum 
showing of a "discernible temporal coincidence" as conducted by the original panel would effectively 
eviscerate the balance of rights and obligations struck in Articles 5(c) and 6.3(c) of the 
SCM Agreement and the requirement that a complaining party make a prima facie  case of breach. 
 
25. Brazil has not shown that U.S.  producers would switch to oth er crops or exit cotton farming 
without marketing loan and counter-cyclical payments :  There is no basis for Brazil's argument that 
marketing loan and counter-cyclical payments are ne cessary to fill an alleged "gap" between costs of 
production and market revenue, w ithout which U.S. producers would cease farming cotton.  First , the 
economic literature makes clear that producers make year-to-year planting decisions with reference 
primarily to variable  costs of production (among other factors) and that total costs (among other 
factors) are relevant with respect to longer-term de cisions, such as whether to exit the cotton sector.  
Second , the evidence shows that U.S. producers covered their variable costs  in every year that the 
FSRI Act has been in effect and that, therefore, it was economically rational for U.S. producers to 
have produced upland cotton in these years.  Brazil effo rts to inflate variable costs by including land, 
labor, and capital recovery costs as variable cost s are not supported by the economic literature.  
Further, Brazil has not shown that farmers actually ta ke these costs – for example, an "imputed cost of 
unpaid labor" – into account in each year in deciding between planting cotton or some other crop or putting the land to some other use.    26. Third
, Brazil's arguments against adjusting the seed  cotton (i.e., cotton lint plus cottonseed) 
costs and revenues to isolate the revenue and costs for cotton lint (the product that is at issue under 
Brazil claims) are baseless.  Contrary to Brazil's assertions, the evidence shows the common practice 
in the United States of paying ginning costs out of the proceeds gained by the gin from sale of the 
cottonseed separated out in the ginning process.  Th is supports the U.S. approach of excluding both 
ginning costs and revenue from sale of cottonseed.  However, even using a more conservative 
methodology that (a) excludes ginning costs only up to the amount of cottonseed revenue;  and (b) 
including hired labor as a variable cost shows that U.S. producers have not only made their variable 
costs in all years but their tota l costs in many years as well. 
 27. Fourth
, with respect to longer-term decisions, su ch as whether to continue or exit upland 
cotton farming, the United States has explained that the total cost of producing upland cotton is not 
the sole consideration.  As the economic literature  confirms, whole-farm  costs and revenues – 
including off-farm revenue and re venue from other sources – are also important considerations in 
making those kinds of decisions.  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.  To date, Brazil has not submitted an y literature, study, report, or 
empirical evidence that contradi cts the evidence submitted by th e United States regarding the 
consideration of whole-farm cost s and revenues.  Nor has Brazil provided any evidence taking into 
account whole-farm costs and revenues that show th at, absent the marketing loan and counter-cyclical 
payment program, U.S. upland cotton producers would have exited upland cotton farming. 
 28. Neither Brazil's New Modeling Exercise Nor the Studies It Selectively and Misleadingly Cites 
Supports Its Claim of Significant Price Suppression :  Brazil's new econometric model – on which 
most of Brazil's arguments critically depend – subs tantially overstates any possible effects on world 
market prices from the removal of the marketing lo an and counter-cyclical payment programs.  It is 
based on a series of untenable economic assumptions that are not consistent with those used by 
FAPRI or USDA economists and were not even used by Brazil  in its own analysis before the original WT/DS267/RW  
Page B-14  
 
 panel.  When certain basic assumptions in the model are changed to actually  reflect FAPRI and other 
well-established parameters, the effects predicted by Brazil's model decline sharply.  29. Brazil now attempts to jus tify its novel modeling assumpti ons by criticizing the FAPRI-based 
model – and assumptions – that it used in the orig inal proceeding as being "unnecessarily complicated 
and cumbersome" and "not directly appropriate to the issue at hand."  These assertions directly 
contradict the arguments made by Brazil to the origin al panel.  Moreover, their grossly inflated nature 
is evident when one considers that Brazil has – by  using this new model – increased the asserted price 
effects almost three-fold
.  There is no reason for this other th an the use by Brazil of unreasonable, 
unsupported modeling assumptions for purposes of this proceeding. 
 
30. Brazil's efforts to justify its flawed modeli ng results by comparing them to the results of 
studies examining completely different factual scenarios are logically unsound.  In fact, it is evidence of the unreasonableness  of Brazil's approach that Brazil as cribes to marketing loan and counter-
cyclical payments, alone, similar (or in some cases, greater ) price effects than (a) a 2006 World Bank 
study estimates for the elimination of all subsidies and tariffs across all countries
;  (b) a 2004 study by 
the Overseas Development Institute ("ODI") estimat es for the elimination of domestic supports in 
China, Greece, Spain, and the United States ;  (c) and a study by FAO estimates for the elimination of 
all domestic support in all countries .  Even less persuasive is Brazil's attempt to place its results "in 
the mid-range" of the studies surveyed by the FAO, World Bank, and International Food Policy 
Research Institute ("IFPRI"), all of which exam ine the effects of a much different "basket" of 
measures that those examined by the Panel here.  Finally, Brazil does not undermine recent studies 
showing that the marketing loan and counter-cyclical payment programs likely only have minimal 
effects  on world market price. 
 31. Brazil Has Not Ensured that the Price Effects Of Other Factors Are Not Attributed to the 
Marketing Loan and Counter-cyclical Payment Programs :  Brazil fails to undertake any meaningful 
assessment of the world upland cotton market, of actual world market prices, or of the factors that are observed to be affecting U.S. and foreign supply and demand and, ultimately, world market prices.  The Appellate Body underscored the importance of such an assessment in this dispute, explaining that 
in order to prove a claim under Article 5(c) and 6. 3(c) of the SCM Agreement, "it is necessary to 
ensure that the effects of other factors on pri ces are not improperly attributed to the challenged 
subsidies."  Upland Cotton (AB) , para. 437.  Brazil has not carried  its burden in this regard.  
 32. For example, although China is the world's largest producer  of upland cotton, the world's 
largest consumer  of upland cotton, and the world's largest importer  of upland cotton, Brazil does not 
assess and distinguish any impacts of China's trade on  world market prices.  Instead, Brazil seeks to 
mischaracterize the U.S. arguments as being against th e original panel's finding that the United States 
exerts a substantial proportional influence on the wo rld market price of upland cotton.  Moreover, 
Brazil argues that the United States is confusing Brazil's claims of price suppression  with claims of 
price depression .  Neither argument is valid;  the former is  simply erroneous and the latter overlooks 
the fact that the market reports and data that  the United States submits are relevant to price 
suppression , not price depression .  By contrast, Brazil has submitted no empirical evidence itself that 
confirms its claims of price suppression. And Brazil's attempts to dismiss the evidence showing the 
importance of China's trade on world market prices are without merit.  33. Brazil Fails To Provide Any Evidence or Arguments Regarding "Significant" Price 
Suppression In Its Rebuttal Submission :  The United States explained in its first written submission 
that Brazil has not demonstrated either through em pirical evidence, or through its modeling exercise, 
that the marketing loan and counter-cyclical paym ent programs have had any appreciable impacts on 
price in MY 2005, let alone caused any "significant" price suppression within the meaning of Article 6.3(c) of the SCM Agreement.  Brazil does not  even address the question of "significance" in  WT/DS267/RW 
Page B-15 
 
 
 its rebuttal submission and, thus, fails to prove a cr itical element of its claims of "significant" price 
suppression under Articles 5(c) and 6.3(c) of the SCM Agreement. 
 34. – Brazil has failed to make a prima facie  case of breach under Arti cles 5(c) and 6.3(d) of 
the SCM Agreement.   Brazil had not made a prima facie  case that the marketing loan and counter-
cyclical payment programs breach Articles 5(c) and 6.3(d) of the SCM Agreement.  First
, Brazil 
provides no legitimate empirical evidence to support its assertion that the slight increase in the U.S. 
share of the world market in MY 2005 over the av erage for MY 2002-2004 was "the effect" of the 
marketing loan and counter-cyclical payment programs.   Moreover, Brazil analysis is premised on the 
incorrect assumption that Article 6.3(d) is concerne d with absolute market share and whether or not, 
in any given year, a Member's market share would have  been lower if subsidies were removed.  It is 
not;  by its terms, Article 6.3(d) applies only in those situations where there is an increase from the 
previous three-year average and it is this increase  over time that is "the effect" of subsidies.  Thus, 
Brazil's argument is entirely off the mark.  
35. Second
, Brazil's arguments assume that Article 6.3(d) requires a showing of an upward trend  
in market share.  However, Article 6.3(d) requires a showing that "this increase" – i.e., "the increase in 
the world market share of the subsidizing Member . . . as compared to the average share it had during 
the previous period of three years" – "follows a co nsistent trend over a period when subsidies have 
been granted."  Brazil does not even provide relevant  data in this regard, le t alone make the required 
demonstration.  Nor could it;  there simply is no such  "consistent trend."  Brazil has, thus, failed even 
to submit a proper analysis, let alone established a prima facie  case of breach under Articles 5(c) 
and 6.3(d) of the SCM Agreement.  36. – Brazil has failed to make a prima facie  case of threat of serious prejudice under 
Articles 5(c) and 6.3(c) of the SCM Agreement.   Brazil's claims of "threat" of serious prejudice fail 
because they are based on a legally erroneous sta ndard and are factually unsubstantiated.  First
, there 
is no basis for Brazil's argument that "the preced ent interpreting the terms 'threat' and 'threaten' 
suggests that the appropriate standard of threat in  Part III [of the SCM Agreement] is one in which 
there is a significant likelihood, based on the natu re of subsidies and particular conditions of 
competition, that serious prejudice will occur in the fu ture."  This "significant likelihood" standard is 
not found in the text of the SCM Agreement.  More over, even leaving aside that there is no basis to 
attempt to interpret a treaty in accordance with "precedent" rather than "in accordance with customary 
rules of interpretation of public international law," Br azil does not in fact identify any "precedent" that 
"suggests" that the appropriate standard for "threat" of serious prejudice is "a significant likelihood."  
As Brazil's claims are based on an erroneous legal standard, Brazil fails to make a prima facie  case of 
threat of serious prejudice within the meaning of Article 5(c) and footnote 13 of the SCM Agreement.   
 
37. Moreover, Brazil's threat claims are also fact ually unfounded.  For example, given the prices 
that are expected to prevail in MY 2007 (well above  52 cents/lb), it is unlikely that marketing loans 
will have any significant effects on planting, producti on, exports, or world market prices in MY 2007.  
Indeed, recent estimates project that any marketing lo an payments are likely to be small in MY 2007 
and not even paid out in MY 2008.  Moreover, counte r-cyclical payments are likely to be paid in near-
fixed sums at least through MY 2007 (i.e., meaning that they are likely to behave much like fixed, 
direct payments which have been found not to cau se any significant price suppression).  Projections 
for MY 2007 U.S. plantings, production, and exports  – all of which show declines – also undermine 
Brazil's claims of "threat of serious prejudice."  Mo reover, cost data for future marketing years show 
that U.S. producers will likely cover their variable, or operating, costs as well as a large share of total 
costs in MY 2007. 
 WT/DS267/RW  
Page B-16  
 
 ANNEX B-3 
 
EXECUTIVE SUMMARY OF BRAZIL'S SUBMISSION  
REGARDING U.S. REQUEST FOR  
PRELIMINARY RULING 
 
(Executive summary submitted on 23 January 2007) 
  
1. Brazil addresses the four requests for prelimin ary ruling included in the United States' First 
Written Submission and asks that the compliance Pane l reject each of the United States' requests. 
 
1. U
SE OF GSM  102 TO SUPPORT EXPORTS OF PIG MEAT AND POULTRY MEAT ARE 
PROPERLY BEFORE THE COMPLIANCE PANEL  
 
2. In this dispute, Brazil claims that the Un ited States has applied Ge neral Sales Manager 102 
export credit guarantees ("ECGs") in a manner that  circumvents U.S. export subsidy commitments 
with respect to "unscheduled" products and thr ee "scheduled" products – rice, pig meat and poultry 
meat. 
 
3. According to the United States, Brazil cannot  assert claims about ECGs for pig and poultry 
meat in an Article 21.5 proceeding, allegedly b ecause "the Appellate Body made no findings against 
those guarantees [for exports of pig meat and pou ltry meat] and the DSB thus issued no rulings and 
recommendations addressed to them."  The United States concludes that Brazil's claims are outside 
the scope of these proceedings. 
 4. The United States advances an incorrect inte rpretation of Article 21. 5 of the Understanding 
on Rules and Procedures Governing the Settlement of  Disputes ("DSU").  The scope of Article 21.5 
proceedings is not limited in this regard by the scope of the original proceedings in this dispute.  As 
affirmed by the Appellate Body in EC – Bed Linen (21.5) , "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."
1  Brazil successfully appealed the original panel's finding that the United States had not 
circumvented its export subsidy commitments with respect to ECG support for exports of pig meat 
and poultry meat, but the Appellate Body was unabl e to complete the analysis.  Thus, unlike in EC – 
Bed Linen (21.5) , there has been no "final resolution" to  the question whether the United States 
circumvents its export subsidy commitments with r espect to ECGs for pig meat and poultry meat.  
The scope of the original proceedings does not, therefore, limit the scope of the Article 21.5 
proceedings in this respect.  He nce, Brazil's claim concerning the consistency with Article 10.1 of 
the ECG programs with respect to pig meat and po ultry meat is properly within the scope of these 
Article 21.5 proceedings. 
 
5. Accordingly, Brazil requests that the complia nce Panel reject the United States' request for 
preliminary ruling.  
                                                     
 
1 Appellate Body Report, EC – Bed Linen (21.5) , para. 93 (emphasis in original).  See also  Appellate 
Body Report, U.S. – Softwood Lumber VI (21.5) , para. 102 (footnote 150).   WT/DS267/RW 
Page B-17 
 
 
 2. T HE MARKETING LOAN AND COUNTER -CYCLICAL PAYMENT PROGRAMS ARE PART OF 
THE U.S.  "MEASURE TAKEN TO COMPLY " 
 6. The United States requests a preliminary ruling that the marketing loan and counter-cyclical 
payment programs are not "measures taken to co mply," within the meaning of Article 21.5 of 
the DSU.   7. With its request for preliminary ruling, the United States appears to suggest that, since it 
chose to implement the recommendations and rulings  of the Dispute Settlement Body ("DSB") by 
solely removing the Step 2 program, these Article 21.5 proceedings can only address the effects of the 
removal of the Step 2 program, without regard to the other two measures that formed the "basket of 
measures" to which the findings, conclusions and recommendations of the original panel relate.  
The U.S. position ignores the context of the original pa nel's rulings, as well as the text of Article 21.5.  
 
8.  First, the U.S. argument ignores that the findings, conclusions and recommendations of the 
original panel apply to a "basket of measures."
2  U.S. statements at the time the Step 2 program was 
repealed indicate that the repeal of the Step 2 program was intended to comply with the adverse 
effects-related recommendations and rulings of the DSB, which apply to a "basket of measures."  
 
9. Second, by repealing the Step 2 program, th e United States changed th e "basket of measures" 
to which the adverse effects-rela ted recommendations and rulings of  the DSB apply.  The question 
before the compliance Panel is whether this new basket of mandatory and price-contingent measures, 
which constitutes the "measures taken to comply,"  is "consistent with the covered agreements."  
 
10. Brazil notes that Australia, Canada, Chad, Ch ina, the European Co mmunities, New Zealand 
and Japan disagree with the U.S. arguments that its  failure to change a non-compliant measure means 
that such a measure should fall outside the scope of proceedings under Article 21.5 of the DSU and 
request that the compliance Panel reject the U.S. request for preliminary ruling .   
 
11. Accordingly, Brazil requests that the complia nce Panel reject the United States' request for 
preliminary ruling. 
 
3. T HE MARKETING LOAN AND COUNTER -CYCLICAL PAYMENT PROGRAMS ARE 
PROPERLY WITHIN THE SCOPE OF THESE ARTICLE 21.5  PROCEEDINGS  
 
12. The United States argues that Brazil's claims in these Article 21.5 proceedings concerning the 
serious prejudice and threat of serious prejudice caused by the marketing loan and counter-cyclical programs are outside the scope of these proceedings, because the original panel "either rejected or 
declined to address" claims against those programs. 
 
13. First , the United States argues that Brazil raises improperly an "as such" claim in these 
Article 21.5 proceedings.  Yet, contrary to th e US's assertions, Brazil does not raise a claim 
against U.S. marketing loan and counter-cyclical  payment programs "as such."  Rather, Brazil 
challenges these programs inasmuch as they cause a dverse effects, within the meaning of Articles 5 
and 6 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement ").  Indeed, 
Brazil makes no distinction between the serious prejudice caused by the statutory and regulatory 
framework of the FSRI Act of 2002 and the serio us prejudice caused by the mandatory and price-
contingent payments flowing from that statutory and regulatory framework.   
                                                     
 
2 Panel Report, U.S. – Upland Cotton , paras. 7.1502 and 7.1503. WT/DS267/RW  
Page B-18  
 
 14. In the circumstances of this dispute, a s ubsidy "payment" cannot be divorced from a subsidy 
"program."  The original panel made it very clear that its "present" serious prejudice finding pertains 
to both the FSRI Act of 2002 subsidy programs and the payments mandated by those programs.   
 15. The United Stated did not appeal this particular element of the original panel's report, which 
was, therefore, adopted by the DSB.  Conseque ntly, the United States "is obliged to take action 
concerning its present statutory and regulatory framework  as a result of [the original panel's] 'present' 
serious prejudice finding."
3  The U.S. arguments regarding th e "as such" versus "as applied" 
distinction reflect a fundamental misconception concer ning the nature of the obligations Articles 5, 6 
and 7.8 of the SCM Agreement , and the DSB recommendations and rulings in this dispute. 
 
16. Second , application of WTO jurisprudence rega rding the limits imposed on the scope of 
Article 21.5 proceedings  by the scope of the original proceedings4 makes it clear that Brazil's claims 
against the U.S. marketing loan and counter-cycli cal payment programs, and the payments flowing 
from such programs, are properly before this compliance Panel.   
 
17. Brazil's claims regarding the adverse eff ects flowing from both the programs and payments 
mandated thereunder were identified in Brazil's request for establishment of this compliance Panel. 
Brazil's claims involve U.S. measures "taken to comply" with the recommendations and rulings of 
the DSB – specifically, the new "basket of measures" providing for mandatory and price-contingent domestic support for upland cotton created by the re peal of the Step 2 program. Moreover, as 
demonstrated in more detail below, the original  panel did not reject, as the United States argues, 
Brazil's claims that the marketing loan and counte r-cyclical payment programs, or the mandatory and 
price-contingent payments made thereunder, cause serious prejudice or a threat thereof. 
 18. Brazil's claims concerning the marketing loan  and counter-cyclical payment programs and the 
payments flowing from such programs in these Artic le 21.5 proceedings, therefore, fall squarely 
within the limits set by  panels and the Appellate Body in their jurisprudence.  
 19. Furthermore, as clarified by the original pane l, its "'present' serious prejudice findings include 
findings of inconsistency that deal with the FSR I Act of 2002 and subsidies granted thereunder in 
MY 2002 [and that] the United States is obliged to take action concerning its present statutory and 
regulatory framework as a result of our 'present' seri ous prejudice finding."  Indeed, the original panel 
made findings that explained that its present seri ous prejudice conclusions "pertain" to both "measures 
in force" and "subsidies paid."  This is consiste nt with the original panel's identification of both 
payments and the statutory and regulatory framewo rk providing for these payments as the "measures 
at issue."   
 
20. Numerous other statements by the original panel confirm this.  For example, the original 
panel recognized that price-contingent payments are inextricably linked to the mandatory statutory 
and regulatory framework, i.e., the programs , providing for them.  In discussing the nature of the 
subsidies at issue, the original panel referre d numerous times to the statutory and regulatory 
framework providing for these payments.  
 
21. Additionally,  the original pa nel repeatedly stated that its "present" serious prejudice finding 
were premised upon effects generated from both the FSRI Act of 2002 and the payments flowing 
from the FSRI Act of 2002.  Its statements show that it was convinced that the United States could 
only comply with its Article 7.8 obligations by ch anging the mandatory and price contingent "basket 
of measures" of the FSRI Act of 2002. 
                                                     
 
3 Panel Report, U.S. – Upland Cotton, para. 7.1501.  
4 See US – Softwood Lumber VI (21.5) and Chile – Price Band Systems (21.5).  WT/DS267/RW 
Page B-19 
 
 
 22. The original panel also left no doubt that it considered the "basket of measures" alleged by 
Brazil to cause a threat of serious prejudice during MY 2003-2007 to overlap with the same "basket 
of measures" that the United States was obliged to  change as part of its obligation, pursuant to 
Article 7.8, to comply with the original panel's present serious prejudice findings.   
 
23. For these reasons, the original panel did not find it "necessary or appropriate" to rule on 
Brazil's "threat" claims. This  finding did not cons titute a rejection of those  claims.  The original 
panel's statements regarding the United States' obligation to "make changes to its statutory and 
regulatory framework" were a direct response to a re quest by Brazil to address future adverse effects 
flowing from the FSRI Act of 2002. 
 
24. Finally, the original panel did not reject Brazil's per se  claim.  Indeed, it exercised judicial 
economy over that claim.  In doing so, the original pa nel cross-referenced to Sections G and H of its 
report making it clear that no additional findings were necessary.   
 
25. In light of the foregoing, Brazil requests that  the compliance Panel reject the United States' 
request for preliminary ruling.  
4. T
HE COMPLIANCE PANEL IS NOT BARRED FROM MAKING FINDINGS WITH RESPECT TO 
THE U.S.  FAILURE TO IMPLEMENT BETWEEN 21 SEPTEMBER 2005  AND 31 JULY 2006 
 
26. The United States asserts, first, that Br azil cannot raise a claim, under Article 21.5 of 
the DSU, if there is no disagreement between the parties concerning the existence of measures taken to comply.  In doing so, the United States seems to acknowledge the absence of measures to comply 
between the end of the implementation period on 21 September 2005 and 31 July 2006.  Brazil thus 
requests the compliance Panel to make a finding to that effect .  
 27. Second, the United States asserts that the co mpliance Panel is barred, by Article 21.5 of 
the DSU, from making findings on a situation of non-compliance by the United States between 21 September 2005 and 31 July 2006.
5  The United States errs.  Brazil has the right to challenge the 
"existence" and "consistency" of "measures taken to  comply", in accordance with Articles 7.8 and 7.9 
of the SCM Agreement .  A finding that the United States failed to implement in a timely manner will 
be relevant to the resolution of this dispute.  28. Should Brazil prevail in the adverse effects-re lated portion of this dispute, the quantification 
of any countermeasures it seeks will be assessed by an arbitrator as of the date the United States was 
required to "remove the adverse effects of the subsid y or withdraw the subsidy."  Arbitrators refer to 
"the date on which the implem entation period expired, as the date on which to assess whether the 
proposed suspensions of concessions or  other obligations were equivalent  to the level of nullification 
or impairment or constitute appropriate countermeasures."
6 
 
29.  Accordingly, Brazil's right to pursue the Unite d States' failure to remove the adverse effects 
or withdraw the subsidy, and the assessment  whether any proposed countermeasures are 
commensurate, are tied to the date on which th e implementation period expires .  That the 
United States, on 1 August 2006, took measures to comply is relevant before this compliance Panel 
solely in connection with Brazil's claims that th ese measures result in inc onsistency with Articles 5 
and 6 of the SCM Agreement . 
 
                                                      
5 U.S. First Written Submission, paras. 51-56. 
6 Arbitrator's Report, U.S.  – FSC , paras. 2.14(a) (and footnote 25), 2.15. WT/DS267/RW  
Page B-20  
 
 30. Brazil notes that Australia similarly points out  to the impact the U.S. interpretation would 
have on Members' rights under Article 7.9 of the SCM Agreement  and Article 22 of the DSU.  
31. Brazil therefore requests that the complian ce Panel reject the United States' request for 
preliminary ruling. 
5. C
ONCLUSION  
 For the reasons set forth in Sections 1 to 4 above,  Brazil requests that the compliance Panel reject all 
four U.S. requests for preliminary rulings. 
 
     
 
 WT/DS267/RW 
Page C-1 
 
 
  
 
ANNEX C 
 
ORAL STATEMENTS OF PARTIES AND THIRD PARTIES 
AT THE MEETING WITH THE PANEL 
 
 
Contents Page 
Annex C-1 Opening Statement of Brazil (Executive Summary) –27 February 
2007 C-2 
Annex C-2 Closing Statement of Brazil – 28 February 2007 C-10 
Annex C-3 Opening Statement of the United States (Executive Summary) – 
27 February 2007 C-18 
Annex C-4 Closing Statement of th e United States – 28 February 2007 C-26 
Annex C-5 Third Party Oral Statement of Argentina – 28 February 2007 C-29 
Annex C-6 Third Party Oral Statem ent of Australia – 28 February 2007 C-34 
Annex C-7 Third Party Oral Statemen t of Canada – 28 February 2007 C-37 
Annex C-8 Third Party Oral Statement of Chad – 28 February 2007 C-40 
Annex C-9 Third Party Oral Statement of the People's Republic of China – 
28 February 2007 C-45 
Annex C-10 Third Party Oral Statement of the European Communities – 
28 February 2007 C-47 
Annex C-11 Third Party Oral Stat ement of India – 28 February 2007 C-56 
Annex C-12 Third Party Oral Statement of Japan – 28 February 2007 C-58 
Annex C-13 Third Party Oral Statemen t of New Zealand – 28 February 2007 C-61 
Annex C-14 Third Party Oral Stat ement of Thailand – 28 February 2007 C-64 WT/DS267/RW  
Page C-2  
 
 ANNEX C-1 
 
EXECUTIVE SUMMARY OF THE  
OPENING STATEMENT OF BRAZIL 
 
(27 February 2007) 
 
 
1. Brazil's "oral statement" addresses the following issues.  First, Brazil deals with preliminary 
rulings arguments.  Second, Brazil highlights key aspects of Brazil's present serious prejudice claims and responds to selected arguments raised by the Un ited States in its Rebuttal Submission. Third, 
Brazil reiterates its claims with respect to export credit guarantees ("ECGs") and rebuts the United States' principal defenses. 
 
1. P
RELIMINARY RULINGS ARGUMENT  
 
2. Brazil provided extensive answers to the Pane l's questions regarding the preliminary ruling 
requests of the United States.  In considering th ese arguments, Brazil asks the Panel to consider the 
following questions.  When the original panel issued  its report, did it intend to leave Brazil with no 
implementation rights  for serious prejudice caused by mandatory and price-contingent marketing loan 
and Counter-Cyclical Payment ("CCP") program paym ents made after marketing year (MY) 2002?  
Further, did the original panel intend th at the United States would have no obligation  to take 
appropriate steps under Article 7.8 of the SCM Agreement  concerning its statutory and regulatory 
framework  mandating price-contingent mark eting loan and CCP subsidies?    
 3. The original panel expressed very clearly the U. S. obligation to take steps to limit and control 
marketing loan and CCP subsidies made after 31 Ju ly 2003.  In addressing Brazil's arguments about 
the mandated future marketing loan and CCP su bsidies made during MY 2003 and to be made 
beyond, the original panel found that "[b]ecause the Panel's 'present' serious prejudice findings 
include findings of inconsistency that deal w ith 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."  This finding provided considerable assurance to Brazil that th e United States was required to significantly change 
and transform the Farm Security and Rural I nvestment Act of 2002, the Farm Bill.     
 4. The United States argument that General Sa les Manager ("GSM") 102 ECGs for pig meat and 
poultry meat are not properly within the scope of these Article 21.5 proceedings confounds Brazil's claims and the measure that is the subject of those claims.  Brazil's claims concerning these two "scheduled" commodities are product-sp ecific, as they must be under the Agreement on 
Agriculture .  The measure subject to those claims is indeed the United States' "measure taken to 
comply" – the GSM 102 program "in its totality," as amended by the modified GSM 102 fee schedule.  
As we demonstrate in our answers to the Panel' s questions, neither the amended GSM 102 program in 
its totality, nor the individual amendments, set out  terms or conditions that differ as between any 
eligible products.  Brazil's claims are product-specifi c, but the U.S. "measure taken to comply" is not. 
 
2. P
RESENT SERIOUS PREJUDICE CLAIMS  
 
5. Brazil initiated this proceeding due to the fa ilure of the United States to withdraw the 
subsidies or to take appropriate steps under Article 7.8 of the SCM Agreement to remove the adverse 
effects of the subsidies, in a timely and comple te fashion, pursuant to the recommendations and 
rulings of the Dispute Settlement Body ("DSB") in this dispute.   While  Brazil  raises four claims in WT/DS267/RW 
Page C-3 
 
 
 this proceeding, the focus of this Oral Statement is Brazil's claims of present serious prejudice from 
the U.S. marketing loan and CCP subsidies. 
Cross-Cutting Serious Prejudice Related Arguments 
 
6. Initially, Brazil addresses a number of cro ss-cutting arguments.  First, the appropriate 
reference period to assess the effects of marketing loan and counter-cyclical payments is MY 2005, 
the last recent marketing year for which essentially co mplete data exists.  However, it is appropriate 
for the Panel to assess, where credible and reliable, evidence concerning time periods after 
31 July 2006.    
 
7. Second, this Panel should follow the findings of  the original panel.  Brazil fully agrees with 
the United States that the original panel's findi ngs "are taken as a given for purposes of this 
Article 21.5 proceeding."  The Panel should, therefor e, reject the U.S. efforts to have it dismiss 
practically all of the original panel's findings as irre levant because allegedly all of its findings relate 
only to a basket of three measures – marke ting loan, CCP and Step 2 subsidies.   
 
8. Third, as every other panel assessing a serious prejudice claim, this Panel must necessarily conduct a counterfactual "but for" analysis.  Th is approach requires it to assess what production, 
exports, and world prices would be in a world in which U.S. marketing loan and CCP subsidies did 
not exist.   
 
The Nature, Magnitude and Effects of Marketing Loan Subsidies   
 
9. The largest and most trade-distorting subsidy at  issue in this dispute is the marketing loan 
subsidy.  The original panel found as follows:  "w e have no doubt that the [marketing loan] payments 
stimulate production and exports and result in lower world market prices than would prevail in their 
absence."  The United States now asks this Panel to  find that since the adoption of the panel's 
marketing loan findings by the DSB on 21 March 2005 , the nature of marketing loan subsidies has 
totally changed.  However, both the available da ta and testimony of cotton producers and their 
representatives shows that marketing loans are cr ucial for the continued production of cotton.  
Further, marketing loan payments in MY 2005 were 29 percent larger than in MY 2002.  
 
The Nature, Magnitude and Effects of CCP Subsidies  
 
10. CCP subsidies play a similarly crucial role in U.S. cotton producers' ability to grow cotton 
profitably.  According to data produced by the United States for MY 2005, 95 percent of U.S. cotton 
acreage was planted on farms holding cotton b ase.  These farms receive large amounts of 
CCP subsidies.  These facts alone demonstrate the "strongly positive relationship" between receipt of 
CCP subsidies and the continued production of co tton.  CCP subsidies have production, export and 
price effects, as they restrict planting flexibility of  farmers.  They reduce the risk associated with 
producing the base crop, in this case cotton.  CCP subsidies also increase the ability of farmers to 
invest in production-enhancing equipment.  In gene ral, they smooth the revenue flow to farmers and 
ease access to credit. 
 11. Representatives of the National Cotton Counc il ("NCC") of America testified to the 
U.S. Congress that "during the past three years, many cotton farmers have avoided bankruptcy only 
because Congress has authorized emergency relief to  supplement the FAIR Act's inadequate fixed 
payments."  This statement offers a number of valu able insights also for CCPs.  As the original panel 
found, "United States upland cotton producers rely on … subsidies to cover their cost of production."  
Second, contrary to U.S. arguments, U.S. producer s could not perceive direct payments ("fixed 
payments") and CCP subsidies as fully capitalized into land values.   WT/DS267/RW  
Page C-4  
 
 Combined Effects of Marketing Loan and CCP Subs idies Result in Increased U.S. Supply of Cotton 
 
12. But for U.S. price-contingent cotton subsidies, the majority of cotton farms would incur huge losses nearly every year.  Faced with the pros pect of such losses, many farmers would cease 
producing cotton.  Neither the U.S. criticisms of Brazil's cost of production analysis, nor the new 
factual information provided by the United States, detracts from the core reality that U.S. cotton 
farming is unprofitable without subsidies.    13. The key question in any business is whethe r market returns exceed costs and generate 
sufficient profit.  While a business with reserve s may sustain losses in some years, even the 
United States recognizes that "in the long run, produ cers will have to cover asset and overhead costs, 
as well as variable costs."  Data from USDA indicates  that cotton farmers lost an average of $837 for 
each acre planted to cotton in the past seven years (MY 1999-2005).  In only one of these years – MY 2003 – did farmers' market returns exceed produc tion costs.  Based on the total amount of acres 
planted to cotton, the U.S. cotton industry lost $12.4 billion during the past seven years.  Yet, over the 
same period, marketing loan and CCP subsidies provided cotton farmers with price-contingent 
subsidies amounting to $13.5 billion.    14. The United States claims that Brazil "fails to  analyze properly the planting decisions made by 
U.S. producers in light of market conditions and considerations they actually faced at the time of 
planting."  In response, Brazil compared the net reve nue (or loss) that a typical farmer holding cotton 
base expected in the spring of 2005 from growing an acre of cotton, or two common substitute crops, 
soybeans and corn.  The analysis demonstrat es that subsidized U.S. cotton farmers did not have an 
incentive to switch from cotton to corn or soybean production.  Rather, they expected that cotton 
marketing loan and cotton CCP payments linked to the cotton base acre at issue would allow them, at 
a minimum, to break even.  Had cotton marketi ng loan and CCP subsides not existed in MY 2005, 
upland cotton farmers would have had every incentiv e to switch to the production of other crops, for 
which marketing loan subsidies would sti ll be available, to cut its losses.   
 15. The fact that U.S. marketing loan and CCP subsidies "numb" U.S. cotton farmers' responses 
to market price signals is also demonstrated by more recent evidence.  In February 2007, the NCC 
announced that U.S. cotton farmers intend to pl ant 12.8 million acres in MY 2007, or 14 percent less 
than in MY 2006, largely because expected prices for corn are the highest on record.  The evidence 
shows that farmers expect to incur large losses from growing cotton in MY 2007 if they had to consider solely cotton market revenue.  By contr ast, farmers can expect to earn a profit from growing 
both soybeans and corn, even without considering U.S. subsidies
.  Based on these considerations 
alone, it is remarkable that the NCC predicts that only 14 percent of cotton acreage shifts out of 
growing cotton. 
 16.   Examining actual total costs and returns in MY 2002-2006 demonstrates that only U.S. subsidies made growing cotton economically rational, and very profitable.  Again, price-
contingent cotton marketing loan and CCP subsidi es are the main reason for cotton farmers achieving 
profitability.  The marketing loan subsidy alone almost entirely erased lo sses that cotton farmers 
would have incurred based solely on market revenu e.  It also almost equalized the returns from 
growing cotton, corn or soybeans.  Cotton direct a nd CCP subsidies then turned growing cotton into a 
very profitable business.    17. Brazil recalls that even if U.S. cotton farmer s expected prices to be above the Adjusted World 
Price at the time of planting, they "were also awar e that if actual prices were ultimately lower, they 
would be 'insulated' by government support, includ ing not only marketing loan program payments but 
also counter-cyclical payments, which were based on a target price of 72.4 cents per pound."  This is 
exactly what happened in MY 2004.  Futures prices during the planted period indicated high prices at 
the time of harvest.  But soon after planting, pri ces began to plunge far below the loan rate.   WT/DS267/RW 
Page C-5 
 
 
  
18. Finally, the United States claims that Brazil ha s failed to show that the effects of marketing 
loan and CCP subsidies are to increase U.S. acreage, increase U.S. production, and increase the 
U.S. share of world exports and production.  Th is argument erroneously assumes that there was a 
recent marketing year, month, or even day without effects from the U.S. subsidies.  Such a time 
period does not exist.  Given the original panel's findings regarding the structure, design and operation 
of the mandatory and price-contingent subsidies in the FSRI Act of 2002, it is sufficient for Brazil to 
show that those subsidies have sustained and maintained high le vels of acreage, production and 
exports of U.S. cotton that would otherwise be uneconomical.    Statement of Professor Daniel Sumner 
 
19. Professor Sumner provided the Panel with a st raightforward and robust model appropriately 
tailored to the questions before this Panel.  The pa rameters used fit specifically the market and policy 
setting for cotton and the question that this Panel is  tasked to assess – the impacts on cotton market 
prices, quantities and exports of removing very larg e cotton subsidies.  The United States has raised 
many complications, yet each of its objections fad es away upon scrutiny.  The model provided to the 
Panel and the economic reasoning that guides its appli cation to the issues of U.S. cotton subsidies are 
sound.  The results provided are sound and directly useful for this case.  20. The analysis discusses why the CCP affects acr eage decisions of cotton farmers.  These 
payments affect cotton production because they are large,  they are tied to the cotton price, they restrict 
what can be grown, and they are tied to cotton pr oduction through expectations about future base 
updates.  The importance and relevance of these argum ents are reinforced by the evidence that has 
accumulated since 2003.  It is instructive to note that in its reparameterization of the model by the United States, it abandons its previous claim that the CCP is completely decoupled from production.   
 
21. The basic set of equations was adapted from a research report published by the Cato Institute.  
While built upon the basic algebraic foundation publis hed as an appendix in my 2005 study, the 
cotton model used by Professor Sumner for this di spute involves considerable elaboration from the 
Cato publication.    Production and Export Effects Cause Significant Price Suppression in the World Market and an 
Increase in the U.S. World Market Share  
 
22. Brazil has demonstrated that excess U.S.  production causes significant price suppression in 
the world market for cotton.  Evidence supporting this assertion includes the fact that Brazilian and 
U.S. cotton is a fungible and widely traded commodity  and that "the United States exerts a substantial 
proportionate influence in the world market for upland cotton."  As in MY 2002, the United States 
accounts for about 20 percent of world production an d 40 percent of world exports.  Price suppression 
in the world cotton market today continues to be  linked to the U.S. position as the world's largest 
exporter by far.   
23. Furthermore, the evidence demonstrates that th e price effects of the U.S. marketing loan and 
CCP subsidies are "significant."  Professor Sumner fi nding of a 9-11 percent price effect in the world 
market for cotton in MY 2005 is sup ported by the academic literature.   
 24. The price effects from marketing loan a nd CCP subsidies found by Professor Sumner and 
others constitute "significant" price-suppression.  Given the conditions of competition in the world 
market for cotton, price effects of 1 or 2 percent would be significant.  Contrary to the U.S. arguments, the evidence before the Panel demonstr ates that the effect of the U.S. marketing loan 
and CCP subsidies and the payments made thereunde r is (i) significant price suppression in the world WT/DS267/RW  
Page C-6  
 
 market for cotton, in violation of Articles 5(c) and 6.3(c) of the SCM Agreement , and (ii) an increase 
in the U.S. world market share, in violation of Articles 5(c) and 6.3(d) of the same Agreement . 
 
Removal of Step 2 Did Not Impact the Pr ice Suppressing Effects of Marketing Loan and 
CCP Subsidies 
 
25. In the context of this Artic le 21.5 proceeding, the repeal of the Step 2 program constitutes a 
non-attribution factor.  In the words of the original panel, the issue is whether the Step 2 program in 
MY 2005 "would have the effect of attenuating th[e] causal link, or of rendering not 'significant' the 
effect of"
 marketing loan and CCP subsidies.   
 
26. The U.S. Government itself confirms that th e repeal of Step 2 has minimal effects on the 
revenue protection enjoyed by U.S. cotton producers.   Other independent studies also find relatively 
modest effects from the repeal of Step 2.  Th e United States argues that the smaller amount of 
U.S. exports in MY 2006 is evidence of the removal of adverse effects by the repeal  of Step 2.  This is 
largely false.  According to USDA,  the decline in U.S. exports is "almost entirely attributable to 
reduced sales to China,"  partially due to decreased demand fro m China and increased exports from 
India.  Second, as the United States has conceded , there was a large and unnatural surge in U.S. 
exports at the end of MY 2005 just before the te rmination of the Step 2 program.  Nevertheless, 
USDA's current projections of MY 2006 exports rema in at the second highest level in history, at 
levels that are comparable to MY 2004 and 22 percent above MY 2002 levels.   
 
Statement of Andrew Macdonald 
 
27. Due to its large size and the availability of re liable information, the U.S. cotton market is the 
single most important market influencing cotton pr ices throughout the world.  China has undoubtedly 
an influence on the world market, but it does not lead  world market prices.  India is another example 
of an important cotton-producing and -consuming country.  Brazil, like most other cotton producing 
countries, is a relatively small producer of cotton a nd its domestic market consumes the majority of its 
production.  None of the other cotton-producing countries individually have the export potential 
needed to assert a substantial influence on price trends.      
28. The U.S. elimination of the Step 2 program for cotton on 1 August 2006 was well received by 
the cotton producers outside of the United States.  The effect of Step 2 on the international market is 
extremely difficult to judge under such a complex syst em.  Yet, Macdonald believes that international 
cotton prices were initially somewhat higher than th ey would have been if the Step 2 program had 
been maintained.  However, what might have been gained in terms of increased price levels from its 
elimination has most likely been lost by the accumula tion of larger stocks in the United States.  Under 
normal circumstances, such increased stocks w ould result in a reduction of production in the 
United States, which would be the only way for U.S. prices to rise.  However, the remaining domestic 
support programs give U.S. producers little incentive to react to such price signals.    
3. E
XPORT CREDIT GUARANTEES  
 
29. With respect to three ECG programs maintain ed by the U.S. Commodity Credit Corporation – 
GSM 102, GSM 103 and SCGP – the DSB recommended that the United States withdraw the subsidy and otherwise bring itself into compliance with its  obligations by the implementation deadline of 
1 July 2005.  However, U.S. "measures ta ken to comply" with the DSB's ECG-related 
recommendations do not exist in some respects.  To th e extent they do exist, they are not consistent 
with the export subsidy rules of the Agreement on Agriculture  and the SCM Agreement .   
 30. Brazil has demonstrated that there is no cred it protection product available in the marketplace 
that is comparable to a GSM 102 ECG.  Accordingl y, the GSM 102 program offers a unique financial WT/DS267/RW 
Page C-7 
 
 
 instrument without any parallel at market, and therefore confers "benefits" per se .  In Brazil's view, 
that is the beginning and the end of the analysis.   31. Brazil has also demonstrat ed quantitatively that GSM 102 fees are lower than fees for 
comparable products offered by ExIm Bank, by an average of over 100 percent of the GSM 102 
value.  The United States has never disputed the accuracy of Brazil's ExIm Bank comparison.  
Instead, it criticizes Brazil for not benchmarking GSM 102 fees against fees for products offered by three multilateral institutions – the EBRD, the IDB and the IFC.  The United States criticizes Brazil 
for arguing that becau se these three entities
 are public rather than private, they cannot offer 
commercial products .  The United States goes on to argue that fees charged by these entities are 
market-based or "commercial" (without providing any indication of what these fees are, or how they 
compare to GSM 102 fees).  This argument is peculiar, for at least two reasons.    32. First , it may or may not be true that public entities
 like the EBRD, IDB and IFC can offer 
commercial products .  Brazil tends to think it is not true.  However, the exhaustive evidence offered 
by Brazil to demonstrate that GSM 102 fees fall far below fees for comparable ExIm Bank products 
stands.  Like the EBRD, IDB and IFC, the ExIm Bank is  a public entity.  Despite its status as a public 
entity , the United States presumably considers that the ExIm Bank offers commercial products , 
including the products used by Brazil in its be nchmarking analysis.  If so, then Brazil fails to 
understand why the ExIm Bank benchmarking analysis  provided by Brazil is any less probative than 
would be an analysis involving EBRD, IDB and IFC fees.  Brazil has demonstrated that GSM 102 
fees fall below ExIm Bank fees for comparable pro ducts.  If the United States believes that the result 
would be different  in a comparison between GSM 102 fees, on  the one hand, and EBRD, IDB or IFC 
fees, on the other, it is up to the United St ates to prove it.  If the United States does not  consider that 
the ExIm Bank products used by Brazil in its benc hmarking analysis are provided on terms consistent 
with market, then those products themselves confer a "benefit" .  In that case, by using ExIm Bank 
products as a reference point for assessing GSM 102 ECGs, Brazil is being unduly generous to 
the United States.    33. Second , the United States has previously argued that export credits offered by public entities 
can not be considered commercial products.  The Panel can therefore unders tand Brazil's surprise at 
the United States' insistence that EBRD, IDB and IFC products provide releva nt benchmarks.  Brazil 
tends to agree with the standard the United Stat es apparently applies to WTO Members other than 
itself – that is, that a public or government entity is not the commercial market.  While the United States finds significance in the fact th at public entities like the EBRD, IDB and IFC are 
"profitable" (whatever the definition of that term),  making a "profit" does not mean that fees charged 
by a public entity are consistent with market.  A pub lic entity can charge belo w-market fees and still 
make a "profit", particularly because its costs are be low those faced by its market-based counterparts.  
A market-based entity must charge fees high enough to make a profit on costs higher than those faced 
by its public or government counterparts, and the prof it must offer a sufficient return to attract capital 
from investors.  "Profitability" of a public entity is not an adequate measure of the full extent of the 
"benefit" conferred by a government financial contribution.    
34. Turning to the role of Article 14(c) of the SCM Agreement, the United States criticizes Brazil 
for not having undertaken a quantitative assessme nt of "benefit" under the calculation methodology 
included in Article 14(c).  In the United States' view, the only
 way to determine whether a "benefit" 
has been conferred by a guarantee subject to export subsidy claims under the Agreement on 
Agriculture  and Part II of the SCM Agreement  is to assess the effect of the guarantee on the price of 
an underlying loan. 
 35. Article 14(c) is not
 the sole standard to determine wh ether a government guarantee confers a 
"benefit" in a dispute under the Agreement on Agriculture  and Part II of the SCM Agreement .  
Article 14 applies solely "[f]or the purpose of Part V" of the SCM Agreement , or in other words, for WT/DS267/RW  
Page C-8  
 
 proceedings involving countervailing measures, wher e calculation of a duty is required.  The 
"guidelines" in Article 14 support the conclusion that Article 1.1(b) of the SCM Agreement  embodies 
a "benefit to recipient" standard.  Unlike in c ountervailing duty proceedings, where a duty must be 
calculated, disputes under Part II of the SCM Agreement  do not require quantification of the "benefit" 
found under Article 1.1(b).  Thus, Article 14 does not prescribe hard and fast rules, even in 
countervailing measure disputes, to which the pr ovision is explicitly applicable.  Outside
 the context 
of countervailing measure disputes, this flexibility to account for the factual circumstances at hand is at least as important to preserve. 
36. Brazil makes an alternative argument under item (j) in the event the Panel does not consider 
Brazil's evidence
 and argument to be sufficient to show that GSM 102 fees confer "benefits" and 
constitute subsidies under Article 1.1 of the SCM Agreement .  Brazil asks the Panel to determine 
whether the GSM 102 program constitutes an expor t subsidy under the so-called "break even" 
standard in item (j).  This evidentiary point stands, without painting Brazil into the imaginary 
interpretive quandary constructed by the United States.  
37. Even if the United States has withdrawn the elements of the GSM 102 program that made it 
an export subsidy under item (j) (a  proposition with which Brazil do es not agree), it has "replace[d] 
the original subsidy with yet another" prohibite d 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 recommendati on.  In urging the Panel not to examine whether 
its replacement measure confers e xport-contingent "benefits", the United States seeks precisely to 
escape its obligation under that provision to fully
 withdraw the prohibited subsidy. 
 38. Contrary to the U.S. position, item (j) does not
, via an a contrario reading, constitute the only  
evidentiary path by which an export credit guarant ee or an ECG program can be shown to constitute 
an export subsidy.  There is one very important reason for this conclusion – item (j) does not satisfy 
the terms of footnote 5 of the SCM Agreement .  Footnote 5 expressly identifies the only circumstances 
in which the Illustrative List can be re lied upon to identify measure that are not  prohibited.  Item (j) 
does not in any way affirmatively refer to any EC Gs as "not constituting export subsidies."  It 
therefore cannot be read a contrario , as the United States wishes.  This same conclusion was reached 
by the panel in Korea – Vessels , which considered item (j) in light of footnote 5. 
 
39. The first category of evidence relates to the structure and design  of the GSM 102 program.  
This evidence is critical, because it is an ECG program's structure and design that ultimately 
determine whether the fees charged will, over th e long term, cover operating costs and losses.  
Viewed alone, historical data about an ECG progr am's performance is potentially unreliable, because 
it may reflect accidents of good fortune over a given period of years.   
 
40. Brazil has identified at least five aspects of  the GSM 102 program that establish that it is not 
structured and designed to meet its long-term operating costs and losses.  All of these structural features were considered by the original panel to support its conclusion that the ECG programs constituted export subsidies within the meaning of item (j).  All of these structural features persist in 
the amended GSM 102 program.    
 
41. Brazil turns now to the second category of evid ence that is relevant to the compliance Panel's 
analysis under item (j) of the Illustrative List, shoul d the Panel deem it necess ary to proceed to that 
alternative basis for finding GSM 102 to be an export subsidy.  That second category comprises 
Brazil's evidence that, as a matter of historical  performance, the GSM 102 program has not met its 
operating costs and losses.  Brazil has offered such evidence using both a net present value 
methodology, and a cash basis accounting methodolog y.  Viewed using either methodology, the 
GSM 102 program does not survive scrutiny under item (j).  WT/DS267/RW 
Page C-9 
 
 
 42. To close, Brazil made a brief observation on its  claim that no measures taken to comply exist 
with respect to ECGs for unscheduled products and rice outstanding on 1 July 2005.  Brazil's claim is 
supported by the compliance panel and Appellate Body reports in Brazil – Aircraft (21.5) .  These 
reports concluded that in continuing, after  the implementation deadline, to perform on financial 
instruments concluded before  adoption of the DSB's recommendation, Brazil was not fully 
withdrawing the subsidy.  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.  We believe that as a re sult, the United States can neither pay claims under 
these outstanding ECGs, nor reschedule those outstanding ECGs.  
 WT/DS267/RW  
Page C-10  
 
 ANNEX C-2 
 
CLOSING STATEMENT OF BRAZIL 
 
(28 February 2007) 
  
TABLE OF CONTENTS 
 
Page
 
 
1. I NTRODUCTION  11 
2. R ELATIONSHIP OF ARTICLE 21.5  OF THE DSU  AND ARTICLE 7.8 OF 
THE SCM A GREEMENT  11 
3. P RICE TRANSMISSION AND MARKET INTEGRATION  11 
4. B RAZIL 'S CAUSATION ANALYSIS , EXPORTS AND THE EFFECTS OF STEP 2  12 
5. C OST OF PRODUCTION  13 
6. "S IGNIFICANT "  14 
7. E XPORT CREDIT GUARANTEES  15 
8. C ONCLUSION  17 
 WT/DS267/RW 
Page C-11 
 
 
 1. I NTRODUCTION  
 1. Thank you Mr. Chairman, Members of the Pane l and Members of the Secretariat.  In our 
Closing Statement, we would like to touch upon a few issues in the U.S. Oral Statement of yesterday. 
 
2. R
ELATIONSHIP OF ARTICLE 21.5  OF THE DSU  AND ARTICLE 7.8 OF THE 
SCM A GREEMENT  
 2. This Panel is well aware that this is th e first Article 21.5 proceeding to deal with 
implementation of rulings related to adverse effects under the SCM Agreement .  Brazil cannot over-
emphasize the importance of an interpretation that safeguards the effectiveness and legal integrity of 
the provisions under Part III of the Agreement .  As the United States reminded us in its Oral 
Statement, "[a]n interpreter is not  free to adopt a reading that would result in reducing whole clauses 
or paragraphs of a treaty to redundancy or inutility."
1 
 
3. I recall the question that I posed yesterday in  our Oral Statement: When the original panel 
issued its report on 18 June 2004, did the original  panel intend to leave Brazil with no implementation 
rights for serious prejudice caused by mandatory and price-contingent marketing loan and CCP 
program payments made after 31 July 2003 – the end of MY 2002?  
 4. If the United States were to prevail on its view that subsequent
 mandatory and price-
contingent marketing loan and CCP payments  are not properly before this Panel, the grant of annual 
recurring subsidies becomes "a moving target th at escape from [the WTO subsidy] disciplines."2  
Subsequent mandatory subsidies would always ha ve to be subject to new dispute settlement 
proceedings, and by the time these proceedings were completed, the effects of the latest subsidies 
would be superseded by yet more subsidies, whic h could in turn only be challenged in yet another 
original panel process.  WTO dispute settlement w ould dissolve into a "Groundhog Day" situation, 
with no remedy available to Members suffering adverse effects.3 
 3. P
RICE TRANSMISSION AND MARKET INTEGRATION  
 
5. In its Oral Statement, the United States claims that Brazil makes conflicting arguments by 
arguing (i) for a rapid price transmission in an integrated world cotton market and (ii) for a much 
slower predicted reaction by farmers outside the United States to higher prices from the elimination of 
U.S. cotton subsidies.  Andrew Macdonald and Professor Sumner both discussed these issues.  The 
United States confuses two related, but distinct issues. 
 
6. Much of world's cotton is produced in re latively remote areas, often lacking strong 
infrastructure.  Further, information systems for fa rmers are often limited and in some cases policies 
restrict the ability of farmers to respond to world market prices.  These conditions mean that farmers' 
planting decisions in some countries respond incomple tely, or with some delay, to observed changes 
in world market prices for cotton. 
 
7. At the same time, the world market for cotton is well integrated.  Prices are highly correlated 
over time across various country markets.  The CIF pr ice charts that the Unite d States exhibited with 
its Oral Statement show that prices for cotton in different countries move together.  But those CIF 
prices are not the prices that farmers observe directly in  those countries.  In f act, there is a major step 
                                                      
1 Appellate Body Report, U.S. – Gasoline , p. 23. 
2 Panel Report, U.S. – Softwood Lumber IV (21.5) , para. 4.30. 
3 Panel Report, U.S. – Softwood Lumber IV (21.5) , para. 4.30, quoting arguments of the European 
Communities. WT/DS267/RW  
Page C-12  
 
 from the CIF export price at the border and retransm issioning those price signals back to individual 
farmers.  Hence, these prices confirm market integra tion, but do not reflect the slow and limited price 
transmission that affects cotton farmers' planting decisions. 
 8. Consequently, the United States, in  paragraph 80 of its Oral Statement
4, misinterpreted a 
statement by Professor Sumner regarding the transmission of prices.  The statement at paragraph 28 of Annex I notes that "there is an imperfect transm ission of price changes generated by U.S. cotton 
policy changes to cotton producers in certain cotton producing regions."  As I think we can agree, 
foreign growers will react more slowly to "polic y changes" taking place in the United States than 
would a U.S. cotton farmer faced with the immine nt elimination of its own revenue from marketing 
loan and CCP subsidies.  This is obviously different from the daily pr ice fluctuations of the New York 
futures or "A Index."  
 
4. B
RAZIL 'S CAUSATION ANALYSIS , EXPORTS AND THE EFFECTS OF STEP 2 
 
9. In its Oral Statement, 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.  
The United States misinterprets Brazil's claims.  Producti on, stocks and exports are in fact interlinked;  
any production not consumed domestically must even tually be exported.  Moreover, as the graph in 
the written version of my statement demonstrates5, cotton prices and the relative amount of stocks are 
closely correlated.  In other words, subsidy-fueled  production that results in stocks impacts market 
prices, much as subsidy-fueled production that results in exports.   
 
 
10. As Andrew Macdonald has explained, for purpo ses of price effects, U.S. stocks and exports 
are one and the same.  In light of declining U.S.  domestic use, U.S. stocks must eventually be 
exported.  The transparency of the U.S. market mean s that market participants are fully aware of this 
fact.  Whether U.S. supply ends up temporarily in a warehouse, or is exported immediately, the U.S. 
subsidies-generated supply suppresses world market prices. 
 
                                                      
4 Check against delivery version. 
5 Exhibit Bra-660 (http://www.cottoninc.com/Cott onMarketComments/ChinaStocksRevisedUpward/ ). Cotton:  "A" Index and World Stocks/Use, 
August 1999 – February 2006 Ratio 
Price Stks/Use"A" Index WT/DS267/RW 
Page C-13 
 
 
 11. Further, the United States claims that the repeal of the Step 2 program has reduced U.S. 
exports, as allegedly shown by MY 2006 year-to-date data.  Yet, the data show that after years of 
increases, exports from almost all the large exporting countries (except India, which is a special case 
given the improvements in the Indian cotton industry ) are projected to fall in the current marketing 
year.6 
 
EXPORTS 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-200705/06 v 
06/07 % 
Change 
WORLD 5881 6449 6645 7233 7780 9645 8769 -9.99 
USA 1472 2395 2591 2995 3143 3821 3418 -11.79 
CFA 755 756 815 1957 936 1031 971 -6.18 
UZBEK 800 810 783 659 850 1000 946 -5.71 
AUSTRALIA 849 662 575 470 435 538 483 -11.39 
BRAZIL 68 147 107 110 339 456 330 -38.18 
GREECE 270 250 280 247 321 355 243 -46.09 
INDIA n/a n/a 11 119 136 600 894 32.89 
 
in '000 metric tons Source ICAC – World Cotton Statistics – Review of Cotton Situation7 
 
12. USDA itself has stated what many indepe ndent market analysts, including Andrew 
Macdonald, confirm:  that Chinese demand for imports  has fallen considerably as China is apparently 
using up "a large supply of cotton imported prio r to the expiration of the Step 2 program."8  Increasing 
Indian exports have added to export declines in the United States and other exporting countries.9  
 
13. Nevertheless, USDA (and ICAC) currently pr oject U.S. exports in MY 2006 to be the second 
highest in history  and comparable to MY 2004 levels.  The United States has conceded that MY 2005 
saw a large and unnatural surge in exports just prior to the repeal of Step 2.10  Thus, the level of 
exports would probably have been lowe r in MY 2005 and higher in MY 2006 but for the unusual end 
of MY 2005 surge of exports taking advantage of the last Step 2 subsidies.  Indeed, U.S. MY 2007 
exports are projected to increase again.   
 14. In sum, there is no evidence that the elimina tion of Step 2 has any significant impact on U.S. 
exports.   
 
5. C
OST OF PRODUCTION  
 
15. The United States claims that Brazil's "theor y" of a cost-revenue gap "fails as a matter of 
fact"11 because of newly-presented cost/revenue data for MY 2003.  As Brazil noted in its 
                                                      
6 Exhibit Bra-652 (International Cotton Advisory Committee Review, Volume 60, Number 3 January-
February 2007, accessed February 2007, p. 4).   
7 Exhibit Bra-661 (Export Statistics, ICAC, February 2007). 
8 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/ ).  
9 Exhibit Bra-652 (International Cotton Advisory Committee Review, Volume 60, Number 3 January-
February 2007, accessed February 2007, p. 4. 
10 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 ). 
11 U.S. Oral Statement, para 71 (Check against delivery version). WT/DS267/RW  
Page C-14  
 
 Oral Statement
12, MY 2003 was characterized by unusually high prices.  Over the past seven years 
(i.e., MY 1999-2005), MY 2003 is the only year, in which the average U.S. acre planted to cotton 
happened to make a profit based on ma rket revenue.  That said, even the United States admits that in 
MY 2003 fully 8 percent of U.S. cotton production was unable to cover its variable and total costs.  
Based on this MY 2003 data, the United States impli es that over the lifetime of the 2002 Farm Act, 
"fully 92 percent of U.S. upland cotton is produced without the help of subsidies."13  However, this is 
wrong even for MY 2003.  The average middle cost farm  covered costs, but within the group, there is 
also a wide range an many of those farms (about  a third depending on the precise nature of the 
variation of those farms) failed to cover costs.  Th is means that, even in MY 2003 almost half of the 
U.S. production failed to cover costs.   
 16. Moreover, as we demonstrated yesterday and in  previous submissions, this is false.  MY 2003 
is the odd year in which the U.S. cotton industry earned $864 million.  In the four years prior to MY 2003 and the two years thereafter, it lost $13.2 billion.  Unless my math is wrong, a profit of 
$864 million hardly offsets a loss of $13.2 billion, but results in long-term net losses of $12.4 billion 
that were covered by marketing loan and CCP subsidies.
14   There is no basis for the U.S. assertion 
that U.S. cotton production is economically viable.15   
 6. "S
IGNIFICANT " 
 
17. The United States argues that Brazil failed to establish that the world market price effects 
from marketing loan and CCP subsidies are "signi ficant."  We have addressed this issue in our 
submissions, and again in yesterday's statement.  Ac cording to the original panel, "significant" means 
"important;  notable … consequential"16 and must be assessed in light of the market and product at 
issue.17  The original panel moreover clarifies that for cotton "a relatively small decrease or 
suppression of prices could be significant because … profit margins may ordinarily be narrow" and "because of the sheer size of the market in terms of  the amount of revenue involved in large volumes 
traded."
18 
 18. We have presented quantita tive evidence of price effects based on Professor Sumner's study.  
His results fall right in the middle of a range of work  by other economists.  In light of the product and 
market at issue, the price effects he finds are "s ignificant."  For example, in MY 2005, the value of 
total cotton production was $31 billion.
19  Applying Professor Sumner's average price effect of about 
10 percent represents revenue of $3.1 billion – a result that is significant by any measure. 
 19. By contrast, the United States has presented a remarkable economic conclusion to the Panel 
that is clearly at odds with mainstream economics.  It claims that U.S. marketing loan and CCP subsidies cause price suppression of between 0.96 and 2.26 percent depending on the time period 
examined and the U.S. parameter set selected.  Co mpare these numbers to the helpful table prepared 
by FAO listing a variety of estimates from a variety of sources.
20   The U.S. estimates are not just at 
the low end of the table.  They have fallen off the table below the lowest points in the range of even 
                                                      
12 Brazil's Oral Statement, para. 84. 
13 U.S. Oral Statement, para. 86 (Check against delivery version) 
14 Exhibit Bra-477 (U.S. Upland Cotton Costs and Returns). 
15 Exhibit Bra-477 (U.S. Upland Cotton Costs and Returns). 
16 Panel Report, U.S. – Upland Cotton , para. 7.1325. 
17 Panel Report, U.S. – Upland Cotton , para. 7.1329. 
18 Panel Report, U.S. – Upland Cotton , para. 7.1330. 
19 Brazil's First Written Submission, para. 190. 
20 Exhibit Bra-579 ("Cotton: Impact of Support Policies on Developing Countries – Why Do the 
Numbers Vary?" FAO Trade Policy Brie f, p. 2, accessed December 2006 at 
ftp://ftp.fao.org/docrep/fao/007/y5533e/y5533e00.pdf). WT/DS267/RW 
Page C-15 
 
 
 the lowest estimates of any other analyst.  As Professor Sumner points out  in his supplementary 
statement in Exhibit Bra-659, the set of paramete rs put forward by the United States as the basis for 
these estimates is not credible.  Thei r results are incredible actually. 
20. In any event, in light of the product and mark et at issue, even the price effects found by the 
United States must be considered "significant."  In  light of the very competitive nature of the cotton 
market, profit margins of developing country co tton producers, including in Brazil and in West 
African countries, are generally low.  Assuming co nservatively that they reach 5 percent, a one 
percent price effect would increase farmers' net income by 20 percent.  Very small price effects, therefore, have a large impact on their income and livelihood, as is evident from Chad's presentation 
this morning.
21  The United States appears to argue that th ese effects are "unimportant," "not notable," 
or "inconsequential."  The United States is wrong. 
 Finally, the original panel also noted that the 5 percent ad valorem subsidization rate set out in 
Article 6.1(a) of the SCM Agreement  may be relevant in assessing "significance."
22  In this regard, 
I note that the subsidization rates of U.S. co tton from marketing loan and CCP subsidies alone 
averages 40 percent over the period MY 2002-2005, and reaches 61 per cent in MY 2004.23 
 
7. E XPORT CREDIT GUARANTEES  
 
21. I have a few closing comments on ECGs.  The United States has not demonstrated that the 
amended GSM 102 program meets its long-term co sts and losses, under item (j).  Applying a net 
present value (NPV) methodology, as did the original pa nel, the CCC continues, every year, to project 
that GSM 102 ECGs issued in that year will result in losses.   
 22. The NPV calculation used to arrive at initial projections of losses on ECGs actually issued in 
a given year is critical, whether or not re-estimates are made over time.  U.S. law requires NPV projections because they "measure more accurately the costs of Federal credit programs" than does 
cash-basis accounting.
24  Similarly, bank regulators all over the world use projections of default 
probabilities and losses-given-default – the core of NPV methodology – to gauge the adequacy of a 
bank's capital.25  If historical experience truly establishes that a methodology overstates the risk of 
default, the methodology may be adjusted acco rdingly for the purpose of calculating future 
projections on new commitments.  The CCC makes such  adjustments;  FAS has stated that "credit 
models used to calculate the subsidy for the guara nteed credits were revised in FY 2001 and FY 2003 
and currently provides reliable estimates ".26  Despite these adjustments, the CCC continues to project 
cohort-specific long-term losses upon issue of each new GSM 102 cohort.27 
 23. But let us assume, for the sake of argument,  that the United States has amended the GSM 102 
program so that it now meets its costs and losses.  Th is does not mean that the United States has lived 
up to its obligation to "withdraw the subsidy", for two reasons. 
 
                                                     
 
21 See Panel Report, U.S. – Upland Cotton , para. 7.54 and additional references thereto. 
22 Panel Report, U.S. – Upland Cotton , footnote 1432. 
23 Brazil's First Written Submission, Table 6. 
24 Exhibit Bra-545 (2 U.S.C. § 661(1)). 
25 See "Internal Ratings-Based Approach" of the Basel Committee on Banking Supervision", described 
at http://www.bis.org/publ/bcbs128.htm . 
26 Exhibit Bra-588 (Agricultural Export Credit Gu arantee Programs Assessm ent, ExpectMore.gov, 
Section 3.CR2) (emphasis added).  
27 See evidence cited in Brazil's Opening Statement, para. 253. WT/DS267/RW  
Page C-16  
 
 24. First, the United States is wrong that item (j) "demonstrates dispositively
 the circumstances 
under which export credit guarantees are considered export subsidies".28  This argument would 
transform an "illustrative" into an  exhaustive, dispositive list.  The U.S. interpretation also fails to 
give full effect to footnote 5.  A provision that tells us what is  an export subsidy does not 
automatically tell us what is not  an export subsidy.  For example, all we know from item (j) is that, if 
a program fails to meet its costs and losses, it is  an export subsidy.  It is neither correct interpretively, 
nor logically valid, to conclude that if an ECG program breaks-even, it is not  an export subsidy.  Mere 
implication, through a contrario  reasoning, does not satisfy footnote 5.  Rather, to satisfy that 
footnote, the item must actually contain langua ge that "refer[s]" to a measure as "not  constituting" an 
export subsidy. 
 25. Second, the Appellate Body has found that "full withdrawal of a prohibited subsidy … cannot 
be achieved by a 'measure taken to comply' that replaces
 the original subsidy w ith yet another subsidy 
found to be prohibited."29  Thus, even if the amended GSM 102 program clears item (j), the 
United States has merely replaced it with another export subsidy.  Under th e amended fee schedule, 
GSM 102 ECGs are export-contingent contributions  that confer "benefits", in two senses.   
 
26. First, GSM 102 ECGs confer "benefits" per se , because they are unique financial instruments 
with no parallel at market, and because they enab le credit that would not otherwise be available.30  
The United States has not provided a single example of a product offered by a market-based entity 
that imparts the essential qualities of a GSM 102 ECG cited by Professor Sundaram.31  T h e  
United States has offered precisely one example of a bank that was able to secure a commercial loan 
without a GSM 102 ECG.  Even that one example i nvolved an investment grade bank, rather than the 
non-investment grade foreign obligors targeted by GSM 102.32  Brazil's evidence and argument stand. 
 27. Second, Brazil has demonstrated that GSM 102 fees are dramatically lower than fees for 
essentially identical products offered by a non-market  U.S. government entity, ExIm Bank.  The sole 
U.S. response is that other non-market entities – the EBRD, IFC and IDB – also offer products that it alleges are similar to GSM 102 ECGs.  The Unite d States does not, however, explain why these non-
market benchmarks would offer a be tter comparison than that offered by Brazil's ExIm Bank exercise.  
Nor has the United States demonstrated that GS M 102 fees are higher than fees for these allegedly 
similar products offered by the EBRD, the IFC and the IDB. 
 28. According to the United States, the only
 way to determine the existe nce of a "benefit" from an 
ECG in an export subsidy case is through a quantit ative assessment under what it deems the "total 
cost of funds" approach in Article 14(c).33  However, this overlooks the wording and role of 
Article 14.  That provision 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.
34  That flexibility is even more important to preserve in an export 
subsidy case, where Article 14 does not directly a pply, precisely because the quantification foreseen 
by the provision is not required .  All Brazil need show is that some  "benefit" flows from a 
GSM 102 ECG. 
                                                      
28 U.S. Opening Statement (Check against delive ry version), heading III.A.1 (emphasis added). 
29 Appellate Body Report, U.S. – FSC (21.5 II) , para. 83 (italic emphasis in original;  underlining 
supplied). 
30 See Brazil's Opening Statem ent, paras. 174-177. 
31 Brazil's First Written Submission, Annex III (Stateme nt of Professor Rangarajan Sundaram), para. 7. 
32 Brazil's Opening Statement, paras. 218, 223. 
33 U.S. Opening Statement (Check against delivery version), paras. 31-39;  U.S. Rebuttal Submission, 
paras. 137-144;  U.S. First Written S ubmission, paras. 107, 133-134, 138. 
34 Appellate Body Report, U.S. – Softwood Lumber IV , para. 92. WT/DS267/RW 
Page C-17 
 
 
  
29. Two panels have held that a guarantee confers a "benefit" if it is offered at fees that are not 
consistent with market.35  In the particular factual circumstanc es of this case, where the U.S. exporter 
does not bear the cost of extending or securing cred it, an evaluation of the GSM 102 fees paid by the 
exporter is particularly appropriate.36  Insisting on the rigid "total cost of funds" approach supported 
by the United States would be interpretively wrong, and would also risk the very "circumvention" of 
the subsidy disciplines that led the Appellate B ody to its flexible approach to Article 14.37 
 30. I offer a closing note on our claim that no meas ures taken to comply exist with respect to 
certain ECGs outstanding on 1 July 2005.  The or iginal 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 
includes the subsidiary obligation to withdraw  certain outstanding ECGs issued under those 
programs.
38  Continuing to perform on such ECGs, defi ned in Article 1.1 as contingent liabilities, 
does not satisfy the definition of "withdr aw" offered by the Appellate Body in Brazil – Aircraft (21.5) 
(or, for that matter, by the United States in its opening statement).  Paying a claim on default of a 
GSM 102 credit does not "remove" or "take away" the subsidy39, or "cause" that subsidy "to decrease 
or disappear".40 
 
8. C ONCLUSION  
 
31. Thank you Mr. Chairman and Members of the Pa nel for your time and attention.  We look 
forward to provide responses to answer your written questions. 
 
                                                      
35 Panel Report, EC – CVDs on DRAMs , para. 7.189;  Panel Report, Canada – Aircraft Credits and 
Guarantees , para. 7.345. 
36 Brazil's Opening Statement, para. 205;  Brazil's Rebuttal Submission, paras. 402-407, 411-413. 
37 Appellate Body Report, U.S. – Softwood Lumber IV , para. 100. 
38 Appellate Body Report, U.S. – FSC (21.5) , paras. 2, 223-231 (recommendation to withdraw a 
subsidy in the form of an overarching measure, 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'."). 
39 Appellate Body Report, Brazil – Aircraft (21.5) , para. 45. 
40 U.S. Opening Statement (Check against delivery version), para. 42. WT/DS267/RW  
Page C-18  
 
 ANNEX C-3 
 
EXECUTIVE SUMMARY OF THE OPENING STATEMENT  
OF THE UNITED STATES 
 
(27 February 2007) 
  
1. This is a compliance proceeding.  The question for this Panel is whether Brazil has 
established that the U.S. measures taken to comply  with the DSB's recommendations and rulings are 
inconsistent with the covere d agreements cited by Brazil.
1  The burden is on Brazil to prove its claims 
in this regard.  The United States has taken numer ous steps to comply:  (a) the United States stopped 
operating the Supplier Credit Guarantee Program (or "SCGP");  (b) the United States ceased operating 
the GSM 103 program;  (c) the United States overh auled GSM 102, the remaining export credit 
guarantee program;  and (d) the United States eliminated the Step 2 program.  As a result, the 
United States is in compliance with its WTO obligations.  
 
I. C LAIMS IN RESPECT OF EXPORT CREDIT GUARANTEES FOR EXPORTS OF UNSCHEDULED 
PRODUCTS AND RICE  
 
2. – GSM 102 Guarantees Issued Subsequent to 1 July 2005 Are Provided Consistently 
with Item (j) of the Illustrative List.   Brazil argues that, notwithstanding any U.S. measures taken to 
comply, GSM 102 guarantees are inconsiste nt with Articles 10.1 and 8 of the Agreement on 
Agriculture  and 3.1(a) and 3.2 of the SCM Agreement .  These claims turn largely on a single question 
– whether the GSM 102 guarantees are "export subsidies" under the SCM Agreement .   
 3. There is only one definition of "export subsidy" in the SCM Agreement  and its elements are 
set out in Articles 1.1 and 3.1(a) of the SCM Agreement .  To show how these definitional elements 
apply in particular circumstances, Article 3.1(a) refe rs to the Illustrative List of Export Subsidies in 
Annex I of the SCM Agreement .  In the case of export credit guarantees, it is item (j) that applies.  
Item (j) "illustrates" – or "clarifies"  – those export credit guarantees that are export subsidies 
(i.e., those that are provided under programs "at prem ium rates which are inadequate to cover the 
long-term operating costs and losses of the programs" ) from those that are not.  This was how the 
original panel determined whether the GSM 102,  GSM 103, and SCGP export credit guarantees were 
providing "export subsidies" in the original pr oceeding.  This was al so the basis for the 
DSB's recommendations and rulings regarding the gua rantees.  And this was the analysis that the 
United States observed in implementing the DSB's recommendations and rulings. 
 4. The United States has taken a number of measures to increase the premiums and lower the 
potential long-term operating costs and losses of th e portfolio of export credit guarantee programs 
examined by the original panel.  The financial data in the U.S. budget shows now that the export 
credit guarantee programs operate at entirely pr ofitable levels, consistent with item (j). 
 5. – Articles 1.1 and 3.1(a) Do Not Establish a "Different Benchmark" From the One in 
Item (j) For Establishing Whether Export Credit Guarantees Are Export Subsidies.   Brazil has 
provided no credible rebuttal to the U.S. evidence rega rding item (j).  It has concentrated its efforts, 
instead, on finding a "back-door" way to attack the guarantees.  Toward this end, it has claimed an 
"entitlement" to challenge GSM 102 guarantees under th e general definitional elements in Articles 1.1 
                                                     
 
1 DSU Article 21.5. WT/DS267/RW 
Page C-19 
 
 
 and 3.1(a) and then, if it fails in that regard, to raise an argument under item (j) "in the alternative."2  
Brazil's approach is based on an incorrect interpretation of the SCM Agreement .  Contrary to Brazil's 
arguments, "Articles 1.1/3.1(a) and item (j)" do not "offer . . . different benchmarks  to demonstrate 
that a measure is an export subsidy."3  Indeed, such an interpreta tion leads to entirely untenable 
results. 
 6. Brazil argues that the U.S. approach would require what Brazil terms an " a contrario " reading 
of item (j).  According to Brazil, footnote 5 of the SCM Agreement  allegedly "definitively forecloses" 
such an interpretation.
4  This is incorrect, as Brazil itself has recogni zed in other disputes.5  Contrary 
to Brazil's arguments, footnote 5 does not require an "affirmative statement" that a measure is not a 
prohibited export subsidy, and an "affirmative stat ement" is not required under the ordinary meaning 
of the term "refer."  To the contrary, the ordina ry meaning confirms that "referred to" can include 
measures that are either expressly or implicitly "referred to" as not constituting export subsidies.6  
Brazil explained to the Appellate Body, in Brazil – Aircraft (21.5)  that item (j) contains just such an 
implicit reference.7  Moreover, the Appellate Body indicated that it accepted Brazil's argument that 
the first paragraph of item (k) could be read a contrario  to determine when measures are "justified."8  
That result is equally appropriate here. 
 
7. Brazil's interpretation of footnote 5 is underm ined also by the negotiating history, which 
shows that Members agreed to delete from an ear lier draft language that would have required an 
express  reference in order for the provisions of the footnote to apply.9  Moreover, that interpretation 
would – if applied – nullify or render redundant a number of provisions of the SCM Agreement , 
including footnote 5 itself.  As the Appellate Body h as explained, "[a]n interpreter is not free to adopt 
a reading that would result in reducing whole clau ses or paragraphs of a treaty to redundancy or 
inutility."10 
 
8. –  Brazil Has Not Shown That GSM 102 Guarantees Provide a "Benefit."   The Panel's 
analysis properly ends with an assessment under item (j).  Any further examination, however, would 
only confirm that the GSM 102 guarantees are not prohi bited export subsidies, as Brazil fails to 
demonstrate any distinct "benefit" under Article 1.1( b).  Indeed, Brazil attempts to show a "benefit" 
based on a theory that, if credited, would underm ine not only item (j) and other provisions of the 
SCM Agreement  – for the reasons noted above – but also th e logic of Articles 1.1(a) and Article 14(c) 
of the SCM Agreement . 
 9. Article 14 does not apply directly in this context;  it applies, instead, "for the purpose of 
Part V" of the SCM Agreement .  Nonetheless, because it interpre ts and applies the definition of 
"benefit" set out in Article 1.1, it has been relied upon by the Appellate Body as important contextual guidance in interpreting "benefit,"
11 and, indeed, it has been invoked by Brazil to justify its approach 
here.12  Article 14(c) provides that a government lo an guarantee confers a benefit for countervailing 
                                                      
2 Brazil Rebuttal Submission, para.457. 
3 Brazil Rebuttal Submission, para.470 (emphasis in original). 
4 Brazil Rebuttal Submission, para.563. 
5 See e.g., Brazil – Aircraft (AB) , paras. 14 and 19. 
6 See Oxford English Dictionary, p. 2520 (Exhibit US-116). 
7 Brazil – Aircraft (AB) , para. 19. 
8 Brazil – Aircraft (21.5) (AB) , para. 80. 
9 Compare  MTN.GNG/NG10/W/38/Rev. 2 (2 November 1990) and MTN.GNG/NG10/W/38/Rev. 3 
(6 November 1990). 
10 United States – Gasoline (AB) , p. 23. 
11 Canada – Aircraft (AB) , para. 155. 
12 Brazil First Written Submission, paras. 371-375 WT/DS267/RW  
Page C-20  
 
 duty purposes only where 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."  The "benefit" is measured as "the 
difference between these two amounts adju sted for any differences in fees." 
 10. Article 14(c), thus, recognizes that the pr ovision of a loan guarantee is fundamentally 
different from the provision of other government services.  In the case of government services, Article 14(d) applies and provides that a "benefit" may be calculated only where "the provision [of the 
service] is made for less than adequate remuneration."  Article 14(c) specifically precludes  such an 
approach for loan guarantees.  Instead, it recognizes th at a loan guarantee is ma de for the sole purpose 
of supporting a loan transaction ;  the guarantee becomes an integral part of that transaction and has 
no value beyond it.  An assessment of the total co sts of the transaction is necessary to assess whether 
a "benefit" is actually conferred by the guarantee.  A simple comparison of the fee charged for the 
issuance of one loan guarantee to the fee charged fo r another may provide an incomplete and distorted 
picture in this regard. 
 
11. Brazil purports to invoke Article 14(c) of the SCM Agreement  to support its approach.
13  But 
under the guise of identifying a "severable benefit," Brazil actually attempts to conduct the kind of 
simple comparison of fees that Article 14(d)  allows for assessing whether a government-provided 
service confers a benefit, but that Article 14(c)  specifically precludes  with respect to loan guarantees. 
 
12. Brazil has not even attempted to make the ki nd of particularized showing contemplated under 
Article 14(c) of the SCM Agreement .  Instead, Brazil relies on sweeping and erroneous assertions that 
obligors on loans guaranteed under the GSM-102 program can never  obtain any other financing of 
any kind and that the United States could never  provide an export credit guarantee without also 
providing an export subsidy.  These arguments simp ly do not square with the evidence submitted by 
the United States showing that such obligors are, in fact, able to obtain financing even without 
GSM 102 guarantees and on terms better than those available with GSM 102 guarantees.  The 
declining level of use of the GSM 102 program in recent years is even further evidence of this. 
 13. Moreover, even though they are not part of the inquiry under Article 14(c), Brazil's other 
sweeping theories – including of GSM 102 guarantees being a unique financial instrument – have 
been shown to be factually unsupported.  These arguments too are unavailing in the face of the 
evidence of financial products entirely comparab le with those offered by the United States from 
private, profit-seeking entities that are not agencies or instrumentalities of any government.  In short, 
Brazil has not demonstrated that GSM-102 gu arantees presently confer export subsidies. 
 14. – Measures Taken to Comply Exist With Respect to GSM 102, GSM 103, and SCGP 
Guarantees Issued Prior to 1 July 2005.  With respect to these measures, the U.S. obligation was to 
"cause to decrease or disappear" or "take away" the provision of "the service under the export credit 
guarantee programs" at a "net cost to  the government, as the service provider."
14  The United States 
has done so. 
 15. There is no merit to Brazil's attempts to call into question the fact that SCGP guarantees have 
expired on the basis that the United States is continuing to recover money on claims that it has paid 
out on SCGP guarantees in the past.  Nor is th ere any basis for Brazil's argument that the 
United States is not permitted to make itself whol e by collecting on claims paid out on export credit 
guarantees that were issued prior to 1 July 2005. 
 
                                                     
 
13 Brazil First Written Submission, paras. 371-375 
14 Upland Cotton (Panel) , para. 7.804. WT/DS267/RW 
Page C-21 
 
 
 16. Moreover, nothing in the SCM Agreement  provides that "withdrawing" a "subsidy" allegedly 
"taking the form of a program" "includes an ob ligation to abstain from performing on commitments 
outstanding under that program as of the deadline for implementation."15  That argument improperly 
equates "performing on commitments under the program" with the "subsidy" itself.  Such an equation 
was appropriate in Brazil – Aircraft (21.5) , where Brazil continued to issue new WTO-inconsistent 
bonds even after the period of implementation on the basis that it had pre-existing contractual 
obligations to do so.16  However, it is not accurate here, where the guarantees are not themselves 
prohibited subsidies. 
 
IV. A CTIONABLE SUBSIDY RELATED CLAIMS  
 17. A number of erroneous assumptions must be made even to get to the merits of Brazil's 
actionable subsidy related claims in this proceed ing.  The Panel must simply assume, despite the 
express statements to the contrary in the original panel report, that the original panel's "present" 
serious prejudice finding extends to the Step 2,  marketing loan, and counter-cyclical payment 
programs  and all payments  authorized thereunder.  Moreover, desp ite the fact that the original panel 
could not have known the actual market conditions – and did not examine the likely market conditions 
– in MY 2006, the Panel must also assume that the original panel made a finding that "present" 
serious prejudice would exist at this time as a r esult of the measures challenged in the original 
proceeding.  As there is no basis on which to make any of these assumptions, Brazil's claims fail at 
the outset.  There are also more flaws if one probes further. 
 
18. –  Brazil Fails to Substantiate Its Arguments That Termination of the Step 2 Program 
Was Effectively Meaningless .  The evidence and arguments submitted by Brazil regarding the 
termination of the Step 2 program are difficult to  credit.  They are unsubstantiated, internally 
contradictory and inconsistent w ith arguments that Brazil made in the original proceeding on such 
fundamental issues as the effects of Step 2 payments on exports and world market prices. 
 19. Indeed, Brazil's submissions are almost devoid of any acknowledgment that Brazil argued 
and, indeed, convinced the original panel to decl are the Step 2 program to be a prohibited export 
subsidy.  Export subsidies are prohibited because th ey are "dependent for [their] existence on export 
performance" and are specifically "'tied to' the export performance."
17  They are, thus, by definition 
expected to induce exports and deemed so likely to  distort trade that no examination of their actual 
trade effects is required under the SCM Agreement  in order for a finding against them. 
 
20. Having convinced the original panel to make  an export subsidy finding against the Step 2 
program – in response to which the United States eliminated the program completely – how can 
Brazil now allege that termination of the program has "no impact on th e level of U.S. . . . exports"?  
Moreover, given that Brazil's theory of price suppression centres on whether U.S. upland cotton is 
exported, how can Brazil now allege th at elimination of that allegedly export-contingent subsidy has 
"little positive impact on the world price for cotton in the long term"?18  These are questions to which 
Brazil has yet to provide a credible answer. 
 21. Moreover, while Brazil may now consider termination of the Step 2 program to be 
inconsequential, the loss of the program has not been meaningless to U.S. producers and exporters.  
Since the termination of the program, U.S. exports are at exceptionally low le vels – the United States 
                                                     
 
15 Brazil Rebuttal Submission, para. 396. 
16 Brazil – Aircraft (AB) , para. 45. 
17 Canada – Aircraft (21.5 – Brazil) (AB) , para. 47. 
18 Brazil First Written Submission, para. 206 (quo ting Brazil First Written Submission, Annex II, 
paras. 41-43). WT/DS267/RW  
Page C-22  
 
 discussed some of these statistics at start of this  presentation – and the forecasts for this marketing 
year and the next continue to be poor.  It is si mply too early to know precisely how much of this 
decline is attributable to the loss of the Step 2 pr ogram.  Undoubtedly some of it is not.  But what is 
clear is that Brazil's assertion that termination of  the Step 2 program has "no impact on the level of 
U.S. production or exports" and "little positive impact  on the world price for cotton" finds little basis 
in the empirical evidence.  Th e evidence, in fact, supports exactly the opposite conclusion. 
22. – Brazil Does Not Demonstrate That Marketing Loan and Counter-Cyclical Payments 
Are Causing "Present" Significant Price Suppression.   Nor are marketing loan and counter-
cyclical payments presently significantly "suppressi ng" world market prices within the meaning of 
Articles 5(c) and 6.3(c) of the SCM Agreement .  Brazil's theory, in general terms, is that "payments-
cause-overproduction-cause--price-suppression."  To suppor t its theory, though, Brazil would have to:  
(a) submit persuasive evidence showing that market ing loan payments and counter-cyclical payments 
are actually inducing U.S. farmers to plant more cotton than they otherwise would;  (b) show that the 
degree of effect on U.S. farmers' planting decisions, pr oduction, and export is such as to have impacts 
on world market prices;  and (c) submit evidence to show that the degree  of effect on world market 
prices is "significant" within the meaning of Article 6.3(c).  Brazil has not done so. 
 23. Evidence Regarding Actual Production Decisions and Eff ects of Payments Undermines 
Brazil's Claims.  In assessing the evidence and arguments submitted by Brazil, it is important to bear 
in mind that a claim of "present" serious prejudice under Articles 5(c) and 6. 3(c) requires a showing 
that significant price suppression actually  exists under the prevailing market conditions.  Brazil 
cannot simply allege – or attempt to show – that marketing loan and counter-cyclical payments have 
the potential to induce production.  It is also important to note that Articles 5(c) and 6.3(c) are 
concerned with the effects  of subsidies, not their form.  Thus, Brazil's efforts to show that marketing 
loan and counter-cyclical payment programs provide income support in times of low prices do not go 
far.  Nothing in the SCM Agreement  or any other agreement prohibits income support categorically. 
 24. Given Brazil's particular theory of planting effects leading to price effects, it is necessary to 
examine the actual planting decisions made by U.S. farmers.  At a minimum, any assessment must be 
grounded in the understanding that in each year when  a farmer sits down to decide whether to plant 
cotton, he does not know  with certainty (a) what prices will be  for cotton at the time of harvest, (b) 
what prices will be for competing crops at that time,  (c) what his yields will ultimately be, (d) whether 
he might ultimately get a marketing loan paymen t on cotton or other crops, and (e) whether the 
season-average farm price for the upcoming marketing year will ultimately be below the threshold at which he might receive a counter-cyclical payment with respect to any upland cotton base acres that 
he holds.  The farmer's planting decision must  be made on the basis of expectations . 
 25. While Brazil has acknowledged (at least so me) of these basic facts of upland cotton 
production
19, little of the evidence and arguments submitte d by Brazil actually take these facts into 
account and show – on the basis thereof – signifi cant production effects under the market conditions 
prevailing at present.  By contrast, the United St ates has submitted evidence that takes into account 
the actual operation of the marketing loan a nd counter-cyclical payment programs and shows minimal 
effects on production, including (a) recent studies, (b) a nationwide survey of farmers' planting 
considerations, (c) evidence that much of counter-c yclical payments is passed through to non-operator 
landowners in the form of higher rents and land values, data showi ng that substantially less upland 
cotton (40 percent less) is planted by holders of upland cotton base acres today than at the time base acres were set, (d) data showing that a significan t and growing portion of U.S. upland cotton planted 
acreage is on farms with cotton planted acreage th at exceeds cotton base acres, or, indeed, on farms 
with no cotton base acres, and (e) evidence showing th at futures prices for harvest-time contracts were 
                                                     
 
19 See e.g., Brazil First Written Submission, Annex I, para. 36 (emphasis added). WT/DS267/RW 
Page C-23 
 
 
 above the marketing loan rate in MY 2006 and that , even in earlier years when they were not, the 
evidence shows that U.S. farmers' planting decisions were driven by market factors, not expectation 
of payments under the marketing loan program.  Th is evidence contradicts Brazil's theory that 
marketing loan and counter-cyclical paymen ts have significant effects on planting. 
26. Brazil purports to demonstrate indirect production effects through its claim that U.S. planting, 
production, and exports are not responsive to prices.   However, Brazil's comparisons are flawed in 
that they ignore basic facts of upland cotton production;  for example, by comparing planting 
decisions in a marketing year to the actual  prices that develop many months later20 or to the futures 
prices of upland cotton alone .21  Moreover, the theory that Br azil advances of alleged market 
insulation is at variance with the empirical eviden ce.  Indeed, Brazil's theory depends on the notion 
that the income support provided by marketing loan and counter-cyclical payments causes U.S. 
farmers to produce and U.S. exporters to export when anticipated low pr ices cause producers and 
exporters elsewhere to pull back.  If that were tr ue, one would expect to see U.S. share of world 
production and world exports increase.  But that is not  what one finds.  Rather, U.S. share of world 
production and exports has been stable over the entir e period of the FSRI Act and, indeed – in terms 
of production – for many years before that as well.  This shows that, contrary to Brazil's arguments, 
U.S. producers and exporters have reacted to market signals in their production and exports in a 
similar way to their foreign counterparts. 
 27. Brazil has argued that U.S. producers cannot meet  their total costs without marketing loan and 
counter-cyclical payments.  Brazil asserts that this  shows that without marketing loan and counter-
cyclical payments, many U.S. producers would not have remained in business and continued planting 
upland cotton.  Table A.1
22 shows, however, that the overwhe lming majority of U.S. production 
(92 per cent ) takes place on low- and mid-cost farms that meet both their variable (or operating) costs 
and also their total costs of pr oduction.  This means that, for 92 percent of U.S. production  of upland 
cotton, Brazil's theory of a cost-revenue gap fails as a matter of fact.  In other words, with respect to 
92 percent of U.S. production, it  is not necessary even to reach the arguments regarding the other 
flaws in Brazil's reasoning regarding the alleged cost -revenue gap.  That gap simply does not exist. 
 28. There are other problems in Brazil's analysis as well, including the fact that Brazil incorrectly 
assumes that total costs of producing upland cotton are determinative for both year-to-year planting 
decisions and for longer-term decisions, such as whethe r to continue or exit upland cotton farming.  In 
the former case, it is variable costs that are relevant and, in the latter, it is the total cost/revenue 
balance of the farm – of which costs and revenues fo r upland cotton is one factor – that is relevant.  
Moreover, the evidence shows that U.S. producers not  only meet their variable costs with market 
revenue from sales of upland cotton,  but also their total costs. 
 29. Brazil Has Not Submitted Reliable Evidence Regar ding the Degree of Any Price Effect.   
The only evidence that Brazil has submitted purporting to  examine the price effects of marketing loan 
and counter-cyclical payments specifically are the results of the modeling exercise that it has 
conducted for purposes of this proceeding.  That ex ercise is conducted using a model that is entirely 
different from the one advanced by Brazil in the origin al proceeding, but that is virtually identical to 
one that was published in 2005, in a CATO institute  publication, by Dr. Sumner, Brazil's economist. 
In the CATO publication, Dr. Sumner warned that his model "abstract[s] from many complexities that 
would be important to get more pr ecise estimates" and that "[t]he simple model laid out here does not 
                                                     
 
20 See e.g.,  Brazil First Written Submission, paras. 144-145. 
21 See e.g.,  Brazil First Written Submission, paras. 142-143 and Brazil Rebuttal Submission. 
paras. 221-224. 
22 Exhibit US-119. WT/DS267/RW  
Page C-24  
 
 represent the depth of analysis that would be appr opriate to support a trade remedy proceeding or a 
serious prejudice claim before a WTO panel."
23  The United States agrees. 
 30. We have identified a number of the key pr oblems with Brazil's new model.  These include 
that the model:  (a) lacks cross-commodity impacts and cross-price elasticities, potentially leading to 
biased price effects;  (b) is static with no explicit relationships for changes in cotton stock levels and 
no stocks equation;  (c) contains foreign supply  elasticities that are different from FAPRI that 
underestimate the response of foreign producers to changes in world prices;  (d) treats production 
flexibility payments and direct payments differen tly even though they operate in the same way;  
(e) incorporates Step 2 payments directly into  the producer revenue function as fully coupled 
payments, and (f) appears to ignore statutory para meters, for example by including counter-cyclical 
payment rates in each of the various price expectati ons that sometimes exceed the statutory maximum.  
These are just some of the problems that stem from the structure of the model itself, and the simplified, reduced nature of the assessment it attempts to conduct.   
 31. Even more significant biases result from the flawed econometric parameters used by the 
Sumner II model.  Although Brazil has indicated that its new model "employs many of the same 
parameters used in the model and analysis submitt ed to the original panel, as well as parameters 
commonly used by USDA and Food and Agricultural Policy Research Institute ("FAPRI") economists,"
24 this is untrue.  As shown in Table A-2 (Exhibit US-120), the elasticity estimates used 
by the Sumner I model (which were purported to be "FAPRI-based") and the Sumner II model differ 
in each case except for the estimate of the U.S. mill demand elasticity.   
 
32. These differences matter because they can – and do – have dramatic effects on the estimated 
outcomes. As shown in Table A.2, not only does th e Sumner II model use different elasticities than 
the Sumner I model, but, in each case, the Sumner II model elasticity results in a greater effect on world price due to an elimination of marketing lo ans and counter-cyclical payments.  Moreover, the 
Sumner II model simply ignores the demand for US and world cotton stocks.  Yet, as Brazil has 
acknowledged, year-to-year fluctuati ons in stock levels are important factors in any credible analysis 
of world cotton markets.
25  The modifications made by Brazil exaggerate the effects of the elimination 
of marketing loans and counter-cyclical payments on world cotton price. 
 33. Brazil has not provided any valid basis for discarding the generally-accepted economic 
parameters that it recognized, itself, as being appropriate in the original proceeding.  As Brazil argued 
at that time, the FAPRI econometric model is well-established, well- known and widely used.
26  It is 
also valuable inasmuch as its calculations and pa rameters have not been developed in conjunction 
with any specific dispute or on behalf of any specific party.  The FAPRI model has a strong foundation within economic circles a nd is well-respected.  The Sumner II model, by contrast, has no 
foundation within economic circles.  Although Dr. Sumner argues that the departures from FAPRI-
based parameters indicate "improvements based on . . . continued research," Brazil has not identified 
that "research" and has provided no citation to any independent literature or other established or 
accepted bases for the new parameters. 
 34. Brazil has also attempted to justify a numbe r of its flawed econometric parameters on the 
basis that it is looking to assess the impact of eliminating the marketing loan and counter-cyclical 
                                                     
 
23 Daniel A. Sumner.  "Boxed In:  Conflicts Be tween U.S. Farm Policies and WTO Obligations." 
Center for Trade Policy Studie s, The Cato Institute, Decem ber 2005.  (Exhibit US-108) 
24 Brazil First Written Submission, para. 168. 
25 Brazil Oral Statement, 27 February 2007, para. 160. 
26 Brazil Further Submission to the Panel, 9 September 2003, para 214. WT/DS267/RW 
Page C-25 
 
 
 payment programs in the short-run, while leaving all else equal.27  However, under Article 6.3(c) the 
question is what, if any, degree of price suppression exists presently as a result of the marketing loan 
and counter-cyclical payment programs and whether th is degree of price suppression is "significant."  
To the extent a counterfactual assessment is undertak en, it is only to assess what the price equilibrium 
would be at present if marketing loan and counter-cyc lical payments had been lower, different, or did 
not exist.  Article 6.3(c) does not ask what prices w ill look like in the short-run adjustment period if 
the marketing loan and counter-cyclical payments are suddenly eliminated.  Indeed, Members are not 
even required to eliminate measures found to be actionable subsidies;  they are given a choice 
between "withdrawing" the subsidy or removing its adve rse effects.  Thus, in addition to the fact that 
the economic literature supports a long-term assessme nt, Brazil's argument that it is necessary to look 
at the short-run effects of total elimination of th e programs cannot be accurate as a textual matter. 
35. Second, it is not credible for Brazil to ar gue for a disproportionately small rest-of-world 
supply response on the basis that "there is imperfect  transmission of price changes" because "market 
institutions, centralized crop marketing, government policies, limited information, and high per-unit 
transportation costs partially insulate producers in cer tain regions of the world"  from any alleged price 
changes.28  The United States recalls that Brazil insisted  in the original proceeding that different 
domestic prices were intimately connected and that a change in U.S. prices would be reflected fairly 
immediately in the prices of all major cotton producer s.  Moreover, even Brazil has recognized that, in 
the mid to long run, there is price transmission.  It is that response that is properly captured here. 
 
36. To capture the long run effects of removal  of marketing loans and counter-cyclical 
payments, the United States has also applie d parameter estimates taken from the UNCTAD-
FAO Agricultural Trade Policy Simulation Model.   The summary results are presented in table A.4 
(Exhibit US-122) for the periods MY 2002-2005 and MY 2006-2008.  These conservative results – in 
the range of 0.96 to 2.26 percent – which obtain from  some very basic changes to the parameters of 
Brazil's new model illustrate that the estimates provide d by Brazil of price effects in the range of 9-11 
percent substantially overstate any possible impact on world market price. 
 37. – Brazil Has Not Shown That the Degree of Effect on World Market Prices Is 
"Significant" Within the Meaning of Article 6.3(c).   In Brazil's first submission, Brazil simply 
referred back to the same evidence it had submitt ed purporting to show price suppression and argued 
that "even a fraction of the effects found by Pr ofessor Sumner would constitute price suppression, 
based on its effect on [the] large volume of sales in the world market."
29  In its rebuttal submission, 
Brazil did not address the issue at all. 
 38. There is no textual basis for Brazil's lone theory of "significant" price suppression – that, 
effectively, any amount of price suppression is "s ignificant" because the wo rld upland cotton market 
is a high volume market.  Brazil's approach would effectively create a per se  rule of "significant" 
price suppression for certain markets involving large volumes of sales.  Such a rule is not found in 
Articles 5(c) or 6.3(c) of the SCM Agreement  or any other provision. 
 39. Contrary to Brazil's assertions, it is necessary to make a showing  on the facts of a dispute that 
any proven price suppression is "significant."  Brazil has not attempted to make such a showing here.  
And, in any event, a finding of "significant" pri ce suppression is not justified under the circumstances.  
Brazil has provided no basis for its claims that th is degree of price suppression – even less than a cent 
per pound, in conservative terms – constitutes "s ignificant" price suppression.  If such unfounded 
assertions were to prevail, they would effectively write "significant" out of Article 6.3(c) entirely.
 
                                                      
27 See e.g.,  Brazil First Written Submission, Annex I, 25-26. 
28 Brazil First Written Submission, Annex I, para. 28. 
29 Brazil First Written Submission, para. 190. WT/DS267/RW  
Page C-26  
 
 ANNEX C-4 
 
CLOSING STATEMENT OF THE UNITED STATES 
 
(28 February 2007) 
  
1. Mr. Chairman, we will end in this meeting where we started, recalling that this is a 
compliance proceeding pursuant to Article 21.5 of the DSU.  The question in this proceeding is 
whether Brazil has shown that U.S. measures take n to comply with the DSB's recommendations and 
rulings are inconsistent with the c overed agreements cited by Brazil. 
 2. The United States has taken measures to comp ly with the recommendations and rulings of 
the DSB.  Let us recall what they are:   
 
• The longer term GSM-103 program is gone. 
 
• The Supplier Credit Guarantee Program is gone. 
 
• The old fee schedule that did not take into account relative risk is gone, replaced by a 
fee schedule graduated by both risk and te nor, comprised of 6 risk grades of ever-
increasing fees.  As a result, fees under the schedule have increased 46 percent. 
 
• Obligors in countries that present a worse risk than permitted under the fee schedule 
are excluded entirely from the GSM-102 program.  This is not a static determination 
simply to exclude certain countries on 1 July 2005.  Rather, any country that falls to 
an unacceptable risk grade will be excluded from eligibility. 
 
3. As a result of the reforms, total guarantees have declined over 63 percent  from $3.7 billion in 
FY 2004 to $1.36 billion in FY 2006.  4. Mr. Chairman, the United States is fully in compliance with item (j) of the SCM Agreement.  
Indeed, the data show that the United States was in compliance even before making all of these 
changes.  Certainly, the imposition of these furt her disciplines only further confirms that.   
 5. Brazil urges this Panel to ignore the analytical  basis for the Panel's original decision, and the 
clear textual guidance indicating that item (j) "illust rates" dispositively how the general definition of 
"export subsidy" in Articles 1.1 and 3.1(a) apply.  The United States does not agree, but, nonetheless, 
has shown that – even under Article 14(c) of the SCM Agreement, which Brazil has invoked as 
context in assessing "benefit" under Article 1.1 – Brazil,  which bears the burden of proof in this case, 
has failed to identify any distinct benefit under Article 1.1.  6. The United States has supplied other real-w orld examples of commercial banks providing 
financing comparable to that under the GSM-102 program, but Brazil derides these examples as 
irrelevant because, despite the explicit language of Article 14(c) of the SCM Agreement, Brazil 
considers the proper comparison is not of the tota l costs of the guaranteed loan transaction, but 
whether only one component of all the elements of the transaction – fees – are on terms more 
favorable than those provided by a private commercial bank. 
 
7. There is no basis for that interpretation.  Brazil is urging the Panel to ignore both of the 
two provisions of the SCM Agreement that specifi cally talk about the conditions under which export WT/DS267/RW 
Page C-27 
 
 
 credit guarantees may be considered subsidies – prohi bited export subsidies in the case of item (j) and 
subsidies subject to CVD actions in the case of Ar ticle 14(c).  Brazil would have the Panel overlook 
the fact that neither  calls for a comparison to fees alone. 
 8. Mr. Chairman, the market for export credit gua rantees is not – and has never been – one in 
which purely private banks – like Citibank, for exam ple – operate.  Indeed, ag ainst this background, 
one can understand why the drafters would – in both item (j) and Article 14(c) use a benchmark other  
than one looking to fees charged for pur ely private market-provided guarantees. 
 9. By insisting that the Panel simply ignore the provisions expressly agreed upon by the drafters 
in item (j) – and, indeed, in Article 14(c) – Braz il is effectively urging the Panel to find that all export 
credit guarantees are per se  prohibited.  Such an interpretation is simply untenable. 
 10. Returning to the issue of the U.S. measures ta ken to comply, the United States recalls that it 
also has eliminated the Step 2 program.  This program was found to be a prohibited export subsidy, as 
well as a prohibited import substitution subsidy, and payments thereunde r in MY 1999-2002 were 
found to cause adverse effects in the same period.  11. These measures – the measures in respect of  the export credit guarantee programs and the 
Step 2 program – are the measures that the United States has taken to comply.  Brazil has sought in 
this proceeding to diminish and dismiss each and every one of these measures while simultaneously 
attempting to broaden the scope of this proceeding so  that the United States will be considered to have 
failed to have met its implementati on obligations.  For example, Brazil argues that the marketing loan 
and counter-cyclical payment programs are "measures taken to comply."   
 12. Mr. Chairman, this is just a fiction.  The Appellate Body has recognized before that measures 
taken to comply are ordinarily changes made s ubsequent to the issuance of DSB recommendations 
and rulings.  The marketing loan and counter-cyclical  payment programs were in  existence at  the time 
of the original proceeding, were even challenged by Brazil in the original pro ceeding, and they remain 
the same now.  These are not measures that the United States has taken to comply with any recommendations and rulings.  
13. The question then is whether they were subject  to the original panel's findings of "present" 
serious prejudice.  The United States has submitted detailed arguments as to why they were not.  In doing so, the United States has taken into account the fact that Brazil made no "present" serious 
prejudice claims against the marketing loan and counter-cyclical payment programs , that the only 
claims made by Brazil in respect of those measures were "threat" of serious prejudice claims, and that 
the original panel expressly stated that it w as declining to make even that finding. 
 14. Nonetheless, the United States has shown that even if one considers Brazil's arguments on the 
merits, it is without basis.  The argument, in essence , is that elimination of the Step 2 program does 
not eliminate any adverse effects of the "package"  of Step 2, market loan, and counter-cyclical 
payment programs.  But, as we discussed yesterday, Brazil's arguments in that regard fail to address 
the actual market facts that have prevailed since termination of the Step 2 program and are not 
consistent with Brazil's own arguments in the original proceeding.  15. Like its shifting arguments regarding the imp act of the Step 2 program, Brazil's counterpart 
argument – that the marketing loan and counter-cyc lical payment programs con tinue to have adverse 
effects – continues to shift.  Yesterday we heard – I believe for the first time in this proceeding – that 
it is unsold stocks  and not exported surplus that is responsib le for the alleged price suppression.  The 
fact is, Mr. Chairman, it is too late in the day for Brazil to be altering such fundamental factors as its 
theory of price suppression.  And, in any event,  Brazil has submitted no evidence or argument to 
substantiate this new assertion. WT/DS267/RW  
Page C-28  
 
  
16. Brazil's claims regarding the marketing loan  and counter-cyclical payment programs fail for a 
single fundamental reason.  They are not supporte d by the evidence.  Much of Brazil's oral 
presentation again stressed its premise that large payments necessarily show large effects.  As Brazil admitted before the Appellate Body, however, this is not correct.  While the size of payments is 
undoubtedly a consideration – and likely an important one – the focus of an adverse effects  claim is, 
not surprisingly, on effects . 
 17. We pointed out before that empirical evidence does not support Brazil's arguments regarding price effects ( i.e., that payments-cause-production-cau se-exports-cause-price suppression).  
Presumably, in response to this, Brazil, in its pr esentation yesterday, supplied a slew of charts 
purporting to show that year-to-year decisions to plant upland cotton are economically irrational.  As we discussed earlier, Brazil's analysis fails because it relies on an inappropriate measure of costs that is not relevant to U.S. farmers' planting decisions year-to-year.  
18. Beyond this, the only real "evidence" that Br azil presents appears to highlight are the results 
of the new Sumner model, one that abandons most of th e economic constructs that Brazil previously 
argued were accurate and superior.  Brazil has o ffered an economic model without foundation or 
publication in any peer reviewed journal.  Then , Brazil altered virtually every critical economic 
parameter used by that model to inflate its resu lt.  The United States has shown why the model is 
flawed and why its economic parameters are unreliable. 
 
19. Using reasonable and realistic parameters, ev en Brazil's model shows small effects from the 
U.S. programs.  20. Indeed, this confirms what other evidence – recent studies of the empirical data, actual 
assessments of year-to-year planting decisions (t aking into account proper variable costs), and 
evidence of the stable share of U.S. production an d export market share – already shows;  namely, 
that payments under the marketing loan and coun ter-cyclical payment programs are not having the 
kind of significant price effects that Brazil has alleged. 
 WT/DS267/RW 
Page C-29 
 
 
 ANNEX C-5 
 
THIRD PARTY ORAL STATEMENT OF ARGENTINA 
 
28 February 2007 
 
 
TABLE OF CONTENTS 
 
Page  
 
 
I. INTRODUCTION ..................................................................................................................3 0 
II. ARGUMENTS ...................................................................................................................... ..30 
THE MARKETING LOAN AND COUNTER-CYCLICAL PAYMENTS 
PROGRAMMES ARE WITHIN THE SCOPE OF THE PRESENT DSU ARTICLE 21.5 PROCEEDINGS ................................................................................. 30 
A.
 THE PROGRAMMES  AUTHORIZING MARKETING LOAN AND COUNTER -CYCLICAL 
PAYMENTS ARE ORIGINAL MEASURES  THAT WERE SUBJECT TO FINDINGS AND 
RECOMMENDATIONS .................................................................................................................30  
B. THE PROGRAMMES AUTHORIZING MARKETING LOAN AND COUNTER -CYCLICAL 
PAYMENTS ARE PART OF THE NEW BA SKET OF MEASURES TAKEN TO COMPLY ........................32  
III. CONCLUSION ..................................................................................................................... ..33 
 WT/DS267/RW  
Page C-30  
 
 Mr Chairman, members of the Panel: 
 
I. INTRODUCTION 
1. Argentina is grateful for this opportunity to give its views on the issues raised in the present 
Panel proceedings.  In this oral statement, we wish  to address some of the parties' arguments that we 
did not discuss in our written submission and which concern the United States' submission of 
preliminary issues to the Panel. 
2. Argentina would like in particular to refer to the United States' objection to the inclusion of 
the marketing loan and counter-cyclical paymen ts programmes in these Article 21.5 proceedings. 
II. ARGUMENTS 
THE MARKETING LOAN AND COUNTER-CYCLICAL PAYMENTS PROGRAMMES 
ARE WITHIN THE SCOPE OF THE PR ESENT DSU ARTICLE 21.5 PROCEEDINGS 
 
3. The United States asserts in its submissions
1 that many of Brazil's claims are beyond the 
scope of Article 21.5 proceedings.  In particul ar, in response to Brazil's claims against the 
programmes  authorizing marketing loan and counter-cyclical payments, it states: 
 (a) That they are not original measures that were subject to Panel findings and 
recommendations, and 
 (b) that they are not measures the United States took to comply with 
DSB recommendations. 
4. For the reasons set out below, Argentina strongly disagrees with both assertions and with the 
United States' arguments supporting them: 
A. THE PROGRAMMES  AUTHORIZING MARKETING LOAN AND COUNTER -CYCLICAL PAYMENTS 
ARE ORIGINAL MEASURES  THAT WERE SUBJECT TO FINDINGS AND RECOMMENDATIONS  
5. First, in Argentina's view it is obvious that the original Panel considered these programmes as 
measures at issue  in its final Report (section G) when di scussing Brazil's actionable subsidies-related 
claims and allegations of serious prejudice. 
6. In particular, in paragraph 7.11 07 of its Report, in identifying the measures at issue the Panel 
includes under (ii) marketing loan programme paymen ts;  under (iv) counter-cyclical payments;  and 
specifically, under (ix), the last indent, " legislative and regulatory provisions currently providing 
for the payment of measures in (i), (ii), (v), (vi) and (vii) above ."2 
7. Accordingly, in Argentina's view, to the question whether the programmes ordering 
marketing loan payments and counter-cyclical paymen ts were part of the "matter at issue" in the 
original proceedings, the only valid  reply is an affirmative one. 
8. Secondly, Argentina observes that, contrary to what the United States contends, not only were 
the programmes among the measures at issue, they we re also subject to the Panel conclusions and 
                                                      
1 First Written Submission of the United States, Section IV(B) and (C);  United States' Rebuttal 
Submission, Section II(B). 
2 Emphasis added. WT/DS267/RW 
Page C-31 
 
 
 recommendations, subsequently confirmed by the DSB, as can be seen from Chapter VIII of the 
Report, which sets out the Panel's conclusions  and recommendations.  Specifically, the Panel 
concludes, in paragraph 8.1(g): 
 "[ … ] 
 
(g) concerning serious prejudice to the interests of Brazil: 
(i) the effect of the mandatory price-contingent United States subsidy 
measures3 – marketing loan programme paym ents, user marketing (Step 2) 
payments, MLA payments and CCP payments – is significant price suppression in the same world market with in 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 ;  [ … ]" 
 9. Then, at paragraph 8.3(d), regarding the subsid ies that are the subject of the above-mentioned 
conclusion the Panel states, citing Article 7.8 of the SCM Agreement : 
"[ … ], upon adoption of this report, the United States is under an obligation to 'take 
appropriate steps to remove the adverse effects or … withdraw the subsidy'". 
10. Consequently, as emerges from the text of the Pa nel's report, the mandatory price-contingent 
United States subsidy measures, i.e.  the legislative and regulatory provisions  for payments under the 
marketing loan and counter-cyclical payments programmes are subject to Panel recommendations. 
11. Thirdly, and as confirmation of the foregoing , what the Panel said in paragraphs 7.1499 
and 7.1501 – cited by Brazil in its submission of 16 January last – is most enlightening:  it states 
unequivocally that: 
"[ … ] our finding of "present" serious prej udice thus pertains also to measures in 
force and subsidies paid in MY2002, the first year of the FSRI Act of 2002." 
And goes on to say: 
"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 effects or … withdraw 
the subsidy"." 
12. In the light of the foregoing, Argentina sees no merit in the United States' assertion that the 
programmes
 authorizing marketing loan and counter-cycli cal payments were not subject to findings 
and recommendations by the original Panel. 
                                                      
3 Emphasis added. WT/DS267/RW  
Page C-32  
 
 B. 
THE PROGRAMMES AUTHORIZING MARKETING LOAN AND COUNTER -CYCLICAL PAYMENTS 
ARE PART OF THE NEW BASKET OF  MEASURES TAKEN TO COMPLY  
13. As to the second point, the United States conte nds that Brazil's claims against the marketing 
loan and counter-cyclical payments programmes are beyond the scope of the present proceedings 
because they are not United States " measures taken to comply ";  and that they are unrelated to the 
existence or consistency with a covered ag reement of measures taken to comply with 
recommendations and rulings of the DSB,  as the programmes remain unchanged.4 
14. Argentina agrees with Brazil that what we have  here is a new basket of mandatory price-
contingent measures as a result of the cancellation of the Step 2 programme, one of the measures the 
United States took to comply with the DSB's recommendations. 
15. In Argentina's view it is also worth pointing out  that there is no claim seeking to challenge 
some unchanged aspect of the measure which was not already challenged in the original proceedings, 
or which was challenged but found to  be consistent – rather the contrary.  Nor is there a claim that 
seeks to impugn separate measures which have undergone  no change since the original proceedings.  
As Brazil says, what we have here is a new measur e or "new basket of measures", to use the Panel's 
expression. 
16. Furthermore, given the particular ities of subsidy regulation, the SCM Agreement does not 
require an analysis of the adverse effects of actionable subsidies to be carried out for each and every programme or payment.  Rather, it focuses on the "co llective effect" of the subsidies, the approach the 
Panel followed.  Otherwise, there is every likeliho od that individually, they would not be sizeable 
enough to cause adverse effects.  Consequently, the finding of serious prejudice affects "a basket of 
measures" and cannot be split so as to relate to each one separately. 
17. Argentina takes issue with the Un ited States' assertion that the fact that the Panel considered 
the effects of the programmes and payments cumu latively in determining the existence of present 
serious prejudice does nothing to change the fact that they are separable.
5  Argentina believes that 
although they may be separated for the purpose of a descriptive study of their structure, design and 
operation, they are not separable from the legal standpoint of establishing the makeup of the serious 
prejudice, in accordance with the term s of the Panel's collective finding. 
18. Consequently, bearing in mind the Panel's conclusion that " the effect  of the mandatory price-
contingent United States subsidy measures [ … ] is significant6 price suppression [ … ] 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 ", it is necessary to reconstruct the 
collective analysis in order to ascertain whether the change brought about to this set of measures by 
the cancellation of the Step 2 programme is sufficient to conclude that the United States has complied 
with the DSB's recommendations in this regard. 
19. The Panel's conclusion in paragraph 7.1 503 of the report is enlightening here: 
"We consider that, upon required implementa tion by the United States of this Panel's 
prohibited subsidy findings and present serious prejudice findings, the basket of 
measures in question may be so significantly transformed or manifestly different from 
the measures that are currently in question that it is not necessary or appropriate to 
                                                      
4 Rebuttal Submission of the United States, paragraph 18. 
5 Rebuttal Submission of the United States, paragraph 61. 
6 Emphasis added. WT/DS267/RW 
Page C-33 
 
 
 address Brazil's claims of threat of serious prejudice under Articles 5(c) and 6.3(c) of 
the SCM Agreement ." 
20. It may properly be concluded from the above th at the Panel's recommendations were directed 
to a "basket of measures" and not to measures taken individually. 
21. Argentina therefore takes the view that th e programmes authorizing marketing loan and 
counter-cyclical payments are part of the new bask et of measures taken to comply, and as such fall 
within the scope of the Article 21.5 proceedings . 
III. CONCLUSION 
 In the light of all the foregoing, Argentin a respectfully asks the Panel to take into 
consideration the arguments and views expressed above  when reaching its decision on the preliminary 
issues raised by the United States. 
 
Thank you very much. 
 
 
 
 WT/DS267/RW  
Page C-34  
 
 ANNEX C-6 
 
THIRD PARTY ORAL STATEMENT OF AUSTRALIA 
 
28 February 2007 
  Members of the Panel,  1. Thank you for the opportunity to present the views of Australia. 
 2. This proceeding raises a number of important issues concerning the scope of Article 21.5 
proceedings and the appropriate steps that mu st be taken by a Member to comply with 
Articles 4.7 and 7.8 of the Agreement on Subsidies and  Countervailing Measures 
(SCM Agreement) . 
 
3. Australia has provided a written submission addressing some of these issues and will not 
repeat those arguments today.  Rather, Au stralia will concentrate on whether the United 
States, by repealing the Step 2 programme, but  maintaining the two other price-contingent 
subsidies (that is, the marketing loan progra mme payments and counter-cyclical payments), 
has taken appropriate steps to remove the adve rse effects or to withdraw the subsidies under 
Article 7.8 of the SCM Agreement  in accordance with the recommendations and rulings of the 
Dispute Settlement Body (DSB).  In considering this question, it is important to bear in mind 
the nature of Article 21.5 proceedings. 
 Nature of Article 21.5 proceedings  4. The role of an Article 21.5 pane l is to determine the existence or consistency with a covered 
agreement of measures taken to comply with DSB recommendations and rulings.  Its mandate 
does not extend to relitigation of issues that have been conclusively determined in the original 
dispute.  Such is the case in the present pro ceedings, where measures continue in existence 
that have been previously ruled upon and remain unchanged.  It is uncontested that two of the 
challenged price-contingent subsidies, which are by far the largest of the subsidies that were 
challenged in the original proceedings relative to  the subsidy that has been withdrawn, have 
continued under programmes that have not b een changed since the recommendations and 
rulings in the original dispute were adopted by th e DSB.  In this situation, the Panel's task is 
limited to a factual determination to that effect.   
 5. Should it make this determination, the Panel w ill then need to consider, on the basis of the 
supporting economic evidence, whether the mainta ined subsidies continue to cause adverse 
effects within the meaning of Article 5 of the SCM Agreement . 
 6. This question cannot be answered by confining th e Panel's examination to the effect of the 
subsidies made in 1999-2002.  Such an appro ach, which appears to be advocated by the 
United States
1, would undermine the remedy that is provided by Article 7.8 of the 
SCM Agreement  – that is, to compel the subsidizing Member to take appropriate steps to 
remove the adverse effects or withdraw the subsidy.  This approach would require a 
successful complainant to bring a fresh actionabl e subsidies claim with respect to each set of 
                                                      
1 See, for example, First Submission and Request fo r Preliminary Rulings of the United States, 
paras. 45, 146-148;  Rebuttal Submission of the United States of America, paras. 17;  33-34. WT/DS267/RW 
Page C-35 
 
 
 subsidies made subsequently to those originally  found to cause adverse effects.  This cannot 
be the remedy that was contemplated by Article 7. 8.  Moreover, such an approach would also 
be contrary to Article 21.1 of the DSU, which recognises that prompt compliance with the recommendations and rulings of the DSB is es sential to ensure effective resolution of 
disputes.  Article 21.5 of the DSU promotes this aim.
2 
Turning to Brazil's actionable subsidies claim 
7. The question that is central to Brazil's actionabl e subsidies claim is whether discontinuation of 
one price-contingent subsidy bu t continuation of two other price-contingent subsidies meets 
the requirements of Article 7.8 of the SCM Agreement .  In examining this question, Australia 
submits that the analytical approach adopted in the original proceedings is an appropriate one 
to be followed by this Panel.  The original  Panel, after making explicit findings as to the 
trade-distorting effects of each of the challe nged price-contingent subsidies individually, 3 
found that the effects of these subsidies, cons idered collectively, caused significant price 
suppression in the same world market.4  
8. Taking the original Panel's findings as to the tr ade-distorting effects of these subsidies into 
account, this Panel may then consider whether th e collective effect of the continuing subsidies 
(that is marketing loan programme payments and counter-cyclical payments) is significant 
price suppression in the same world market.   
9. Australia notes that if this approach is followed,  then the findings in the original proceedings 
as to the effect of other causal factors that the United States asserts affect the causal link 
between the United States' subsidies and the significant price suppression cannot be 
overlooked.5  Many of those factors are the same  factors that were relied upon by the United 
States in the original proceedings.  Australia subm its that it is open to this Panel to reach the 
same conclusions in relation to those factors as were drawn in the original proceedings.  
Those conclusions were that these factors did not sever the causal link between United States' 
subsidies for upland cotton and significant pri ce suppression in the same world market.  That 
is, these factors did not "reduce the effect of the mandatory price-contingent subsidies to a 
level which cannot be considered 'significant.'"6 
10. Furthermore, Australia agrees with Brazil that in  order to determine whether the effect of the 
two continuing price-contingent subsidies is "present" serious prejudice, it is necessary to 
examine a recent period for which essentially comp lete data exists.  That period is, according 
to Brazil, data for marketing year 2005, ther e being no complete data as yet for marketing 
year 2006.7  In fact that year has not yet finish ed.  In agreeing with Brazil's submission, 
Australia notes that this approach is the one th at was adopted by the Panel in the original 
proceedings.8 
11. In finding that the effect of the mandatory pri ce-contingent United States' subsidy measures 
was significant price suppression in the same world market within the meaning of 
                                                      
2 United States – Softwood Lumber IV (Article 21.5 – Canada) , Report of the Appellate Body, 
WT/DS257/AB/RW, para. 72. 
3 See, for example, WT/DS267/R, paras. 7.1295, 7.1302, 7.1303, 7.1308. 
 4 Ibid., para. 7.1349. 
 5 Ibid., paras. 7.1344-46;  7.1357-63;  See also WT/DS267/AB/R, para. 437. 
6 WT/DS267/R, para. 7.1363;  WT/DS267/AB/R, paras. 455-457. 
7 Rebuttal Submission of Brazil to the Panel, paras. 23-24. 
8 WT/DS267/R, paras. 7.1198-9. WT/DS267/RW  
Page C-36  
 
 Article 6.3(c) of the SCM Agreement
9, the Panel at first instance had the benefit of extensive 
economic analysis and modelling presented by Brazil.10  Updated economic analysis and 
modelling has been submitted by Brazil in the pr esent proceedings.  In Australia's view, this 
updated economic analysis and modelling represen ts the same appropriate and conservative 
economic methodology as that which was taken into account by the Panel in the original proceedings.
11 This data supports Brazil's central assertion that but-for the domestic subsidies 
at issue, the world price for cotton would be significantly higher. 
12. If, as a result of examining the effects of the continued price-continge nt subsidies under the 
marketing loan and counter-cyclical payments  programmes, considered collectively and on 
the basis of the economic evidence presented, th e Panel finds that these subsidies collectively 
cause significant price suppression, then Austra lia submits that the only conclusion open to 
this Panel is that the United States has not comp lied fully with the requirements of Article 7.8 
of the SCM Agreement .  That is, the United States has failed to remove the adverse effects or 
withdraw the subsidies that were the subj ect of the DSB's recommendations and rulings, 
within the meaning of Article 7.8. 
Threat of serious prejudice 
13. In relation to Brazil's claim in the alternative that the continued subsid ies threaten to cause 
serious prejudice in marketing years 2006 and beyon d, Australia submits that it is beside the 
point for the United States to argue that the programmes under considera tion are due to expire 
in late 2007.  The programmes ha ve not expired.  There is no guarantee that they will not be 
rolled over or maintained in another form with  adverse effect.  Australia therefore submits 
that the Panel is entitled to consider whethe r the continuance of subsidies under programmes 
whose design, structure and operation remain un changed, would give rise to a threat of 
serious prejudice. 
14. Australia notes that in the original proceedi ngs, the Panel exercised judicial economy with 
respect to Brazil's claim of threat of serious prejudice relating to the marketing years 2003-2007.  The Panel's approach was based on the assumption, since proved to be 
erroneous, that the statutory and regulator y framework under which the subsidies were 
granted would be fundamentally altered in r esponse to the Panel's present serious prejudice 
finding.
12 It is justifiable that Brazil, by seeking a ruling in the alternative concerning the 
threat of serious prejudice, should wish to avoid this situation being maintained  in the future. 
15. In conclusion, Australia submits that it is appr opriate for this Panel to adopt the analytical 
approach that was adopted by the Panel in th e original proceedings.  Given the fact that 
two of the price-contingent subsidies have con tinued in unaltered form, it is also appropriate 
that the original findings, recommendations a nd rulings relating to those subsidies should 
form the starting point for this Panel's anal ysis.  The updated evidence submitted by Brazil 
supports the conclusion that those subsidies, considered collectively, continue to cause 
adverse effects to the interests of Brazil.  Given the continuing adverse effects of these 
subsidies, Australia submits that the Panel can only conclude that the United States has failed 
to take appropriate steps to remove those effe cts or withdraw the subsidy within the meaning 
of Article 7.8 of the SCM Agreement, and has therefore failed to comply fully with the DSB's 
recommendations and rulings in this dispute.  
                                                      
 9 Ibid., para. 8.1(g)(i). 
10 Ibid., paras. 7.1202-9. 
11 Ibid., para. 7.1209. 
12 Ibid., para. 7.1501. WT/DS267/RW 
Page C-37 
 
 
 ANNEX C-7 
 
THIRD PARTY ORAL STATEMENT OF CANADA 
 
28 February 2007 
 
 
I. INTRODUCTION 
1. Good morning Mr. Chairman, members of the Pa nel, thank you for giving me this opportunity 
to present Canada's views on particular lega l issues raised in this proceeding.   
2. Canada's submission addresses three issues.  First, Canada submits that the standard for 
finding a threat of serious prejudice pursuant to Article 5 of the SCM Agreement and GATT 
Article XVI:1 is flexible.  In some instances, such as in the case at hand, a threat of serious prejudice 
may arise when the threat is reasonably foreseeable  and ever-present, even if it is not necessarily 
"imminent".  Second, Canada submits that for the purposes of quantifying a benefit under 
Article 14(c), a commercial comparison is required.  Third, Canada submits that the United States' 
GSM 102 program cannot benefit from an a contrario reading of Annex I to the SCM Agreement .  
Item (j) does not allow for an a contrario  interpretation.  The only programs that are excluded by 
Annex I from the definition of export subsidies in Ar ticle 3.1(a) are those explicitly "referred to" in 
Annex I as not constitutin g export subsidies. 
II. THREAT OF SERIOUS PREJUDICE 
3. Allow me, first, to briefly turn to the standard  for a finding of threat of serious prejudice.  I do 
not propose to dwell on this issue, but rather refer the Panel to Canada's written submission.  
However, I will reiterate that the definition of "threat of material injury" in Part V of the 
SCM Agreement  should not be imported into the definition of  "threat of serious prejudice", in Part III 
of that Agreement .  Nothing in Part III of the SCM Agreement  suggests a strict temporal limitation to 
the notion of threat of serious prejudice.  The standard for threat of serious prejudice is sufficiently 
flexible to address programs that give rise to an ever-present and reasonably foreseeable probability of 
massive subsidies to United States' farmers – subs idies that permanently threaten to cause serious 
prejudice – as well as programs that will imminently cause adverse effects. 
4. The U.S.  subsidy programs mandate the paym ent of subsidies upon certain conditions.  One 
of these conditions is the price of cotton falling to a specified level, a condition that has occurred in 
the past.  Given the vagaries of the market, it is prob able that the price of cotton will fall again.  When 
that happens, it will again trigger massive subsidy payments.  When these payments are made, they 
will again cause WTO Members serious prejudice.  The counter-cyclical payment program and the 
marketing loan program are, therefore, perman ently threatening to cause serious prejudice.   
III. ARTICLE 14(C) 
5. I now turn to Canada's second issu e, which involves Article 14(c) of the SCM Agreement .  
Brazil argues that the "GSM 102" program constitutes an  export subsidy prohibited  by Article 3 of the 
SCM Agreement .  In part, Brazil argues that this expor t credit guarantee, or "ECG", confers a per se  
benefit because it secures financing that would not ot herwise be available to the recipient, and that 
this is contrary to Article 14(c) of the SCM Agreement.   
6. Canada respectfully disagrees with Brazil.  The mere existence of the GSM 102 program is 
not a per se  benefit under Article 14(c).  Article 14(c) provides that a loan guarantee by a government WT/DS267/RW  
Page C-38  
 
 does not constitute a benefit unless there is a diffe rence between the amount the recipient would pay 
on a comparable commercial loan obtained on the market and the amount it pays to the government.  The benefit, in such cases, is th e difference between those two amounts adjusted for any difference in 
fees.  Brazil may well be correct that GSM 102 confers a benefit within the meaning of Article 1.1(b) of the SCM Agreement .  However, in accordance with Article 14(c), demonstrating the existence of 
this benefit expressly requires a comparison with the market.   
7. Brazil argues that the GSM 102 program is d esigned so that the guar antees are provided only 
in circumstances in which credit would not otherwise be available, that is, where there is no 
comparable commercial loan.  Canada submits that in respect of most financial instruments, it is 
possible to find a comparable commercial pricing mechanism.  In the event that a commercial 
comparison or evidence of a commercial comparison cannot be found, one can construct a market proxy.  Either way, under Article 14(c), one  must make a commercial comparison, whether 
constructed or otherwise.   
IV. ILLUSTRATIVE LIST OF EXPORT SUBSIDIES 
8. Third, and lastly, Canada submits that item (j ) of the Illustrative List contained in Annex I to 
the SCM Agreement  does not allow for an a contrario  interpretation.   
9. The United States argues that GSM 102 is not inconsistent with Article 3 of the 
SCM Agreement  because the program charges premium rates that are more than adequate to cover the 
long-term operating costs and losses of the program.  As such, the United Stat es argues that GSM 102 
is not inconsistent with item (j), and because none of the other items in the Illustrative List are 
applicable to it, GSM 102 is not an export subsidy prohibited by Article 3.   
10. Article 3.1(a) provides that subsidies c ontingent on export performance, including those 
illustrated in Annex I, are prohibited.  Canada has consistently argued, and at least two panels have 
agreed, that footnote 5 in the SCM Agreement  excludes the possibility of implied exceptions to the 
prohibition on export subsidies.  The panels in Brazil – Aircraft (Article 21.5 – Canada) and in Korea 
– Vessels , found that, and I quote, "[i]n its ordinary mean ing, footnote 5 relates to situations where a 
measure is referred to as not constituting an export subsidy."
1  To this end, those panels considered 
whether the item at issue of the Illustrative List  contained one of two things:  any affirmative 
statement that a measure is not an export subsid y or a statement that a measure not satisfying the 
conditions of that paragraph is not prohibited.  The panel in Korea –Vessels  found that item (j) did not 
contain such statements, but rather describes certain  circumstances in which particular programs do 
constitute export subsidies.  That panel found that  item (j) fell outside the scope of footnote 5. 
11. The panel in Brazil – Aircraft (Article 21.5 – Canada)  came to a similar conclusion from the 
text of Article 3.1(a) itself.  The panel found th at Annex I contains examples of prohibited export 
subsidies, and does not purport to be an exhaustive list.  The panel found it "highly likely" that there 
are prohibited export subsidies within the meaning of Article 3.1(a) that do not fall within the scope of 
Annex I.2  
12. Thus, even if, as the United States asserts, th e fees charged under GSM 102 were sufficient to 
meet its long-term operating costs and losses, it woul d mean only that the program is not captured by 
                                                      
1 Brazil – Export Financing Programme for Aircraft:  Recourse by Canada to Article 21.5 of the DSU , 
Report of the Panel, WT/DS46/RW, adopted 4 August 2000 [" Brazil – Aircraft (Article 21.5 – Canada) "], 
para. 6.36.  See also Korea – Measures Affecting Trade in Commercial Vessels , Report of the Panel, 
WT/DS273, adopted 7 March 2005, para. 7.195. 
2 Brazil – Aircraft (Article 21.5 – Canada) , para. 6.30. WT/DS267/RW 
Page C-39 
 
 
 item (j) of the Illustrative List.  It would not mean  that GSM 102 is not a prohibited export subsidy.  
Quite apart from item (j), GSM 102 could still be a prohibited export subsidy pursuant to Article 3 of 
the SCM Agreement .   
13. This concludes Canada's statement.  I would like to again thank the panel for the opportunity 
to present Canada's views. 
 
 WT/DS267/RW  
Page C-40  
 
 ANNEX C-8 
 
THIRD PARTY ORAL STATEMENT OF CHAD 
 
28 February 2007 
 
 
I. INTRODUCTION 
1. Mr. Chairman and Members of the Panel, 
 
2. Chad appreciates the opportunity to present its vi ews to you in this dispute.  In its written 
submission of 5 January 2007, Chad set out its unde rstanding of some of the major legal issues that 
arise in this dispute.  I will therefore not repeat all that is contained in that submission.  Rather, I will 
take this opportunity to highlight some additional i ssues relevant to the resolution of this important 
dispute. 
 
II. THE IMPORTANCE OF THE DSU TO LDCS 
 
3. According to Article 3.2 of the DSU, security  and predictability are the cornerstones of the 
multilateral trading system.  Article 3.2 further stresses the importance of prompt settlement of 
situations in which benefits are being impaired a nd the maintenance of the proper balance between the 
rights and obligations of Members. 
 4. These principles of the multilateral trading system, Mr. Chairman, together with the prohibition against unilateral actions to resolve disp utes, found in Article 23 of the DSU, provide the 
foundation for the WTO's rules-based dispute settlement system.  This is intended to be a rules-based 
system in which might does not trump right, in wh ich the law is applied regardless of the economic 
strength of the parties to a dispute, and in which th e smallest actors in intern ational trade can ask for 
respect of the rule of law a nd its principles and prevail. 
 5. Chad's belief in this system motivated it to  become a third party when Brazil requested a 
panel in the original dispute, and it is this same  belief that motivates Chad's participation in these 
proceedings.  By this action, Chad has become one of only a handful of least-developed countries that 
have participated in a WTO dispute settlement proceeding since the establishment of the WTO 
in 1995.  6. Chad participated particularly because  it is a least-developed country, and because there are 
not alternative means for its interests and concerns to be taken into account. 
 7. Mr. chairman, it is the weakest Members of th e WTO that are most dependent on the rule of 
law in multilateral trade relations.  Lacking political  or market power, least- developed countries have 
no other recourse that to ask for respect of the rule  of law.  As one WTO Member stated in urging a 
speedy and successful conclusion to the Uruguay Round: 
 WT/DS267/RW 
Page C-41 
 
 
 The least-developed countries, being the w eakest and most vulnerable members of 
the international community, need the ru le of law most and are the strongest 
advocates of multilateralism. ...1 
8. Without the WTO's dispute settlement system to  ensure that rules are obeyed and obligations 
upheld, therefore, the weak would be at the mercy of the powerful who would be left free to pursue 
their own individual interest.  As former WTO Di rector-General Moore cogently underlined, the 
multilateral system "opens up the privileged pos itions of the powerful to transparency and 
competition".2 
 9. Rules-based multilateralism demands that WTO Members found to be in violation of their 
obligations take steps to address those violations.  As Brazil has demonstrated, the United States has 
either taken no steps to implement the rulings and recommendations of the DSB in the original 
dispute, or where it has taken such steps, it has not fully addressed the adverse effects that continue to 
affect the farmers of Brazil, Chad, and other African countries.  
10. This Panel must therefore send a clear message to the WTO Membership regarding the 
effectiveness of the dispute settlement system by re quiring that the United States, to the extent that it 
has failed to implement the recommendations and ru lings of the DSB, abide by the principles of the 
rules-based system;  principles which, I would ad d, the United States has repeatedly claimed to 
endorse.  III. THE IMPORTANCE OF COTTON TO CHAD 
 
11. Chad participated in the original dispute in  this case, and continues to participate in these 
proceedings, because of the critical importance of  the cotton sector to Chad's economy and the 
ongoing damage to that sector caused by US subsidies. 
 
12. Chad is one of the poorest countries in the world.  The United Nations Development 
Programme's Human Development Report of 2005 ranks Chad as the 173
rd out of 177 countries based 
on human development indicators that include like expectancy at birth, the infant mortality rate, and the maternal mortality ratio.  
13. It is precisely because of this poverty that Chad is so seriously affected by the US subsidies.  
The cotton sector in Chad affects approximately 3 million people, out of a to tal population of about 
8.1 million.  Cotton exports are the country's th ird largest export, representing 60 per cent of all 
non-oil export earnings.  Cotton is, therefore, one of Chad's main sources of income, sustains the 
livelihood of a large portion of its population, a nd contributes not only to economic development but 
also to social development.  Thus, cotton is a central element in the government's drive towards 
modernisation, diversification, a nd the financing of social activities and other needs of Chad's rural 
citizens.  14. In the Report " Finding the Moral Fibre:  Why reform is  urgently needed for a fair cotton 
trade ", Oxfam concludes the US cotton subsidies have an  impact "not simply on balance of payments 
or debt service."
3  Oxfam states that US cotton subsidies "cause poverty, and Western African farmers 
                                                      
1 Statement by Dr. M Isaac Talukdar of Bangladesh to the Forty-Seventh Session of the GATT 
CONTRACTING PARTIES, SR.47/ST/4, 20 December 1991. 
2 Michael Moore, "Promoting openness, fairness and pr edictability in international trade for the benefit 
of humanity", speech delivered to  the Inter-Parliamentary Union on 8 June 2001, available at 
http://www.wto .org/english/news_e/spmm_e/spmm64_e.htm . 
3 Oxfam Briefing Paper Number 69, 18 October 2004, page 2. WT/DS267/RW  
Page C-42  
 
 are particularly vulnerable."  It is for this reason th at Chad welcomed the findings of the Panel in this 
case.  The rulings and recommendations of the Panel – if they had been im plemented – would have 
improved the lot of the many poor who depend on cotton production and export. 
 15. The development and multilateral agencies that ha ve examined this issue have all come to the 
same conclusion.  Respected economic experts from UNDP, the International Cotton Advisory 
Committee, the World Bank and Oxfam have establis hed the source of the problems facing African 
cotton farmers are the trade-distorting agricultural subsidies that continue to depress world cotton 
prices.  They have also concluded that the pri ce prospects for cotton and consequently the export 
shares of low-cost producers, including many African countries, could be improved considerably if 
developed countries substantially re duced or eliminated support. 
 16. It is therefore imperative that the cotton fa rmers of Chad reap the benefits of a prompt 
implementation of the DSB's rulings and recommendati ons in this dispute.  Proper compliance would 
not only stabilise and increase the incomes of Chad 's cotton farmers but also develop the economy of 
Chad as a whole. 
 
IV. THE IMPORTANCE OF COTTON TO THE WEST AFRICAN REGION 
 
17. Chad is not the only West African country that  has suffered the effects of the US subsidies.  
The proper implementation of the DSB's recommenda tions and rulings is of importance to cotton-
producing West African countries, which are some of the most vulnerable economies in the world. 
 18. The Oxfam report to which I referred above concludes:  "every season poor cotton farmers 
face reduced incomes.  Each year, developing co untries which export cotton suffer declining balance 
of payments.  The central issue is US cotton subsidies."
4 
 
19. West and Central African cotton producers ar e among the lowest-cost producers of the crop in 
the world.  Full implementation by the United Stat es of the DSB's recommendations and rulings in 
this case would have very significant benefits fo r Chad and the other Sub-Saharan African cotton-
producing countries.  A recent World Bank project study titled "WTO's Doha Cotton Initiative:  A 
Tale of Two Issues"5 specifically estimates what is at stake in terms of cotton production, trade, and 
economic welfare in Sub-Saharan Africa.  The study finds that the removal of all cotton subsidies and 
import tariffs would boost global ec onomic welfare by $283 million per year and would raise the 
price of cotton in international markets by almost 13 per cent.  20. Chad, together with Benin, Burkina Faso a nd Mali, is a co-sponsor of the sectoral initiative 
for cotton which encourages WTO Members to address cotton "ambitiously, expeditiously and 
specifically" with a view to achieving more am bitious reductions of trade-distorting domestic 
subsidies for cotton production.  This initiative cove rs not only the subsidies of the United States but 
also those of other Members of the WTO and it wa s made explicitly without prejudice to actions of 
the Dispute Settlement Body.  Nevertheless, it can be taken by this Panel as a further indication of the 
importance that Chad and the other sponsors of th e initiative attach to the resolution of the cotton 
subsidy issue. 
 21. The commitment made by Members in the context of negotiations should not, however, 
detract from the importance of this dispute settlement  process.  The negotiating track is one aspect of 
the WTO system, the dispute settlement system another.  No Member should be put in the position of 
                                                     
 
4 Ibid. 
5 Kym Anderson and Ernesto Valenzuela, "WTO's D oha Cotton Initiative:  A Tale of Two Issues", 
Development Research Group, World Bank, Washington DC, February 2006. WT/DS267/RW 
Page C-43 
 
 
 negotiating afresh an outcome that has already b een prescribed multilaterally by the Members acting 
through the Dispute Settlement Body.  Chad ask s that it benefit from the enforcement of the 
negotiated rules governing subsidi es and, equally, that it be allowed to gain more from an 
international market without subsidies a nd therefore subject to true competition. 
 
22. Chad therefore requests the Panel to ensure , through a careful review of the evidence and 
rigorous application of the law, that the relevant WTO rules and disciplines are fully applied to the cotton sector so that a fair and market-oriented system can prevail. 
23. To quote H.E. Blaise Compaoré, President of Burkina Faso, "our countries are not asking for 
charity, neither are we requesting preferential treatment  or additional aid.  We solely demand that, in 
conformity with WTO basic principles, the free mark et rule be applied.  Our producers are ready to 
face competition on the world cotton market – under the condition that it is not distorted by subsidies."
6 
 
V. ARTICLE 24 OF THE DSU 
 
24. Article 24 of the DSU stipulates that:  "[a]t a ll stages of the determination of the causes of a 
dispute, and of dispute settlement procedures invo lving a least-developed country Member, particular 
consideration shall be given to the special situa tion of least-developed country Members".  Chad's 
reliance on its cotton industry to ge nerate exports and fight poverty c onstitutes a special situation of a 
least-developed country Member within the meaning of  Article 24.  Chad requests the Panel to give 
full effect to this provision in its determination of the causes of this dispute and to indicate in its report 
how it has done so.  25. In Chad's view, Brazil has produced compelli ng arguments and evidence to show that the US 
price-contingent subsidy programs supporting upl and cotton under the FSRI Act have not been 
withdrawn or changed in any significant way.  Br azil has also shown that overproduction and excess 
exports, along with significantly suppressed world ma rket prices for upland cotton, have continued 
following the adoption of the reports of the original panel and the Appellate Body in this dispute.  As 
explained above, Chad's own experience c onfirms the evidence submitted by Brazil. 
 26. This case concerns egregious, WTO-inconsis tent measures taken by a developed country 
WTO Member that continue to cause serious harm to  an important subsistence farming sector in the 
economies of some of the very least-developed countries in the world.  The United Nations 
Development Programme's Human Development Repor t concluded that in 2005, "the 20,000 cotton 
farmers in the United States will receive government payments in 2005 equivalent to the market value 
of the crop and more than US aid in Sub-Saharan Africa."
7 
 
27. Chad considers that Article 24 of the DS U imposes a duty on the panel that goes beyond a 
procedural requirement to consider all the views presented to it (which the Panel is in any event 
required to do under Article 11 of the DSU), by re quiring panels to take into account the special 
situation of least-developed countries when examining substantive issues.  Chad believes that, if the 
Panel were to ignore and be silent  on Article 24 of the DSU in this extreme situation, it would fail to 
carry out the obligations that th is provision clearly assigns to it. 
 
                                                      
6 Address to the Trade Negotiations Committee, 10 June 2003, www.wto.org . 
7 UNDP, Human Development Report for 2005, page 132. WT/DS267/RW  
Page C-44  
 
 VI. CONCLUSION 
 
28. Mr. Chairman, Members of the Panel, it is of  critical importance to Chad and other African 
cotton-producing countries and, indeed, to the multilateral trading system as a whole, that this compliance Panel uphold the rule of law by ensu ring that the multilateral rules governing the 
provision of subsidies are properly applied and followed in this case. 
 29. In this regard, Chad recalls the statement of the Sutherland Report that: 
 
The position of the poorest Members of the WTO, the least developed countries, ... 
has been and should be an issue of increasing concern.  If they do not receive real 
benefit from membership there can be little point in their remaining part of the organization and the moral case for the WTO as a source of good is diminished.
8 
30. In the present case, Chad recalls that Article  7.8 of the SCM Agreement provides that "the 
Member granting or maintaining such subsidy shal l take appropriate steps to remove the adverse 
effects or shall withdraw the subsidy."  Article 7. 8 therefore requires that the United States take active 
steps and impose affirmative measures to eliminat e adverse effects or withdraw subsidies.  The 
United States cannot comply with the recommendations  and rulings of the DSB simply by letting time 
pass and the adverse effects dissipate.  31. Chad also recalls that the panel stated clearly that " the United States is obliged to take action 
concerning its present statutory and regulatory framework as a result of our 'present' serious 
prejudice finding.' "
9  Accordingly, to conform with the recommendations and rulings of the DSB, the 
United States must not only stop the challenged pa yments, but also change its legislative and 
regulatory system.  
32. Accordingly, the Panel should carefully and stringently review the measures taken by the 
United States and determine that the United States has not properly implemented the 
recommendations and rulings of the DSB.  33. Chad trusts that these views will assist the Pa nel in its consideration of these issues.  Chad 
will be happy to respond to any questions the Panel may have. 
 
34. Again, we thank you for this opportunity to present our views.  
 
 
                                                     
 
 8 The Future of the WTO – Addressing Institutional Challenges in the New Millennium , Report by the 
Consultative Board to the Director-General  Supachai Panitchpakdi, 2004, paragraph 40.  
9 Panel Report, paragraph 7.1501 (original footnote omitted) (emphasis added). WT/DS267/RW 
Page C-45 
 
 
 ANNEX C-9 
 
THIRD PARTY ORAL STATEMENT OF THE 
PEOPLE'S REPUBLIC OF CHINA  
 
28 February 2007 
 
 
1. Thank you, Mr.  Chairman and Members of the Panel.  On 5 January 2007, China provided its 
third party submission to you on this case.  Today, I would like to highlight  the major points on two 
issues in China's submission:  (1) whether the item (j) of the Illustrative List of the SCM Agreement 
constitutes the complete basis for the analysis of GSM-102;  (2) whether the ML/CCP payment 
programs are outside the scope of this proceeding. 
2. Firstly, regarding item (j) issue, Chin a believes that the panel's finding in Korea – Measures 
Affecting Trade in Commercial Vessels has provided a useful guidance.  The Korea – Commercial 
Vessels panel points out that Item (j) merely describes certain circumstances in which particular 
programs constitute export subsidies;  and Item (j) simply does not address export guarantee programs 
that do  cover their long-term operating costs and losses.   Therefore, item (j) does not provide a basis 
on which to find that measures do not co nstitute prohibited export subsidies. 
3. In other words, item (j) is only a shortcut  to determine that an export credit guarantee 
constitutes an export subsidy when the guarantee does not  cover its long-term operating costs and 
losses.  However, it is not a defense clause.  Na mely, when fees collected for a credit guarantee do  
cover long-term operating costs and losses for the guarantee, it is still possible that this credit guarantee constitutes an export subsidy, and the pane l still needs to examine whether the measure at 
issue is consistent with Article 1 and 3 of the SC M Agreement or not.  In China's view, the definition 
of export subsides in the meaning of Article 1 an d 3 of the SCM Agreement covers a scope much 
broader than that of item (j) of the Illu strative List.  The complainant may raise a prima facie case of 
export subsidy either by claiming an item (j) viol ation or an Article 1 and 3 violation of the 
SCM Agreement.  Nevertheless, non-existence of the Illustrative List violation does not mean that it 
also consistent with obligations under Article 1 and 3 of the SCM Agreement. 
4. Thus, China considers that the US's approach  with regard to item (j) is incomplete, and 
inconsistent with the provis ions in the SCM Agreement. 
5. Secondly, regarding ML/CCP payment issue, China cannot endorse the US's arguments.  On 
the one hand, contrary to what the US asserted in  its Written Submission, the DSB did make rulings 
and recommendations in respect to ML/CCP programs in many occasions.  For examples, the Original 
Panel found that:  (1) legislative and regulatory provisions of ML/CCP were measures subject to 
rulings and findings;  (2) a textual analysis of the statutes supported that such subsidy programs were 'specific', and (3) ML/CCP payments, among others, were directly linked to world prices for upland 
cotton, and the structure, design and operation of these measures constituted evidence supporting a 
causal link with significant price suppression.  In short, the Original Panel did make finding on the 
ML/CCP programs. 
6. In addition, the Original Panel also found that  in light of its findings with regard to present 
serious prejudice, it did not believe that it was necessary to address Brazil's "threat" claim and 
"per se" claims relating to these measures .  It is clear that the Original Panel assumed the statutory 
and regulatory framework of the US mandatory pri ce-contingent subsidy pr ograms should be changed 
and the Panel therefore refrained itself from making further elaboration in these regards. WT/DS267/RW  
Page C-46  
 
 7. As to the US's claim that Brazil may not make claims against unchanged measures, China 
notes that the Original Panel found that the effect of the mandatory price-contingent subsidies was 
significant price suppression in the same world mark et and gave rise to serious prejudice to the 
interests of Brazil.  The recommendations a nd rulings of the DSB accordingly obliged the 
United States to remove the adverse effects caused by  these subsidies, or to withdraw these subsidies. 
8. Furthermore, the terms of reference of a compliance panel is not limited to what the 
responding party claims to be the measures taken to comply.  In China's view, since this Compliance 
Panel is requested to examine whether the measures ta ken by the United States are consistent with the 
covered agreement, it is legitimate for the Complian ce Panel to examine whether or not the remaining 
two subsidies (ML/CCP programs) are still causing serious prejudice. 
9. This concludes China's oral statement a nd I thank you very much for your attention, 
Mr. Chairman and distinguished Members of the Panel. 
 WT/DS267/RW 
Page C-47 
 
 
 ANNEX C-10 
 
THIRD PARTY ORAL STATEMENT OF  
THE EUROPEAN COMMUNITIES 
 
28 February 2007 
 
 
 
TABLE OF CONTENTS 
 
Page  
 I. INTRODUCTION  
48 
II. PANEL COMPOSITION  48 
III. US REQUEST FOR PRELIMINARY RULINGS  48 
A. E XPORT CREDIT GUARANTEES FOR PIG ME AT AND POULTRY MEAT UNDER THE 
GSM 102  PROGRAMME  48 
B. T HE MARKETING LOAN PROGRAMME AND THE COUNTER -CYCLICAL PAYMENT 
PROGRAMME  51 
C. C OMPLIANCE IN PAST PERIODS  53 
IV. ALLEGED EXPORT CONTINGENT SUBSIDIES  53 
V. ACTIONABLE SUBSIDIES  54 
 WT/DS267/RW  
Page C-48  
 
 Mr. Chairman, distinguished Members of the Panel. 
 
I. INTRODUCTION 
 
1. The European Communities makes this oral stat ement because of its systemic interest in the 
correct interpretation of the SCM Agreement , the GATT 1994 and the DSU.  The European 
Communities addresses the following issues: 
 
 •  Panel composition; 
 •  The US requests for preliminary rulings concerning: 
 - Export credit guarantees for pig meat and poultry meat under the GSM 102 
programme; 
 - The marketing loan programme and the counter-cyclical payment 
programme; 
 - Compliance in past periods; 
 •  Certain aspects of the export contingent subsidies claims;  and 
 •  Certain aspects of the actionable subsidies claims. 
 
II. PANEL COMPOSITION 
 
2. The European Communities again most respectfu lly urges the Panel in the strongest terms to 
exercise its inherent jurisdiction under the HFCS  case law, and rule on the propriety of its own 
composition, following the Australia Automotive Leather II  precedent.1 This is all the more 
imperative in the present circumstances because of the obvious and acutely important systemic 
interest;  and the entirely understandable reticence of  either Party to expressly intervene at length. 
 3. The DSU expressly sets out what the "functions of panels" are;  and that expressly includes 
"to assist the DSB in discharging its responsibiliti es under th[e DSU] and the covered agreements".
2 
Those DSB responsibilities clearly include ensuring that  panels are properly composed.  Article 2(1) 
of the DSU states expressly that the DSB is establis hed "to administer the[] rules and procedures" set 
out in the DSU, and that necessarily includes Article 8(3) of the DSU, which relates to panel composition.  
 4. Furthermore, Article 11 of the DSU requires this Panel to " assist  the DSB in making the 
recommendations or in giving the rulings provide d for in the covered agreements".  The DSB cannot 
possibly  have addressed the question of composition at the time of panel request and establishment, 
since the former post-dates the latter.  Therefore, the only way  in which this Panel can fulfil its 
obligation to assist  the DSB in relation to this matter is to deal with it in its report. 
 
III. US REQUEST FOR PRELIMINARY RULINGS 
 
A. E
XPORT CREDIT GUARANTEES FOR PIG ME AT AND POULTRY MEAT UNDER THE GSM  102 
PROGRAMME  
 5. The United States request for a preliminary ruling raises a problem being discussed in DSU 
proceedings with increasing frequency
3:  what is the relationship between the measure at issue (and 
elements of it) in an original panel;  and the m easure taken to comply (and elements of it) in a 
                                                      
1 EC Third Party Written Submission, paras. 6 to 30. 
2 DSU, Article 11. 
3 See, for a recent example, Panel Report, Chile – Agricultural Products (Price Band) (Article 21.5 -
Argentina) , paras. 7.121 to 7.162. WT/DS267/RW 
Page C-49 
 
 
 compliance panel.  The context of this legal problem includes:  1) the fact that measures at issue may 
be complex and have many different elements, so me of which are more closely interrelated or 
interdependent than others;  2) the fact that measu res at issue may be attack ed "as such" (or constitute 
"programmes" under the SCM Agreement ) or "as applied" 3) that pa nel's may focus on resolving the 
dispute, and thus exercise judicial economy, either w ith respect to certain claims, or with respect to 
certain elements of a measure, and that successful appeal of the exercise of judicial economy may be 
difficult4;  4) the principle of res judicata , according to which once a matter is decided it should not 
be re-litigated;  5) the fact that a compliance pane l may be followed by immediate retaliation;  and 
6) that the Appellate Body has no legal basis to "remand" matters to the original panel for re-
consideration. 
 
6. The European Communities agrees with the Un ited States that the case law to-date does not 
yet regulate all aspects of this problem.  Sp ecifically, the existing case law does not resolve the 
question of how the scope of a compliance panel s hould be determined in circumstances where the 
exercise of "false" judicial economy is successfully appealed and/or the Appellate Body is unable to 
complete the analysis.5  However, the European Communities does not consider that it is by reference 
to such matters that the problem before you is to  be resolved.  Rather, it appears to the European 
Communities that the important issue is the nexus  or the degree of interrelatedness or interdependence 
between different elements of the measure. 
 7. It appears to the European  Communities that there are essentially two competing models:  
"the measure model" (supported by Brazil in this case), which tends to fix the parameters of the 
compliance panel by reference to the original meas ure at issue – understanding the measure taken to 
comply accordingly;  and the "element of the measu re model" (supported by the United States in this 
case), which tends to fix the parameters of the compliance panel by reference to the elements  of the 
original measure at issue in respect of which findi ngs were made by the original panel, and understand 
the "measure taken to comply" accord ingly.  One can find examples of both types of approach in the 
case law.
6 
 
8. It appears to the European Communities that  neither model may provide a satisfactory method 
for dealing with all cases. 
 9. For example, the measure model would app ear unsatisfactory in cases involving "as such" 
claims against Member's legislation implementing the WTO Agreements  by way of municipal law 
measures intended to have general and prospective application.  These might typically consist of 
hundreds of articles (or elements).  Given the seri ousness of "as such" claims, to accept that an 
entirely new article (or element) could be raised in a compliance panel would appear to be unsatisfactory.  In fact, in such cases, typically, it is a particular provision or provisions, and not the piece of legislation as a whole, that is  described as the "measure at issue". 
 
10. On the other hand, taken to its logical conc lusion, it is not clear where the element of the 
measure model would stop in its deconstruction or at omisation of a measure at issue.  In theory, one 
could deconstruct a measure at issue into one set of legal elements, one set of factual elements, one set 
of evidence, and (in some cases) into one set of findi ngs concerning the legal characterisation of facts;  
and there is no limit in theory to the number of "ele ments" within each set.  It seems to the European 
                                                     
 
4 See, for a recent example, Appellate Body Report, US-Zeroing , paras. 225 and 250 (applying the 
standard reasoning that additional findings are unnecessary to resolve the dispute). 
5 US First Written Submission, paras. 24 to 30;  Brazil's Comments On US Request for Preliminary 
Rulings, paras. 2 to 15;  US Rebuttal, paras. 10 to 15. 
6 See, for example, Panel Report, Japan – Apples (Article 21.5 United States) , paras. 8.28 to 8.30, 
where, in effect, the United States argu ed successfully for the "measure model". WT/DS267/RW  
Page C-50  
 
 Communities that such an approach might encourag e litigants to similarly atomise their claims and 
arguments, provoking more exercise of judicial ec onomy, appeals from which may not be welcomed 
by the Appellate Body.  It might also encourage litig ants to request in parallel and in the alternative 
and in relation to the same matter a compliance panel and a new original panel (eventually with the 
same panellists) in order to ensu re that, whichever model prevails, they do not suffer unnecessary 
procedural delay – something that would only add needless complexity to already complex legal 
proceedings. 
 11. The question therefore poses itself, with particular  reference to the facts of this case:  are there 
any objective criteria that can be articulated for de termining what approach should be applied?  In 
order to answer that question, in the opinion of the European Communities, the Panel should examine the original measure at issue and the "measure taken to comply", and, with particular reference to the 
"elements of the measure" that the United States ar gues are outside the Panel' s terms of reference, 
enquire into the extent to which these are inter related  or inter dependent  with measures or "elements 
of measures" that the United States accepts are within the Panel's terms of reference.
7 
 12. It appears to the European Communities that, at first sight, the question of whether or not US 
export credit guarantees under the GSM 102 programme to pig meat and poultry meat circumvent US commitments for those scheduled products, and are in consistent with Articles 3.1(a) and 3(2) of the 
SCM Agreement , is not necessarily  inter dependent  with and arguably not even necessarily  
interrelated  with the same question regarding, particularly, upland cotton. 
 13. However, it also appears to the European Co mmunities that there are other factors that merit 
careful consideration.  For example: 
 
• One particular feature of the SCM Agreement  is that several of its provisions refer to 
subsidy "programmes", lending support to th e view that a subsidy programme can be 
a "measure at issue", and further lending support to the view that, by its own terms , 
such a programme may exhibit a degree of  interrelatedness or interdependence 
between its terms and/or its instances of application.
8 
 
• The United States appears to have admitted  that the GSM 102 programme was and is 
a "programme" within the meaning of the SCM Agreement .9 
 
• The original panel consistently described  the GSM 102 programme as a "measure at 
issue", and the United States does not appear to have argued that it in  fact consisted of 
a number of different measures at issue.10 
 
• In the original panel Brazil attacked the GSM 102 programme both "as such" and "as 
applied", although the original panel did not consider this distinction to be a 
determinative one.11 There is authority for the view  that a compliance panel should 
consider together both a measure and its application .12 
 
                                                      
7 Appellate Body Report, US-Softwood Lumber IV (Article 21.5 – Canada)  (DS257), para. 79 "… the 
Panel employed a nexus-based test … which accords with our own interpreta tion of Article 21.5". 
8 See final bullet point. 
9 Panel Report, US-Upland Cotton , para. 7.811. 
10 Panel Report, US-Upland Cotton , para. 7.242. 
11 Panel Report, US-Upland Cotton , para. 7.763. 
12 Panel Report, US-Shrimp (Article 21.5 – Malaysia) , para. 87. WT/DS267/RW 
Page C-51 
 
 
 • In the compliance Panel Brazil has again attacked per se  the programme, that is, the 
revised fee schedules for export cred it guarantees issued under the GSM 102 
programme.13 
• Finally, and significantly , as far as the European Communities can ascertain, the US 
has elected  to revise the fee schedules for export credit guarantees issued under the 
GSM 102 generally14, that is, also for pig meat and poultry meat.15  In this respect the 
present case is similar to past cases in which the fact that measures have been changed , suggesting the requisite degree of in terrelatedness or interdependence, has 
tended to bring them within the scope of a compliance panel.
16 
 
14. The European Communities interest in this matter being systemic, we do not venture a final 
view on whether or not the GSM 102 programme as it re lates to pig meat and poultry meat is or is not 
within the Panel's terms of refere nce;  but we do respectfully invite the Panel to take the foregoing 
observations into consideration when reaching its findings on this point. 
 B. T
HE MARKETING LOAN PROGRAMME AND THE COUNTER -CYCLICAL PAYMENT PROGRAMME  
 15. The European Communities ag rees with the United States
17 that there is a meaningful 
distinction between an "as such" claim and an "as app lied" claim, although, like  most distinctions, it is 
not an absolute one.18  An "as such" claim operates against a normative measure at a higher level of 
abstraction, intended to be of general and prospec tive application (such as legislation).  The European 
Communities views on the so-called mandatory/discretionary distinction19 do not suggest otherwise. 
 16. Furthermore, the European Comm unities agrees with the United States
20 that there is a 
distinction between a subsidy progr amme within the meaning of the SCM Agreement  (which may be a 
measure at issue) and instances of a subsidy unde r such programme (each of which may also be a 
measure at issue).  The former may be said to operate  at a higher level of abstraction than the latter. 
 17. The European Communities also agrees with the United States that an actionable subsidies 
claim under Part III of the SCM Agreement  refers to a "subsidy" within  the meaning of paragraphs 1 
and 2 of Article 1, which may be either a programme ;  or instances of the application of a programme;  
or both.  These measures should not normally be conflated.
21 
 18. The European Communities also agrees with  the United States that a complaining Member 
must be especially diligent in setting out "as such" claims in panel requests and first written 
                                                     
 
13 Brazil's First Written Submission, para. 33 3, second bullet point and footnote 510. 
14 See first bullet point. 
15 Brazil's First Written Submission, pa ra. 333, second bullet point and footnote 510;  Exhibit Bra-505. 
16 For example, in Canada – Aircraft , Canada changed the terms of the TPC programme (which was 
not an original measure at issue), and did not subsequently contest that it was a measure taken to comply. In Australia – Automotive Leather II , Australia changed the 1997 loan (originally found not to be an export 
subsidy) into a 1999 loan, which the compliance panel found to be within its terms of reference. In EC – 
Bananas III (Article 21.5 – Ecuador) , the EC changed its legislation, which was considered, in its entirety, to be 
within the compliance panel's terms of reference. 
17 US Rebuttal, paras. 22 to 24. 
18 For example, an original anti-dumping duty measure is  often said to be attacked at the "as applied" 
level, although it is likely to be of general (residual duty per country) and prospective application. 
19 EC Third Party Written Submission, paras. 64 to 69;  US Rebuttal, footnote 31. 
20 US Rebuttal, paras. 20 to 21. 
21 US Rebuttal, para. 25. WT/DS267/RW  
Page C-52  
 
 submissions;  and that as long as either the existenc e or the precise content of the supposed measure is 
not demonstrated to a high threshold and with par ticular rigour, any such claims must be dismissed.
22   
 
19. The European Communities does see a differe nce between the type of programme, often 
fiscal, in which entitlement to payment is conditi onal only upon the fulfilment of certain essentially 
factual requirements, essentially in the hands of th e recipient;  and the type of programme in which 
application in any given instance still depends on considerations (some times referred to as 
"discretion") that are in the hands of the granting au thority.  In the latter case, the distinction between 
the programme and an instance of its application must be rigorously maintained.23 In the former case 
the distinction may be less clear, and there ma y be a degree of nexus or interrelatedness or 
interdependence between the (for example, fiscal) programme and payments under it, such as might 
justify their treatment as indivisible for the purposes of a compliance panel. 
 
20. The European Communities agrees with Brazil th at, if a panel's adverse effects finding relates 
to a bundle  of subsidies, the entire bundle will normally fa ll within the scope of a compliance panel.  
However, the European Communiti es agrees with the United States that this observation does not, in 
itself , resolve the question of whether the measu res taken to comply relate only to the payments , or 
also the programmes  themselves.  
 
21. That said, the European Communities agrees with Brazil24 that the fact that the United States 
implemented by withdrawing the Step 2 programme  lends very considerable support to the view that 
there was at least a sufficient nexus  between the Step 2 payments  and the Step 2 programme .  The 
Parties also agree that the original panel assessed a bundle  of payments  under the three different 
programmes – that is that the panel's adverse effects assessment assumed a nexus  between the 
payments under the three different pr ogrammes.  If there is sufficient nexus  between payments and 
programme for one programme;  and if there is sufficient nexus  between all payments;  this in turn 
suggests a sufficient nexus  between all three programmes, such  that the whole new bundle can and 
should be treated as indivisible for the purposes of this compliance panel. 
 22. The European Communities disagrees with the Un ited States that the fact that something has 
not changed necessarily means that it is outside the scope of a compliance panel.
25  That depends on 
its relationship with what the Parties agree is with in the scope of the compliance panel.  And in any 
event Article 21.5 disputes may also relate to the question of whether or not a required measure taken 
to comply "exists". 
 23. Finally, and significantly , the European Communities observe s that there is support in the 
case law for the view that claims of present serious prejudice and threat  of serious prejudice are 
closely interrelated, such that a th reat claim in an original panel ma y inevitably give rise to a claim of 
present serious prejudice in a compliance panel.  It is not in dispute that Brazil's threat  claims in the 
original panel were also made against the programmes .
26 
 
24. The European Communities interest in this matter being systemic, we do not venture a final 
view on whether or not the marketing loan progr amme and the counter-cyclical payment programme 
are or are not within the Panel's terms of reference;  but we do respectfully invite the Panel to take the 
foregoing observations into consideration wh en reaching its findings on this point. 
 
                                                      
22 US Rebuttal, para. 41. 
23 As in the Brazil – Aircraft  case, cited in US Rebuttal, paras. 51 to 52. 
24 Brazil's Submission Regarding the US Request for Preliminary Rulings, paras. 16 to 28. 
25 US Rebuttal, para. 18;  paras. 53 to 61. 
26 Brazil's Submission Regarding the US Request for Preliminary Rulings, paras. 63 to 69. WT/DS267/RW 
Page C-53 
 
 
 C. C OMPLIANCE IN PAST PERIODS  
 
25. Paragraph 8.3(d) of the original panel report, as adopted by the DSB, contains a 
"recommendation or ruling" within the meaning of Ar ticle 21.5.  Furthermore, one element of that 
"recommendation or ruling" was that the United States take appropriate steps to remove the adverse 
effects or withdraw the subsidy;  and (by necessary implication) that should the United States fail to 
do so within six months from the date on which the DSB adopted the panel or Appellate Body Report, 
the consequences described in Article 7.9 of the SCM Agreement  would result.  In the opinion of the 
European Communities, it may reasonably be inferre d from paragraph 8.3(d) of the original panel 
report and Articles 7.8 and 7.9 of the SCM Agreement  that the United States was subject to a 
"recommendation or ruling" within the meaning of Article 21.5 that it take appropriate steps to 
remove the adverse effects or withdraw the subsidy at  the latest within that six month period of time. 
 
26. The Parties agree that the United States omitted  to take a "measure taken to comply" during 
the period identified by Brazil.  It follows th at, during the period identified by Brazil, the 
United States did not comply with the "r ecommendations and rulings" of the DSB. 
 27. The United States argues that this situation is not within the scope of Article 21.5 because the 
Parties agree  that no measure taken to comply existed duri ng that period of time (and there is thus no 
"disagreement");  and that there could be no "di sagreement" as to consistency, because there was no 
measure taken to comply.
27 
28. The European Communities disag rees.  The United States overlooks the fact that any act or 
omission  may be a measure for the purposes of dispute settlement.28 It follows that, within the terms 
of Article 21.5 of the DSU, Brazil considers that the United States omission  (in this context, the 
measure taken to comply within the meaning of Article 21.5) was incons istent with a covered 
agreement, including Articles 7.8 and 7.9 of the SCM Agreement .  This interpreta tion is consistent 
with, and indeed necessitated by, the view that , in some circumstances, inaction may be an 
appropriate method of implementation.29 
 
29. The European Communities can find nothing a dditional in the terms of Article 21.5 that 
would limit its temporal application in the manner advo cated by the United States.  On the contrary, it 
seems to the European Communities th at an integral part of a measure, apart from, for example, its 
material and territorial scope, is its temporal scope;  and the European Communities does not see how 
this latter element could be artificially divorced from the whole.  Apart from the fact that a non-
compliance finding opens the way for retaliation, whether or not Brazil's request would ever be capable of having any practical utility is a different  matter that this Panel does not need to address, 
being essentially a matter for Brazil, exercising its judgement in good faith.
30 In some instances, for 
example, it may be quite possible that such a finding could have implications for interested parties in 
a municipal law jurisdiction. 
 
IV. ALLEGED EXPORT CONTINGENT SUBSIDIES 
 
30. The European Communities does not comment  on whether or not the alleged subsidies 
identified by Brazil are export contingent.  Howe ver, the European Communities has four comments 
which relate rather to the question of whether or  not the measures in question involve subsidies. 
 
                                                      
27 US Rebuttal, paras. 64 to 71. 
28 Appellate Body Report, US - Corrosion-Resistant Steel , para. 81. 
29 EC Third Party Written Submission, para. 41. 
30 Appellate Body Report, US - Corrosion-Resistant Steel , para. 89. WT/DS267/RW  
Page C-54  
 
 31. First, the European Communiti es agrees with the United States that Articles 14(a) to (c) of the 
SCM Agreement  presume that the types of financial contribution there enumerated do not confer a 
benefit, unless the complaining party demonstrates otherwise.
31 
 32. Second, the European Communities agrees with the United States that neither the status of 
bodies executing financial instruments, nor the term s on which they can borrow, determines whether 
or not such financial instruments confer a benefit.
32 
33. Third, the European Communities agrees with the United States that if estimated projected 
data indicate a negative net present value, that indi cates profit, and there is accordingly no benefit and 
no subsidy.33 
 34. Fourth, the European Communities agrees w ith the United States that entities such as the 
International Finance Corporation (IFC), the Inter-American Development Bank (IDB) and the 
European Bank for Reconstruction and Developm ent (EBRD) may provide commercial benchmarks 
that can be used for the purposes of demonstrating the absence of any benefit and thus the absence of 
subsidy.
34 
35. The European Communities respectfully invit es the Panel to take these observations into 
consideration when reaching its findings on the alleged export contingent subsidies. 
 
V. ACTIONABLE SUBSIDIES 
 
36. The European Communities agre es with the United States that the data that the Panel must 
consider for the purposes of Brazil's claim of "present" serious prejudice would be the most recent 
relevant data reasonably available,  including, where possible, data for the 2006 marketing year (which 
runs from 1 August 2006 to 31 July 2007).35  Brazil agrees that the most recent data is relevant and 
should be referenced by the Panel.36  
 37. The European Communities further agrees with the United States that any consideration of 
data trends over time, in order not to be distorted, should be conducted in a meaningful way, that takes 
into account known exogenous events, or circumst ances in which there were "entirely different 
market conditions", whether in the past or in the immediate future.
37 
 38. The European Communities also  agrees with the United States that where alleged subsidies 
are extinguished or extracted by owners not operating in the relevant markets,  then there is no basis 
on which to find adverse effects, or for that matter a subsidy that continues to benefit the relevant 
company or product.
38 
 39. The European Communities also agrees with the United States that, as long as the 
complaining party has failed to demonstrate that the effects of the subsidies are significant , including 
                                                     
 
31 US Rebuttal, para. 79. 
32 US Rebuttal, paras. 80 and 104. 
33 US Rebuttal, paras. 84 and 87. 
34 US Rebuttal, para. 154. 
35 US First Written Submission, paras. 160 to 170;  US Rebuttal, para. 182 and paras. 215 to 216:  
"… the period relevant for these claims  is the immediate present, not a hist orical period (regardless of how close 
in time).". 
36 Brazil's Rebuttal, para. 25. 
37 US Rebuttal, para. 183. 
38 US First Written Submission, para. 215. WT/DS267/RW 
Page C-55 
 
 
 with specific reference to the magnitude  of the subsidy, then the a dverse effects claims should be 
dismissed.39 
 40. The European Communities respectfully invit es the Panel to take these observations into 
consideration when reaching its findin gs on the actionable subsidies claims. 
 Mr. Chairman, distinguished Members of the Panel, the European Communities thanks you 
for your kind and patient attention. 
 
                                                      
39 US First Written Submission, para. 236;  US Rebuttal, para. 252.  WT/DS267/RW  
Page C-56  
 
 ANNEX C-11 
 
THIRD PARTY ORAL STATEMENT OF INDIA 
 
28 February 2007 
 
 
Mr. Chairman and Distinguished Members of the Panel, 
1. India thanks you for having provided us an o pportunity to present our views as a third party in 
this dispute on the implementation measures by the United States. As a major cotton producing 
country, with production dominated by low-income, resource poor, subsistence farmers, India has a 
major substantive interest in these proceedings.  As a developing country India has a strong interest in 
a stable and competitive world market in cotton, unencumbered by trade and production distorting 
subsidies provided by a few countries. India shares the interests of Brazil and other like-minded parties to this dispute. 
2. India fully agrees with Brazil, and those othe r third parties who have pointed out that the 
United States has failed to implement the recomm endations and rulings of the Dispute Settlement 
Body in the original proceedings. We also agree wi th the contention that the United States continues 
to provide subsidies that either cause serious prej udice or threaten to cause serious prejudice, within 
the meaning of Articles 5 and 6 of the Agreem ent on Subsidies and Countervailing Measures 
(SCM Agreement) and the relevant  provisions of the GATT 1994.   
3. India proposes to focus on the following two issues: 
(i) The implementation with respect to Ma rketing Loan and Counter-Cyclical Payment 
(CCP) programmes by the United States;  and 
(ii) Export credit guarantee (ECG) programme s maintained by th e Commodity Credit 
Corporation (CCC) of the United States. 
4. As part of its implementation of the DS B recommendations on serious prejudice claims 
arising from the original proceedings, the United Stat es claims to have repealed the Step 2 payment 
programme for upland cotton with effect from 1 August 2006, which was one of the programmes 
found by the original panel to be causing serious prejudice.  The United States has argued that since Brazil had distinguished between claims against programmes per se  and claims against specific 
payments  under the programmes, the US Marketing Lo an and Counter-Cyclical Payment programmes 
were not subject either to a finding of WT O inconsistency or any DSB recommendations.  
Accordingly, since these programmes have not ch anged in response to DSB recommendations and 
rulings or otherwise, the United States has request ed this Panel to find that these measures are not 
within the scope of the present proceedings. 
5. India recalls that, as upheld by the Appe llate Body, the original panel found several 
mandatory price-contingent subsidy programmes of the United States, including the Marketing Loan 
and Counter-Cyclical Payment programmes, to be  inconsistent with the obligations of the 
United States under Articles 5 and 6 of SCM Agreement.   In view of the fact that  the original panel 
considered the effect of these programmes separate ly and jointly, the United States cannot now argue 
that these programmes are outside the scope of this proceeding.   India considers that the original 
panel examined carefully and separately the i ndividual nature, operation, magnitude, and price-
suppressing effect of these subsidies and found that the vast majority of the price suppression and 
adverse effects were caused by the marketing loan  and counter-cyclical payment programmes, rather WT/DS267/RW 
Page C-57 
 
 
 than the Step 2 payments.  Therefore, the withdraw al of the Step 2 payments for upland cotton cannot 
be said to have also removed the adverse effect s of the Marketing Loan and CCP programmes.   
6. Mr. Chairman, India also submits that the or iginal panel clearly described the measures at 
issue as comprising the "legislative and regulatory provisions currently providing for the payment of 
measures", including Marketing Loan and Counter-C yclical Payment programmes.  The panel had 
clearly considered that its findings regarding "presen t" serious prejudice applied not just to payments, 
but also to the statutory and regulatory framework of the Farm Security and Rural Investment Act, 
2002 and its implementing regulations .  Contrary to the arguments put forward by the United States, 
the U.S. obligations at the implementation period were not circumscribed to "payments" made in a 
period in the past. Therefore, an examination of the conformity of the legislative and regulatory 
provisions, under which the mandatory, price-contin gent Marketing Loan and CCPs are made, with 
the rulings and recommendations of the original pane l and Appellate Body, falls  within the terms of 
reference of this Panel.    An interpretation that would endorse the U.S. arguments on this issue 
would, in practice, render the whole Part III of the SCM Agreement ineffective. This is not an 
interpretation supported by the principles and rules of treaty interpretation used in the WTO, and 
would be of even more concern in light of the specificity of the remedies provided for in that 
Agreement. 
7. Mr. Chairman, with respect to the th ree export credit guarantee (ECG) programmes 
maintained by the Commodity Credit Corporation (CCC) of the United States – GSM 102, GSM 103 and SCGP – the Dispute Settlement Body recommended  that the United States withdraw the subsidy 
and otherwise bring itself into compliance with its  obligations by the implementation deadline of 
1 July 2005. 
8. In India's view, in the absence of GSM 102 fees that take full account of all the risks the CCC 
bears in a transaction, the measures taken by the Un ited States to comply with the DSB's ECG related 
recommendations are not
 consistent with the obligations of the United States under the Agreement on 
Agriculture and the SCM Agreement.  In its subm ission, Brazil has demonstrated clearly that under 
Article 1.1 and 3.1(a) of the SCM Agreement, GSM 102 ECGs are financial contributions that confer 
benefits, and that the subsidies are contingent in law on export performance.  India also agrees with 
Chad, who in their written submission has shown wh y, as a practical matter, only developed country 
governments can effectively provide ECGs to promote their exports. India also believes that purchases of goods backed by US ECGs benefit from the sovereign guarantee, thereby giving a 
competitive advantage to US exporters.  Therefore,  Mr Chairman, India is of the view that the 
GSM 102 programmes are still not in compliance with  the export subsidy disciplines specified in 
Articles 1.1 and 3.1(a) of the SCM Agreement and the Agreement on Agriculture. 
 Thank you. 
 WT/DS267/RW  
Page C-58  
 
 ANNEX C-12 
 
THIRD PARTY ORAL STATEMENT OF JAPAN 
 
28 February 2007 
  
I. Introduction 
1. Mr. Chairman and Members of the Panel, we are pleased to have this opportunity to appear 
before you today to present the views of Japan as a thir d party in this case.  Japan is participating as a 
third party because of its systemic interest in th e proper functioning of the Agreement on Subsidies 
and Countervailing Measures ("ASCM") and the Un derstanding on Rules and Procedures Governing 
the Settlement of Disputes ("DSU"), in particular, the proper role of Article 21.5 compliance panels.  
This Panel has an important opportunity to clarify that  role.  We would like to briefly address, in light 
of the Written Submissions of Brazil and the United States ("U.S."), three issues concerning the role 
of Article 21.5 compliance panels under the DSU and one issue regarding the proper interpretation of 
the ASCM: 
- Whether the use by the U.S. of the General Sales Manager ("GSM") 102 program to 
support exports of pig and poultry meat is within the scope of the Panel; 
- Whether the Marketing Loan Program ( "MLP") and the Counter-Cyclical Payment 
Program ("CCP") are part of the U.S. "measure taken to comply" and, therefore, within 
the scope of the Panel; 
- Whether the Panel has the authority to ma ke findings with respect to the U.S. non-
compliance between 21 September 2005 and 31 July 2006;  and 
- The proper standard for assessing "threat of serious prejudice" in the ASCM. 
II. The GSM 102 Program for Pig and Poultry Meat Is Within the Scope of the Panel 
2. In the original proceedings, the Appellate B ody reversed the original panel's finding that 
Brazil had failed to demonstrate that the U. S. had applied GSM 102 in a manner that circumvented 
export subsidy commitments with respect to pig and poultry meat, but concluded that there were 
insufficient uncontested facts in the record to  enable it to complete the legal analysis.
1  Based on this 
fact, the U.S. asserts that Brazil's claim is outside the scope of this Panel.  In Japan's view, this 
assertion by the U.S. is not an appropriate interpretation of Article 21.5 of the DSU. 
3. The Appellate Body's inability to complete the an alysis concerning a finding it has reversed is 
similar to an original panel's exercise of judicial economy;  both situations mean that there is no "final 
resolution" with respect to the claim in questi on, and no reason to preclude its resolution in an 
Article 21.5 proceeding.2  Thus, Japan submits that the recen t report of the Article 21.5 compliance 
panel in U.S. – OCTG Sunset Reviews  is dispositive:  
The fact that a panel, in an original dis pute settlement proceeding, did not make findings 
regarding certain issues relating to the investiga ting authorities' determination that were raised 
and argued before the panel, can not preclude  a compliance panel, in its assessment under 
                                                      
1 United States – Subsidies on Upland Cotton , WT/DS267/AB (3 March 2005), paras. 689-694. 
2 See Submission of Brazil to the Panel Regarding U. S. Requests for Preliminary Ruling, note 14. WT/DS267/RW 
Page C-59 
 
 
 Article 21.5 of the DSU of the measures taken to comply with the recommendations and 
rulings, from reviewing those aspects which have been incorporated by the authorities in the 
measure taken to comply.3 
4. Japan respectfully submits that, as indicated by the report of the Article 21.5 compliance 
panel in U.S. – OCTG Sunset Reviews , this Panel has the authority to identify and assess the new U.S. 
measures taken to comply with the recommendations and rulings of the DSB, i.e., the MLP, the CCP, 
and the GSM 102, GSM 103 and Supplier Credit Guarantee Programs, including the GSM 102 Program for Pig and Poultry Meat. 
III. MLP and CCP Payments Are Part of the U.S. Measure Taken to Comply 
5. For the reasons presented by Japan in its Th ird Party Submission, the assertion by the U.S. 
that the panel lacks the authority to address Braz il's arguments regarding the U.S. MLP and CCP 
payments is flawed.
4 
6. Japan agrees with Brazil that the question before the compliance Panel is whether the new 
basket of U.S. price-contingent measures (MLP a nd CCP), which constitutes the "measures taken to 
comply", is "consistent with the covered agreem ents".  This basket includes payments under the 
programs–actions by the U.S. with an impact on th e market for cotton.  The focus of the Panel, 
therefore, should be on the payments made under the programs, rather than the programs as such.5  To 
comply with WTO obligations, the U.S. should have taken steps to ensure that the adverse effects no 
longer exist.6 
7. Japan thus respectfully submits that the Pa nel must reject this argument by the U.S. 
IV. The Panel Has the Authority to Make  Findings With Respect To the U.S. 
Non-Compliance between 21 September 2005 and 31 July 2006 
8. The U.S. submits that there is no "disagre ement" between the U.S. and Brazil as to the 
existence of measures taken to comply with the r ecommendations and rulings of the DSB as stipulated 
in Article 21.5 of the DSU.7  The non-existence of measures take n to comply may not be subject to 
review by a compliance panel if there is no such "disagreement".  However, in this case, a disagreement does exist between Brazil and the U.S.–one party (Brazil) is of the opinion that there is a 
disagreement.  The U.S. cannot simply make the di sagreement go away by stating that Brazil agrees 
with the U.S.  Alternatively, one may view the U.S. position as a concession that, indeed, it failed to 
comply because it took no actions during the period in question.  In any case, the U.S. argument must 
be rejected as an attempt to remove from Article 21.5 review precisely the most egregious violations–
cases in which a Member does not hing whatsoever to comply. 
                                                     
 
3 United States—Sunset Reviews of Anti-Dumping Me asures on Oil Country Tubular Goods from 
Argentina, WT/DS268/RW (30 November 2006), para. 7.92.   
4 Third Party Submission of Japan, paras. 18-21. 
5 Third Party Submission of Australia, para. 15. 
6 The Third Parties to this dispute are nearly unanimous in taking this view.  See Third Party 
Submission of Australia, para. 25-31;  Third Party Submission of Canada, para. 14;  Third Party Submission of 
Chad, paras. 35-46;  Third Party Submission of China, paras. 9-16;  Third Party Submission of 
New Zealand 4.11. 
7 First Submission of the U.S., paras. 49-56. WT/DS267/RW  
Page C-60  
 
 9. As Australia notes, a failure to address this  claim by Brazil would diminish Brazil's rights 
under Article 22 of the DSU.
8  Thus, the disagreement on the non-existence of the compliance 
measures is properly before this Panel.  
V. The Panel Should Carefully Consider Any Pr oposed Standards for Threat of Serious 
Prejudice 
10. Japan is of the view that the most important i ssue of general interest raised in this dispute is 
the appropriate standard for establishing threat of serious prejudice under Part III of the ASCM.9 
11. A threat of serious prejudice st andard should contain two elements − a legal standard and an 
evidentiary requirement.  The legal standard should not be based on the standard in Part V of the 
ASCM.  Part III issues are devoid of concerns rela ting to limiting the discretion of national authorities 
to prevent misuse thereof in the conduct of domestic  CVD investigations that apply to Part V.  
Therefore, Japan does not agree with the assertion by  the U.S. that Article 15.7 of the ASCM and 
Article 4.1(b) of the Agreement of Safeguards prov ide important contextual guidance in interpreting 
"threat" of serious prejudice under Part III of the ASCM.10   
12. Brazil proposes that the Panel find that a "threat of serious prejudice" exists where there is a 
"'significant likelihood' of serious prejudice in the future."11  However, Brazil's proposed standard 
offers little concrete guidance. 
13. The legal standard must be tied to an evid entiary requirement.  An explicit evidentiary 
requirement such as that set forth in the first sentence of Article 15.7 of the ASCM12 is a crucial 
component of any "threat" standard.  It is necessary to tie to real world facts what otherwise is an 
amorphous concept. 
14. Japan asks the Panel to consider these views wh en examining the issue of the proper standard 
for threat of serious prejudice. 
VI. Conclusion 
15. Japan would like to thank the Panel for this opportunity to raise these issues concerning the 
proper functioning, as required by the DSU, of the compliance phase of the dispute settlement 
process. 
 
 
                                                      
8 Third Party Submission of Australia, para. 21. 
9 See ASCM, Article 5(c) and note 13.  
10 Rebuttal Submission of the U.S., para. 411. 
11 First Submission of Brazil, para. 259. 
12 See also  Agreement on Safeguards, Article 4.1(b) ("A determination of the existence of a threat of 
serious injury shall be based on facts and not merely on allegation, conjecture or remote possibility");  AD Agreement, Article 3.7 ("A determination of a threat  of material injury shall be based on facts and not 
merely on allegation, conjecture or remote possibility"). WT/DS267/RW 
Page C-61 
 
 
 ANNEX C-13 
 
THIRD PARTY ORAL STAT EMENT OF NEW ZEALAND 
 
28 February 2007 
 
 
Mr Chairman, Members of the Panel,  
Introduction 
 
1. New Zealand has a systemic interest in this dispute and welcomes the opportunity to participate in this oral hearing.  We wish to ma ke brief comments on three areas, recognising that our 
views have been presented to you already in our th ird party submission.  Fi rstly we will comment on 
why we believe the marketing loan payments and counter-cyclical payments are indeed within the 
scope of this Article 21.5 proceeding;  secondly we  will make a brief comment on the burden of proof 
in a case such as this;  and finally we will explai n why we believe the marketing loan payments and 
counter-cyclical payments continue to cause adverse effects.  
The scope of this 21.5 proceeding 
 
2. In our view the payments made under the marketing loan payments programme and the 
counter-cyclical payments programme are clearly with in the scope of this proceeding.  The panel was 
clear in paragraph 8.1(g)(i) of its report that its finding was about the "effect of the mandatory price-
contingent United States subsidy measures."  A refe rence to payments does not alter that finding.  
Payments are not mandatory subsidy measures;  th ey are simply the means by which the subsidy 
measures are implemented.  The distinction made  by the United States between payments and 
programmes would undermine the disciplines on acti onable subsidies in the SCM Agreement.   
 3. Of particular importance is the need to give e ffect to the remedy provided for in Article 7.8 of 
the SCM Agreement, as referred to by the original Pane l in this dispute.  This is the first time the 
relationship between Article 21.5 of the DSU and Ar ticle 7.8 of the SCM Agreement has come before 
a compliance proceeding.  Given that the marketin g loan and counter-cyclical payments programmes 
have not been withdrawn, the United States cannot now avoid its obligation under Article 7.8 of the 
SCM Agreement to remove the adverse effects of those subsidy programmes by claiming that they are 
not measures taken to comply within the meaning of Article 21.5 of the DSU.  In New Zealand's 
view, if the measures are not withdrawn Article 7.8 of the SCM Agreement then requires the Panel to 
determine whether steps have been taken to remove the adverse effects found to exist by the original 
Panel.  It must then determine whether any steps that have been taken are "appropriate", that is 
whether they are measures that are capable of removing the adverse effects.  Article 21.5 of the DSU cannot be invoked as a barrier to such an analysis. 
 
Marketing Loan Payments and Counter-Cyclical Payments continue to cause significant price 
suppression and increase the world market share 
 Burden of proof 
 
4. As in our submission, we wish to make a brief comment regarding the burden of proof in a 
case such as this.  The DSB recommendations  and rulings of 21 March 2005 covered 
three programmes: the step 2 payments programme;  the marketing loan payments programme;  and 
the counter-cyclical payments programme.  Having chosen to remove only one of those programmes 
the United States now claims that Brazil has the burden of showing that the remaining WT/DS267/RW  
Page C-62  
 
 two programmes cause serious prejudice.  The Unit ed States conveniently ignores the fact that the 
original Panel had already evaluated the evidence and made a finding that all three programmes cause 
adverse effects.  A Member should not have the bur den of proving something that has already been 
decided by the original panel.  In this case that would deprive the actionable subsidies provisions of 
the SCM Agreement of their proper effect. 
 
5. Since an implementing Member has the option of either withdrawing the subsidising measure 
or removing the adverse effects under Article 7.8 of the SCM Agreement, an implementing Member 
that fails to withdraw the measure in question th en should have the burden of showing that it has 
removed the adverse effects.  Thus, in the presen t case proof by Brazil that the measures found by the 
original panel to cause adverse effects have not  been withdrawn should establish a prima facie case 
that implementation has not occurred.  In New Zealand's view, the burden would then be on the 
United States to prove that the adverse effects caused by those subsidising measures have been 
removed.    The adverse effects from the Marketing Loan Pr ogramme and the Counter-Cyclical Programme 
remain 
 
6. We agree with Brazil that the removal of the Step-2 programme had a relatively modest 
impact.  A comparison of the amounts paid under the various programmes shows significant differences.  Step 2 payments are small compared to marketing loan and counter-cyclical payments.  
In the most recent year, 2005, for example, the St ep 2 payments were US$350 million.  In the same 
year, the marketing loan and counter-cyclical pr ogramme payments amounted to US$2,170 million.  
The US cannot ignore the much larger volume of subsidisation under the two programmes that have not been withdrawn or modified.  
7. Also, it is possible – and likely – that th e counter-cyclical payments could increase to 
compensate for the removal of the Step 2 programme .  The United States argues against this line of 
reasoning given that there was no increase in counter-c yclical payments in the current year.  What the 
United States fails to make clear is that those pa yments are already at their maximum rate.  If that 
were not the case there could indeed be a compen satory effect for the removal of the Step 2 
programmes. 
 
8. The United States attempts to counter Brazil's arguments about the trade-distorting effects of 
counter-cyclical payments by blurring the line between counter-cyclical payments and decoupled 
payments.  But, counter-cyclical payments are not real decoupled payments.  
9. Real decoupled payments are green box measure s and cannot be linked to the type or volume 
of production or be related to or based on prices.  Counter-cyclical payments, by contrast, are clearly 
and explicitly linked to prices.  The fact that in many years such paymen ts are likely to be paid out at 
the maximum rate does not change the fact that they  are linked to prices.  The question is, what would 
farmers do differently if there were no counter-c yclical payments and fa rmers were, essentially, 
"guaranteed" 13.73 cents per pound less for their cotton. 
 
10. Indeed, the United States fails to accurately explain the role of expectations in the market 
place.  While it is possible that removal of the St ep-2 programme will decrease the marketing loan 
payments, this argument ignores the fact that these programmes are distorting whether or not 
payments are made under them.  Producers know that th e loan rate is there to  support them and that 
there is a target price they will receive either from the market or the government. 
 11. In fact, the proposition that marketing loan pa yments are distorting is almost self-evident.  
Marketing loan payments are amber box measure s, the category in which are included the non-
prohibited measures with the most trade distor ting effect on production and trade.  Producer WT/DS267/RW 
Page C-63 
 
 
 expectations are generated because of applied ad ministrative prices under a subsidisation programme 
– because of a guaranteed price, regardless of what happens in the market place – not because of financial transfers in any one year.  Producers are aware that they are insulated from the market place 
by government support and it is this guarantee of insulation that affects producer decision making.  
12. The United States tries to convince you that producers respond to market signals, and that the 
marketing loan programme and counter-cyclical  programme do not insulate producers from the 
market.  But, in the absence of the marketing loan and counter-cyclical programmes – programmes 
that guarantee certain prices to producers of cotton in the US – would the United States market share of cotton be at current levels?  The link that is necessary to examine is that between domestic, 
guaranteed prices and United States production.  And that is the source of the problem.   
 13. The United States contests the Brazilian argu ment that absent the payments farmers would 
exit cotton production.  This ignores the evidence.  Over some years over half of the revenues 
received by United States cotton farmers has come from  subsidisation.  The idea that if these subsidies 
were not there, producers who have been deprived of half of their income would carry on planting 
cotton is little short of absurd.    14. The United States also claims that the ec onometric modelling provided by Brazil is flawed, 
but the arguments of the United States are either an  attempt to reargue what was litigated before the 
original panel and the Appellate Body and lost, or are inconsequential. 
 
15. The United States itself demonstrates that if the marketing loan and counter-cyclical 
payments programmes were eliminated there would be a reduction in United States cotton exports of 
up to 25 per cent in 2002-2005 and 17 per cent in 2006-2008.  That is a very clear measure of what United States world market share would be in the absence of the marketing loan and counter-cyclical 
payments programmes. 
 
Conclusion  
16. In conclusion, in New Zealand's view, Braz il has demonstrated that the United States has 
failed to either withdraw the marketing loan and counter-cyclical payments programmes or to remove 
the adverse effects of those programmes as required by Article 7.8 of the SCM Agreement.  
Accordingly, the United States has failed to co mply with the recommendations and rulings of 
the DSB. 
 WT/DS267/RW  
Page C-64  
 
 ANNEX C-14 
 
THIRD PARTY ORAL STATEMENT OF THAILAND 
 
28 February 2007 
 
 
1. Mr. Chairman and Members of the Panel:  Th ailand appreciates the opportunity to participate 
in this proceeding and to present its views to the Panel today.    
2. Thailand reserved its right to participate as a third party in this proceeding under Article 10.2 
of the Dispute Settlement Understanding  due to our interest as one of the top global exporters of rice.  
As demonstrated by Brazil, rice is one of the products affected by the Export Credit Guarantees 
(ECGs) maintained by the United States Comm odity Credit Corporation (CCC) under the GSM 102, 
GSM 103 and SCGP programs.  In fact, according to Brazil's first submission, almost half of the 
USD 8.5 billion of ECGs outstanding as of 1 July 2005 involved rice and other products.
1   
 3. Mr. Chairman, a fair playing field for rice e xports is essential to Thailand's development.  Not 
only are Thailand's climate and geography particul arly suited to rice cultivation, the farming and 
production of rice affects over 4 million households lo cated mostly in Thailand's rural areas.  We 
therefore generally share and support Brazil's concer ns regarding the United States' implementation in 
this dispute and its continued provision of ECGs subsequent to the withdrawal date of 1 July 2005 
recommended by the Dispute Settlement Body.      4. In particular we find troubling the con tinued maintenance of GSM 102 ECGs by the 
United States.  Although the United States claims th at it has amended the GSM 102 program and that 
ECGs provided thereunder are now WTO-consistent, Thailand views that the ECGs are still provided 
on non-commercial terms such as the mandatory one-pe rcent fee cap and failure to take into account 
all relevant risks faced by the CCC.
2    
 5. As Brazil has already submitted comprehens ive analyses on the aforementioned aspects of 
GSM 102 in its submissions, as well as the resultant circumvention by the United States of its export 
subsidy commitments
3, Thailand will not repeat those arguments here.  We would only emphasize 
Brazil's demonstration that GSM 102 bridges the fi nancial gap between United States exporters and 
foreign buyers to make the export sale possible.  Without such assistance from the United States 
government, agricultural exports under GSM 102 would not occur.4 
 
6. While a large developed country Member such  as the United States can afford to finance its 
agricultural exports through programs such as GSM 102, Thailand empathizes with the concern 
expressed by Chad in its written submission th at developing country and LDC Members "face 
permanent structural disadvantages compared to developed country Members in providing export 
credit,"5 even if such schemes were consistent with WTO disciplines.  In light of this concern, and of 
the persuasive arguments and evidence submitted by Br azil, we urge the Panel to make the relevant 
findings and recommendations requested by Brazil in its First Submission.  Thank you. 
 
                                                      
1 First Written Submission of Brazil, 17 November 2006, paras. 344 and 345. 
2 Ibid. paras. 419-421and paras. 445-446. 
3 Ibid. paras. 448-452. 
4 Ibid. paras. 4356-357. 
5 Written Submission of Chad, para. 53.