WORLD TRADE  
ORGANIZATION  WT/DS267/ARB/1 
31 August 2009 
 (09-4009) 
 Original:   English 
 
 
 
 
  
 
 
UNITED STATES – SUBSIDIE S ON UPLAND COTTON 
 
Recourse to Arbitratio n by the United States 
under Article 22.6 of the DSU 
and Article 4.11 of the SCM Agreement  
  
DECISION BY THE ARBITRATOR  
 
 
 
  
 
   WT/DS267/ARB/1 
 Page i 
 
 
  TABLE OF CONTENTS 
Page  
I. INTRODUCTION ................................................................................................................... ....................1  
A. INITIAL PROCEEDINGS ............................................................................................................................1  
B. REQUEST FOR ARBITRATION AND ARBITRATION PROCEEDINGS ..............................................................3  
C. ORGANIZATION OF THE PROCEEDINGS AND PRESENTATION OF THE DECISION .......................................5  
D. TREATMENT OF CONFIDENTIAL INFORMATION .......................................................................................6  
II. OVERALL APPROACH OF  THE ARBITRATOR ................................................................................6  
III. BRAZIL'S PROPOSED LEVEL OF COUNTERMEASURES IN RELATION TO STEP 2 ..............7  
A. IS BRAZIL ENTITLED TO SEEK "ONE-TIME " COUNTERMEASURES IN RELATION TO THE FAILURE 
BY THE UNITED  STATES TO WITHDRAW THE STEP 2 PAYMENTS BETWEEN 1 JULY 2005  AND 
31 J ULY 2006?.......................................................................................................................... .............8  
1. Main arguments of the parties ................................................................................................8  
2. Assessment by the Arbitrator................................................................................................10  
(a) Legal basis for Brazil's request for counterm easures in relation to  Step 2 payments......................12  
(b) Whether Brazil is entitled to seek countermeasures in relati on to past non-compliance with 
rulings relating to Step 2 payments............................................................................................ .....13 
(c) Whether the "new measures" under the 2008  Farm Bill should be consid ered...............................16  
3. Conclu sion..................................................................................................................... ..........18  
B. ASSESSMENT OF BRAZIL 'S REQUESTED AMOUNT OF COUNTERMEASURES IN RELATION TO STEP 2 
PAYMENTS ............................................................................................................................... ............19  
IV. BRAZIL'S PROPOSED LEVEL OF COUNTERMEASURES IN RELATION TO GSM 102.........19  
A. BRAZIL 'S REQUEST ............................................................................................................................... 19 
B. MAIN ARGUMENTS OF THE PARTIES .....................................................................................................20  
C. MANDATE OF THE ARBITRATOR AND BURDEN OF PROOF .....................................................................22  
D. THE NOTION OF "APPROPRIATE COUNTERMEASURES " UNDER ARTICLE  4.10  OF THE 
SCM A GREEMENT ............................................................................................................................... .24 
1. The terms "appropriate countermeasures" and the terms of footnote 9 ..........................25  
(a) "countermeas ures".............................................................................................................. ............25  
(b) "appropria te" .................................................................................................................. ................26  
(c) Footnote 9..................................................................................................................... ..................33  
2. The terms of Article 4.10 of the SCM Agreement  in their context......................................35  
3. Object and purpose............................................................................................................. ...38 
4. Conclu sion..................................................................................................................... ..........39  
E. ASSESSMENT OF BRAZIL 'S PROPOSED COUNTERMEASURES ..................................................................40  
1. Main arguments of the parties ..............................................................................................40  
2. Analysis by th e Arbitrator..................................................................................................... 41 
(a) Brazil's proposed "ben efits" a pproach .......................................................................................... ..42 
(i) The "amount of the subsidy" as a bas is for the calculation of appropriate 
counterme asures................................................................................................................ .42 
(ii) Brazil's "benefits" approach to the calcula tion of the "amount of the subsidy"..................44  
(b) The United States' proposed alternative "net cost to govern ment" appr oach..................................48  
(c) Approach of th e Arbitr ator ..................................................................................................... ........51  
(i) The trade effects of the GSM 102 pr ogramme ....................................................................52  
Trade-distorting impact of GSM 102 on the volume of trade .............................................53  
The price effects of th e GSM 102 pr ogramme....................................................................55  
Apportionm ent.................................................................................................................. ..57 
3. Calculations ................................................................................................................... .........58  
(a) Brazil's me thodolo gy........................................................................................................... ...........58  
(i) Interest rate subsidy .......................................................................................................... .59 
Arguments of th e parties.....................................................................................................61  
Analysis by the Arbitrator...................................................................................................64  
(ii) Full additi onality............................................................................................................. ...68 
Arguments of th e parties.....................................................................................................69  
Analysis by the Arbitrator...................................................................................................70  
(iii) Marginal addi tionality........................................................................................................7 0 WT/DS267/ARB/1 
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  Arguments of th e parties.....................................................................................................71  
Analysis by the Arbitrator...................................................................................................72  
(iv) Conclu sion..................................................................................................................... .....75 
V. BRAZIL'S REQUEST TO APPLY COUNTERMEASURES UNDER THE TRIPS AGREEMENT 
AND THE GATS ................................................................................................................... ....................75  
A. DO THE PRINCIPLES AND PROCEDURES OF ARTICLE  22.3  OF THE DSU  APPLY TO BRAZIL 'S 
REQUEST ? .............................................................................................................................. ..............76  
1. Arguments of the parties ....................................................................................................... 76 
2. Assessment by the Arbitrator................................................................................................78  
B. MANDATE OF THE ARBITRATOR AND BURDEN OF PROOF .....................................................................82  
1. Main arguments of the parties ..............................................................................................82  
2. Approach of the Arbitrator...................................................................................................83  
C. BRAZIL 'S DETERMINATION THAT IT IS NOT PRACTICABLE OR EFFECTIVE TO TAKE 
COUNTERMEASURES WHOLLY IN TRADE IN GOODS AND THAT THE CIRCUMSTANCES ARE 
SERIOUS ENOUGH ............................................................................................................................... ..87 
1. The principles and procedures of  Article 22.3 of the DSU .................................................87  
(a) First requirement under subparagra ph (c):  a determination that it is "not practicable or 
effective" to suspend concessions or other obl igations with respect to other sectors under 
the same ag reement ............................................................................................................. ...........88  
(i) "practicable" .................................................................................................................. ....88 
(ii) "effective" .................................................................................................................... .......89  
(b) The second element under subparagraph (c):  a determination that "the circumstances are 
serious enough" ................................................................................................................ ..............91  
(c) The elements under subparagr aph (d) of Ar ticle 22.3.....................................................................91  
2. Factual assu mptions............................................................................................................ ...92 
(a) Whether it is appropriate to consider the cumulated amount of co untermeasures arising 
from both pr oceedi ngs.......................................................................................................... ..........93  
(b) Implications of the difference between the level of countermeasures  requested by Brazil 
and the level determined  to be pe rmissible..................................................................................... 94 
3. Whether it is practicable or effective for Brazil to suspend concessions in trade in 
goods.......................................................................................................................... ..............95  
(a) Main arguments of  the parties .................................................................................................. ......96  
(b) Analysis by th e Arbitr ator ..................................................................................................... .........99  
(i) Initial obser vations........................................................................................................... ..99 
(ii) Overall profile of US impor ts of goods to  Braz il ..............................................................100  
(iii) Detailed profile of US impor ts to Brazil and availability of suspension in relation 
to various categori es of im ports .......................................................................................102  
Capital goods, intermediate goods and other goods constituting inputs into Brazil's 
economy........................................................................................................................ ....102  
Consumer  goods ...............................................................................................................10 4 
Conclu sion ..................................................................................................................... ...108 
(iv) General consid erati ons.....................................................................................................111  
General economic and welfare co sts.................................................................................111  
Inflationary pressure .........................................................................................................1 12 
Development objectives, imbalance in tr ade relations and pol itical influence..................112  
(v) Overall conc lusion............................................................................................................1 13 
4. Whether "the circumstances are serious enough" ............................................................114  
(a) Main arguments of  the parties .................................................................................................. ....114  
(b) Analysis by th e Arbitr ator ..................................................................................................... .......116  
5. Brazil's consideration of th e elements under subparagraph  (d) of Article 22.3 .............120  
6. Conclu sion..................................................................................................................... ........121  
VI. CONCLUSIONS AND AWARD .......................................................................................................... ..123 
ANNEX 1........................................................................................................................ ...................................125 
ANNEX 2........................................................................................................................ ...................................131 
ANNEX 3........................................................................................................................ ...................................136 
ANNEX 4........................................................................................................................ ...................................143  WT/DS267/ARB/1 
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  GATT AND WTO CASES CITED IN THIS DECISION 
 
Short Title Full Case Title and Citation 
Brazil – Aircraft  
(Article 21.5 – Canada II )  Panel Report, Brazil – Export Financing Progr amme for Aircraft – Second 
Recourse by Canada to Article 21.5 of the DSU , WT/DS46/RW/2, adopted 
23 August 2001, DSR 2001:X, 5481 
Brazil – Aircraft  
(Article 22.6 – Brazil)  Decision by the Arbitrators, Brazil – Export Financing Programme for Aircraft  
– Recourse to Arbitration by Brazil under Article 22.6 of the DSU and 
Article 4.11 of the SCM Agreement , WT/DS46/ARB, 28 August 2000, 
DSR 2002:I, 19 
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  Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft , 
WT/DS70/R, adopted 20 August 1999, as upheld by Appellate Body Report 
WT/DS70/AB/R, DSR 1999:IV, 1443 
Canada – Aircraft Credits and 
Guarantees  
(Article 22.6 – Canada)  Decision by the Arbitrator, Canada – Export Credits and Loan Guarantees for 
Regional Aircraft – Recourse to Arbitrati on by Canada under Article 22.6 of the 
DSU and Article 4.11 of the SCM Agreement , WT/DS222/ARB, 17 February 
2003, DSR 2003:III, 1187 
EC – Bananas III (Ecuador) (Article 22.6 – EC)
  Decision by the Arbitrators, European Communities – Regime for the 
Importation, Sale and Distribution of Bananas – Recourse to Arbitration by the 
European Communities under Article 22.6 of the DSU , WT/DS27/ARB/ECU, 
24 March 2000, DSR 2000:V, 2237 
EC – Bananas III (US)  
(Article 22.6 – EC)  Decision by the Arbitrators, European Communities – Regime for the 
Importation, Sale and Distribution of Bananas – Recourse to Arbitration by the 
European Communities under Article 22.6 of the DSU , WT/DS27/ARB, 9 April 
1999, DSR 1999:II, 725 
Guatemala – Cement I  Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding 
Portland Cement from Mexico , WT/DS60/AB/R, adopted 25 November 1998, 
DSR 1998:IX, 3767 
Guatemala – Cement I  Panel Report, Guatemala – Anti-Dumping Investigation Regarding Portland 
Cement from Mexico , WT/DS60/R, adopted 25 November 1998, as modified by 
Appellate Body Report WT/DS60/AB/R, DSR 1998:IX, 3797 
Mexico – Olive Oil Panel Report, Mexico – Definitive Countervailing Measures on Olive Oil from 
the European Communities , WT/DS341/R, adopted 21 October 2008 
US – Canadian Pork GATT Panel Report, United States – Countervailing Duties on Fresh, Chilled 
and Frozen Pork from Canada , adopted 11 July 1991, BISD 38S/30 
US – Continued Suspension Appellate Body Report, United States – Continued Suspension of Obligations in 
the EC – Hormones Dispute , WT/DS320/AB/R, adopted 14 November 2008 
US – Continued Suspension Panel Report, United States – Continued Suspension of Obligations in the EC – 
Hormones Dispute , WT/DS320/R, adopted 14 November 2008, as modified by 
Appellate Body Report WT/DS320/AB/R 
US – Countervailing Measures 
on Certain EC Products  Appellate Body Report, United States – Countervailing Measures Concerning 
Certain Products from the European Communities , WT/DS212/AB/R, adopted 
8 January 2003, DSR 2003:I, 5 
US – Countervailing Measures on Certain EC Products
  Panel Report, United States – Countervailing Measures Concerning Certain 
Products from the European Communities , WT/DS212/R, adopted 8 January 
2003, as modified by Appellate Body Report WT/DS212/AB/R, DSR 2003:I, 73 WT/DS267/ARB/1 
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  Short Title Full Case Title and Citation 
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, adopted 14 March 2006, DSR 2006:XI, 
4721 
US – FSC  
(Article 21.5 – EC II) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" 
 – Second Recourse to Article 21.5 of the DSU by the European Communities , 
WT/DS108/RW2, adopted 14 March 2006, as upheld by Appellate Body Report 
WT/DS108/AB/RW2, DSR 2006:XI, 4761 
US – FSC  
(Article 22.6 – US)  Decision by the Arbitrator, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Arbitrati on by the United States under Article 22.6 
of the DSU and Article 4.11 of the SCM Agreement , WT/DS108/ARB, 30 August 
2002, DSR 2002:VI, 2517 
US – Gambling  (Article 22.6 – US) Decision by the Arbitrator, United States – Measures Affecting the Cross-Border 
Supply of Gambling and Betting Services – Recourse to Arbitration by the 
United States under Article 22.6 of the DSU , WT/DS285/ARB, 21 December 
2007, DSR 2007:X, 4163 
US – Lead and Bismuth II  Appellate Body Report, United States – Imposition of Countervailing Duties on 
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the 
United Kingdom , WT/DS138/AB/R, adopted 7 June 2000, DSR 2000:V, 2595 
US – Lead and Bismuth II  Panel Report, United States – Imposition of Countervailing Duties on Certain 
Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United 
Kingdom , WT/DS138/R and Corr.2, adopted 7 June 2000, as upheld by Appellate 
Body Report WT/DS138/AB/R, DSR 2000:VI, 2623 
US – Softwood Lumber IV  Appellate Body Report, United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada , WT/DS257/AB/R, 
adopted 17 February 2004, DSR 2004:II, 571 
US – Softwood Lumber IV Panel Report, United States – Final Countervailing Duty Determination with 
Respect to Certain Softwood Lumber from Canada , WT/DS257/R and Corr.1, 
adopted 17 February 2004, as modified by Appellate Body Report 
WT/DS257/AB/R, DSR 2004:II, 641  
US – Suspension of 
Obligations GATT Working Party Report, Netherlands Action under Article XXIII:2 to 
Suspend Obligations to the United States , adopted 8 November 1952, 
BISD 1S/62 
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R, adopted 21 March 2005, DSR 2005:I, 3 
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R, Corr.1, 
and Add.1 to Add.3, adopted 21 March 2005, as modified by Appellate Body 
Report WT/DS267/AB/R, DSR 2005:II, 299 
US – Upland Cotton 
(Article 21.5 – Brazil) Appellate Body Report, United States – Subsidies on Upland Cotton – Recourse 
to Article 21.5 of the DSU by Brazil , WT/DS267/AB/RW, adopted 20 June 2008 
US – Upland Cotton 
(Article 21.5 – Brazil) Panel Report, United States – Subsidies on Upland Cotton – Recourse to 
Article 21.5 of the DSU by Brazil , WT/DS267/RW and Corr.1, adopted 20 June 
2008, as modified by Appellate Body Report WT/DS267/AB/RW 
  WT/DS267/ARB/1 
 Page v 
 
 
  LIST OF ABBREVIATIONS 
 
2002 Farm Bill Farm Security and Rural Investment Act of 2002 
ATPSM Agricultural Trade Policy Simulation Model 
CCC Commodity Credit Corporation 
CCPs Counter-cyclical payments 
CY Calendar year 
DSB Dispute Settlement Body DSU Dispute Settlement Understanding 
ECGs Export credit guarantees 
FAPRI Food and Agricultural Policy Research Institute  FAS Foreign Agricultural Service 
FSRI Farm Security and Rural Investment 
FY Fiscal year GATS General Agreement on Trade in Services 
GATT 1994 General Agreement on Tariffs and Trade 1994 
GSM General Sales Manager ILC International Law Commission 
IRS Interest rate subsidies 
ML Marketing loans MY Marketing year 
ROW Rest of the World 
RMSE Root measure square error 
SCM Agreement Agreement on Subsidies and Countervailing Measures 
SCGP Supplier Credit Guarantee Programme 
Step 2 User Marketing Step 2 
TRIPS Trade-Related Aspects of Intellectual Property Rights 
USDA United States Department of Agriculture US United States 
Vienna Convention Vienna Convention on the Law of Treaties  WT/DS267/ARB/1 
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  I. INTRODUCTION 
A. INITIAL PROCEEDINGS  
1.1 On 21 March 2005, the Dispute Settlement Body  ("DSB") adopted the Appellate Body report1 
and the report of the Panel in this case2, as modified by the Appellate Body. 
1.2 The Appellate Body upheld the conclusions of th e panel that the Step 2 payments made to 
domestic users and those made to e xporters were subsidies within the meaning of Article 3.1(b) of the 
SCM Agreement  (in the case of the former) and Article 3.1(a) of the same Agreement (in the case of 
the latter), and were prohibited by those provi sions respectively and granted and maintained 
inconsistently with Article 3 of that  Agreement.  The Appellate Body also upheld the Panel's findings 
that the export credit guarantee programmes at i ssue, i.e. GSM 102, GSM 103 and SCGP, constituted 
per se  export subsidies within the meaning of Item (j) of the Illustrative List of Export Subsidies in 
Annex I of the SCM Agreement  and therefore were subsidies incons istent with Article 3.1(a) and 3.2 
of the SCM Agreement .  The Appellate Body also upheld the Panel's conclusion that the effect of 
marketing loan programme payments, Step 2 paym ents, market loss assistance payments and counter-
cyclical payments (the "price-contingent subsid ies") was significant price suppression in the same 
world market within the meaning of Article 6.3 (c) of the SCM Agreement .3 
1.3 As recommended by the original panel under Article 4.7 of the SCM Agreement , the 
compliance period for the prohibited subsidies expire d on 1 July 2005.  In accordance with Article 7.9 
of the SCM Agreement ,  the compliance period for the actiona ble subsidies expired on 21 September 
2005, six months after the date on which th e DSB adopted the Appellate Body report.4 
1.4 On 30 June 2005, the United States Department of Agriculture (the "USDA") announced that 
the United States Commodity Credit Corporation (the  "CCC") would no longer accept applications for 
export credit guarantees under the GSM 103 programme.5  The USDA also announced that the CCC 
would use a new fee structure for the GSM 102 and SCGP programmes.6 
1.5 In October 2005, the CCC ceased issuing export credit guarantees under the SCGP.7 
1.6 On 1 February 2006, United States Congress adopted legislation repealing the Step 2 
payments programme for upland cotto n effective as of 1 August 2006.8 
                                                      
1 Appellate Body Report, United States – Subsidies on Upland Cotton , WT/DS267/AB/R (hereafter the 
"Appellate Body Report"). 
2 Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R (herea fter the "Panel 
Report"). 
3 See Appellate Body Report, para. 763 (c), (d) and (e). 
4 See WT/DS267/21, WT/DS267/26. 
5 See Panel Report, para. 3.16 (referring to "USDA announces changes to export credit guarantee 
programs to comply with WTO findings", USDA Fore ign Agricultural Service (FAS) Online News Release 
of  30 June 2005 (Exhibit Bra-502 submitted by Brazil to the Panel);  and "Notice to GSM-103 Program 
Participants", USDA FAS Program Announcement of 30 June  2005 (Exhibit Bra-503 submitted by Brazil to the 
Panel)). 
6 See Panel Report, para. 3.16.   
7 See ibid. (referring to United States' first written submission to the Panel, para. 20, and "Summary of 
FY 2006 Export Credit Guarantee Programme Activity fo r GSM-102 as of close of business: 9/30/2006" 
(Exhibit Bra-513 submitted by Brazil to the Panel)).   
8 See Panel Report, para. 3.7 (referring to Section 1103 of the Deficit Reduction Act of 2005, Public 
Law No. 109-171 (Exhibit Bra-435 submitted by Brazil to the Panel)). WT/DS267/ARB/1 
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  1.7 On 18 August 2006, Brazil requested the establishm ent of a panel pursuant to Article 21.5 of 
the Dispute Settlement Understanding ("DSU") concer ning the alleged failure of the United States to 
implement the recommendations and rulings of the DSB.9  At its meeting of 28 September 2006 the 
DSB decided, in accordance with Article 21.5 of the DSU, to refer this matter, if possible, to the 
original Panel.  The compliance panel report was circulated to Members on 18 December 2007. 
1.8 With respect to the export credit guarantees issued under the revised GSM 102 programme 
after 1 July 2005, the compliance panel found that  the United States had failed to comply with the 
DSB recommendations and rulings by acting inc onsistently with Articles 10.1 and 8 of the Agreement 
on Agriculture  and Article 3.1(a) and 3.2 of the SCM Agreement : 
"Regarding GSM 102 export credit guarantees issued after 1 July 2005 the 
United States acts inconsistently with Article 10.1 of the Agreement on Agriculture  
by applying export subsidies in a manner which results in the circumvention of 
US export subsidy commitments with resp ect to certain unscheduled products and 
certain scheduled products, and as a result act s inconsistently with Article 8 of the 
Agreement on Agriculture .  Regarding GSM 102 export credit guarantees issued after 
1 July 2005 the United States also acts incons istently with Article 3.1(a) and 3.2 of 
the SCM Agreement  by providing export subsidies to unscheduled products and by 
providing export subsidies to scheduled products in excess of the commitments of the United States under the Agreement on Agriculture .  By acting inconsistently with 
Articles 10.1 and 8 of the Agreement on Agriculture  and Article 3.1(a) and 3.2 of the 
SCM Agreement  the United States has failed to comply with the DSB 
recommendations and rulings.  Specifically, the United States has failed to bring its 
measures into conformity with the Agreement on Agriculture  and has failed 'to 
withdraw the subsidy without delay'."
10 
1.9 The compliance panel concluded that "to th e extent that the measures taken by the 
United States to comply with the recommendations and rulings adopted by the DSB in the original 
proceeding are inconsistent with the obligations of the United States under the covered agreements, 
these recommendations and rulings remain operative."11 
1.10 On 12 February 2008, the United States notified the DSB of its intention to appeal certain 
issues of law covered in the Report of the comp liance panel and certain legal interpretations 
developed by the panel and filed a Notice of Appeal.12  On 25 February 2008, Brazil notified the 
DSB, pursuant to Article 16.4 of the DSU, of its in tention to appeal certain issues of law covered in 
the Report of the compliance panel and certain legal interpretations developed by the Panel and filed a 
Notice of Other Appeal.13   
1.11 The Appellate Body report was circulated on 2 June 2008.  The Appellate Body upheld the 
compliance panel's conclusions with respect to the marketing loan and counte r-cyclical payments as 
well as the conclusions on the GSM 102 export credit guarantees issued under the revised GSM 102 
programme.14   
                                                      
9 WT/DS267/30. 
10 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 15.1(c). (original footnotes omitted). 
11 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 15.2. 
12 WT/DS267/33. 
13 WT/DS267/34. 
14 Although the Appellate Body found that the compliance panel failed to make an objective 
assessment of the revised GSM 102 programme pursuant to item (j) of the Illustrative List by not considering certain re-estimated data submitted by the United States , it also found that this did not affect the compliance 
panel's conclusion on the revised GSM 102 programme payments.  WT/DS267/ARB/1 
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  1.12 The DSB adopted the Appellate Body report a nd the compliance panel report as modified by 
the Appellate Body on 20 June 2008.   
B. REQUEST FOR ARBITRATION AND ARBITRATION PROCEEDINGS  
1.13 On 4 July 2005, Brazil notified the DSB of  its "Recourse to Article 4.10 of the 
SCM Agreement  and Article 22.2 of the DSU" with respect to the prohibited subsidies found to be 
inconsistent by the original Panel and the Appellate Body.15  These prohibited subsidies were 
identified as follows:  (i) the export credit guarantees under the GSM 102, GSM 103 and SCGP 
export credit guarantee programmes in respect of exports of upland cotton and other unscheduled 
agricultural products supported under the programmes, and in respect of one scheduled product (rice);  
(ii) Section 1207(a) of the Farm Security and Rura l Investment (FSRI) Act of 2002 providing for user 
marketing (Step 2) payments to e xporters of upland cotton;  and (iii ) Section 1207(a) of the FSRI Act 
of 2002 providing for user marketing (Step 2) pa yments to domestic users of upland cotton. Brazil 
requested an authorization to take appropriate countermeasures in the amount corresponding:  (i) to 
the Step 2 payments made in the most recent concl uded marketing year; and (ii) to the total amount of 
exporter applications received  under GSM 102, GSM 103, and SCGP fo r the most recent concluded 
fiscal year. Brazil also requested cross-sector susp ension of obligations under the TRIPS Agreement 
and the GATS pursuant to Article 22.3(c) of the DSU.   
1.14 On 5 July 2005, Brazil and the United States notified "Agreed Procedures under Articles 21 
and 22 of the Dispute Settlement U nderstanding and Article 4 of the SCM Agreement  in the follow-up 
to the dispute" ("Agreed Procedures") to the DSB.16  
1.15 On 14 July 2005, the United States notified the DSB of its objection "to the appropriateness 
of the countermeasures and the level of suspension of concessions or other obligations proposed by 
Brazil".  The United States also claimed that the pr inciples and procedures set forth in Article 22.3(c) 
of the DSU for requesting cross-sector suspensi on of concessions and obli gations had not been 
followed by Brazil.17   
1.16 On 15 July 2005, at the meeting of the DSB, it was agreed that the matter raised by the 
United States in WT/DS267/23 was referred to arb itration as required by Article 22.6 of the DSU and 
Article 4.11 of the SCM Agreement .  The Arbitrator was constituted on 19 July 2005.  It was 
composed of the members of the original Panel, namely Mr Darius Rosati as Chairman, and Mr Mario 
Matus and Mr Daniel Moulis as Members.18  
1.17 On 17 August 2005, the United States and Brazil jointly requested suspension of the 
arbitration proceedings according to their "Agr eed Procedures" until Brazil might subsequently 
request the resumption or termination of the Arbitr ation.  The Arbitrator suspended the arbitration 
proceedings on 18 August 2005.19 
1.18 On 6 October 2005, Brazil notified to the DSB its "Recourse to Article 7.9 of the 
SCM Agreement  and Article 22.2 of the DSU by Brazil" with  respect to the actionable subsidies found 
to be inconsistent by the original panel and th e Appellate Body.  The subsidies in question were 
identified as marketing loan programme payments, u ser marketing (Step 2) payments, market loss 
assistance payments and counter-cyclical paymen ts. Brazil requested the DSB to grant Brazil 
authorization to take countermeasures in the annual amount of US$1.037 billion until the 
                                                      
15 WT/DS267/21. 
16 See WT/DS267/22. 
17 See WT/DS267/23. 
18 See WT/DS267/24. 
19 WT/DS267/25. WT/DS267/ARB/1 
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  United States withdrew the relevant subsidies or re moved their adverse effects.  Brazil also requested 
cross-sector suspension of obligations under the TRIPS Agreement and the GATS pursuant to 
Article 22.3(c) of the DSU.20  
1.19 On 17 October 2005, the United States notified to the DSB its objection to the level of 
suspension of concessions or other obligations a nd the countermeasures proposed by Brazil.  The 
United States contended that the countermeasures proposed were not commensurate with the degree 
and nature of the adverse effects determined to exist within the meaning of Article 7.9 of the 
SCM Agreement .  Further, the United States contended that  the level of suspension proposed was not 
equivalent to the level of nullifica tion or impairment within the meaning of Article 22.7 of the DSU.  
The United States also claimed that the principles a nd procedures set forth in Article 22.3(c) of the 
DSU had not been followed by Brazil in reques ting cross-sector suspension of concessions and 
obligations.21  
1.20 On 18 October 2005, at the meeting of the DSB, it was agreed that the matter raised by the 
United States was referred to arbitration.  On 18  November 2005, the Arbitrator was constituted.  It 
was composed of the members of the original Panel, namely Mr Darius Rosati as Chairman, and Mr Mario Matus and Mr Daniel Moulis as Members.
22  
1.21 On 21 November 2005, Brazil and the United States jointly notified the Arbitrator of their 
request that the arbitration proceedings be suspende d until either party were to subsequently request 
their resumption.  The Arbitrator suspended the arbitration proceedings on 7 December 2005.23   
1.22 On 25 August 2008, Brazil notified a request of  resumption of these arbitration proceedings 
(in relation to prohibited subsidies) and also the resumption of the other arbitration proceedings (in 
relation to actionable subsidies).24  
1.23 On 1 October 2008, due to the unavailability of two members of the Arbitrator upon 
resumption of the proceedings, the parties agreed on the following composition of the Arbitrator for 
both proceedings: 
 Mr Eduardo Pérez-Motta, as Chairman 
 Mr Alan Matthews 
 Mr Daniel Moulis25  
 1.24 An organizational meeting was held on 24 Oc tober 2008 to discuss the proposed working 
procedures and timetables for both arbitration pr oceedings.  The final working procedures and 
timetables were sent to the parties on 29 October 2 008.  Brazil requested a further extension of the 
deadline for its written submission on 31 October 2008.  The Arbitrator, after considering the 
arguments of both parties in relation to Brazil's re quest, revised the timetables and sent them to the 
parties on 19 November 2008.   
1.25 On 31 October 2008, Brazil submitted its Met hodology Paper for the calculation of the 
proposed countermeasures.  The United States pr ovided a written submission on 9 December 2008.  
Brazil provided its written submissi on on 13 January 2009.  The Arbitr ator sent written questions to 
                                                     
 
20 See WT/DS267/26. 
21 See WT/DS267/27. 
22 See WT/DS267/28. 
23 See WT/DS267/29. 
24 See WT/DS267/38, WT/DS267/39. 
25 See WT/DS267/24/Add.1,  WT/DS267/28/Add.1.  WT/DS267/ARB/1 
 Page 5 
 
 
  the parties on 30 January 2009.  The parties provided their replies to these questions on 
13 February 2009.  
1.26 The Arbitrator met with the parties on 3 March 20 09.  After the meeting, the Arbitrator posed 
additional written questions to the parties on 6 March 2009 and received their written responses on 
20 March 2009.  The parties also provided th eir comments on each other's written responses to 
questions from the Arbitrator on 31 March 2009.  On 20 April 2009, the Arbitrator informed the 
parties that in light of the voluminous materials re ceived from parties after the meeting with parties, 
and also taking into account the time needed for tran slation of the reports into the other two working 
languages,  the issuance date of the Arbitrator's Deci sion was delayed.  The Arbitrator asked the 
parties an additional question on 11 June 2009.  On 30 June and 5 August 2009, the Arbitrator 
informed the parties of further delays in the ci rculation of the Decision.  The Decision by the 
Arbitrator was circulated on 31 August 2009. 
C. ORGANIZATION OF THE PROCEEDINGS AND PRESENTATION OF THE DECISION  
1.27 As described above, two separate arbitrati on proceedings were initiated pursuant to 
Article 22.6 of the DSU in this dispute, one in re lation to the prohibited subsidies at issue in the 
underlying proceedings, and the other in relation to the actionable subsidies.  These proceedings were 
conducted in parallel and the same persons served as arbitrators in both proceedings.  The parties 
presented single submissions in relation to both proceedings.  
1.28 The Arbitrator therefore sought the views of  the parties whether it should issue a single 
decision or two decisions for both proceedings and how it should treat the arguments presented in the 
parties' single submissions.  
1.29 The United States indicates that there are two arbitration requests and two arbitrations, and 
that it therefore expects the Arbitrator to issue a separate decision for each of the two arbitrations.  
With respect to the use of submissions, the United St ates indicates that the sections of the submissions 
that are not clearly related to prohibited subsidies or  to actionable subsidies may be relevant to either 
proceeding.26  Brazil on the other hand argues that the two proceedings should be harmonized as 
much as possible and considers that a single decision would be sufficient for the two arbitrations.  Also, Brazil has no objection to the Arbitrator taki ng into account arguments made in the entirety of 
Brazil's submissions for the purpose of rendering decisions in either proceeding.
27  
1.30 With respect to the treatment of the parties'  submissions, the Arbitrator notes that although 
each party submitted a single written submission, th e sections on prohibited subsidies are separate 
from the sections on actionable subsidies.  It is  therefore generally possible to distinguish the 
arguments relating to the proposed countermeasures against the prohibited subsidies at issue, from 
those relating to countermeasures against the actionable subsidies.  In addition, some sections of the 
submissions, such as the introduction and the sections on cross-retaliation, may be relevant to both 
proceedings.  The Arbitrator will therefore refer to  such arguments in this Decision as appropriate.  
1.31 With respect to the presentation of its Decisi on, the Arbitrator notes that the United States 
presented two distinct objections to the two distinct  requests for countermeasures presented by Brazil.  
Although the conduct of the two pr oceedings was harmonized and the parties both provided a single 
written submission covering both the prohibited and actiona ble subsidies at issue, the fact remains that 
there are two arbitration proceedings, and that the proceedings against prohibited subsidies are based 
on Article 4.10 of the SCM Agreement  whereas the proceedings relating to the actionable subsidies in 
the same dispute are based on Article 7.9 of the SCM Agreement .  Under these circumstances, and in 
                                                      
26 US responses to questions from the Arbitrator, question 2. 
27 Brazil's responses to questions from the Arbitrator, question 2. WT/DS267/ARB/1 
Page 6 
 
 
  the absence of an agreement of the parties on th e issuance of a single decision, the Arbitrator 
considered it appropriate to issue a separate decisi on with respect to each of the two proceedings.   
D. TREATMENT OF CONFIDEN TIAL INFORMATION   
1.32 The United States designated one figure in dou ble brackets as confidential information in 
footnote 204 of its written submission.  Another fi gure in footnote 67 relating to its response to the 
Arbitrator's question was designated in the same ma nner.  It requests the Arbitrator to treat such 
designated information as confidential and not to be disclosed to the public.28  In response to a 
question from the Arbitrator, Brazil argues that Article 18.2 of the DSU is sufficient to deal with the 
issue of treatment of confidential information during the proceedings.29 
1.33 The Arbitrator recalls that its Working Proce dures provide that "[t]he deliberations of the 
Arbitrator and the documents submitted to it shall be  kept confidential.  This is without prejudice to 
the parties' disclosure of statements of their own positions to the public".  The Working Procedures of 
the Arbitrator also provide that "[t]he Arbitrator will follow the normal working procedures of the 
DSU where relevant and as adapted to the circumst ances of the present proceedings".  The parties did 
not raise the issue of submission of confidential information during the organizational meeting.  
However, Article 18.2 of the DSU provides "Me mbers shall treat as confidential information 
submitted by another Member to the panel or the Appellate Body which that Member has designated 
as confidential."  The Arbitrator considers that th e same rule also applies to these arbitration 
proceedings.  Therefore Members shall treat the information designated by the United States as 
confidential, and are under an obligation not to discl ose it to anyone not involved in the proceedings.  
The Arbitrator is also under an obligation not to disclose such confidential information in its 
Decisions.  Ultimately, the Arbitrator did not find it necessary to refer to this information in its 
Decisions. 
II. OVERALL APPROACH OF THE ARBITRATOR 
2.1 The United States has initiated these proceedings  pursuant to Article 22.6 of the DSU and 
Article 4.11 of the SCM Agreement .  
2.2 Article 22.6 of the DSU provides in relevant part: 
"When the situation described in paragraph 2 occurs, the DSB, upon request, shall 
grant authorization to suspend concessions or other obligations within 30 days of the 
expiry of the reasonable period of time unl ess the DSB decides by consensus to reject 
the request.  However, if the Member con cerned objects to the level of suspension 
proposed, or claims that the principles and procedures set forth in paragraph 3 have 
not been followed where a complaining pa rty requested authorization to suspend 
concessions or other obligations pursuant to pa ragraph 3(b) or (c), the matter shall be 
referred to arbitration.  Such arbitration sha ll be carried out by the original panel, if 
members are available, or by an arbitrat or appointed by the Director-General and 
shall be completed within 60 days after the date of expiry of the reasonable period of 
time." 
2.3 With regard to countermeasures taken in r esponse to violations of Article 3.1 of the 
SCM Agreement , Article 4.11 of that Agreement provides the following mandate for the arbitrator: 
                                                      
28 US responses to questions from the Arbitrator, question 1. 
29 Brazil's responses to questions from the Arbitrator, question 1.  WT/DS267/ARB/1 
 Page 7 
 
 
  "In the event a party to the dispute requests arbitration under paragraph 6 of 
Article 22 of the Dispute Settlement Unde rstanding ('DSU'), the arbitrator shall 
determine whether the countermeasures are appropriate."10 
(original footnote ) 10  This expression is not meant to allow countermeasures that would be 
disproportionate in light of the fact that the subsidies dealt with under these provisions are 
prohibited. 
2.4 In this proceeding, the United States challeng es two distinct aspects of Brazil's proposed 
countermeasures.  The United States objects first to the level of suspension of concessions or other 
obligations and the countermeasures proposed by Brazil.   In addition, the United States claims that the 
principles and procedures set forth in Article 22.3 of the DSU have not been followed by Brazil and 
therefore the United States requests the Arbitrator to reject Brazil's request to suspend concessions 
with respect to TRIPS and GATS.30  We will therefore consider these two aspects in turn.  In light of 
the fact that our determination in relation to the level of the proposed countermeasures may have an 
impact on our determination in relation to the form of countermeasures to be taken, we consider first 
the level of the proposed countermeasures.  
2.5 Brazil's requested level of countermeasures, as e xpressed in its request to the DSB, involved 
two distinct amounts:  an amount corresponding to "t he Step 2 payments made in the most recent 
concluded marketing year" and an amount corres ponding to "the total of exporter applications 
received under GSM 102, GSM 103, and SCGP for the most recent concluded fiscal year". 
2.6 In its Methodology Paper, Brazil subsequent ly limited its request to: (i) one-time 
countermeasures in relation to the Step 2 programme, in the amount of the disbursements made by the 
United States in Marketing Year ("MY")  2005, which is US$350 million in total31, and (ii) 
countermeasures proportionate to the annual amount of prohibited GSM 102 export credit guarantees 
issued for export transactions involving unscheduled  products, rice, pig meat and poultry meat, which 
amounts to US$1.294 billion for fiscal year ("FY") 2006.  We therefore consider Brazil's requested level of countermeasures relating to these two measures in turn.    
III. BRAZIL'S PROPOSED LEVEL OF COUNTERMEASURES IN RELATION TO 
STEP 2 
3.1 In its request to the DSB, with respect to the Step 2 programme, Brazil indicated that it sought 
countermeasures in an amount corresponding to the Step 2 payments made in the most recent concluded marketing year. 
3.2 In its methodology paper, Brazil further expl ains that it seeks one-time countermeasures in 
relation to the Step 2 programme, in the amount of the disbursements made by the United States in Marketing Year ("MY") 2005, wh ich is US$350 million in total.
32  These countermeasures, Brazil 
explains, relate to the payments made in the peri od from 1 July 2005, when the United States should 
have withdrawn the subsidies at issue, to 30 July  2006, when the United States repealed the Step 2 
programme.  
3.3 The United States considers, however, that there is no longer any basis for Brazil to impose a 
countermeasure based on past payments under Step  2 programmes because the Step 2 measure was 
terminated as of August 2006 and because the co mpliance panel did not make any findings on the 
Step 2 measure.33  The United States also argues that the DSU and the SCM Agreement  require that no 
                                                      
30 WT/DS267/23. 
31 Brazil's Methodology Paper, para. 4. 
32 Brazil's Methodology Paper, para. 4. 
33 US written submission, paras. 226-227. WT/DS267/ARB/1 
Page 8 
 
 
  countermeasure be imposed with respect to the Step  2 subsidy, because there is no disagreement that 
the United States has complied with the rulings and recommendations of the DSB in relation to Step 2 
payments.34    
3.4 We must therefore consider first the legal b asis for Brazil to seek "one-time" countermeasures 
in relation to the failure by the United States to comply with the recommendations and rulings of the 
DSB between 1 July 2005 and 31 July 2006, befo re considering the proposed level of such 
countermeasures.  
A. IS BRAZIL ENTITLED TO SEEK "ONE-TIME " COUNTERMEASURES IN RELATION TO THE FAILURE 
BY THE UNITED  STATES TO WITHDRAW THE STEP 2 PAYMENTS BETWEEN 1 JULY 2005  AND 
31 J ULY 2006? 
1. Main arguments of the parties  
3.5 Brazil considers that Article 4.10 of the SCM Agreement  provides conditions requiring the 
DSB to authorize countermeasures when "the recomm endation of the DSB is not followed within the 
time period specified by the panel".  The time period specified by the original panel was 1 July 2005.  
The United States did not withdraw Step 2 until 31 July 2006.  Therefore, Brazil argues that the DSB 
is under an obligation to author ize appropriate countermeasures according to Article 4.10 of the 
SCM Agreement .35  In Brazil's view, the only relevant fact is whether the United States had withdrawn 
the subsidies by the end of the implementation period  and the fact that the United States repealed the 
Step 2 programme after the end of the implementation period is not relevant.36  S u c h  a  
countermeasure, in Brazil's view, is not a retroactive remedy.37  
3.6 The United States considers that by the time of the compliance panel's findings, Step 2 
payments had been eliminated by legislation38 and that the DSU does not permit countermeasures to 
be retroactively applied.39  The United States points out that Brazil requested findings, during the 
compliance panel proceedings, that there was  no measure taken by the United States to comply with 
the rulings of the DSB during the period between 22 September 2005 and 31 July 2006 since the Step 2 measure was not repealed during that period of time. However, the compliance panel declined 
to make rulings on this request,  Therefore, the United States argues that since the compliance panel 
has not made rulings on the Step 2 subsidy duri ng the period immediately before it was repealed, 
there is no legal basis for Brazil to take countermeasures against the Step 2 subsidy.
40  
3.7 The United States also argues that countermeasu res may be authorized only where a Member 
has not come into compliance with the DSB recomm endations and rulings.  Since the United States 
has come into compliance today, there is no measu re, and no WTO inconsiste ncy, which could serve 
as the legal basis for a countermeasure with respect to Step 2.41 
3.8 Brazil considers the fact that the compliance pa nel did not make rulings on the Step 2 subsidy 
to be irrelevant.  The original panel and Appellate  Body reports already imposed a legal obligation on 
the United States to withdraw the subsidy.  Be cause the United States has not achieved substantive 
                                                      
34 US responses to questions from the Arbitrator, question 57. 
35 Brazil's written submission, paras. 246-249. 
36 Brazil's written submission, para. 251. 
37 Brazil's oral statement, para. 101. 
38 US responses to questions from Arbitrator, question 4, para. 19. 
39 US responses to questions from Arbitrator, question 57, para. 143. 
40 US oral statement, paras. 61-62. 
41 US comments to Brazil's responses to questions from the Arbitrator, question 107, paras. 119-120.  WT/DS267/ARB/1 
 Page 9 
 
 
  compliance, Brazil argues that it is entitled to take  countermeasures in relation to the Step 2 subsidy 
between 1 July 2005 and 31 July 2006.42 
3.9 Brazil further argues that while the United States withdrew the Step 2 subsidy in 
August 2006, it replaced this subsid y with other prohibited subsidies in the 2008 Farm Bill.  Brazil 
claims that the 2008 Farm Bill replaced the export subsidy component of the Step 2 programme with 
"additional marketing loan subsidies" that co ntinued the competitiveness boost for US cotton 
exporters as had the Step 2 programme previous ly, and that it therefore constitutes a subsidy de facto  
contingent upon export performance.  Also, Brazil cl aims that the 2008 Farm Bill replaced the Step 2 
subsidy for domestic cotton users with the "Econom ic Adjustment Assistan ce to Users of Upland 
Cotton", which pays US textile mills 4 cents per pound of upland cotton used.  Brazil considers that 
this component of the subsidy is de facto  contingent upon the use of domestic over imported cotton.43  
Brazil argues that the enactment of the 2008  Farm Bill negated the compliance that the 
United States had originally achieved, and that th is factor needs to be taken into account by the 
Arbitrator when considering the "appropriateness"  of the one-time payment countermeasure proposed 
by Brazil against the Step 2 subsidy.44  
3.10 The United States points out that Brazil is not seeking a countermeasure for measures under 
the 2008 Farm Bill since no findings of inconsiste ncy have been made with respect to this new 
legislation, but that Brazil makes factual allegati ons about new programmes and asks the Arbitrator to 
give certain weight to them in its decision-making.   The United States considers that any analysis of 
the new programmes would only be speculation, gi ven that no panel has examined these programmes 
and made findings on their WTO-inconsistency, a nd that Brazil has not pursued them in these 
proceedings.  In the view of the United States, a request for the Arbitrator to consider the new 
programmes in the new legislation when cons idering the appropriateness of the proposed 
countermeasure with respect to the now expired Step 2 subsidy is in essence a request for 
countermeasures on these new programmes. Counter measures against these newly enacted measures 
would be in contravention of Article 23 of the DSU, and would not have any basis in findings or 
recommendations and rulings by the DSB.45 
3.11 The United States argues that a Member may only obtain countermeasures where there is a 
WTO inconsistency.  Otherwise, there is nothing to counter.  It contends that the fact the 2008 Farm 
Bill was not considered by the compliance panel is a cr itical factor for the Arbitrator.  In the view of 
the United States, Brazil's request for the Arbitrator  to consider the 2008 Fa rm Bill is inconsistent 
with Article 23 of the DSU, because Brazil is "seeking redress" concerning the 2008 Farm Bill without having had recourse to the DSU.
46  
3.12 Brazil has clarified that it is not seeking to  take countermeasures against the replacement 
components of Step 2 subsidy in the 2008 Farm B ill but, rather, is seeking a one-time countermeasure 
for the past inconsistency during the 13-month period when the United States was not in compliance.
47  In response to a question by the Arbitrator , Brazil also clarifies that it does not request 
the Arbitrator to make conclusions on whet her these new subsidies under the 2008 Farm Bill are 
"measures taken to comply" within the meaning of Article 21.5 of the DSU, nor to make rulings on 
                                                      
42 Brazil responses to questions from the Arbitrator, question 11, paras. 137-139. 
43 Brazil's written submission, paras. 262-263. 
44 Brazil's written submission, paras. 277and 280. 
45 US comments to Brazil's responses to questions from the Arbitrator, question 108, paras. 121-123. 
46 US comments to Brazil's responses to questions  from the Arbitrator, question 109, para. 124;  
question 110, para. 126. 
47 Brazil's responses to questions from the Arbitrator, question 108, para. 196. WT/DS267/ARB/1 
Page 10 
 
 
  whether they are prohibited subsidies within the meaning of Article 3 of the SCM Agreement .  Such 
findings, in Brazil's view, would not be within the mandate of the Arbitrator.48    
3.13 However, Brazil argues that the fact of these "new subsidies" can be considered by the 
Arbitrator in deciding whether substantive complianc e has been achieved with respect to the Step 2 
subsidy.49  It also argues that the Arb itrator can take into account the enactment of the 2008 Farm Bill 
in assessing the "appropriateness of countermeasures" and that this would be  consistent with the 
Canada – Aircraft Credits and Guarantees  arbitration decision, where the appropriate level of the 
countermeasures was adjusted considering the fact that , at the time the arbitration took place, Canada 
had not withdrawn the subsidy concerned.50 
3.14 Brazil further argues that, as the parties disagr ee whether there is substantive compliance at 
present, Article 22.8 of the DSU does not preven t Brazil from taking countermeasures against the 
Step 2 subsidy for the period 1 July 2005-31 July 2006.51  Brazil considers that Article 22.8 of the 
DSU does not apply in these proceedings, as it only ap plies to the time after concessions or other 
obligations have been suspended.  Even if it does apply, Brazil argues that, presently, substantive 
compliance has not been achieved, or that the inc onsistent measure has not been removed, and that 
therefore a countermeasure is legally permitted.52  Brazil relies on the concept of "substantive 
compliance" used by the Appellate Body in the US – Continued Suspension  dispute, to the effect that 
there is no longer substantive compliance since th e enactment of the US 2008 Farm Bill, which 
contains two replacement measures with the same effects as the repealed Step 2 measure.53 Brazil 
considers that the phrase "until such time" in Article  22.8 of the DSU has been respected by Brazil in 
its one-time countermeasure request, because it ha s proposed countermeasures based on the amount of 
the Step 2 payments made after the end of the im plementation period and before Step 2 was repealed 
and/or the subsidy was withdrawn.54 
3.15 The United States notes that Brazil requested a countermeasure based on the amount of "the 
Step 2 payments made in the most recent conclu ded marketing year" in its original request for 
countermeasures.55  However, Brazil adopted a different one-time retroactive payment methodology 
during the later proceedings of this arbitration.  In the view of the United States, neither of these 
approaches can be used to calculate the "appropriate  countermeasures" for Step 2, since Step 2 has 
been repealed.56 
2. Assessment by the Arbitrator 
3.16 The expressions "Step 2" and "User Marketing St ep 2 payments" refer to a special marketing 
loan provision for upland cotton that had been authorized since 1990 under successive legislation, 
including the FAIR Act of 1996 and the FSRI Act of 2002.57  
3.17 The original panel made the following findings, inter alia , with respect to Step 2 payments: 
"(e) Concerning section 1207(a) of the FSRI Act of 2002 providing for user 
marketing (Step 2) payments to  exporters of upland cotton: 
                                                      
48 Brazil's responses to questions from the Arbitrator, question 12, para. 141. 
49 Brazil's responses to questions from the Arbitrator, question 11, paras. 140-143. 
50 Brazil's responses to questions from the Arbitrator, question 108, paras. 197-199. 
51 Brazil's responses to questions from the Arbitrator, question 10, para. 136. 
52 Brazil's oral statement, paras. 104-108. 
53 Brazil responses to questions from the Arbitrator, question 10, paras. 134-135. 
54 Brazil's oral statement para. 114. 
55 WT/DS267/21. 
56 US comments to Brazil's responses to questions from the Arbitrator, question 106, paras. 117-118. 
57 Panel Report, paras. 7.209-7.211.  WT/DS267/ARB/1 
 Page 11 
 
 
  … 
(iii) section 1207(a) of the FSRI Act of 2002 providing for user 
marketing (Step 2) payments to exporters of upland cotton is an export subsidy prohibited by Ar ticle 3.1(a) and 3.2 of the 
SCM Agreement . 
(f) concerning section 1207(a) of the FSRI Act of 2002 providing for user 
marketing (Step 2) payments to domestic users of upland cotton: it is an import 
substitution subsidy prohibited by Article 3.1(b) and 3.2 of the SCM Agreement ;"
58 
3.18 The Appellate Body upheld these c onclusions of the original panel.59    
3.19 On 18 August 2006, Brazil requested the establishment of a compliance panel.  In its request, 
Brazil indicated that "[o]n 3 February 2006, the Un ited States Congress approved a bill that repeals 
the Step 2 subsidy programme for upland cotton.  The bill was signed into law on 8 February 2006, 
and took effect on 1 August 2006."60   
3.20 During the compliance proceedings, Brazil request ed the compliance panel to consider the 
failure of the United States to take measures to  remove the adverse effect or to withdraw, inter alia , 
the Step 2 programme in the period be tween 22 September 2005 and 31 July 2006.61  The compliance 
panel however declined to consider that failure.62  Rather, the compliance panel considered the 
measures taken to comply as of the date of its est ablishment.  On the date of establishment of the 
compliance panel, the Step 2 subsidy had been re pealed.  While the compliance panel analysed the 
impact of the elimination of the Step 2 measures on the existence of significant price suppression in the world market for cotton within the meaning of Article 6.3(c) of SCM Agreement , it made no 
separate finding on the repealed Step 2 payments programme.
63  Brazil did not appeal the compliance 
panel's decision not to consider the measures as th ey existed during the period between 22 September 
2005 and 31 July 2006. 
3.21 It is undisputed that the Step 2 programme, wh ich had been found to be  inconsistent with 
Article 3 of the SCM Agreement,  had not been withdrawn as of the end of the implementation period.  
This was the time at which Brazil presented its reque st for authorization to take countermeasures, in 
relation to this and other prohibited subsidies in this dispute.  However, the measure had been 
repealed by the time that the compliance panel was established, and the compliance panel declined to 
make any findings on it.   
3.22 In these proceedings, Brazil is seeking an author ization to take countermeasures specifically 
in relation to the period between the end of the co mpliance period and the repeal of the measure.  
Brazil has also claimed that "new prohibited s ubsidies" have recently been enacted by the 
United States, which effectively serve the same pur pose as the previous Step 2 payments.  Brazil has 
made it clear, however, that it is not seeking findings  from this Arbitrator on the consistency of these 
new measures, and also that it is not asking the Arbi trator to authorize countermeasures in relation to 
the application of these new measures.  Rather, Brazil is seeking an authorization to apply 
countermeasures only in relation to past paymen ts under the now repealed Step 2 programme. 
                                                      
58 Panel Report, para. 8.1 
59 Appellate Body Report, para. 763(d). 
60 This US Bill is referred to as "Deficit Reduction Act of 2005, US Public Law 109-171, 
Section 1103", WT/DS267/30. This Act was reproduced in Exhibit Bra-435 during the compliance panel 
proceedings. See footnote 20 of the compliance panel report, WT/DS267/RW. 
61 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 9.56. 
62 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 9.71. 
63 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , paras. 10.228-10.239. WT/DS267/ARB/1 
Page 12 
 
 
  3.23 The question before us is, therefore, whethe r Brazil is entitled to seek countermeasures in 
relation to past payments under the Step 2 progra mme, notwithstanding the fact that it is undisputed 
that this programme has been repeal ed and that payments have ceased  under it, and that there has been 
no determination, in the context of the compliance proceedings, that the United States had failed to 
comply with the relevant rulings and recommendati ons of the DSB in relation to this measure.  
3.24 In approaching this question, we find it useful to consider first the legal basis for Brazil's 
request at the time that it presented it.  We will th en turn to the question of Brazil's entitlement to 
pursue such authorization in the present circumstances.  
(a) Legal basis for Brazil's request for counterm easures in relation to Step 2 payments  
3.25 Article 22.1 of the DSU provides that: 
"Compensation and the suspension of concessi ons or other obligations are temporary 
measures available in the event that the recommendations and rulings are not 
implemented within a reasonable period of time." 
3.26 Article 22.2 of the DSU further provides that: 
"If the Member concerned fails to bring the measure found to be inconsistent with a 
covered agreement into compliance ther ewith or otherwise comply with the 
recommendations and rulings within the r easonable period of time ..., such Member, 
shall, if so requested, and no later than the expiry of the reasonable period of time, 
enter into negotiations with any part y having invoked the dispute settlement 
procedures, with a view to developing mutually acceptable compensation. If no 
satisfactory compensation has been agreed within 20 days after the date of the 
reasonable period of time, any party having invoked the dispute settlement 
procedures may request authorization from th e DSB to suspend the application to the 
Member concerned of concessions or other ob ligations under the covered agreement."   
3.27 Under the terms of these provisions, the suspen sion of concessions or other obligations is 
available where there is non-compliance by the expiry of the reasonable period of time ("[i]f the Member concerned fails to bring the measure found to  be inconsistent with a covered agreement into 
compliance therewith or otherwise comply with  the recommendations and rulings within the 
reasonable period of time") and if no compensation agreement is reached within 20 days after the 
expiry of the reasonable period of time.  In that  situation, the original complaining Member may 
request authorization from the DSB to suspend c oncessions or other obligations owed to the 
respondent under the covered agreements.   
3.28 In these proceedings, it is undisputed that the St ep 2 measure found to be inconsistent by the 
original panel was unchanged by the expiry of the r easonable period of time set by the original panel 
on 1 July 2005.  Brazil requested an authori zation to take countermeasures in relation to, inter alia , 
the Step 2 payments, on 4 July 2005.  The United States challenged Brazil's request and the matter was therefore referred to arbitration.   
3.29 At the time when Brazil requested an authoriza tion to take countermeasures, and when these 
arbitral proceedings were first initiated, ther e was therefore a legal basis for seeking such 
authorization, to the extent that the Step 2 paymen ts had been found by the original panel, as upheld 
by the Appellate Body, to be inconsistent with the SCM Agreement,  and it is undisputed that they had 
not been withdrawn by the time Brazil made its request.   WT/DS267/ARB/1 
 Page 13 
 
 
  3.30 In accordance with their "Agreed Procedures" in this case, the parties subsequently jointly 
requested the suspension of the arbitration proceed ings on 17 August 2005.  Brazil then requested the 
establishment of a compliance panel on 18 August 2006.   The Step 2 measure had been repealed on 
1 August 2006.   
3.31 The compliance panel was requested to make findings in relation to "the three price-
contingent upland cotton subsidy programmes under the FSRI Act" (including Step 2) in the period 
between 22 September 2005 and 31 July 2006.64  The compliance panel however declined to make 
such findings. Rather, it found that: 
"[I]t is not appropriate to make a finding on Brazil's claim that the United States 
failed to take any measures to remove the adverse effects or to withdraw the three 
price-contingent upland cotton subsid y programmes under the FSRI Act of 2002 
between 22 September 2005 and 31 July 2006 a nd that, as a consequence, measures 
taken to comply with the adverse effects -related recommendations and rulings of the 
DSB did not exist in this period."65   
3.32 This finding was not appealed.  
3.33 Against this background, the question before th e Arbitrator is whether Brazil is entitled, in 
these proceedings, to seek countermeasures in relati on to past payments under the Step 2 programme 
during essentially the same period, namely between the end of the implementation period and the 
repeal of the measure.  
(b) Whether Brazil is entitled to seek  countermeasures in relation to past non-compliance with 
rulings relating to Step 2 payments 
3.34 The United States considers that, since the Step  2 Programme has been repealed, there is no 
longer any legal basis for the authorization of count ermeasures with respect to past payments under 
that programme.  
3.35 Brazil has indicated, and confirmed repeatedly in the course of these proceedings, that it is 
seeking "one-time" countermeasures in relation to th e Step 2 programme as it continued to apply in 
the period immediately following the end of the implementation period and until its repeal, i.e. from 1 July 2005 to 31 July 2006.  In Brazil's view, "the  only relevant fact is whether by the end of the 
implementation period, the United States had wit hdrawn the subsidies" and the fact that the 
United States later repealed the programme is not relevant.
66   
3.36 Brazil therefore considers that it is entitled to  seek countermeasures with respect to a past 
period of non-compliance from the end of the im plementation period to a past point in time, 
regardless of subsequent developments, including  the removal of the measure at issue.   
3.37 As we have seen above, Articles 22.1 and 22.2 of the DSU foresee that the entitlement to seek 
countermeasures (or the suspension of concessions or other obligations, as expressed in these 
provisions) arises when compliance with the rulings and recommendations of the DSB has not taken 
                                                      
64 We note that Brazil's request in the context of the compliance panel proceedings was in relation to 
the US measures under the FSRI Act of 2002 as "price -contingent" measures causing serious prejudice to the 
interests of Brazil within the meaning of Article 5 of the SCM Agreement .  In the original proceedings, the 
Step 2 payments had given rise to rulings under that provision, as actionable subsidies, and also to rulings under 
Article 3 of the SCM Agreement , as a prohibited subsidy.  Brazil therefore apparently did not seek specific 
rulings on Step 2 as a prohibited subsidy in the compliance proceedings. 
65 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 9.71. 
66 Brazil's written submission, para. 251. WT/DS267/ARB/1 
Page 14 
 
 
  place by the end of the implementation period.  Th is is therefore the first moment at which 
countermeasures become available, as remedies.  To th at extent, we agree with  Brazil that the absence 
of implementation as of the end of the implementation period gives rise to an entitlement to seek countermeasures. At the same time, these two provisions do not constitute the entirety of the applicable legal requirements in respect of su spension of concessions or other obligations (or 
countermeasures).  
3.38 The suspension of concessions or other obligatio ns is a remedy of an exceptional character, 
that allows the Member concerned to temporarily suspend its own obligations toward the responding 
party under the covered agreements.  This ex ceptional remedy is only available in limited 
circumstances and for a limited time period.  As observed by the Appellate Body on US – Continued 
Suspension , "the authorization to suspend concessi ons is contingent and limited in time".
67  As also 
observed by the Appellate Body, the authorizati on to suspend concessions is granted "following a 
long process of multilateral dispute settlement in wh ich relevant adjudicative bodies, as well as the 
DSB, render multilateral decisions at key stages of the process".68 
3.39 In this dispute, following the initial proceedi ngs, compliance proceedings took place, in which 
Brazil requested the compliance panel to make a de termination concerning the United States' failure 
to comply with the recommendations and rulings of the DSB in the period between 22 September 
2005 and 31 July 2006, i.e. the period between the end of the implementation period under Article 7.9 
and 7.10 of the SCM Agreement  and the time of repeal of the Step 2 programme, prior to the panel's 
establishment.  However, as noted above, the panel d eclined to make such findings.  In considering 
Brazil's request, the panel determined in particular that: 
"Where a panel makes a finding under Article 21.5 of the DSU that a Member has not 
complied with the DSB recommendations and rulings in the original dispute, the 
consequence of that finding is that the Me mber remains subject to obligations that 
flow from the recommendation issued in the original proceeding and is thus required 
to take steps to bring itself into complian ce with that recommendation.  A finding by 
the panel that the Member also failed to  comply with the DSB recommendations and 
rulings in the original proceeding at an earlier point in time would have no additional 
operative value in terms of the nature of th e obligations of the Member in question.  
On the other hand, if a panel under Article 21.5 finds that  the Member has brought itself into compliance with the DSB recomme ndations and rulings as of the time of 
the establishment of the panel, such finding logically would supersede and render 
irrelevant any finding that the Member was not in compliance with those recommendations and rulings at an earlier point in time."
69  
3.40 The compliance panel thus saw no useful purpose to findings that would address a past period 
of non-compliance, when the measu re has been repealed and the Member concerned has brought itself 
into compliance as of the compliance panel's establis hment.  In considering Brazil's request, the panel 
also specifically addressed an argument by Brazil to th e effect that such findings were relevant to the 
assessment of countermeasures in Article 7.9 and 7.10 of the SCM Agreement , and that it sought "a 
multilateral basis for the DSB to authorize counterme asures against the United St ates for its failure to 
take any implementation measures by the date required in Article 7.9 of the SCM Agreement ".70  The 
panel, however, determined that: 
                                                      
67 Appellate Body Report, US – Continued Suspension , para. 303. 
68 Appellate Body Report, US – Continued Suspension , para. 317. 
69 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 9.67. 
70 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 9.68.  WT/DS267/ARB/1 
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  "[W]hile a finding ... may be required to provide 'a multilateral basis' for DSB 
authorization of countermeasures under Article 7.9 of the SCM Agreement , it does not 
logically follow that such a panel must make a finding of non-compliance as of the end of the six-month period referred to in Article 7.9 of the SCM Agreement ."
71 
3.41 In light of these considerations, the panel f ound that it was "not appropriate" to make a 
finding on Brazil's claim that the United States had fa iled to bring itself into compliance in relation to 
the period of time between the expiry of the impl ementation period and the repeal of the measure, 
prior to the panel's establishment.   
3.42 There has therefore been no multilateral determin ation that the United States has failed to 
comply with the recommendations and rulings of th e DSB in respect of Step 2, despite a specific 
request by Brazil to make such findings precisely with respect to the same past period of time in relation to which it now seeks to be authorized to take  countermeasures.  We consider that this is an 
important aspect of the legal situation before us, which we must take into account in these 
proceedings.    
3.43 Furthermore, we note that, as Brazil has highli ghted consistently in these proceedings, the 
purpose of countermeasures under Article 4.10 of the SCM Agreement  (and of suspension of 
concessions or other obligations under the DSU) is to induce compliance.  As expressed by the 
arbitrator on EC – Bananas III (US) (Article 22.6 – EC) :  
"[T]he authorization to suspend concessions  or other obligations is a temporary 
measure pending full implementation  by the Members concerned.  We agree with the 
United States that this temporary nature  indicates that it is the purpose of 
countermeasures to induce compliance."
72 (emphasis added).  
3.44 Article 22.8 of the DSU further provides that: 
"The suspension of concessions or other ob ligations shall be temporary and shall only 
be applied until such time as the measure f ound to be inconsiste nt with a covered 
agreement has been removed, or the Member that must implement recommendations 
or rulings provides a solution to the nullifi cation or impairment of benefits, or a 
mutually satisfactory solution is reached." 
3.45 Brazil argues that Article 22.8 is not applicable to the circumstances of this case, because it 
concerns the application of countermeasures, not th eir authorization.  We agree that this provision 
addresses the time during which suspension of concessi ons or other obligations  may be applied, once 
authorized, rather than the conditions for the authorization per se .  Nonetheless, this provision 
usefully informs our analysis of the legal basis and purpose of countermeasures.  It confirms to us that 
the suspension of concessions or other obligations, as a remedy, is available where compliance has not 
been achieved, and in order to induce such co mpliance.  In other words, the entitlement to 
countermeasures arises as of the end of the implem entation period, if there has been no compliance by 
that moment, and it continues to exist for so long as compliance has not been achieved in relation to 
the measure at issue.  
3.46 Article 22.1 reinforces the importance of full implementation of recommendations of the 
DSB, in preference to  compensation or the suspension of concessions or other obligations. 
Article 22.1 provides that:  
                                                      
71 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 9.68. 
72 Decision by the Arbitrators, EC – Bananas III (US) (Article 22.6 – EC) , para. 6.3. WT/DS267/ARB/1 
Page 16 
 
 
  "Compensation and the suspension of concessi ons or other obligations are temporary 
measures available in the event that the recommendations and rulings are not 
implemented within a reasonable period of time.  However, neither compensation nor 
the suspension of concessions or other oblig ations is preferred to full implementation 
of a recommendation to bring a measure into conformity with the covered 
agreements.  Compensation is voluntary and, if  granted, shall be consistent with the 
covered agreements." 
3.47 Brazil considers, however, that countermeasur es can be authorized independently of the 
existence of any current non-compliance, and that th e role of the Arbitrator is not to consider the 
purpose of a determination that it is required to  make based on its mandate under Article 4.10 
and 4.11 of the SCM Agreement .73  In Brazil's view, "the Arbitrator's role is limited to a determination 
of the amount of those countermeasures based on the fact that the United States had failed to 
withdraw the Step 2 subsidy for a 13-month period".74  
3.48 Brazil seeks a determination in relation to an  amount of countermeasures covering "the 13-
month period when the United States was not  in compliance" (emphasis added).75  Brazil has also 
made it very clear that it "is not seeking authorization for countermeasures covering the period since 
the enactment of these new subsidies [i.e. the ne w subsidies Brazil alleges the United States has 
introduced under the 2008 Farm Bill] in 2008".76   
3.49 Brazil is therefore seeking an authorization to take countermeasures by reason of a past period 
of non-compliance, on the basis of a past measure wh ich has been repealed, and not in relation to a 
continuing period of non-compliance that would still be in existence today.  
3.50 In light of our determinations above that c ountermeasures are a temporary remedy available 
only where compliance has not been achieved and with  a view to inducing such compliance, and that 
full implementation is preferred to the suspensi on of concessions or other obligations, we do not 
consider that there would be a legitimate basis to such countermeasures as requested by Brazil in 
relation to past payments made until the repeal  of Step 2, in the absence of a multilateral 
determination of non-compliance in relation to such  payments and independently of any continuing 
situation of non-compliance.  
(c) Whether the "new measures" under the 2008 Farm Bill should be considered  
3.51 As observed above, Brazil has expressly not based its request for countermeasures in relation 
to Step 2 payments on any current situation of non-compliance.  Brazi l's request is based exclusively 
on non-compliance in the period between 1 July 2005 and 30 July 2006. 
3.52 Nonetheless, in response to the United States' ar guments that it had complied with the rulings 
and recommendations of the DSB with respect to th e Step 2 programme, Brazil has indicated that the 
United States has adopted "new prohibited subs idies" under the 2008 Farm Bill that "effectively 
replace" Step 2.77  Brazil contends that since the enactment  of the 2008 Farm Bill, the United States is 
no longer in substantive compliance.  Howeve r, Brazil does not seek from the Arbitrator a 
determination of consiste ncy of the 2008 Farm Bill per se with the SCM Agreement .   
                                                      
73 Brazil's responses to questions from the Arbitrator, question 109, paras. 200-201. 
74 Brazil's responses to questions from the Arbitrator, question 109, para. 201. 
75 Brazil's responses to questions from the Arbitrator, question 108, para. 196. 
76 Brazil's responses to questions from the Arbitrator, question 108, para. 196. 
77 Brazil identifies specifically two components of the 2008 Farm Bill, namely, "the additional market 
loan subsidies" and "the Economic Adjustment Assistance to Users of Upland Cotton".  WT/DS267/ARB/1 
 Page 17 
 
 
  3.53 Brazil "does not request the Arbitrator [to] re ach any definitive conclusions as to whether 
these subsidies are 'measures taken to comply' pursuan t to Article 21.5 of the DSU or whether they are 
prohibited subsidies within the meaning of Article 3.1(a), or (b) of the SCM Agreement ."  Brazil 
considers that "such a finding would not be  within the mandate of the Arbitrator".78  Rather, Brazil 
requests that the Arbitrator "take into account th e existence of the new US measures and the facts 
surrounding their enactment when determining the amount of appropriate countermeasures".79   
3.54 Brazil invites the Arbitrator to consider the ex istence of these measures in the context of its 
assessment of whether the proposed countermeasures are "appropriate", as "circumstances and actions 
of a subsidizing Member".80  Specifically, Brazil invites the Arbitrator to take into account inter alia   
"whether these new Step 2 replacement measures are c onsistent with an intent to eliminate subsidies 
that are both prohibited and geared toward s sustaining significant price suppression".81  Brazil 
believes that "these are relevant questions to consider in determining the amount of one-time 
countermeasures for the US lack of compliance".82   
3.55 We understand Brazil to be requesting the Arbitrator  to take into account the existence of the 
measures adopted under the 2008 Farm Bill as a factual circumstance that would be relevant in the 
assessment of the "appropriateness" of its proposed  amount of countermeasures, and not as a legal 
basis for these proposed countermeasur es.  However, in light of our de termination above that there is 
no basis for Brazil's request for countermeasures in relation to a past period of non-compliance, we 
have no basis on which to proceed with a determ ination whether Brazil's proposed countermeasures 
are "appropriate" within the meaning of Article 4.10 of the SCM Agreement .  Brazil's request that we 
take into account the 2008 Farm Bill in this determin ation is therefore without object and we need not 
consider it further.   
3.56 We take note of the parties' arguments in rela tion to the consistency or inconsistency of the 
measures identified by Brazil contained in the 2008 Fa rm Bill.  We also take note in this context of 
the findings of the Appellate Body in  US – Continued Suspension , as cited by Brazil, to the effect that 
compliance with the DSB recommendations and rulings  would not be considered to be achieved, if 
the inconsistent measure is simply removed and subsequently replaced by another inconsistent 
measure.  Specifically, the Appellate Body has interpreted the words "the measure found to be 
inconsistent with a covered agreem ent has been removed" in Article  22.8 of the DSU to mean that 
"substantive compliance" must have been achieved in relation to the removal of that measure:  
"The issue that arises in this dispute, however, is whether an inconsistent measure 
should be considered 'removed' when it is  replaced by a new implementing measure.  
Taken literally, removal of the inconsis tent measure could mean that the 
implementing Member has adopted an act th at formally repeals the inconsistent 
measure and replaces it with another measure , regardless of the content of the new 
measure and, in particular, of its comp liance with the DSB's recommendations and 
rulings.  Such a literal interpretation of th e first condition in Article 22.8, however, 
does not comport with the other two conditions provided in that provision ... 
Reading the first sentence of Article 22.8 as a whole, the 'removal' of 'the measure 
found to be inconsistent' should be proper ly understood to require nothing less than 
substantive removal of the inconsistent  measure.  Substantive removal may be 
achieved by repealing the inconsistent measure.  Where a WTO Member adopts an 
                                                      
78 Brazil's responses to questions from the Arbitrator, question 12, para. 141. 
79 Brazil's responses to questions from the Arbitrator, question 111, para. 203. 
80 Brazil's responses to questions from the Arbitrator, question 108, para. 197. 
81 Brazil's responses to questions from the Arbitrator, question 108, para. 199. 
82 Brazil's responses to questions from the Arbitrator, question 109, para. 199. WT/DS267/ARB/1 
Page 18 
 
 
  implementing measure that replaces the inconsistent measure, the implementing 
measure must bring about substantive compli ance, that is, compliance with the DSB's 
recommendations and rulings and consiste ncy with the covered agreements ... ."83  
3.57 The Arbitrator takes note of the fact that, in  these proceedings, Brazil and the United States 
agreed that the Step 2 subsidy was repealed as of 1 August 2006 and that Brazil is not seeking 
countermeasures covering the period since the enactme nt of these new subsidies in 2008.  Brazil has 
indicated that it "does not do so because there h as not been a multilateral determination of the 
WTO inconsistency of the new Step 2 replacement subsidies".84  We also note that Brazil does not 
seek such a determination from us.  
3.58 In response to a question from the Arbitrator, Br azil observes that "it is Brazil's position that 
the United States is no longer in substantive comp liance with the recommendations and rulings of the 
DSB, even if it was in compliance for a brief 23-month period – from 1 August 2006 through 18 June 2008, after the repeal of the Step 2 subsidy".
85  Brazil considers that since the parties disagree 
whether the United States is presently in substan tive compliance, "DSU Article 22.8 does not operate 
to bar the suspension of concessions fo r the period 1 July 2005-31 July 2006".86 
3.59 At the same time, Brazil "emphasi zes that it is not seeking countermeasures in this proceeding 
covering the period after enactment of the 2008 Fa rm Bill containing the replacement measures for 
Step 2, or covering that 23-month period of tim e (1 August 2006 – 18 June 2008) in which the 
United States was in compliance with the recomme ndations and rulings of the DSB.  Rather, the 
evidence and argument presented by Brazil is relevant to rebut the US assertions that there is no basis 
for countermeasures covering the period of 1 July  2005-31 July 2006 because, allegedly, the 
United States would presently  be in "substantive compliance" as required by Article 22.8 of the 
DSU.87 
3.60 These statements by Brazil confirm that the only period of non-compliance in respect of 
which Brazil seeks to apply countermeasures is the pe riod from 1 July 2005 to 31 July 2006, prior to 
the repeal of Step 2.  The legal situation arisi ng from the enactment of the new measures in the 2008 
Farm Bill has no bearing on the question of whether Br azil is entitled to seek to retaliate in relation to 
this past period of non-compliance, and Brazil invokes it only to rebut the argument that the United States would presently be in compliance with the recommendations and rulings of the DSB.  However, our view that countermeasures cannot be au thorized in relation to this past period of non-
compliance does not depend, and is not based, on a finding that the United States is presently in 
compliance with the recommendations and rulings of the DSB.   
3.61 The question of whether or not the "new measures" under the 2008 Farm Bill represent 
compliance with the recommendations of the DSB in re lation to the Step 2 measures is not before us.  
We make no determinations with respect to the le gal status of the measures under the 2008 Farm Bill 
identified by Brazil as Step 2 "replacement" measures.
88 
3. Conclusion  
3.62 In light of our determinations a bove, we conclude that there is no legal basis for Brazil to seek 
countermeasures in relation to the absence of compliance by the United States with the 
                                                      
83 Appellate Body Report, US – Continued Suspension , paras. 304-305. 
84 Brazil's responses to questions from the Arbitrator, question 108, para. 196. 
85 Brazil's responses to questions from the Arbitrator, question 10, para. 135. 
86 Brazil's responses to questions from the Arbitrator, question 10, para. 136. 
87 Brazil's responses to questions from the Arbitrator, question 10, para. 136. 
88 The Arbitrator does not express any opinion about the ability of an arbitrator to rule on questions of 
compliance.    WT/DS267/ARB/1 
 Page 19 
 
 
  recommendations and rulings of the DSB during the period from 1 July 2005 and 30 July 2006.  We 
make no determination as to the c onsistency or inconsistency of th e "new measures" applied by the 
United States under the 2008 Farm Bill and identifie d by Brazil as "replaceme nt" measures with the 
SCM Agreement , and note that Brazil does not seek an aut horization to take countermeasures against 
those "replacement" measures. 
B. ASSESSMENT OF BRAZIL 'S REQUESTED AMOUNT OF COUNTERMEASURES IN RELATION TO 
STEP 2 PAYMENTS  
3.63 As noted above, Brazil seeks one-time counterme asures in relation to the Step 2 programme, 
in the amount of the disbursements made by the Un ited States in Marketing Year ("MY") 2005, which 
is US$350 million in total.89  
3.64 In light of our conclusion in paragraph 3.62 abov e that there is no legal basis for this request, 
we need not consider further the countermeasures requ ested by Brazil in relation to Step 2 payments.  
IV. BRAZIL'S PROPOSED LEVEL OF COUNTERMEASURES IN RELATION TO 
GSM 102 
A. BRAZIL 'S REQUEST  
4.1 In its request pursuant to Article 4.10 of the SCM Agreement  and Article 22.2 of the DSU, 
Brazil  seeks an authorization to take appropriate co untermeasures in an amount that corresponds to 
"the total of exporter applications received unde r GSM 102, 103, and SCGP for the most recent 
concluded fiscal year".90  In that request, Brazil estimated the value of this amount, together with the 
amount for Step 2 payment, at a total of  US$3 billion, using FY 2004 as reference.91   
4.2 In its Methodology Paper, Brazil advanced  a different methodology for the amount of 
appropriate countermeasures to be determined, name ly "a methodology to calculate countermeasures 
proportionate to the annual amount of prohibited GSM 102 export credit guarantees ("ECGs") issued 
for export transactions involving unscheduled prod ucts, rice, pig meat and poultry meat.  Applying 
this methodology to data for FY 2006 results in countermeasures in the amount of US$1.294 billion".
92   
4.3 In the course of the proceedings, the United St ates asked Brazil to clarify whether it was 
requesting a fixed amount of annual countermeasures for prohibited subsidies, or a variable amount, 
and, in the event that Brazil was requesting a variable amount, in what manner the amount would 
vary.  Brazil responded, as stated in an earlier res ponse to a question by the Arbitrator, that it had 
"proposed a methodology to calculate IRS and add itionality, 'in light of' relevant GSM 102 data 
generated and maintained on a fiscal year basis" .  Brazil referred to the following response it had 
made to a question from the Arbitrator:  "By virtue of the United States' failure to withdraw prohibited 
GSM 102 export subsidies, Brazil has proposed a formula for the determination of appropriate 
countermeasures.  In this response, therefore, Braz il explains its choice of FY  2006 data as a reference 
to illustrate the application of its formula."93  
4.4 The United States took note of Brazil's response,  and stated that "arbitrators have usually 
awarded a fixed annual amount for countermeasures, but some arbitrators have used a formula", and 
                                                      
89 Brazil's Methodology Paper, para. 4. 
90 WT/DS267/21. 
91 WT/DS267/21, footnote 1. 
92 Brazil's Methodology Paper, para. 5. 
93 Brazil's responses to questions from the Arbitrator , question 3, cited in its response to question 1 
from the United States.   WT/DS267/ARB/1 
Page 20 
 
 
  that where they have used formula, the arbitrators have carefully explained in their awards the content 
of that formula, which would be necessary to permit both parties and the DSB to be aware of the 
amount the arbitrators deemed justified under that relevant standard.94  The United States therefore 
submitted that, for the sake of transparency, and to en sure that the countermeas ures in each year will 
be "appropriate" and "not disproportio nate", the Arbitrator's award should "clearly set out any formula 
to be used in calculating countermeasures and the so urce of any information for input variables in the 
formula each year".95  The United States also requested that  if the Arbitrator does not authorize a 
formula approach, this should also be made clear.  
4.5 The Arbitrator notes that Brazil's responses indicat e that it is seeking an authorization that 
would be variable on an annual basis, depending on "the total of exporter applications received under 
GSM 102 ... for the most recent concluded fiscal year".  The Arbitrator therefore understands Brazil's request to be for the Arbitrator to endorse not only the specific amount of countermeasures as it has 
calculated it with reference to FY 2006, but also the formula through which this amount is calculated, 
such that it could be applied to the "most r ecent fiscal year" elapsed at the time of taking 
countermeasures, in order to adjust on an annual b asis the amount of countermeasures to be applied.  
The Arbitrator also notes that the United States does not dispute that it would be permissible for the level of appropriate countermeasures to be determined through a formula, provided that this formula 
was sufficiently well defined so as to make it applicab le in a transparent and predictable manner.  The 
Arbitrator will therefore take these consider ations into account in its determinations. 
B. M
AIN ARGUMENTS OF THE PARTIES  
4.6 Brazil's methodology for the calculation of a ppropriate countermeasures with respect to 
GSM 102 payments, as explained in its Methodology Paper, encompasses two elements:  (i) the interest rate discounts secured by creditworthy and non-creditworthy foreign obligors on credits 
backed by GSM 102 guarantees and (ii) the estimated additional export sales obtained by 
US exporters as a result of these discounts.
96  Brazil refers to the interest rate discounts as the "interest 
rate subsidy" and to the additiona l export sales obtained by creditw orthy and non-creditworthy foreign 
obligors as "marginal additionality" and "full additionality" respectively.   
4.7 Brazil applies this methodology to its estimate of GSM 102 export credit guarantees in 
FY 2006 and arrives at an annual countermeasure  of US$1.155 billion.  This amount can be 
subdivided into (i) interest rate subsidy amounti ng to US$237.4 million, (ii) marginal additionality 
amounting to US$62.3 million, and (iii) full a dditionality amounting to US$855 million.   
4.8 Brazil explains that "the amount of the subsid y must be based on the legal standard that 
values the subsidy in full, which incl udes all "benefits" conferred thereby".97  Brazil indicated that the 
legal benefit standard was that provi ded for under Article 1.1(b) of the SCM Agreement .98  
4.9 The United States observes that Article 4.10 of the SCM Agreement  provides for 
countermeasures that are " 'appropriate' to th e prohibited subsidy finding of the panel".99  In the view 
of the United States, "appropriate connotes th e relationship between countermeasures and the 
particular circumstances of a given case".100  For the United States, "the appropriate countermeasures 
are those that have a concrete basis in the specifi c findings adopted by the DSB" and "in this case, the 
                                                      
94 US comments on Brazil's responses to questions  from the United States, question 1, para. 2. 
95 US comments on Brazil's responses to questions  from the United States, question 1, para. 4. 
96 Brazil's Methodology Paper, para. 5. 
97 Brazil's written submission, para. 15. 
98 Brazil's written submission, para. 130. 
99 US written submission, para. 24. 
100 US written submission, para. 24.  WT/DS267/ARB/1 
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  adopted findings support only Brazil's theory that th ere was a net cost to the US Government.  Both 
the original panel and the compliance panel specifica lly refused to reach Brazi l's alternative theory 
that there was a subsidy under Articles 1.1 and 3.1( a), namely a financial contribution that provided a 
benefit based on export performance.  As such, th e appropriate countermeasures are those that are 
based on the net cost to the US Government.  An y other countermeasures do not have their foundation 
in the specific circumstances of this case."101   
4.10 The United States further explains that previous ar bitrations have determined that, in the case 
of prohibited export subsidies, the amount of th e subsidy is a proper basis upon which appropriate 
countermeasures may be calculated, and that, in this particular case, the appropriate methodology is to 
use the amount of the subsidy as reflected in net cost to government.102   
4.11 The United States thus considers that the amount of countermeasures must be equal to the net 
cost to the US Government of the GSM 102 guarantee programme, because the DSB's 
recommendations and rulings are based only on fi ndings that the United States conferred export 
subsidies via GSM 102 because the programme opera ted at a net cost to the US Government.103  It 
offers to calculate the extent of any prohibite d subsidy based on the net cost of the GSM 102 
guarantees to the US Government.  In addition, the United States considers that "a reduction must be 
made", as "Brazil may only take such countermeasu res with respect to the impact of the alleged 
subsidy on itself.  If Brazil were permitted to take countermeasures for the entire amount of the 
subsidy, it would create a conflict for other Memb ers who may have an interest in the GSM 102 
program".104 The United States also claims that Brazil's methodology is based on "numerous and 
incorrect assumptions" that result in a figure higher th an is appropriate under Article 4.10 of the DSU.   
4.12 Brazil responds that the cost-to-government sta ndard used by the compliance panel in the 
underlying proceedings represented the lowest comm on denominator that the parties agreed would 
establish the existence of a prohibited export subsidy.105  In contrast, Brazil argues, an assessment of 
"appropriate" countermeasures based on the amount of the subsidy may not be based on a legal 
standard that constitutes this lowest common denominat or.  Brazil states that in this arbitration, the 
Arbitrator must determine the amount of the US export subsidies, and although the existence of a 
subsidy may be established using any relevant lega l standard, the amount of the subsidy must be 
based on the legal standard that values not the lo west common denominator, but the subsidy in full.106   
4.13 Brazil further explains that the US position that "appropriate countermeasures" must be 
assessed by reference to a breakeven cost-to-gove rnment benchmark under item (j) is premised on 
partial implementation, through par tial withdrawal of the export subs idies, and thus is based on an 
incorrect interpretation of the term "withdraw".107  In Brazil's view, the US position is also premised 
on an incorrect interpretation of the term "appropriate  countermeasures".  Brazil, with reference to the 
Appellate Body's rulings in the US – Continued Suspension  and Canada – Continued Suspension  
cases, considers that countermeasures would not serve as an "appropriate" alternative to full 
implementation – nor encourage compliance – if they were based on a legal benchmark that involved less-than-full implementation.
108  Brazil argues this because removal of the cost to the government of 
running the GSM 102 programme would not result in withdrawal of the subsidy constituted by the 
programme. 
                                                      
101 US written submission, para. 25. 
102 US written submission, para. 28. 
103 US written submission, para. 16. 
104 US written submission, para. 107. 
105 Brazil's written submission, para. 132. 
106 Brazil's written submission, para. 133. 
107 Brazil's written submission, para. 144. 
108 Brazil's written submission, para. 147. WT/DS267/ARB/1 
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  C. MANDATE OF THE ARBITRATOR AND BURDEN OF PROOF  
4.14 We recall that Article 4.10 of the SCM Agreement  provides as follows: 
"In the event the recommendation of the DSB is not followed within the time-period 
specified by the panel, which shall commence  from the date of adoption of the panel's 
report or the Appellate Body's report, the DSB shall grant authorization to the 
complaining Member to take appropriate9 countermeasures, unless the DSB decides 
by consensus to reject the request." 
(original footnote ) 9 This expression is not meant to allow countermeasures that are 
disproportionate in light of the fact that the subsidies dealt with under these provisions are 
prohibited.  
4.15 In addition, Article 4.11 of the SCM Agreement  defines our mandate as follows: 
"In the event a party to the dispute requests arbitration under paragraph 6 of 
Article 22 of the Dispute Settlement Unde rstanding ('DSU'), the arbitrator shall 
determine whether the countermeasures are appropriate.10"   
(original footnote ) 10 This expression is not meant to  allow countermeasures that are 
disproportionate in light of the fact that the subsidies dealt with under these provisions are 
prohibited.  
4.16 As noted by the arbitrator on US – FSC (Article 22.6 – US) , "these two provisions 
complement each other, and the arbitrator's ma ndate in relation to countermeasures concerning 
prohibited subsidies under Article 4 of the SCM Agreement  is defined, quite lo gically, with reference 
to the notion embodied in the underlying provision in Article 4.10".  Accordingly, "the expression "appropriate countermeasures" defines what measur es can be authorized in case of non-compliance, 
and our mandate requires us to review whether, in pr oposing certain measures to take in application of 
that provision, the prevailing Member has respected th e parameters of what is permissible under that 
provision".
109  
4.17 In this case, we must therefore determine wh ether the countermeasures proposed by Brazil in 
respect of the GSM 102 payments are "appropriate" within the meaning of Articles 4.10 and 4.11 of the SCM Agreement .  At this stage of our analysis, we c onsider this question exclusively from the 
perspective of the proposed level of countermeasures.  We will consider the question of the form  in 
which Brazil proposes to take these countermeasures in Section V below.  
4.18 The United States considers that Brazil's pr oposed countermeasures are not "appropriate" 
because the terms "appropriate countermeasures" in Article 4.10 of the SCM Agreement  require the 
countermeasures to be calculated, in the circumst ances of this case, on the basis of the cost to 
government of the subsidies at issue, and not on the "benefits", as defined by Brazil in the context of 
these proceedings.  Brazil considers that this US position rests on an improper interpretation of the 
terms "appropriate counterme asures".  We must therefore in the fi rst instance clarify the meaning of 
the terms "appropriate countermeasure s" under Article 4.10 and 4.11 of the SCM Agreement , in order 
to assess whether the United States is correct in argu ing that the approach proposed by Brazil in this 
case is inconsistent with the terms of these provisions.  The United States has also challenged the 
details of the methodology and calculations th rough which Brazil arrives at its proposed 
countermeasures.   
                                                     
 
109 Decision of the Arbitrator, US – FSC  (Article 22.6 – US) , para. 4.3.  WT/DS267/ARB/1 
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  4.19 The United States agrees that, as the party cha llenging the proposed countermeasures, it bears 
the burden of demonstrating that the countermeasur es proposed by Brazil are not "appropriate" within 
the meaning of Article 4.10 of the SCM Agreement .110  
4.20 The United States observes, however, that Braz il is obligated to provide the evidence to 
support the facts it advances in support of its argu ments and to provide the relevant facts for the 
Arbitrator to fulfil its mandate.111 
4.21 We note that the arbitrator on Brazil – Aircraft (Article 22.6 – Brazil)  found that the party 
objecting to the proposed countermeasure bears the burden to establish a prima facie case or 
presumption that the countermeasures are not "appr opriate" within the meaning of Article 4.11 and 
that it is then up to the party proposing the countermeasures to rebut that case or presumption.112  This 
allocation of the burden of proof has been confirme d in subsequent proceedings under Article 22.6 of 
the DSU and Article 4.10 of the SCM Agreement .113 
4.22 We therefore find that the United States b ears the initial burden of establishing the 
countermeasures are not "appropriate".  If that initia l burden is discharged, Brazil will then have an 
opportunity of rebutting the conclusion that the countermeasures are not appropriate.  
4.23 This allocation of burden of proof does not a lleviate the burden on each party to establish the 
facts that it alleges during the proceedings .  As observed by the Arbitrator in US – FSC (Article 22.6 – 
US), "it is generally for each party asserting a fact, whether complainant or respondent, to provide 
proof thereof".114  Accordingly, it is also for Brazil to pr ovide evidence in support of the facts that it 
advances.  The Arbitrator will consider all the evidence and arguments provided by both parties 
(United States and Brazil) to determine whether th e proposed countermeasures are "appropriate", in 
line with the principles we have set out concerning burden, and the evidence.   
4.24 The United States further considers that if  it meets its burden of proof, and the 
countermeasures as proposed by Brazil are found not to be appropriate, the Arbitrator is then not 
limited to agreeing or disagreeing with an approach or a calculation that has been submitted by either 
of the parties.  Rather, the Arbitrator's task is  to determine, in the case of prohibited subsidies, 
"appropriate countermeasures".115  Brazil also observes that, if the United States succeeds in 
establishing that Brazil's formula does not meet the applicable legal standard, the Arbitrator can 
consider adjustments to Brazil's formula, or  if none are possible, alternative formulae.116  Brazil 
further notes that, while the Arbitrator enjoys flex ibility to make adjustments to Brazil's formula, 
Brazil expects that in the interest of due process, the Arbitrator would offer the parties the opportunity 
to comment on any material departures it wishes to explore.117   
4.25 We agree that, in the event that we find that Brazil's proposed countermeasures are not 
"appropriate" within the meaning of Article 4.10 of the SCM Agreement , we would be required also to 
determine what would constitute "a ppropriate" countermeasures.  This  would enable the complaining 
party to seek an authorization consis tent with our decision, as foreseen in Article 22.7 of the DSU.  In 
                                                      
110 US responses to questions from the Arbitrator, question 41, para. 49. 
111 US responses to questions from the Arbitrator, question 41, para. 50. 
112 See Decision by the Arbitrators, Brazil – Aircraft (Article 22.6 – Brazil) , paras. 2.8-2.9. 
113 See Decisions by the Arbitrator, US – FSC (Article 22.6 – US) , para. 2.8 and Canada – Aircraft 
Credits and Guarantees , para. 2.5. 
114 Decision by the Arbitrator, US – FSC (Article 22.6 – US) , para. 2.11. 
115 US responses to questions from the Arbitrator, question 70, para. 3. 
116 Brazil's responses to questions from the Arbitrator, question 70, para. 6. 
117 Brazil's responses to questions from the Arbitrator, question 70, para. 8.  See also the US comments 
to Brazil's response, para. 11. WT/DS267/ARB/1 
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  order to fulfil this part of our mandate, we may be  required to adopt an approach or methodology that 
differs from those proposed by the parties.  
4.26 We now turn to a consideration of the terms of the applicable legal standard for the review of 
Brazil's countermeasures, before considering Brazil's proposed countermeasures in light of these determinations.  
D. T
HE NOTION OF "APPROPRIATE COUNTERMEASURES " UNDER ARTICLE  4.10  OF THE 
SCM A GREEMENT  
4.27 We first turn to the interpretation of the term s "appropriate countermeas ures", as contained in 
Articles 4.10 and 4.11 of the SCM Agreement .118 
4.28 As noted above, Article 4.10 of the SCM Agreement  provides, with respect to prohibited 
subsidies, that: 
"[T]he DSB shall grant authorization to th e complaining Member to take appropriate9 
countermeasures ..." 
(original footnote ) 9 This expression is not meant to allow countermeasures that are 
disproportionate in light of the fact that the subsidies dealt with under these provisions are 
prohibited. 
4.29 The same terms are reflected in Article 4.11, which defines the mandate of the Arbitrator 
under Article 22.6 of the DSU in relation to re quests for countermeasures concerning prohibited 
subsidies. 
4.30 Article 4.10 of the SCM Agreement  is a "special or additional rule" identified in Appendix 2 
of the DSU.  Article 1.2 of the DSU provides that "t o the extent that there is a difference between the 
rules and procedures of this Understanding and the special or additional rules and procedures set forth 
in Appendix 2, the special or additional rul es and procedures in Appendix 2 shall prevail". 
4.31 The terms of Article 4.10 of the SCM Agreement , as a "special or additional rule and 
procedure", should be interpreted on their own terms.  It is clear th at the terms may embody different 
rules, which would prevail in case of conflict.  N onetheless, Article 22.6 of the DSU remains relevant, 
as the general legal basis under which the proceedi ngs are conducted.  Indeed, Article 4.11 of the 
SCM Agreement  refers expressly to Article 22.6 of the DSU as the legal basis for arbitral proceedings 
concerning countermeasures in relation to prohibited subsidies.   
4.32 We note that the terms of Article 4.10 of the SCM Agreement  have been interpreted in three 
previous cases, and we will refer to these rulings as appropriate.  Nonetheless, given the centrality of 
this question to our analysis, and in light also of the fact that the parties' different views as to Brazil's 
proposed countermeasures stem in part from diverg ing interpretations of the terms "appropriate 
countermeasures", we find it necessary to clarify from  the outset our interpretation of these terms.  
4.33 The terms of Article 4.10 of the SCM Agreement , like other provisions of the WTO covered 
agreements, should be interpreted in accordance with  the customary rules of interpretation of public 
international law.  In particular, as reflected in Article 31.1 of the Vienna Convention on the Law of 
Treaties (the "Vienna Convention"), "a treaty shall be interpreted in good faith in accordance with the 
ordinary meaning to be given to the terms of the tr eaty in their context and in the light of its object 
                                                      
118 Throughout this Section of the Decision, re ference is made to the terms "appropriate 
countermeasures" as containe d in Article 4.10 of the SCM Agreement .  It is understood that these terms are 
assumed to have the same meaning also in Article 4.11 of the  SCM Agreement .  WT/DS267/ARB/1 
 Page 25 
 
 
  and purpose".  For the sake of clarity, it is useful to  start the analysis with the terms of the provision 
first, and to then turn to its context, object and purpose.  
1. The terms "appropriate countermeasures" and the terms of footnote 9 
(a) "countermeasures" 
4.34 We note at the outset that the term "counterm easures" is used to designate retaliatory 
measures in the WTO Agreement only in the SCM Agreement .  This contrasts with the terms of 
Article 22 of the DSU, which refers to the "sus pension of concessions or other obligations".  
However, it is not argued by either party in these proceedings that the term "countermeasures" would 
designate, in the SCM Agreement , anything other  than a temporary suspension of certain obligations, 
and this is what we understand the term to refer to.  
4.35 The prefix "counter-" can be defined as meaning "against, in return".119  The Oxford English 
Dictionary further cites the term "c ounter-measure" as an illustration of a situation in which this prefix 
is used to indicate something that is "[d]one, directed, or acting against, in opposition to, as a 
rejoinder or reply to another thing of the same kind already made or in existence".  Another dictionary 
defines the term "countermeasure" as an "action or  device designed to negate or offset another".120 
4.36 Brazil draws attention to the fact that the te rm "countermeasures" refers to measures taken 
"against" something, to "counteract" something.  In the context of Article 4.10 of the SCM Agreement , 
Brazil notes, the term refers to "retaliatory action that counters a respondent's failure to " withdraw " a 
"prohibited " subsidy".121  The United States appears to agree with this basic premise.122  In light of the 
definitions noted above, we also agree that "count ermeasures" are, in essence, measures taken to 
"counteract" something, and specifically, in the context of Article 4.10 of the SCM Agreement , 
measures taken to act against, or in response to, a failure to withdraw a prohibited subsidy within the 
required time period. 
4.37 In Brazil's view, the dictionary meanings of this term further indicate that it refers to 
retaliatory action that goes "beyond the mere rebalancing of trade interests".123  The United States, on 
the contrary, highlights that definitions of the term "counter" include notio ns of balance and of 
duplication, so that an appropriate countermeasu re would be one that would "balance out the 
inconsistency or duplicate the loss of concessions resulting from the breach".124 
4.38 We are not convinced that the use of the te rm "countermeasures" necessarily connotes, in and 
of itself, an intention to refer to retaliatory ac tion that "goes beyond the mere rebalancing of trade 
interests"125, as Brazil suggests.  As noted above, the term indicates that the action is taken in response 
to another, in order to "counter" it.  This does not  necessarily connote, in our view, an intention to "go 
beyond" a rebalancing of trade interests.  Indeed, we  are not convinced that the dictionary meanings 
of the term, in and of themselves, provi de any compelling guidance as to the exact level  of 
countermeasures that may be permissible under Article 4.10 of the SCM Agreement .  We note that the 
term "countermeasures" is also used in Article 7.9 of the SCM Agreement , where the permissible level 
of countermeasures is defined with reference to the adverse effects of the violating measure. 
                                                      
119 Oxford English Dictionary , at www.oed.com. 
120 Merriam Webster Dictionary , at www.merriamwebster.com. 
121 Brazil's written submission, para. 26. 
122 See US responses to questions from the Arbitrator, question 43, para. 56: "the "countermeasures" 
are to "counter the inconsistency with the SCM Agreement ." 
123 Brazil's written submission, para. 26. 
124 US responses to questions from the Arbitrator, question 43, para. 56. 
125 Brazil's written submission, para. 26. WT/DS267/ARB/1 
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  4.39 Brazil also refers to the use of the term "c ountermeasures" in public international law, as 
reflected in the Draft Articles on State Responsibility of the  International Law Commission  (ILC)126, 
as an "additional interpretative consideration", to highlight that, "under the ILC Articles, 
countermeasures are taken with the goal of encouragin g – 'inducing' – the responsible State to comply 
with its obligations, without making it impossible to comply, and without punishing the respondent".
127 
4.40 We note that the term "countermeasures" is the ge neral term used by the ILC in the context of 
its Draft Articles on State Responsibility , to designate temporary measures that injured States may 
take in response to breaches of ob ligations under international law.128   
4.41 We agree that this term, as understood in public  international law, may usefully inform our 
understanding of the same term, as used in the SCM Agreement .129  Indeed, we find that the term 
"countermeasures", in the SCM Agreement , describes measures that are in the nature of 
countermeasures as defined in the ILC's Draft Articles on State Responsibility.   
4.42 At this stage of our analysis, we therefore find that the term "countermeasures" essentially 
characterizes the nature  of the measures to be authorized, i.e. temporary measures that would 
otherwise be contrary to obligations under the WT O Agreement and that are taken in response to a 
breach of an obligation under the SCM Agreement .  This is also consistent with the meaning of this 
term in public international law as reflected in the ILC Articles on State Responsibility.   
4.43 As to the permissible level  of countermeasures that may be authorized under Article 4.10 of 
the SCM Agreement , this is, in our view, primarily define d through the term "appropriate" and the 
wording of footnote 9.   
(b) "appropriate"  
4.44 Article 4.10 of the SCM Agreement  requires the countermeasures th at may be authorized in 
response to the absence of timely withdrawal of a prohi bited export subsidy to be "appropriate".  This 
term is in turn informed by footnote 9, which clarifies that "this expression ['appropriate countermeasures'] is not intended to allow countermeasu res that would be disproportionate in light of 
                                                     
 
126 The International Law Commission was established by the UN General Assembly for the promotion 
of the progressive development of international law and its codification.  The Commission adopted in 2001 a set 
of  draft articles on responsibility of States for interna tionally wrongful acts consistin g of 59 articles as well as 
commentaries thereto.  The General Assembly, in re solution 56/83 of 12 December 2001, as recommended by 
the Commission, took note of the articles on responsibility of States for internationally wrongful acts, the text of which was annexed to the resolution, commended them to the attention of Governments without prejudice to the 
question of their future adoption or other appr opriate action.  See h ttp://www.un.or g/law/ilc/. 
127 Brazil's written Submission, para. 43.   
128 See http://untreaty.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf . 
129 We also note however that, by their own terms, the Articles of the ILC on State Responsibility do 
not purport to prevail over any specific provisions relating to the areas it covers that would be contained in specific legal instruments.  We note in particular the following Commentary of the ILC:  
 
In common with other chapters of these artic les, the provisions on  countermeasures are 
residual and may be excluded or modified by a special rule to the contrary (see article 55). 
Thus, a treaty provision precluding the suspension of performance of an obligation under any 
circumstances will exclude countermeasures with respect to the performance of the obligation. 
Likewise, a regime for dispute resolution to which States must resort in the event of a dispute, 
especially if (as with the WTO dispute settlemen t system) it requires an authorization to take 
measures in the nature of countermeasur es in response to a proven breach. 
  WT/DS267/ARB/1 
 Page 27 
 
 
  the fact that the subsidies at issue are prohibited".  We will first consider the term "appropriate", 
before turning to how it is informed by the terms of footnote 9.  
4.45 Dictionary definitions of the adjective "appropria te" include:  "Specially fitted or suitable, 
proper"130 and "especially suitable or compatible:  fitting".131  "Fitting", in turn, can be defined as "of a 
kind appropriate to the situation".  The terms "fit, suitable, meet, proper, appropriate, fitting, apt, 
happy, felicitous" are further identified as synonyms that  mean "right with respect to some end, need, 
use, or circumstance".132 
4.46 These definitions suggest that the adjective "a ppropriate" conveys the notion of something 
being "adapted" or "suited" to the particular situa tion at hand.  This very general indication does not 
provide explicit guidance as to the exact parameters  that legitimately may be taken into account in 
assessing the "appropriateness" of countermeasures in the context of Article 4.10 of the SCM Agreement .  Rather, the term suggests that countermeasu res should be "adapted" to the particular 
circumstances, and thus that there may be a de gree of legitimate variability in what may be 
"appropriate", depending on the circumstances of the case.  To that extent, we agree with the United States that the term "appropriate" "connotes the close relationship be tween countermeasures 
and the particular circumstances of a particular case".
133   
4.47 Brazil, for its part, likens the term "appropriate" to the term "reasonable", in that it "similarly 
involves 'a degree of flexibility'", and that "the word  requires the treaty interpreter to consider all of 
the circumstances of a particular case in assessing whether the respondent has demonstrated that 
proposed countermeasures are inappropriate".134  Leaving aside for now the question of the burden to 
be discharged by the responding Member in arbitral proceedings, we agree that the term "appropriate" 
suggests that "all of the circumstances of a part icular case" should be taken into account in assessing 
the "appropriateness" of proposed countermeasures, a nd that it also suggests a degree of flexibility in 
what might be considered "appropriate" in a given case.   
4.48 With these general considerations in mind,  we must now determine what types of 
considerations may be relevant in assessing what  might constitute "appropriate" countermeasures in 
the circumstances of a particular case, as inferred from the terms as used in Article 4.10 of the 
SCM Agreement . 
4.49 The United States argues that the appropriate count ermeasures are those that have "a concrete 
basis in the specific findings adopted by the DSB".  In this case, in the United States' view, the 
appropriate countermeasures are those based on the net cost of government and "any other 
countermeasures do not have their foundation in the specific circumstances of this case".135  Brazil 
considers that "in the absence of a prescribed standa rd, what is "appropriate" must be defined with 
respect to the situation envisaged in Article 4 – namely the non-compliant Member's failure to 
withdraw a prohibited subsidy".136 For Brazil, "in assessing whet her proposed countermeasures are 
"appropriate", the treaty interpreter must take into account that they involve retaliatory action against, 
and in opposition to, the responding Member's failure  to withdraw an act expressly characterized as 
per se  prohibited ".137  
                                                      
130 "appropriate, ppl. a. and n.", Oxford English Dictionary , at www.oed.com, definition 5. 
131 www.merriam-webster.com. 
132 www.merriam-webster.com. 
133 US written submission, para. 24. 
134 Brazil's written submission, para. 32. 
135 US written submission, para. 25. 
136 Brazil's written submission, para. 36. 
137 Brazil's written submission, para. 27. WT/DS267/ARB/1 
Page 28 
 
 
  4.50 Brazil further argues that the appropriateness of the countermeasures must also be considered 
in light of the particular characteristics of the su bsidy to be withdrawn: its prohibited nature, its 
amount, its terms and conditions of  grant, its beneficial impact on the respondent's exports, and 
whether it is still being granted despite th e DSB's recommendations and rulings requiring 
withdrawal.138  Finally, Brazil considers that the circ umstances of the dispute also include the 
respective situations of the prevailing and the non-compliant Member:139 "Countermeasures are 
economic measures taken by one Member in response to another Member's failure to implement the 
DSB's recommendations and rulings.  The individual and the relative situations of the two Members 
are, therefore, pertinent in assessing whether countermeasures are fitting and suitable in the 
circumstances."140   
4.51 We agree that a number of the circumstances identified above may, a priori , be pertinent to 
an assessment of whether proposed countermeasures are "appropriate".  However, we must consider 
further how the circumstances of a given case should be  taken into account.  For this purpose, we find 
it useful to consider the context in which countermeasures arise.   
4.52 The imposition of countermeasures provides temporary redress to the successful complaining 
Member for the situation arising from the continued violation of the covered agreements, pending full 
implementation of recommendations a nd rulings of the DSB.  As observed by the Appellate Body in 
US – Continued Suspension , "the suspension of concession[s] is the last resort available to a Member 
who has successfully challenged the consistency with  the covered agreements of another Member's 
measure".141 This remedy is "contingent and limited in time".142   
4.53 The essence of the task of determining what  might constitute "appropr iate countermeasures" 
under Article 4.10 of the SCM Agreement  is to seek to quantify the countermeasures that a 
complaining Member is entitled to take in response to  the continued existence of a prohibited subsidy.  
This response will take the form of a suspension of  concessions or other obligations otherwise owed 
to the violating Member under the covered agreements.  In other words, the complaining Member will 
be authorized to take certain measures adversel y affecting the trade opportunities of the violating 
Member, in response to an illegal measure taken by that Member, which has adversely affected its 
own trade opportunities.   
4.54 These circumstances define importantly, in our view , the elements to be taken into account in 
determining what may constitute "a ppropriate countermeasures" in a given case.  This question must 
necessarily be understood with reference to the par ticular dispute at issue.  The question is what 
countermeasures will be "appropriate" for that complainant  in the specific dispute at hand.  This 
implies that it is appropriate to take into account not  only the existence of the violation in itself, but 
also the specific circumstances that  arise from the breach for the co mplaining party seeking to apply 
countermeasures.  This is consistent with the or dinary meaning of the term "appropriate", which 
implies a degree of variability in the level of count ermeasures according to th e circumstances, rather 
than a fixed quantum.   
4.55 As the arbitrator on US – FSC (Article 22.6 – US)  noted, the existence of a prohibited export 
subsidy granted and maintained inconsistently with the SCM Agreement  "has, in itself, the effect of 
                                                      
138 Brazil's written submission, para. 37. 
139 Brazil explained later in response to a question from the Arbitrator that it had not taken these 
specific aspects into account in its assessment of its proposed level of countermeasures, but rather in its 
determination of the form in which it would seek to re taliate.  See Brazil's responses to Questions from the 
Arbitrator, Question 16(b), para. 165. 
140 Brazil's written submission, para. 38. 
141 Appellate Body Report, US – Continued Suspension , para. 317. 
142 Appellate Body Report, US – Continued Suspension , para. 303.  WT/DS267/ARB/1 
 Page 29 
 
 
  upsetting  the rights and obligations between the par ties, irrespective of what might be, as a matter of 
fact, the actual trade effects on the complainant".143   
4.56 In addition, the continued maintenance of a prohi bited export subsidy is likely to have a trade-
distorting impact. It is in the very nature of an export  subsidy that it is likely to distort trade in favour 
of the exporters of the subsidizing Member.  Although such trade-distorting effects need not be established in order to find a violatio n of the relevant provisions of the SCM Agreement , it is precisely 
the high likelihood of such trade-distorting effects arising from the granting of export subsidies that 
explains their prohibition under the SCM Agreement .  
4.57 The actual economic consequences of the breach may vary significantly from case to case.  In 
particular, the trade-distorting impact of a prohibited export subsidy may vary depending on the nature and design of the subsidy as well as various other economic factors.  The trade of other WTO 
Members can be affected, and usually is affected, to varying degrees as a result of the granting and 
maintenance of illegal subsidies.  The extent to wh ich the complaining party is adversely affected by 
the trade-distorting impact arising from the illegal subsidy may accordingly vary from case to case.   
4.58 The trade-distorting impact of the prohibited subsidy at issue on the complaining Member 
effectively reflects the manner in which the economi c position of the complaining party to the dispute 
has been disrupted and harmed by the illegal measure .  This provides a measure of the extent to which 
the balance of rights and obligations between th e parties has been upset by the granting and 
maintenance of the prohibited subsidy at issue.   This is necessarily, in our view, a central 
consideration in determining what may constitut e "appropriate countermeasures" to be applied 
between such two parties.   
4.59 We also note that this interpretation also tak es into account the "partic ular characteristics of 
the prohibited subsidy that should have been w ithdrawn, including terms and conditions", which 
Brazil argues should be taken into account.
144   The trade effects that arise from the subsidy directly 
reflect the manner in which the subsidy operates on the market, and therefore its particular characteristics.   
4.60 We further note that an interpretation that would not take due account of the extent to which 
the complaining Member has been affected by the illegal measure would lead to the result that 
countermeasures could in principle be identical, irre spective of whether the Me mber at issue has been 
significantly affected or not at all by the measure at issue.  This would not be consistent, in our view, 
with the ordinary meaning of the term "appropriate ", which implies a degree of variability according 
to the circumstances.  In our view, this would not be respected, if a situation where the complaining 
Member suffers significant trade-distorting impact as a result of the measure were a priori  to be 
considered to be identical to a situation where it suffers no trade-distorting impact.   
4.61 Brazil emphasizes the fact that the prohibition of export subsidies is a per se  prohibition that 
does not require a demonstration of adverse effects.
145  It considers that it is the prohibited nature of 
the subsidy rather than the harm to the complainant that is the focus of "appropriate" countermeasures 
under Article 4.10 of the SCM agreement .146 
4.62 In our view, the fact that it is not necessary to  determine the extent to which the complaining 
Member is adversely affected by a subsidy in orde r to find that such subsidy is prohibited does not 
                                                      
143 See Decision by the Arbitrator, US – FSC (Article 22.6 – US) , para. 5.23. 
144 Brazil's responses to questions from the Arbitrator, question 16(a), para. 164.   
145 See Brazil's written submission, para. 40. 
146 See Brazil's responses to questions from the Arbitrator, question 15, para. 158. WT/DS267/ARB/1 
Page 30 
 
 
  imply that this question is not relevant to a dete rmination of the level of countermeasures that would 
be "appropriate" for that complaining Member to apply in the circumstances of the case. 
4.63 The initiation of dispute settlement proceedings in relation to a prohibited subsidy is not 
conditioned on the demonstration, by the complainin g Member, of adverse trade effects (on itself or 
on other Members).  Under the terms of Article 4 of the SCM Agreement , "whenever a Member has 
reason to believe that a prohibited subsidy is bei ng granted or maintained by another Member, such 
Member may request consultations with such other Member".  This does not imply, however, that the 
manner in which the complaining party is affected by  the breach is not relevant to dispute settlement 
proceedings, or that it should not be an importa nt consideration in determining the level of 
countermeasures that may be applied by the complain ing Member, if the dispute reaches the stage of 
authorizing such countermeasures.  
4.64 In fact, this distinction is found in dispute settlement proceedings under the DSU generally.  
The notion of "nullification or impairment of  benefits" accruing to Members under the covered 
agreements underlies the initiation and conduct of dispute settlement proceedings throughout the 
DSU, but a quantification of the level  of nullification or impairment arising from a measure 
determined to be inconsistent w ith a covered agreement (in other words, the adverse impact arising 
from the inconsistent measure) only becomes necessar y at the stage of authorizing a suspension of 
concessions or other obligations in case of non-compliance.   
4.65 Under the terms of Article 3.3 of the DSU: 
"The prompt settlement of situations in wh ich a Member considers that any benefits 
accruing to it directly or indirectly under the covered agreements are being impaired 
by measures taken by another Member is es sential to the effective functioning of the 
WTO and the maintenance of a proper balan ce between the rights and obligations of  
Members."   
4.66 Article 3.8 of the DSU further provides that when  a violation has been determined to exist, 
this is considered prima facie to constitute a case of  nullification or impairment, so that "there is 
normally a presumption that a breach of the rules has an adverse impact on other Members parties to that covered agreement".
147   
4.67 A demonstration of the level of nullification or impairment arising from the inconsistent 
measure for the complainant is therefore not a sep arate requirement to establish the existence of a 
violation.  This question only becomes relevant in  the context of determination of the level of 
countermeasures to be authorized in case of non- compliance, as such countermeasures are required 
not to exceed the level of nullification or impairment, under Article 22.4 of the DSU.   
4.68 Under the terms of Article 30 of the SCM Agreement , both Article XXIII (which contains the 
initial reference to nullification or impairment of benefits accruing to a Member as the basis for the 
initiation of dispute settlement proceedings) and the DSU are applicable to dispute settlement 
proceedings under the SCM Agreement , except as otherwise specifically provided in that Agreement. 
4.69 We note in this respect the determination of  the original panel in this case that:  
"Under Article 3.8 of the DSU, in cases where there is an infringement of the 
obligations assumed under a covered agreemen t, the action is considered prima facie 
to constitute a case of nullification or impair ment.  We conclude that, to the extent 
                                                      
147 Article 3.8 of the DSU.  WT/DS267/ARB/1 
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  that the United States has acted inconsiste ntly with the covered agreements, it has 
nullified or impaired benefits accr uing to Brazil under these agreements."148   
4.70 This makes it clear that the findings  of violation in this dispute gave rise to a presumption that 
benefits accruing to Brazil under the SCM Agreement  have been nullified or impaired by the breach.  
The question of the manner in which Brazil's in terests have been adversely affected by the 
inconsistent measure is therefore not absent fro m the initial stages of the proceedings, but the 
existence of the breach is a sufficient consideration, at that stage, to conclude that Brazil's benefits 
under the agreements have been nullified or impaired .  In other words, it is assumed from the very 
existence of the breach that Brazil's interests ar e adversely affected, but it is not necessary to quantify  
this for the purposes of determining that a violation exists and recommending that the Member 
concerned withdraw the inconsistent measure.  
4.71 However, when the dispute reaches the st age of authorizing countermeasures and of 
quantifying the level at which the complaining pa rty should be entitled to suspend concessions or 
other obligations otherwise owed to the responding Member, the question of the extent to which the 
interests of the complaining Member have been af fected becomes directly pertinent.  As observed 
above, the extent to which the complaining Member has been adversely affected by the inconsistent 
measure provides a measure of the extent to which the balance of rights and obligations between the 
two parties has been upset by the offending measure.   
4.72 There is therefore no inconsistency between the fact that a prohibited subsidy is " per se " 
prohibited and our determination that the trade-dist orting impact of that measure on the complaining 
party provides a basis from which to assess the a ppropriateness of proposed countermeasures in a 
given case.  On the contrary, it seems to us that it follows logically from the sequence of procedural 
steps leading to the authorization to suspend concess ions or other obligations that a consideration of 
the manner in which the complaining Member is a dversely affected by the illegal measure, which 
does not need to play a central role in establishing the existence of a violation, would become a central consideration in assessing the level of countermeasures that such complaining Member would 
be entitled to take in the absence of timely implementation. 
4.73 At this stage of the proceedings, it is the ve ry essence of the assessment to determine a level 
at which it would be "appropriate" for the comp laining party to adversely affect the trade 
opportunities of the violating Member through the su spension of certain obligations under the covered 
agreements.  A consideration of the extent to whic h that complaining party has itself been adversely 
affected by the measure against which the counterm easures will be applied is manifestly pertinent to 
this question.  
4.74 We fully recognize that Article 4.10 of the SCM Agreement  is a special or additional rule that 
sets out a specific legal standard for the level of  permissible countermeasures in cases relating to 
export subsidies.  We are therefore not limited by the terms of Article 22.4 of the DSU to a level of 
countermeasures that would be "equivalent to the le vel of nullification or impairment".  Rather, we 
must consider the level of proposed countermeasure s on the basis of the legal standard contained in 
Article 4.10 of the SCM Agreement , in terms of whether the proposed countermeasures are 
"appropriate" within the meaning of this provision.   
4.75 As we have observed above, it is  the ordinary meaning of the term "appropriate" itself  which 
calls for attention to be given to the circumstances of the case and directs us to consider the trade-
distorting impact of the prohibited subsidy on th e complaining Member as a central aspect of these 
circumstances.  This does not mean, however, that th e legal standard contained in Article 4.10 of the 
                                                     
 
148 Panel Report, para. 8.2. WT/DS267/ARB/1 
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  SCM Agreement  is identical to that contained in Article 22.4 of the DSU.  We recognize that there are 
significant differences between the two standard s, which we will address in the next section. 
4.76 We find further confirmation for our interpre tation in the fact that, under GATT 1947, the 
terms "appropriate in the circumstances", which ar e used in Article XXIII of GATT to define the 
permissible suspension of concessions or other obliga tions, were interpreted ha ving regard to "the 
equivalence to the impairment  suffered" by the complaining party as a result of the measures at issue:  
"2. The Working Party was instructed  by the CONTRACTING PARTIES to 
investigate the appropriateness of the measure  which the Netherlands Government 
proposed to take, having regard to the  equivalence to the impairment  suffered by the 
Netherlands as a result of the United States restrictions. 
3. The Working Party felt that the appr opriateness of the measure envisaged by 
the Netherlands Government should be cons idered from two points of view:  in the 
first place, whether in the circumstances,  the measure proposed was appropriate in 
character, and secondly, whether the extent of  the quantitative restriction proposed by 
the Netherlands Government was  reasonable, having regard to the impairment 
suffered ."149 (emphases added). 
4.77 In our view, this confirms that the term "appr opriate", in the context of a provision defining 
the level of permissible countermeasures to be app lied by one Member against another in response to 
a situation of continued violation, invites a consider ation of the level of impairment or injury suffered 
by the complaining Member as a result of the inconsistent measure.  
4.78 We further note the following observations of the arbitrator on EC – Bananas III (US) 
(Article 22.6 – EC) :  
"In our view, in light of the explicit refere nce in paragraphs 4 and 7 of Article 22 of 
the DSU to the need  to ensure the equivalence  between the level of proposed 
suspension and the level of the nullification or impairment suffered, the standard of 
appropriateness  applied by the 1952 working party has lost its significance as a 
benchmark for the authorization of the suspension of concessions under the DSU. 
However, we note that the ordinary meaning of ' appropriate ', connoting 'specially 
suitable, proper, fitting, attached or belonging to'150, suggests a certain degree of 
relation between the level of the proposed suspension and the level of nullification or 
impairment, where as we stated above, the ordinary meaning of ' equivalent ' implies a 
higher degree of correspondence, identity or st ricter balance between the level of the 
proposed suspension and the level of nullifi cation or impairment.  Therefore, we 
conclude that the benchmark of equivalence  reflects a stricter standard of review for 
Arbitrators acting pursuant to Article 22.7 of the WTO's DSU than the degree of 
scrutiny that the standard of appropriateness , as applied under the GATT of 1947 
would have suggested."151  (emphasis added) 
4.79 We agree with the arbitrator in that di spute that "the ordinary meaning of " appropriate" , 
connoting "specially suitable, proper, fitting, attached or belonging to"152, suggests a certain degree of 
                                                      
149 GATT Working Party Report, US – Suspension of Obligations . 
150 (original footnote ) The New Shorter Oxford English Dictionary on Historic Principles (1993), 
page 103. 
151 Decision of the Arbitrator, EC – Bananas III (US) (Article 22.6 – EC),  paras. 6.4 and 6.5. 
152 The New Shorter Oxford English Dictionary on Historic Principles  (1993), p. 103.  WT/DS267/ARB/1 
 Page 33 
 
 
  relation between the level of the proposed suspensi on and the level of nullification or impairment".  
We also agree that, by contrast with the terms of Article 22.4 of the DSU, the term appropriate 
suggests "a certain degree of relation" rath er than exact identity between the two.  
4.80 With these determinations in mind, we must now  consider what further guidance is provided 
by the terms of footnote 9 of the SCM Agreement,  in order properly to understand the meaning of the 
expression "appropriate countermeasures".  
(c) Footnote 9 
4.81 Footnote 9 of the SCM Agreement  provides that: 
"This expression is not meant to allow countermeasures that are disproportionate in 
light of the fact that the subsidies dealt with under these provisions are prohibited."  
4.82 In Brazil's view, "footnote 9 explains that the unlawful nature of the measure itself, 
irrespective of the effects that measure may have on a prevailing Member, informs the interpretation of the terms "appropriate" and not "disproportionate"; "appropria te countermeasures" counter a 
subsidy that is unlawful in and of itself under the SCM Agreement  and are not confined to countering 
only the impact of that unlawful act on a prevailing Member".
153  Brazil considers that an assessment 
of proportionality under footnote 9 needs to take into  account "at the very least, all of the commercial 
and economic advantages that are conferred by a subsidy".154 
4.83 The United States "does not argue that a countermeasure is punitive every time it is even 
slightly greater than the adverse effects suffered by the complainant".155  However, it considers, at the 
same time, that the requirement that the countermeasures not be "disproportionate" "links this 
provision to trade effects because the nullification or  impairment caused by the measures (the metric 
used under Article 22 of the DSU) provides the b asis against which to judge whether the proposed 
countermeasures are disproportionate."156  The United States indicates that it "has serious concerns 
with those awards that would enable a Member to  impose countermeasures in excess of the effect of 
the subsidy on that Member".157  
4.84 The terms "not ... disproportionate in light of th e fact that the subsidies dealt with in these 
provisions are prohibited" either inform the mean ing of the expression "appropriate countermeasures" 
in Article 4.10, or qualify that meaning.  Whether it "informs" or "qualifies" is ultimately a difference 
in perception which will not, in our view, affect our consideration of the expression. 
4.85 The very formulation of the footnote, i.e. "this expression is not meant to allow  
countermeasures that are disproportionate" (emphasis added) indicates, in our view, that it serves to 
guard against an interpretation of the terms "appropr iate countermeasures" that would allow measures 
that are "disproportionate".  We therefore unders tand this proportionality requirement to be a 
protection against excessive countermeasures.  In  other words, while the expression "appropriate 
countermeasures" allows a degree of flexibility in assessing what may be "appropriate" in the 
circumstances of a given case, this flexibility is not unbounded.  As observed by the arbitrator on 
US – FSC (Article 22.6 – US) , "footnote 9 further confirms that, while the notion of "appropriate 
                                                      
153 Brazil's responses to questions from the Arbitrator, question 75, para. 36. 
154 Brazil's responses to questions from the Arbitrator, question 80, para. 53. 
155 US responses to questions from the Arbitrator, question 82, para. 24.   
156 US responses to questions from the Arbitrator, paras. 26 and 32 . 
157 US responses to questions from the Arbitrator, question 90, para. 34. WT/DS267/ARB/1 
Page 34 
 
 
  countermeasures" is intended to ensure sufficient fl exibility of response to a particular case, it is a 
flexibility that is distinctly bounded."158   
4.86 As noted earlier, countermeasures are an excepti onal, "last resort", remedy within the WTO 
dispute settlement system.  Footnote 9, in our view, invites us to exercise caution and to ensure that the response is "measured" and that the countermeas ures to be authorized do not result in a greater 
disruption in the trade relations among Members and in the application of the WTO agreements than 
is warranted by the circumstances of the case at hand.   
4.87 This requirement confirms us in our view that  countermeasures, in order to be "appropriate", 
should bear some relationship to the extent to wh ich the complaining Member has suffered from the 
trade-distorting impact of the illegal subsidy.  Countermeasures are in essence trade-restrictive 
measures to be taken in response to a Member's application of a trade-distorting measure that has been determined to nullify or impair the benefits ac cruing to another Member.  Countermeasures that 
would ensure a relationship of proportionality between  the extent to which the trade opportunities of 
the Member applying the counterme asures has been affected and th e extent to which the trade 
opportunities of the violating Member will in turn be  adversely affected would notionally restore the 
balance of rights and obligations arising from the c overed agreements that has been upset between the 
parties.  This would ensure a proper relationship between the level of the countermeasures and the 
circumstances out of which the dispute arises.   
4.88 At the same time, we note that the terms "not ... disproportionate", like the term "appropriate", 
do not require exact identity between the trade-dist orting impact of the measure and the level of 
countermeasures to be authorized.  The term "appr opriate" suggests a degree of flexibility, according 
to the circumstances, and the negative requirement that countermeasures "not" be "disproportionate" 
similarly suggests that a less than exact correspondence is sufficient.   
4.89 Although footnote 9 does not expressly state in relation to what the countermeasures should 
not be "disproportionate", it indicates that the countermeasures should not be disproportionate "in 
light of the fact the subsidies dealt with under these provisions are prohibited". 
4.90 As we have noted above, the existence of a pr ohibited subsidy which has not been withdrawn 
by the responding Member is the very reason for th e authorization of countermeasures.  The question 
we must consider is the relevance of the unlawful character of the subsidy, as such, to our assessment 
of the appropriateness of countermeasures under Article 4.10 of the SCM Agreement , in light of the 
terms of footnote 9.  In this respect, we agree with the arbitrator on US – FSC (Article 22.6 – US)  that: 
"[T]his emphasis on the unlawful character of export subsidies invites ... a 
consideration of the impact which this unl awful character may have, in itself.  We 
note in this respect that the maintenan ce of the unlawful measure by the Member 
concerned – in violation of its obligations – has, in itself, the effect of upsetting the 
balance of rights and obligations between th e parties, irrespective of what might be, 
as a matter of fact, the actual trade effect s on the complainant.  We recall, in this 
regard, that the prohibition on export subsidies is a per se  obligation, not itself 
conditioned on a trade effects test.  Members are entitled to trade without other 
Members resorting to export subsidies.  In our view, the second part of the footnote directs that this is in itself a required consideration when it comes to assessing 
whether countermeasures are not disproportionate within the meaning of 
Article 4.10."
159 
                                                      
158 Decision by the Arbitrator,  US – FSC (Article 22.6 – US) , para. 5.19. 
159 Decision by the Arbitrator, US – FSC (Article 22.6 – US) , para. 5.23.  WT/DS267/ARB/1 
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  4.91 We agree with this characterization of the second part of the footnote, which suggests that the 
prohibited nature of the subsidy at issue, in othe r words the existence of a breach of an obligation not 
to provide such subsidies, is a consideration to be taken into account in assessing the "proportionality" 
or lack of "disproportion" in the proposed countermeasures.   
4.92 In light of these determinations, we consider that countermeasures would be 
"disproportionate" if they were excessive, having rega rd to the extent to which the trade between the 
parties in dispute has been affected.  In othe r words, countermeasures that do not have a proper 
relationship to the extent to which the interests of the complaining Member have been adversely 
affected by the measure would be "disproportionate". 
4.93 At the same time, we bear in mind also that the footnote highlights "the fact that the subsidies 
dealt with in these provisions are prohibited", and in  so doing asks us to take that factor into 
consideration. This reminds us of the determinati on that the maintenance of the violating measure has 
had the effect of upsetting the balance of rights and obligations between the parties.160   
4.94 In light of these considerations, we fi nd that, in considering whether proposed 
countermeasures are "appropriate" and "not ... dispropo rtionate" within the meaning of Article 4.10, it 
is legitimate to give consideration also to the prohi bited nature of the subsidy, in itself.  In this 
context, it is permissible that the assessment of the overall trade impact on the complaining Member 
not be precise, nor that the countermeasure should be directly equivalent to that impact.  The amount 
of the countermeasure must at least be within a range of permissibly "appr opriate" amounts, and its 
assessment can take into account a variety of fact ors which flow from the failure to withdraw the 
subsidy and are relevant to the trade impact on th e complaining Member.  Such a consideration would 
therefore legitimately be an integral part of an  assessment of whether pr oposed countermeasures are 
"appropriate" within the meaning of Article 4.10 of the SCM Agreement .  
2. The terms of Article 4.10 of the SCM Agreement  in their context 
4.95 Article 4.10 of the SCM Agreement  contains the legal standard for the level of 
countermeasures in cases concerning prohibite d subsidies, while Article 7.9 of the SCM Agreement  
contains the standard in relation to actionable s ubsidies, and Article 22.4 of the DSU contains the 
legal standard for the level of suspension of con cessions or other obligations in relation to other 
WTO-inconsistent measures.  These latter two provisions  therefore provide the Arbitrator with useful 
context for understanding the terms of Article 4.10 of the SCM Agreement .  
4.96 Brazil notes that Article 4.10 and 4.11 of the SCM Agreement  must be contrasted with 
Article 22.4 of the DSU, which requires that action in response to non-compliance be "equivalent to 
the level of nullification or impairment".161  Brazil highlights that "unlike the phrase 'equivalent to the 
level of nullification or impairment ' in Article 22.4 of the DSU, the drafters did not prescribe a precise 
quantitative or qualitative benchmark for desi gning 'countermeasures' under Articles 4.10 and 
Article 4.11".162 
4.97 We agree that the term "appropriate", by contr ast to the terms "equivalent to the level of 
nullification or impairment", does not require us to  engage in an exact exercise to work out the 
correspondence between the level of countermeasures to  be authorized and a specific benchmark such 
as the level of nullification or impairment of benefits  suffered by the complainant.  We agree that this 
difference in wording must be given meaning.  The term "appropriate" in Article 4.10 of the 
                                                      
160 See para. 4.55 above. 
161 Brazil's written submission, para. 29. 
162 Brazil's written submission, para. 29.   WT/DS267/ARB/1 
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  SCM Agreement  suggests a degree of flexibility and adaptati on to the circumstances of the case that is 
not found in Article 22.4 of the DSU.   
4.98 Similarly, within the context of the SCM Agreement , the terms of Article 4.10 contrast with 
those of Article 7.9, which foresees, in rela tion to actionable subsidies, countermeasures 
"commensurate with the degree and nature of the adve rse effects determined to exist".  Here too, the 
terms of Article 7.9, through this reference to the "degree and nature of the adverse effects determined 
to exist", point to a single specific benchmark as reference, and require the countermeasures to be 
"commensurate" with this benchmark, which is car efully defined in relation to the specific adverse 
effects that form the basis of the underlying fi ndings.  These elements distinguish the terms of 
Article 7.9 from the terms of Article 4.10.  This di fference can be understood in the broader context of 
the SCM Agreement , where actionable subsidies may only be ch allenged to the extent that they result 
in certain enumerated adverse effects for other WT O Members.  By contrast, prohibited subsidies are 
prohibited independently of any dem onstration of adverse effects.  In such cases, no specific "adverse 
effects" will have been "determined to exist" prior to the request for authorization to apply 
countermeasures, and therefore there are none that could be referred to.   
4.99 The contrast between the formulations of Article 4.10 of the SCM Agreement  and Article 22.4 
of the DSU and Article 7.9 of the SCM Agreement  respectively is informative for the purposes of 
further clarifying the meaning of the terms "a ppropriate countermeasures" in their context. 
4.100  First, the different choice of terms, including within the SCM Agreement  itself, highlights that 
the lack of reference to a specific benchmark by which the level of countermeasures must be 
measured, and the flexibility that this affo rds, are specific to Article 4.10 of the SCM Agreement .  A 
conscious decision has been made, in drafting the SCM Agreement  and the DSU, to treat 
countermeasures in relation to prohibited subsidies in a way that differs from other countermeasures. 
4.101  Secondly, we also note that the two specific benchmarks reflected in Article 22.4 of the DSU 
and Article 7.9 of the SCM Agreement  both define the level of permissible countermeasures with 
express reference to the trade effects of the measure at issue, while Article 4.10 of the 
SCM Agreement  does not.  We see no reason to assume that th e drafters, in choosing the more flexible 
terms "appropriate countermeasures", would have intende d to endorse a more rest rictive standard than 
those reflected in the other two provisions em bodying other standards within the WTO Agreement 
fulfilling a comparable function.  In particular, in li ght of the fact that, as highlighted by footnote 9, 
"the subsidies dealt with under these provisions are prohibited", it may be expected that the remedy 
foreseen with respect to such subsidies would be  at least as encompassing as that foreseen with 
respect to actionable subsidies that are not prohibite d but that have demonstrated adverse effects on 
other WTO Members.   
4.102  The notion of "appropriate countermeasures" must  therefore, in our view, be understood to 
permit countermeasures that would at least reflect th e level of any adverse effects incurred by the 
complaining Member as a result of the granting and maintenance of the prohibited subsidy at issue.  
Countermeasures under Article 4.10 of the SCM Agreement  would be "appropriate ", and could not be 
considered to be "disproportionate" within the meani ng of that provision, if they were proportionate, 
or at least not disproportionate, to the adverse e ffects suffered by the complaining Member as a result 
of the prohibited subsidy at issue.  
4.103  Brazil highlights the specificities and the "more st ringent" character of the dispute settlement 
provisions under the SCM Agreement  for prohibited subsidies.163  In Brazil's view, "adopting a 
benchmark tied to the "economic disadvantage" suffe red by a prevailing Member, or in other words, 
the "impact" or "effect" of a prohibited subsidy on th at Member, would be fundamentally inconsistent 
                                                      
163 See Brazil's written submission, para. 40.  WT/DS267/ARB/1 
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  with a proper interpretation of Articles 4.10 and 4.11 of the SCM Agreement ".164  In Brazil's view, 
these provisions, unlike Article 22.4 of the DSU,  do not limit countermeasures to the "economic 
disadvantage" suffered by a complaining Me mber. Instead, the countermeasures must be 
"appropriate" and not "disproportiona te" in light of, for example, the nature of the prohibited 
subsidy".165   
4.104  We agree that "appropriate countermeasures"  would entitle a complaining Member to 
countermeasures that do not exactly  reflect the adverse effects of the inconsistent measure on itself.  It 
is clear also that the terms "appropriate counter measures" and footnote 9 contain no requirement of 
exact equivalence or "commensurateness" betw een such adverse effects and the level of 
countermeasures.  Furthermore, as we have de termined above, the terms of the footnote to 
Article 4.10 of the SCM Agreement  make it clear that it would be legitimate to specifically take into 
account the prohibited nature of the subsidy, as such , in an assessment of th e permissible level of 
countermeasures.  At the same time, as we have determined above, we are not persuaded that this 
implies that countermeasures under Article 4.10 of the SCM Agreement  should bear no relationship to 
such effects, or could be "disproportionate" to th em, taking into account also the prohibited nature of 
the subsidy.   
4.105  Both parties highlight the fact that Article 4.10, by contrast with Article 7.9 of the 
SCM Agreement , is concerned with subsidies that are prohi bited in themselves, so that it is that 
subsidy itself, and not only its adverse effects, th at are of concern.  Thus, Brazil argues that "in 
determining whether proposed count ermeasures are "appropriate", the pr ohibited nature of the subsidy 
is an important factor".166  Brazil emphasizes the fact that footnote 9 clarifies that the assessment of 
"appropriate countermeasures" and "p roportionality" is to be made "i n light of" the nature and legal 
status of the measure at issue.167  Drawing also on footnote 9,  the United States observes that 
"'appropriate countermeasures' cannot be 'disproportionate' in light of the fact that the subsidies dealt 
with are prohibited – in other words, it is not just the adverse effects caused by the subsidies that are 
of concern, as it is under Article 7.  Rather , the subsidies themselves are of concern".168 
4.106  In our view, the use of the term "appropriate" rather than a strict quantitative benchmark, the 
reference in footnote 9 to the prohibited status of th e subsidy at issue, as well as the contrast between 
the terms of Article 4.10 of the SCM Agreement  and other comparable provisions, confirm that 
"appropriate countermeasures" are not limited to a stri ct quantification of the adverse trade effects on 
the complainant, and can take into account the entir ety of the situation at hand, including the gravity 
of the breach.169  At the same time, we are not convinced  that the absence of express reference in 
Article 4.10 of the SCM Agreement  to the level of nullification or im pairment or to the adverse effects 
arising from the prohibited subsidy necessarily implies th at considerations relating to the trade effects 
of the subsidy cease to be relevant in a determinati on of the level of countermeasures to be authorized 
under Article 4.10 of the SCM Agreement .  Rather, as we have determined above, we would expect 
these considerations to be a central element of what is pertinent in an assessment of "appropriateness".   
                                                      
164 Brazil's responses to questions from the Arbitrator, question 75, para. 34. 
165 Brazil's responses to questions from the Arbitrator, question 75, para. 35. 
166 Brazil's written submission, para. 36. 
167 Brazil's responses to additional questions from the Arbitrator, question 75, para. 36. 
168 US responses to questions from the Arbitrator, question 43, para. 55. 
169 Exactly  calculating such effects is difficult, if not impo ssible, and is not what Article 4.10 calls for.  
A range of factors can be presented to an arbitrator, together with a number of calculation methods.  The 
arbitrator need not calculate direct eq uivalence, but instead may accept what th e arbitrator feels to be within the 
bounds of what is appropriate in th e circumstances of the case.  However,  the legal approach must emanate from 
the terms of the SCM Agreement , the economic principles applied must be logical and unified, and the claims 
concerning the trade effects must be relevant and reasonable.   WT/DS267/ARB/1 
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  4.107  We therefore read the difference in wording between Articles 4.10 of the SCM Agreement  and 
Article 22.4 of the DSU and Article 7.9 of the SCM Agreement  respectively, and the use of the term 
"appropriate" in Article 4.10 of the SCM Agreement , to imply that an appropriate countermeasure is 
not limited to exact equivalence with the level of its adverse trade effects on the complaining 
Member.  Nonetheless, the considerations that ar e at the heart of determinations under these other 
provisions are not irrelevant under Article 4.10 of the SCM Agreement .  Rather, we read the terms of 
Article 4.10 of the SCM Agreement  as allowing greater flexibility in the context of countermeasures 
involving prohibited subsidies to take into account the specificities of the situation at hand, but always 
having regard to the impact of the ille gal measure on the complaining Member.  
3. Object and purpose 
4.108  Brazil emphasizes that a purpose of countermeasures under Article 4.10 of the 
SCM Agreement is to induce compliance.  In Brazil's vi ew, "countermeasures are 'appropriate' and not 
'disproportionate' to the extent they provide [an] in centive [to reconsider its refusal to withdraw the 
subsidy]".170  The United States, for its part, considers that the objective of countermeasures is to 
"rebalance rights and obligations" and concludes th at the proportionality of countermeasures must be 
assessed having regard to the adverse effect s of the measure on the complainant.  
4.109  We note that the objective of "inducing complia nce" in relation to retaliatory measures was 
first recognized in the context of proceedings un der Article 22.4 of the DSU.  The arbitrator on EC – 
Bananas III (US) (Article 22.6 – EC)  thus found that:  
"[T]he overall objective of compensation or  the suspension of concessions or other 
obligations as described in Article 22.1: 
'Compensation and the suspension of concession or other obligations 
are temporary measures available in the event that the recommendations or rulings are not implemented within a reasonable 
period of time.  However, neither compensation nor the suspension of 
concessions or other obligations is preferred to full implementation of 
a recommendation to bring a measure into conformity with the 
covered agreements.  Compensation is voluntary and, if granted, shall 
be consistent with th e covered agreements.' 
Accordingly, the authorization to suspe nd concessions or other obligations is a 
temporary measure pending full implementation by the Member concerned.  We 
agree with the United States that this temporary nature indicates that it is the purpose 
of countermeasures to induce compliance .  But this purpose does not mean that the 
DSB should grant authorization to suspend concessions beyond what is equivalent to 
the level of nullification or impairment.  In  our view, there is nothing in Article 22.1 
of the DSU, let alone in paragraphs 4 and 7 of Article 22, that could be read as a 
justification for counter-measures of a punitive  nature."
171 
4.110  As the cited passage makes clear, the arbitrator in that dispute did not consider that the 
objective of "inducing compliance" implied that this  constituted the benchmark by which retaliatory 
measures may be quantified.  Rather, the objective of inducing compliance defined the purpose  of 
suspension of concessions or other obligations, while the benchmark (in that case, Article 22.4 of the 
DSU) required that the level of suspension of concessions or other obligations should be in line with 
the trade effects of the illegal measure on the complainant.   
                                                      
170 Brazil's responses to questions from the Arbitrator, question 76, para. 41. 
171 Decision by the Arbitrators, EC – Bananas III (US) (Article 22.6 – EC) , para. 6.3.  WT/DS267/ARB/1 
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  4.111  This objective of suspension of concessions or  other obligations under Article 22.4 of the 
DSU has been recently confirmed by the Appellate Body in US – Continued Suspension .172  P r i o r  
arbitrators have also found that the objective of countermeasures under Article 4.10 of the SCM Agreement  is to "induce compliance".
173   
4.112  We agree that countermeasures under Article 4.10 of the SCM Agreement  serve to "induce 
compliance".  However, it seems abundantly clear that this purpose does not, in and of itself, 
distinguish Article 4.10 from the other comparable provisions in the WTO Agreement.  "Inducing 
compliance" appears rather to be the common pur pose of retaliation measures in the WTO dispute 
settlement system, including in the context of Article 22.4 of the DSU.  The fact that countermeasures 
under Article 4.10 of the SCM Agreement  serve to induce compliance does not in and of itself provide 
specific indications as to the level  of countermeasures that may be permissible under this provision. 
4.113  This distinction is also found under general rul es of international law, as reflected in the ILC's 
Articles on State Responsibility, which have been  referred to by Brazil in these proceedings.  
Article 49 of these Draft Articles defines "inducing compliance" as the only legitimate object of countermeasures, while a separate provision, Article  51, addresses the question of the permissible 
level of countermeasures, which is defined in relation to proportionalit y to the injury suffered, taking 
into account the gravity of the breach.
174   
4. Conclusion 
4.114  In conclusion, we have found that the terms "appropriate countermeasures", as informed by 
footnote 9 of the SCM Agreement, entitle the complaining party to countermeasures that are suited to 
the circumstances of the case. This can lead to a c ountermeasure being authorized at a level that is 
within the range of the trade-distorting impact that  can fairly be said to arise for the complaining 
Member from the failure to withdraw the illegal measu re.  We have also determined that footnote 9 
further invites us to ensure that  the countermeasures to be authorized are not excessive, having regard 
to the extent to which the trade of the complain ing party has been affected, and taking into account 
also the prohibited nature of the subsidy.   
4.115  Our interpretation, in our view, takes due account of the circumstances arising from the 
dispute at hand, including not only the prohibited nature of the subsidy at issue as such, but also the 
manner in which that illegal measure adversely affects the interests of the complaining Member.  We 
wish to emphasize that this in no way modifies the f act that the Member concerned is required by the 
recommendations and rulings of the DSB to withdraw  fully the subsidy at issue, which has been 
determined to be prohibited.   
4.116  It might be suggested that our Member-specific measurement of the trade-distorting impact of 
prohibited subsidies when assessing a countermeasure under Article 4.10 of the SCM Agreement  
limits the extent of countermeasu res which can be imposed and du lls the effectiveness of such 
measures thereby making them less powerful for th e purpose of inducing compliance.  However we 
are in no doubt that this is the correct interpretati on of Article 4.10, for all of the reasons we have 
mentioned.  Whilst an authorized countermea sure addressing only the impacts on a complaining 
Member will always be of a lesser quantum than the one which would address the impacts on all 
Members, this does not mean that authorized count ermeasures will not be effective or will not induce 
compliance.  The degree of the impact on the compla ining Member might be quite significant, and the 
                                                      
172 See Appellate Body Report, US – Continued Suspension , para. 309. 
173 See Decision by the Arbitrator, US – FSC  (Article 22.6 – US) , para. 5.57; Decision by the 
Arbitrator, Canada – Aircraft  Credits and Guarantees (Article 22.6 – Canada) , paras. 3.11 and 3.47.   
174 See http://untreaty.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf . WT/DS267/ARB/1 
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  countermeasure itself might be quite powerful de pending on the trade relati onship of the parties 
concerned.   
4.117  We also note that it is open to all Members who consider that their interests are affected by 
the violating measure to initiate dispute settlement proceedings and ultimately, if the dispute should 
reach that stage, to seek "appropriate" count ermeasures that would take due account of the 
circumstances in that dispute.  We note in this respect the terms of Article 4.11 of the DSU, which 
provides that a Member whose request  to be joined in consultations  initiated by another Member has 
been declined, and who considers that benefits accruing to it are being nullified or impaired, may 
initiate its own consultations.  We  also note the possibility of several Members presenting multiple 
complaints about the same factual situation as for eseen in Article 9 of the DSU.  In the event of 
multiple complaints, the levels of "appropriate" countermeasures that could be attained would 
accordingly increase, thereby increasing the contri bution that the countermeasures can make to 
"inducing compliance".  
E. ASSESSMENT OF BRAZIL 'S PROPOSED COUNTERMEASURES  
4.118  Having clarified the meaning of Article 4.10 of the SCM Agreement and what constitutes 
"appropriate countermeasures" under this provision, we now turn to an examination of the 
countermeasures proposed by Brazil in relation to the GSM 102 programme.   
4.119  In approaching this determination, we reca ll our finding in paragraph 4.22 above that the 
burden rests on the United States to demonstrate th at the countermeasures proposed by Brazil are not 
appropriate.  We also recall our fi ndings in paragraph 4.107 above that  the terms of Article 4.10 of the 
SCM Agreement  allow a degree of flexibility in the appreciation of what may constitute "appropriate 
countermeasures" within the meaning of Article 4. 10.  We have also determined that the terms 
"appropriate countermeasures", as informed by footnote 9 of the SCM Agreement, entitle the 
complaining party to countermeasures that are suite d to the circumstances of the case, and that this 
may at least counter the level of trade of the compla ining Member that is being adversely affected by 
the illegal measure.  We have also determined that th e footnote further invites us to ensure that the 
countermeasures to be authorized are not excessive, ha ving regard to the extent to which the trade of 
the complaining party has been affected, and taking  into account also the prohibited nature of the 
subsidy. 
4.120  With these determinations in mind, we now tu rn to a consideration of Brazil's proposed 
countermeasures in relation to the GSM 102 programme.   
1. Main arguments of the parties 
4.121  Brazil describes its methodology for the calcu lation of its proposed countermeasures in 
relation to the GSM 102 programme as a methodology to "calculate countermeasures proportionate to 
the annual amount of prohibited GSM 102 export credit guarantees issued for export transactions 
involving unscheduled products, rice, pig meat a nd poultry meat".  Brazil's methodology encompasses 
two elements: (i) the interest rate discounts secu red by creditworthy and non-creditworthy foreign 
obligors on credits backed by GSM 102 guarantees ("in terest rate subsidy" or IRS);  and (ii) 
estimating the additional export sales obtained by US exporters as a result of these discounts175 
("additionality").   
4.122  Brazil has described this methodology as basi ng the amount of appropriate countermeasures 
on the quantum of certain "benefits" flowing from prohibited GSM 102 subsidies.176  I n  B r a z i l ' s  
                                                      
175 Brazil's written submission, para. 74 an d Brazil's Methodology Paper, para. 5. 
176 Brazil's responses to questions from the Arbitrator, question 13, para. 145.  WT/DS267/ARB/1 
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  words, its methodology "captures two distinct benefi ts conferred by GSM 102 ECGs – the preferential 
interest rates granted to foreign purchasers of US goods and the additiona l exports generated by 
US exporters as a result of the preferential fina ncing enabled by the US Government guarantee".177    
4.123  Brazil applies this methodology to its estimate of GSM 102 export credit guarantees in 
FY 2006 and arrives at annual countermeasures e qual to US$1.155 billion.  This amount can be 
subdivided into:  (i) interest rate subsidy amounti ng to US$237.4 million, (ii) marginal additionality 
amounting to US$62.3 million, and (iii) full a dditionality amounting to US$855 million.   
4.124  In the United States' view, Brazil's methodol ogy cumulates, without sufficient evidence, 
"multiple alleged "benefits" (supposed interest rate  subsidy and additional trade resulting from the 
purported interest rate subsidy)".  The United St ates argues that "this collection of benefits is 
speculative, and (particularly in li ght of the lack of evidence on add itionality and pass through) it is 
not at all clear these are results of the "wrongful act" of the United States in providing the subsidy".178  
4.125  The United States considers that the only basis for calculating appropriate countermeasures in 
the circumstances of this case is the "net cost to Government".  At the same time, the United States 
also considers that this amount must then be adju sted to reflect the impact of the measure on Brazil.179  
In the United States' view: 
"The amount of the subsidy may be used as a proxy for trade effects of the subsidy, in 
the context of applying the special and additi onal rule of Article 4.11.  However, both 
methods to the amount of the subsidy put fo rward in this proceeding – the cost to 
government approach previously used by the DSB and detailed by the United States 
and the erroneous benefits-plu s-additionality  approach by Brazil – estimate the total 
subsidy amount for the guarantees at issue fo r the entire  program for the particular 
products at issue.  Thus, both approaches result in an amount that serve as proxy for 
the program's effects on the entire world,  without regard for whether Brazil is 
affected by the subsidy. 
Accordingly, and consistent with the notion that a breach of WTO rules results in 
nullification or impairment of benefits accruing to a Member,  a method of reducing 
the total subsidy amount to only the portion affecting Brazil is necessary."180 
4.126  In effect, the United States asks the Arbitrator to use the amount of the subsidy as the 
principle that should be applied to working out th e quantum of the countermeasure; that the quantum 
is the net-cost to government; and that the net-cost  then needs to be broken down further still so that 
the only part of the net cost that is measured fo r the purposes of the quantum is that which affects 
Brazil.  The United States therefore proposed a two- stage approach, first based on the "amount of the 
subsidy" and then its "trade effects".   
2. Analysis by the Arbitrator 
4.127  Brazil has presented a methodology that it describes  as intending to reflect the "amount of the 
subsidy".  The United States does not disagree with the choice of the "amount of the subsidy" as a starting point for the calculations.  However, it e ffectively considers that Brazil's approach to 
calculating the amount of the subsidy is flawed.  Specifically, it considers that Brazil's approach, 
which proceeds on the basis that the amount of th e subsidy should be based on the calculation of 
                                                     
 
177 Brazil's written submission, para. 78. 
178 US responses to questions from the Arbitrator, question 43, para. 61. 
179 See US written submission, para. 107. 
180 US responses to questions from the Arbitrator, question 104, paras. 86-87. WT/DS267/ARB/1 
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  certain "benefits" arising from the GSM 102 programme , in fact cumulates various "benefits" in a 
speculative manner.  The United States also argue s that amounts claimed by Brazil are not, indeed, 
"benefits" under Article 1.1(b) of the SCM Agreement , contrary to Brazil's claim that they can be so 
considered. In the United States' view, the proper approach to a calculation of the "amount of the 
subsidy" should be, instead, the "net cost" to th e US Government of granting the GSM 102 subsidies, 
because that is the legal basis on which the underlying  findings in this case were made.  Furthermore, 
the United States considers that this amount should then  be adjusted, in order to reflect only that part 
of the net cost which impacted on Brazil.  
4.128  We recall our earlier determination that our ma ndate requires us to consider whether the 
countermeasures proposed by Brazil are "appropriate " within the meaning of Article 4.10 of the 
SCM Agreement.  We also recall that the United States,  as the party challenging these proposed 
countermeasures, bears the burden of demonstrating that they are not appropriate.  The starting point 
for our analysis will be to explain the countermeasu res as proposed by Brazil.  Having done that, we 
will then consider the United States ' argument that Brazil's proposed "benefits" approach in fact does 
not accurately reflect the "amount of the subsidy" as Brazil argues.  
4.129  Should we determine that the United St ates has established that Brazil's proposed 
countermeasures as presented (or any element of th em) would not be "appropr iate", then we would 
need to determine whether the United States proposal  was itself "appropriate", or whether a different 
methodology for that purpose is required to wo rk out what would constitute "appropriate 
countermeasures" in the circumstances of this case.   
(a) Brazil's proposed "benefits" approach 
4.130  Brazil has described its methodology for calcu lating its proposed countermeasures as being 
based on a calculation of the "amount of the subsid y".  The United States does not disagree with this 
approach as a starting point for the calculation of proposed countermeasures, although it considers 
that this amount should be sub sequently adjusted for the impact of the subsidy on Brazil alone.  
However, the United States also considers that  Brazil's methodology for the calculation of the 
"amount of the subsidy" does not correctly reflect this amount. 
4.131  In addressing this issue, we find it useful to cl arify first the notion of "amount of subsidy" 
upon which both parties rely in their arguments as a basis for the calculation of "appropriate 
countermeasures" under Article 4.10 of the SCM Agreement .  We will then consider the US challenge 
to Brazil's proposed approach to the determ ination of the "amount of the subsidy".  
(i) The "amount of the subsidy" as a basis for th e calculation of appropriate countermeasures 
4.132  In the three prior cases in which count ermeasures under Article 4.10 of the SCM Agreement  
have been considered, the arbitrators had recourse to  the "amount of the subsidy" as the basis for the 
calculation of "appropriate countermeasures".181  This is also the principle on which Brazil purports to 
calculate the level of "appropriate countermeasu res" in these proceedings.  The United States, as 
already noted above, does not disagree, as a matter of principle, with the use of the amount of the 
subsidy as a starting point for the Arbitrator's analysis in this case.   
                                                      
181 In Brazil – Aircraft (Article 22.6 – Brazil) , the full payments made under the programme were used 
a basis for the calculation.  In US – FSC (Article 22.6 – US) , the calculation was based on the annual 
expenditure by the US Government.  Finally, in the Canada – Aircraft Credits and Guarantees (Article 22.6 – 
Canada)  case, the amount of the subsidy was calculated on the basis of the benefit conferred by the loan, which 
was found to correspond to "the difference between the amount Air Wisconsin pays on the loan from EDC and 
the amount Air Wisconsin would pay on a comparable commercial loan which that company could actually obtain on the market" (Deci sion by the Arbitrator, Canada – Aircraft  Credits and Guarantees  (Article 22.6 – 
Canada) , para. 3.60).    WT/DS267/ARB/1 
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  4.133  The use of the "amount of the subsidy" in prior cases does not imply, however, that the 
arbitrators in these earlier cases neces sarily considered that the "amount of the subsidy" was the only 
basis on which "appropriate countermeasures" might have been calculated. In fact, as we understand 
it, the arbitrators in these cases took into account the fact that the legal standard embodied in 
Article 4.10 of the SCM Agreement  allows greater flexibility than those under Article 22.4 of the DSU 
or Article 7.9 of the SCM Agreement  to tailor the countermeasures to the specific circumstances of the 
case at hand, but did not exclude trade effects as a re levant consideration.  In fact, in these decisions, 
some form of consideration was given to the trade effects of the measure on the complaining 
Member.182  As the United States has acknowledged in these proceedings, "while prior arbitrators 
considering requests for countermeasures for prohib ited subsidies have used an "amount of the 
subsidy" approach, they also have ackno wledged the "trade effects" approach".183   
4.134  Subsidies may operate in a variety of ways, a nd, depending on the design of the subsidy, as 
well as its actual operation on the market, the tr ade effects of the subsidy may be complex to 
establish.  This is well illustrated by the Canada – Aircraft Credits and Guarantees (Article 22.6 – 
Canada)  and the US – FSC (Article 22.6 – US)  cases.  As we have observed above, the terms of 
Article 4.10 of the SCM Agreement  allow some flexibility in the manner in which "appropriate 
countermeasures" might be calculated.   
4.135  This Arbitrator is not convinced, however, that an "amount of subsidy" approach, of itself and 
without adjustment, will always be consistent with the legal standard embodied in Article 4.10 of the 
SCM Agreement .  Actually, we think that in most cases such an approach will not be "appropriate", 
notwithstanding its convenience, from a calculation perspective, and its literal attraction, from a 
"withdraw the subsidy" perspective. As we ha ve determined above, a consideration of the 
                                                      
182 In Brazil – Aircraft (Article 22.6 – Brazil) , both parties suggested that the calculation could be based 
on the amount of the subsidy.  The arbitrator considered that this was "appropriate".  The arbitrator however 
also noted that it was of the view that "a calculation ba sed on the level of nullification or impairment would, as 
suggested by the calculation of Canada based on the harm caused to its industry, produce higher figures than one 
based exclusively on the amount of the subsidy" (Decision by the Arbitrators, Brazil – Aircraft (Article 22.6 – 
Brazil) , para. 3.54.) 
In US – FSC (Article 22.6 – US) , the requesting Member sought an authorization to take 
countermeasures based on the amount expended by the subsidizing Member (the United States) in granting the subsidy.  The arbitrator, having previously dete rmined that the terms of Article 4.10 of the SCM Agreement  did 
not constrain countermeasures to trade effects, first considered the proposed countermeasures in relation to the 
prohibited subsidy, and considered that the counterm easures proposed by the European Communities could be 
considered "appropriate" within th e meaning of Article 4.10 of the SCM Agreement , "on the basis of their 
relation to the initial violating measure". The arbitrator nonetheless then continued its analysis and considered 
the proposed countermeasures on the basis of their relatio n to the trade effects of th e subsidy on the European 
Communities, recalling its earlier findings that it had not interpreted Article 4.10 "to preclude a Member from 
taking countermeasures that are tailored to counter the ad verse effects it has suffered as a result of the illegal 
measure" and that "the expression 'appropriate counte rmeasures', in [its] view, would entitle the complaining 
Member to countermeasures which would at least counte r the injurious effect of the persisting illegal measure 
on it."   
In Canada – Aircraft Credits and Guarantees (Article 22.6 – Canada) , the Arbitrator first considered 
the approach proposed by th e requesting Member (Brazil), based on th e adverse trade effects of the subsidy on 
Brazil on the basis of lost sales/competitive harm.  It wa s only after determining that the assumptions underlying 
the methodology proposed by the requesting Member were not valid and that this proposed methodology did not 
justify the level of countermeasures, that the arbitr ator turned to a calculation of the "appropriate" 
countermeasures based on the amount of the subsidy.  As we understand the ruling of the arbitrator in that case, it did not exclude, a priori, that a calculation based on the trade effects could be the basis for "appropriate 
countermeasures".  Rather, it is only because it was not persuaded that the actual cal culation of trade effects 
proposed by the requesting Member accura tely reflected these trade effects, that it discarded the approach based 
on trade effects as proposed by the requesting Member.   
183 US responses to questions from the Arbitrator, question 71, para. 5. WT/DS267/ARB/1 
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  "appropriateness" of countermeasures, and in partic ular the requirement for the countermeasures not 
to be "disproportionate", suggests that there should be a degree of relations hip between the level of 
countermeasures and the trade-distorting impact of the measure on the complaining Member.   
4.136  As noted above, we do not exclude  that, in particular circumst ances, the complaining Member 
could perhaps rightly claim that a countermeasu re in the amount of the subsidy would be 
"appropriate".  However, in most cases, the trade- distorting impact of the subsidy on one or several 
other Members would not necessarily bear any particul ar relationship to the amount of the subsidy.  
As observed by previous arbitrators, the amount of the subsidy may in fact be lower than its trade 
effects, and apportioning it would or dinarily exacerbate that likelihood.184  This amount therefore does 
not seem to us to be a priori  appropriate, nor is it necessarily propor tionate to the extent to which the 
trade of the Member concerned is adversely aff ected.  In these circumstances, it cannot be assumed 
that the total amount of the subsidy is an appropriate  measure of its trade effects, or even that it is 
necessarily a relevant "proxy" for those effects.   
4.137  Complaining Members do have choices with resp ect to the amount of countermeasures they 
seek to impose, and it is the task of an arbitrat or to determine whether the choice leads to an 
appropriate outcome which is cons istent with the rights and obliga tions spelt out in the covered 
Agreements, the nature of the subsidy concerned a nd the remedy which is offered, and the balance 
struck between the rights of all Members.  We  recall in this context our interpretation of 
"appropriateness" in the case of countermeasures agains t prohibited subsidies, in particular its less 
precise quantitative constraints.  In particular, we not e our previous observation that a range of factors 
can be presented to an arbitrator, together with a number of calculation methods.  The arbitrator need 
not calculate direct equivalence, but instead may accept what the arbitrator feels to be within the 
bounds of what is appropriate in the circumstance s of the case.  The legal approach must emanate 
from the terms of the SCM Agreement , the economic principles applied must be logical and unified, 
and the claims concerning the trade effects must be relevant and reasonable.   
4.138  Notwithstanding these observations, in light of the fact that Brazil has proposed basing its 
countermeasures on the principle that the amount of the subsidy is an "appr opriate" benchmark, and 
that the United States does not challenge this as a st arting point for the calculation, we now examine 
Brazil's proposed methodology for the actual calculation of the amount of the GSM 102 subsidy.  
(ii) Brazil's "benefits" approach to the calcul ation of the "amount of the subsidy" 
4.139  Brazil purports to apply countermeasures on th e basis of the amount of the subsidy.  
According to Brazil, that amount comprises two subsidy "benefits" within the meaning of Article 1.1(b) of the SCM Agreement :
185 (i) the interest rate subsidies ("IRS") and (ii) the additional 
sales resulting from the GSM 102 payments.   
4.140  In response to a question from the Arbitrator, Brazil has explained that "the amount of a 
subsidy is the monetary value of the benefits, or  in the Appellate Body's words, 'advantages', 
conferred by a financial contribution" and that it "proposes a formula that calculates the 'amount of the subsidy', based on two distinct 'benefits' or 'adva ntages', from 'financial co ntributions' in the form 
of GSM 102 guarantees".  Thus, "in these proceedings, Brazil's use of the term 'amount of the subsidy' 
                                                     
 
184 See Decision by the Arbitrators, Brazil – Aircraft (Article 22.6 – Brazil) , para. 3.54: "given that 
export subsidies usually operate with a multiplying effect, (a given amount allows a company to make a number 
of sales, thus gaining a foothold in a given market with the possibility to expand and gain market shares), we are 
of the view that a calculation based on the level of nu llification or impairment would, as suggested by the 
calculation of Canada based on the harm caused to its industry, produce higher figures than one based 
exclusively on the amount of the subsidy".  This passage is also cited by the arbitrator in US – FSC (Article 22.6 
– US) , at footnote 88 of its Decision.   
185 Brazil's written submission, para. 74.  WT/DS267/ARB/1 
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  is intended to be interchangeable with the cumu lative amount of these two advantages or 'benefits … 
conferred' by GSM 102 guarantees."186  
4.141  According to Brazil, "using the terms of this provision", the "amount of the subsidy" can be 
calculated for the purposes of this case on the basis of the two "benefits" it identifies.187  Brazil relies 
on the interpretation of the notion of "benefit" under Article 1 of the SCM Agreement  by the Appellate 
Body, and highlights in particular the fact that the Appellate Body has defined the term "benefit" as an 
"advantage" and that, in the words of the Appellate Body, "there can be no "benefit" to the recipient 
unless the "financial contribution" makes the recipien t "better off" than it would otherwise have been, 
absent any contribution".188  Brazil concludes that the relevant question therefore is "to what extent is 
the recipient "better off" than it would have  been absent the financial contribution?"189   
4.142  Brazil considers that the two "benefits" that it identifies in relation to GSM 102 guarantees 
reflect advantages that the beneficiaries would not  have secured in the marketplace in the absence of 
the US Government's financial contribution. With r espect to the "IRS" component of its calculations, 
Brazil explains that "through GSM 102 guarantees, disc ounted financing is provided, on terms that are 
better than could otherwise have been obtained.  I ndeed, in some cases, no financing could have been 
obtained in the marketplace, because the foreign obligor is not creditworthy.  These are valuable and 
measurable commercial and economic advantages that constitute a 'benefit'."190  Brazil further 
explains how the "additionality" component of its proposed countermeasures also constitutes a 
"benefit": "through GSM 102 guarant ees, US exporters are able to export greater ('additional') 
quantities of agricultural commod ities than they would have exported in the absence of those 
guarantees.  Again, these are valuable and measurable commercial and economic advantages that constitute a 'benefit'."
191 
4.143  The United States argues that Brazil's "collection of benefits" is "speculative" and that it is not 
at all clear these are the results of the "wrongful act" of the United States in providing the subsidy.192 
The United States notes that Brazil's arguments sugg est that any "benefit" that results from a subsidy 
can be called a benefit.  In the United States' view , "for the purposes of this proceeding, it is necessary 
to be more precise because of the importance of these concepts in identifying a principle for an award 
of countermeasures.  "Benefits" are those conferred by the governmental financial contribution.  Other 
results, such as trade effects, may occur.  But th ese are not "benefits" within the meaning provided by 
the SCM Agreement ".193 
4.144  The United States considers that what Brazil has described as "benefits" does not actually 
represent such "benefits" within the meaning of the SCM Agreement .  We therefore consider whether 
the two "benefits" described by Brazil in its me thodology for the calculation of the amount of the 
subsidy do in fact constitute such "benefits" within the meaning of the SCM Agreement , as Brazil 
argues.  
4.145  Article 1.1 of the SCM Agreement  defines the term "subsidy".194  Under this provision, a 
subsidy exists if there is a "f inancial contribution by a government" and "a benefit is thereby 
conferred" within the meaning of Article 1.1(b).  The Appellate Body has clarified that benefit is 
                                                      
186 Brazil's responses to questions from the Arbitrator, question 85, para. 74. 
187 Brazil's responses to questions from the Arbitrator, question 88, para. 97. 
188 Brazils' responses to questions from the Arbitrator, question 86, para. 76. 
189 Brazil's responses to questions from the Arbitrator, question 86, para. 77. 
190 Brazil's responses to questions from the Arbitrator, question 86, para. 78. 
191 Brazil's responses to questions from the Arbitrator, question 86, para. 79. 
192 US responses to questions from the Arbitrator, question 43, para. 61. 
193 US comments on Brazil's responses to questions from the Arbitrator, question 90, para. 68. 
194 Brazil's responses to questions from the Arbitrator, question 88, para. 97. WT/DS267/ARB/1 
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  "identified by determining whether the recipient h as received a 'financial contribution' on terms more 
favourable than those available to  the recipient in the market".195 
4.146  The parties disagree on the precise nature of the subsidization at issue in this proceeding.  
Brazil invites us to adopt a specific understanding of the term "amount of the subsidy" for the 
purposes of these proceedings, based on the notion of "benefits" contained in Article 1.1(b) of the 
SCM Agreement , and encompassing two distinct "benefits " in the form of the IRS and of 
"additionality".  According to the United States, ther e is no basis for finding that any additional sales 
made by US exporters constitute "benefit" w ithin the meaning of Article 1.1(b) of the 
SCM Agreement . 
4.147  The basic premise behind Brazil's argument is th at IRS and additionality are separate benefits 
conferred by the same financial contribution, i.e. the GSM 102 guarantee.196  Benefit is established in 
the first instance197 by reference to the terms on which a fi nancial contribution is provided to the 
recipient. This is consistent with the contex tual guidance afforded by Article 14 of the 
SCM Agreement , which provides guidelines for calculating the amount of a subsidy in terms of the 
benefit to the recipient.  The relevant financia l contribution in the present instance is the GSM 102 
loan guarantee.  Consistent with the contextu al guidance afforded by Article 14(c) of the 
SCM Agreement , which deals specifically with loan guaran tees, Brazil says that the amount of benefit 
conferred by the GSM 102 loan guarantee is the "difference between the amount that the firm 
receiving the guarantee [i.e. the recipient] pays ... and the amount that the firm [i.e. the recipient] would pay on a comparable commercial loan absent the government guarantee."  We note that Brazil 
determined the amount of IRS by reference to "the present value  of the spread between (i) the interest 
rate at which those obligors would have been ab le to borrow in the absence of GSM 102 ECGs, and 
(ii) the subsidized interest rate enabled by those ECGs."
198  In our view, this is broadly consistent with 
the approach outlined in Article 14(c) of the SCM Agreement , in the sense that it calculates the 
amount of interest rate subsidy to the recipient of the GSM 102 guarantee (noting that the recipient in the first instance is a foreign obligor, an d not a party in the United States itself). 
4.148  Having calculated the amount of benefit confe rred by the GSM 102 guarantees consistently 
with Article 14(c) of the SCM Agreement , we do not see any other basis on which Brazil might 
calculate some additional  benefit conferred by those guarantees,  as this term is defined for the 
purposes of Article 1.1 of the SCM Agreement .  Since benefit is established in the first instance by 
reference to the recipient of a financial contribution,  it is with regard to the recipient of the GSM 102 
guarantees, i.e. the foreign obligors, that the ex istence of any benefit conferred by the GSM 102 
guarantees must be established.  Thus, having calcula ted the benefit conferred on the foreign obligors, 
Brazil has effectively exhausted the potential for establishing benefit conferred by those financial 
contributions.
199 
                                                      
195 Appellate Body Report, Canada – Aircraft , para. 157. 
196 See, for example, para. 10 of Brazil's responses to questions ("IRS and additionality are ... both 
"benefit[s] ... conferred" by a "financial contribution" in the form of a GSM 102 guarantee"). 
197 As discussed below, benefit may also be established,  in the second instance, by virtue of the concept 
of "pass-through". 
198 Brazil's Methodology Paper, para. 8. 
199 Brazil has referred to the findings of the panel in Brazil – Aircraft  (Article 21.5 – Canada II ) in 
support of its argument that GSM 102 guarantees confer an additional benefit on US exporters.  That was a case 
in which the Brazilian Government provided export cred its through interest rate equalisation payments to 
entities financing exports of regional aircraft.  Such pa yments enabled the lenders to offer better export credit 
terms than they would otherwise have been able to make available.  Brazil relies in particular on the following 
extract from that panel's report: 
"We note that PROEX III payments are made in  support of export credits extended to the 
purchaser , and not to the producer , of Brazilian regional aircraft.  In our view, however, to the  WT/DS267/ARB/1 
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  4.149  Accordingly, we reject Brazil's argument that the additional sales resulting from the GSM 102 
payments constitute "benefit" within th e meaning of Article 1.1(b) of the SCM Agreement  that should 
be included within the amount of the GSM 102 guarantee subsidies in addition to the IRS benefit.  Although such additional sales may ultimately be generated by GSM 102 guarantees, they are 
properly viewed as trade effects that fall outside the de finition of subsidy set forth in Article 1.1 of the 
SCM Agreement , and are not part of the "amount of the subsidy" for our purposes.  
4.150  In support of that proposition, we also note that both Article 1.1(a) and (b) cumulatively 
define what a "subsidy" is for the purposes of the SCM Agreement .  It is not possible to determine that 
a subsidy exists unless a financial c ontribution is made, being the criteri a referred to in Article 1.1(a).  
Thus it is not enough for Brazil to argue that additiona lity is a "benefit" in order for it to be taken up 
in the calculation of the amount of the subsidy  constituted by the GSM 102 guarantee.  The Arbitrator 
notes that the income from additional sales is not a financial contribution fro m a government (i.e. the 
US Government), nor are foreign importers entrus ted or directed to make those payments (i.e. 
payments in respect of their purchases of products exported from the United States).  
4.151  Having determined that the basis upon which Brazil's methodology relies for the calculation 
of its countermeasures is more than the amount of the subsidy, because it considers "benefits" which 
extend outside the meaning of Article 1.1 of the SCM Agreement , we find that the United States has 
met its burden of proof.  The principle advanced by Brazil for the calculation of its proposed 
countermeasures is flawed.  Although advanced on an "amount of subsidy" basis, it also includes 
elements that do not constitute "benefits" within the meaning of Article 1.1(b) and instead reflects 
                                                                                                                                                                    
 
extent Canada can establish that PROEX III pa yments allow the purchas ers of a product to 
obtain export credits on terms more favourable than those available to them in the market, this 
will, at a minimum, represent a prima facie cas e that the payments confer a benefit on the 
producers  of that product as well, as it lowers the cost of the product to their purchasers and 
thus makes their product more attractive relative to competing products." (Panel Report, Brazil 
– Aircraft (Article 21.5 – Canada II), footnote 42 (emphasis in original) ). 
Although this extract does indeed refer to a benef it being conferred on producers, we do not consider 
that, when viewed in its proper context, it provides any basis for finding that the additionality identified by 
Brazil constitutes "benefit" independent of, and additional to, the IRS benefit redounding to the foreign obligor.  
Rather, Brazil – Aircraft (Article 21.5 – Canada II)  concerns the case of benefit co nferred, in the first instance, 
on the recipient of the financial contribution, "passing through", in the second instance, to other entities.  Thus, prior to the abovementioned extract, the Brazil – Aircraft (Article 21.5 – Canada II)  panel had noted that: 
"As the SCM Agreement is an Annex 1A agreement on trade in goods , and as this case relates 
to alleged export subsidies in respect of a particular good -- Brazilian regional aircraft -- it is 
incumbent upon Canada to establish that the benefit derived from PROEX III payments is not 
retained exclusively by the lender but rather is passed through in some way to producers of 
regional aircraft."
 (Panel Report, Brazil – Aircraft (Article 21.5 – Canada II), footnote 41 
(emphasis added)). 
In other words, because the SCM Agreement  only imposes subsidy disciplines in respect of trade in 
goods, and not trade in (financial) services, it was incu mbent on Canada "to establish that the benefit derived 
from PROEX III payments is passed through in some way to producers of regional aircraft" (emphasis added).  
In this regard, the panel found that evidence that PROE X III payments "allow the purchasers of a product to 
obtain export credits on terms more favourable than thos e available to them in the market ... will represent a 
prima facie  case that the payments confer a benefit on the producers  of that product as well ..." (Panel Report, 
Brazil – Aircraft (Article 21.5 – Canada II), footnote 42 (emphasis in original)).  This does not mean that the 
benefit to the producers of regional aircraft was consider ed to be separate from, and in addition to, the benefit 
conferred in the first instance on the reci pients of the financial contribution.  Rather, the benefit conferred on the 
producers was simply part of the benefit conferred in the first instance on the recipients of the financial contribution that had passed-through, in the second instance, to the producers.  In other words, the benefit 
conferred on the producers was fundamentally the same bene fit that had initially been conferred on the lenders, 
simply viewed from a different perspective.  Thus, although the IRS benefit conferred on foreign obligors might be found to pass-through, in the second instance, to US exporters, the total amount of benefit conferred by the 
GSM 102 guarantees would not increase. WT/DS267/ARB/1 
Page 48 
 
 
  certain trade effects of the measure as well.  Thus, even if we were convinced that the "amount of the 
subsidy" approach was an a ppropriate benchmark for adjudgi ng the appropriateness of the 
countermeasure sought by Brazil, we could not agree that Brazil's approach act ually does measure that 
amount, as a matter of legal principle. 
4.152  We also note that Brazil's principle does not ad mit of the need for the amount of the subsidy 
to be apportioned such that it only captures that pa rt of the subsidy which is responsible for the 
nullification or impairment felt by Brazil.  If Brazil's "benefits"-based approach had been an 
appropriate starting point, we still w ould have had to determine whether the entirety of the "amount of 
the subsidy" could be the amount of the counterme asure in circumstances where the impacts of the 
subsidy were felt by more Members than only Brazil.  Nonetheless we do not reach such a 
determination, either in considering whether th e United States has met its burden or in our own 
assessment of what can be "appropriate" in the ci rcumstances of this case, and the point is moot. 
4.153  Accordingly, we find that the United States has discharged its burden of proving that the 
countermeasure proposed by Brazil was inappropriate, in  the way it was advanced to the Arbitrator.  
Accordingly we must now turn to the question of determining what would  constitute a proper basis for 
the calculation of "appropriate countermeasures" in  this case.  We consider first whether the 
alternative approach proposed by the United States is "appropriate". 
(b) The United States' proposed alternative "n et cost to government" approach  
4.154  In this case, in the United St ates' view, the appropriate countermeasures are those based on 
the net cost to government and "any other c ountermeasures do not have their foundation in the 
specific circumstances of this case".200  At the same time, the United States considers that this amount 
should then be adjusted to reflect the impact of the subsidy on Brazil only.   
4.155  The United States asserts that, because the origin al and compliance panel findings were based 
in relevant part on item (j) of the Illustrative List , that provision constitutes the only appropriate basis 
for determining the amount of counter measures to be authorized.  The United States contends that it 
would not be appropria te to authorize countermeasures on the b asis of the "benefit" standard proposed 
by Brazil.   
4.156  In the United States' view, this approach is consistent with that of the Appellate Body, 
because the underlying findings in this case were ba sed on item (j) of the Illustrative List of Export 
Subsidies under the SCM Agreement , and the Appellate Body has e xplained that "the measure of 
value under item (j) is the overall cost to government, as the service provider, of providing the service."
201  The United States proposes to determine the "cost to the Government" of the GSM 102 
programme on the basis of the net present value approach followed by US Government agencies for 
all credit guarantee and direct loan programs.   
4.157  The United States refers to previous arbitrati ons in support of its proposition that the amount 
of the subsidy as reflected in its net cost to government is "the" appropr iate methodology for the 
determination of the quantum of "appropriate c ountermeasures" in this case.  The United States 
explains that "previous arbitrations, several of which have also involved export financing or export 
credits, have determined that, in the case of prohibi ted export subsidies the amount of the subsidy is a 
proper basis upon which "appropriate countermeasures" ma y be calculated.  In this particular case, the 
                                                      
200 US written submission, para. 25. 
201 US written submission, para. 26.  WT/DS267/ARB/1 
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  appropriate methodology is to use the amount of the subsidy as reflected in net cost to 
government."202  
4.158  For the reasons set forth below, we are unable to accept the United States' position. 
4.159  First, we note that, although the relevant findi ngs of the original and compliance panels were 
based on item (j), the United States was actually found to be in violation of Article 3.1(a) of the 
SCM Agreement .  Article 3.1(a) prohibits "subsidies" that are contingent on export performance.  It is 
the failure of the United States to withdraw such subsidies that has given rise to Brazil's right to 
impose countermeasures.  Furthermor e, the compliance panel agreed w ith the United States that the 
cost-to-government standard in item (j), and the be nefit standard in Article 1.1(b), were merely 
"alternative arguments " that could be examined in assessi ng whether the revised GSM 102 
programme constituted an export subsidy.203   
4.160  Secondly, item (j) was relied on in the origin al and compliance proceedings to determine the 
existence of prohibited subsidies.  It was not used to calculate the amount of those subsidies.  In the 
present case, the United States proposes item (j) as the only appropriate means of calculating the 
amount of the GSM 102 subsidies.  In our view, item (j) is not the only appropriate, or necessarily the 
most appropriate, basis for doing so.   
4.161  Thirdly, we do not consider that there is any legitimate basis for us to accept the a contrario  
interpretation of item (j) proposed by the United States.   Item (j) is illustrative of a situation in which 
the provision by governments of export credit guara ntee programmes constitutes an export subsidy.  
In particular, item (j) specifies that export cred it guarantee programmes constitute export subsidies 
when premium rates are inadequate to cover the long-term operating costs and losses of the 
programme.  It does not necessarily follow, though , that an export credit guarantee programme may 
never constitute a (prohibited expor t) subsidy if the premium rates are adequate to cover long-term 
operating costs and losses.  As a matter of law, it is possible that an item (j)-consistent export credit 
guarantee programme might still be found to confer a "benefit", on the basis of the standard set forth 
in Article 14(c) of the SCM Agreement . 
4.162  Finally, a related point is that amending the relevant premium rates to make GSM 102 
subsidies consistent with item (j) will not necessarily ensure full withdrawal204 of the prohibited 
export subsidy.  As noted above, the mere fact th at the GSM 102 is rendered consistent with item (j) 
does not exclude that the programme might neverthel ess continue to confer a "benefit" on the basis of 
the standard set forth in Article 14(c).  Sinc e Brazil would be entitled to continue to apply 
countermeasures until the full benefit of the GSM 102 programme has been withdrawn, we do not 
consider it appropriate to exclude consideration of  the full amount of benefit when considering the 
initial matter of the quantitative scope of such countermeasures.  
4.163  We therefore do not consider that the "net cost to government" approach proposed by the 
United States would provide a sound basis for the calculation of the "amount of the subsidy".  
                                                      
202 US written submission, para. 28. 
203 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 14.51. 
204 In US – FSC (Article 21.5 – EC II) , the Appellate Body confirmed fu ll withdrawal of the subsidy is 
required.: 
"[The] recommendation under Article 4.7 remain s in effect until the Member concerned has 
fulfilled its obligation by fully withdrawing the prohibited subsidy.  Where a Member 
withdraws a prohibited subsidy only in part, it has failed to comply fully with its WTO 
obligation and the Article 4.7 recommendation con tinues to be in effect with respect to the 
part of the subsidy that has not been withdrawn. " 
(Appellate Body Report, US – FSC (Article 21.5 – EC II) , para. 83 (original emphasis)). WT/DS267/ARB/1 
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  4.164  In summary, at this stage of our analysis, we have determined that Brazil's methodology, 
which it describes as representing th e "amount of the subsidy" in the form of "benefits" within the 
meaning of Article 1.1.(b) of the SCM Agreement , does not in fact represent such "benefits".  We have 
also determined that the United States proposed alte rnative calculation based on "cost to government" 
would not constitute an appropriate basis for the ca lculation of the "amount of the subsidy" in the 
circumstances of this case.  We do not reach th e second stage of the approach advocated by the 
United States, which is to adjust the "amount of the subsidy", so as to reflect the effects of the subsidy 
only on Brazil, and make no determination in that respect. 
4.165  Having thus determined that neither of the pa rties' proposed approaches is satisfactory, we 
must consider further what would constitute "appr opriate countermeasures" in the circumstances of 
this case.  In approaching this determination, we consider that we are not bound by the approaches 
presented by the parties and are entitled, as n ecessary, to develop our own assessment and 
methodology for the purposes of determining what would constitute "appropriate countermeasures".205  
4.166  Before we proceed with this assessment, however, we wish to make some general 
observations on the approaches proposed by the parties in this case.   
4.167  Both parties have described their proposed approaches to the calculation of "appropriate" 
countermeasures as being based on the "amount of the subsidy".  Brazil considers that this amount is 
properly reflected in the "benefits" of the IRS a nd "additionality", while the United States proposes to 
base the countermeasures on the cost to the governme nt of the subsidy, and to then "adjust" it to 
reflect only the effects of the subsidy on Brazil.   
4.168  However, we are not persuaded that either party's approach was in fact purely based on the 
"amount of the subsidy".  As we have determined  above, Brazil's calculation of "benefits" includes 
not only an amount that can be properly character ized as the "benefit" under Article 1.1 of the 
SCM Agreement  (the IRS), but also an amount that may be more accurately described as reflecting the 
"trade effects" of the GSM 102 payments (additiona l sales having accrued to US exporters as a result 
of the GSM 102 payments).  In fact, Brazil itself al so describes the two elements of its calculation as 
reflecting "economic consequences" of the GSM 102 paym ents.  This is not the same, in our view, as 
the "amount of the subsidy".   
4.169  The United States, for its part, proposes to use the amount of the subsidy as a starting point, 
but considers that this should then be adjusted to reflect only the effects on Brazil.  In response to a 
request for clarification from the Arbitrator, the Unite d States has explained that its approach is based 
both on the "amount of the subsidy" and on the "trade effects" approach.  The United States has also explained that it uses the amount of the s ubsidy as a "proxy" for its trade effects.
206  However, as we 
have explained above, we see no pa rticular reason to assume that the amount of the subsidy would 
constitute a relevant proxy for the total trade effects of the subsidy.  As was noted by the arbitrator on 
US – FSC (Article 22.6 – US) , "the proxy approach proposed by the United States is based on no 
particular economic rationale.  It simply assumes a one-to-one correspondence of dollar of subsidy to 
dollar of trade impact.  This is manifestly arbitrary."207 
4.170  In short, it seems to us that, while purporting to apply an approach based primarily on the 
"amount of the subsidy", both parties have in fact in corporated in their analysis elements that aim to 
capture the trade effects of the measure, rather th an its "amount".  Brazil addresses these effects in 
terms of quantifying the "additional sales" accruing to the United States as a result of the subsidy, 
                                                      
205 See paras. 4.24 and 4.25 above.  
206 See US responses to questions from the Arbitrator, questions 104 and 105. 
207 Decision by the Arbitrator, US – FSC (Article 22.6 – US) , para. 6.39.  WT/DS267/ARB/1 
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  while the United States invites us to adjust the amount  of the subsidy to capture only the impact of the 
subsidy on Brazil.  
4.171  Both parties have therefore notionally relied on the notion of "amount of the subsidy" as a 
starting point, but have de facto  then proceeded to include a consideration of other elements.  This 
confirms us in our view that there is no particular basis for assuming, a priori , that the amount of the 
subsidy alone adequately reflects the relevant  circumstances, for the purposes of calculating 
"appropriate" countermeasures.  The re ference to the "amount of the subsidy" as the basis of an award 
in these conditions seems somewhat artificial to us, in  the absence of a specific reason to approach the 
question in these terms in the dispute at hand.  This also further comforts us in our view that a consideration of the trade-distorting impact  of the subsidy, which both parties have de facto  relied on 
in their respective approaches (albeit in different forms), constitutes the most pertinent expression of 
the consequences arising from the violation, for the purposes of quantifying "appropriate" 
countermeasures.   
4.172  With these observations in mind, we now proceed with our own assessment of what may 
constitute "appropriate countermeasu res" consistent with the requirements of Article 4.10 of the 
SCM Agreement , as we have interpreted it in Section IV.D above. 
(c) Approach of the Arbitrator 
4.173  In the event that we find that they are not cumulatively "benefits" within the meaning of 
Article 1.1 of the SCM Agreement , Brazil considers that the IRS and "additionality" could nonetheless 
be used together as the basis for the calculation, as "distinctly measurable a nd valuable consequences 
of GSM 102 guarantees".  In Brazil's view, this would be appropriate "in light of the nature and legal 
status of those guarantees".  Brazil suggests that, as well as being tailored to the specific characteristics of the GSM 102 programme, this approach may encourage the United States to 
reconsider its refusal to "withdraw the subsidy".
208   
4.174  The United States considers that Brazil's s uggestion "that an award could include both 
amounts corresponding to the alleged amount of the subsidy and trade effects finds no support in 
previous arbitrations.  Arbitrator s have relied on the principle of "trade effects" or, in the case of 
prohibited subsidies, "amount of the subsidy" as th e basis for calculations.  They have not added two 
sets of results of calculations as Brazil would do.  Where arbitrators have considered two approaches, 
it has clearly been "an 'either/or' choice".209  
4.175  The United States argues that there would be no basis for adding the two elements of Brazil's 
calculations as it suggests, i.e. the "amount of the s ubsidy" and its "trade effects".  The United States 
observes that "Brazil's approach would permit both components to be included in an award because 
they both may exist and be measured as a matter of economic theory."  The United States observes 
that "the fact that different components may exis t is not a principle upon which the Arbitrator may 
award countermeasures.  If that were the case, a party might accumulate multiple features of a subsidy (e.g. cost to government, benefit to the recipient,  effects on exports) and include them all in the 
calculation of countermeasures, without regard to  whether they are 'appropriate' according to a 
principle such as 'amount of the subsidy' or 'trade effects'."
210  
                                                      
208 Brazil's responses to questions from the Arbitrator, question 71, para. 13. 
209 US comments on Brazil's responses to questions from the Arbitrator, question 71, para. 15. 
210 US comments on Brazil's responses to questions from the Arbitrator, question 72, para. 17. WT/DS267/ARB/1 
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  4.176  The United States also considers that to set  an amount of countermeasures based on both 
components would not be "appropriate" because that amount would be "disproportionate" to the level 
of nullification or impairment suffered by Brazil.211 
4.177  We agree that the amount of "appropriate countermeasures" may not be based simply on an 
addition of various economic values representing different aspects of the situation that would not have 
any particular underlying logic.  Article 4.10 of the SCM Agreement  both requires and allows  
countermeasures to be appropriate to the circumstances at hand, and this may legitimately involve a 
consideration of various aspects of these circumstance s.  Nonetheless, there must be some principled 
and justifiable reason for basing the countermeasur es on a particular approach, in light of these 
circumstances.   
4.178  We have determined in our inte rpretation of Article 4.10 of the SCM Agreement  above that 
the requirement that countermeasures not be "dis proportionate" cannot be e quated to a requirement 
that these countermeasures be exactly equivalent to the level of nullification or impairment suffered 
by the complaining Member, and that the standard  of "appropriate countermeasures" entails some 
additional flexibility. Nonetheless, we are mindful that we are required, under Article 4.10 of the 
SCM Agreement , to ensure that the countermeasures are not  "disproportionate" within the meaning of 
footnote 9, and that this assessment should take into  account the adverse effects of the subsidy on the 
trade of the complaining Member, having regard al so to the prohibited nature of the subsidy.  
4.179  In light of these considerations, we must determ ine whether, in the circumstances of this case, 
there would be any particular rationale to usin g the IRS and "additionality" components of Brazil's 
approach as the basis for a determination of "a ppropriate countermeasures" as Brazil suggests. 
4.180  Brazil describes its calculations as representing "distinctly measurable and valuable 
consequences of GSM guarantees", that could be the basis for an award of countermeasures.  We do 
not agree that "valuable" consequences of the gua rantees is a proper concept to apply, from Brazil's 
perspective, when attempting to work out the trad e distorting impacts of the guarantees.  However the 
advantages accruing to a subsidising Member may have  a relationship to the trade distorting impacts 
on other Members, and therefore in economic terms it is useful to analyse them more closely.   
4.181  We therefore consider whether the two elements of Brazil's calculation, i.e. the IRS and 
"additionality", may provide an appropriate starting poi nt for measuring the trade-distorting impact of 
the GSM 102 programme, and thus provide a b asis for the calculation of "appropriate 
countermeasures" consistent with the terms of Article 4.10 of the SCM Agreement,  as we have 
interpreted them in Section IV.D above.   
(i) The trade effects of the GSM 102 programme 
4.182  We recall our determinations above that the IRS can be properly characterized as the amount 
of the GSM 102 subsidy, while "additionality" refl ects rather its trade effects.  Brazil divides 
additionality, in turn, into full a dditionality (sales to non-creditworthy foreign obligors that simply 
otherwise would not have been possible) and margin al additionality (sales to creditworthy borrowers 
where the IRS acts like a sales discount to foreign obligors).  
4.183  To elucidate the trade effects of the GSM 102 programme, we note that it operates as an 
export subsidy albeit a targeted one: it is not a ge neralized subsidy on all US exports.  Nonetheless, 
like any export subsidy, it can be expected to aff ect both the volume of trade and the price at which 
                                                      
211 US comments on Brazil's responses to questions from the Arbitrator, question 71, para. 16.  WT/DS267/ARB/1 
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  trade takes place.212 The GSM 102 programme can potentially stimulate additional US exports and 
influence the price of those exports in the target markets.  This illegally subsidized competition has 
adverse effects on producers and exporters in the rest of the world.  The question before us is how to 
measure these adverse effects and whether the IRS and additionality concepts proposed by Brazil are 
helpful in this respect. We first assess this ques tion in abstract terms before turning to the specific 
circumstances of this case. 
Trade-distorting impact of GSM 102 on the volume of trade  
4.184  Brazil has defined additionality to mean "additio nal economic activity for US exporters that 
would not otherwise have occurred".213  Brazil allows that some US exports made with the support of 
a prohibited GSM 102 export subsidy would have occu rred in the absence of the GSM 102 guarantee.  
In response to a question from the Arbitrator, Br azil states that: "Indeed for creditworthy foreign 
obligors, Brazil's additionality approach recognizes th at some US exports made with the support of a 
prohibited GSM 102 export subsidy would have occurred in the absence of the GSM 102 
guarantee".214   
4.185  But this also implies that some of the exports  would not have occurred in the absence of the 
export credit guarantees.  With respect to these other exports, there will be trade-distorting impacts on Brazil since the same economic forces would operate .  A subsidy is conferred, which passes through 
to a lower effective sourcing price for US agricultural goods, resulting in trade-distorting impacts on 
producers in the importing country or rest of the wo rld exporters selling to the importing country.  In 
Brazil's view, the only difference is that, for the same amount of GSM 102 transactions, the trade-distorting impact of the transaction will be smaller if the obligor is creditworthy because some of it would have occurred in the absence of the subsidies.   
4.186  In fact, using its 'marginal additionality model', Brazil argues that all GSM-backed sales even 
to creditworthy foreign obligors are attributable to the IRS.
215  The economic intuition behind this is 
Brazil's assumption that the demand curve facing US  exporters with a small market share is 
essentially horizontal. Without the subsidy "if the United States were to withdraw its GSM 102 
subsidies …, US exporters would forfeit th eir price edge and, consequently, lose all GSM-backed 
transactions to their worldwide competitors"(emphasis added).216 We review later whether we find 
this a credible conclusion or not. 
4.187  We have considered the United States' argumen t that additionality means the net addition to 
world demand as a result of the export credit guarantee subsidy.217  In our view, a key problem with 
the United States' definition is that it ignores increas ed US sales in the target markets due to trade 
diversion.218  Therefore, for the purposes of our analysis, Brazil's definition of additionality as 
                                                      
212 We judge it appropriate to assess the economic damage to a complainant by the potential amount 
and value of trade which might be affected by the policy intervention that is the subject of the complaint. We recognize that economists also evaluate  the impact of a policy measure in we lfare terms, i.e. in terms of how 
much better or worse off the policy makes the country under investigation. Trade effects arise in response to the 
reallocation of resources between alternative uses in response to a policy intervention. Since the 
countermeasures to be authorized will be  in terms of the suspension of a pa rticular amount of trade, we believe 
we are justified in trying to calculate the allocation effects of the GSM 102 subsidies and not their welfare 
effects in assessing the approp riate level of countermeasures. 
213 Brazil's Methodology Paper, para. 39. 
214 Brazil's responses to questions from the Arbitrator, question 26, para. 311. 
215 Annex I to Brazil's written submission ("Su mner-Sundaram Statement"), paras. 1-2. 
216 Annex I to Brazil's written submission (" Sumner-Sundaram Statement"), para. 3. 
217 See especially Section II of Exhibit US-93. 
218 "Any attempt to use additionality as a justificati on for export credits in a multilateral context must 
limit the definition to only those cases where the expansio n in demand is global, with no reallocation in favour WT/DS267/ARB/1 
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  additional US sales that would not otherwise have occurred is a more appropriate measure of the 
adverse consequences of the GSM programme.  We  concur with Brazil that GSM 102 subsidies 
enable transactions that simply would not otherwise have been possible.219   
4.188  Nonetheless, there are three issues in using Br azil's concept of additionality as a measure of 
the trade-distorting impact of the GSM 102 pr ogramme on other countries which merit further 
consideration.  The first is the possibility that GS M-supported sales to a target market simply displace 
commercial US exports to that market, implying th at these sales do not result in additional economic 
activity for US exporters.  Where "net" additiona l US sales are less than the gross value of 
GSM-backed transactions, then the adverse trad e effects on other countries are reduced.  The 
United States points out that the theoretical  absence of the GSM 102 programme would not 
necessarily mean that the export transaction itself woul d not have occurred.  It recalls that it is the 
foreign bank, not the importer, that is the recipient of the GSM 102 financing, and that in the absence 
of the programme importers coul d still shop around and obtain financ ing from a different bank, or 
indeed the same bank, to facilitate the transaction.220 Brazil responds to this criticism by considering 
creditworthy and non-creditworthy borrowers separat ely.  In the case of creditworthy borrowers, 
Brazil accepts that, in principle, some displace ment of commercial US exports could occur and 
proposes its "marginal additionality model"  to calculate this.  We evaluate its use of this model below.  
In the case of the non-creditworthy borrowers , it emphasizes the targeted nature of the 
GSM programme.  It provides extensive documentati on of the statements by USDA and FAS and of 
regulations governing the GSM 102 programme.  Under the rules of the scheme, export credit 
guarantees are only made available to finance exports that would not otherwise occur. Brazil says it is 
relevant that the GSM regulations provide that "the programs are oper ated in a manner intended not to 
interfere with markets for cash sales".221  Because of these segmented markets, there is thus no 
inconsistency in observing US commercial and GSM exports to the same country.  Where markets are 
segmented, the Arbitrator accepts that it is reasonabl e to assume that it is not commercial US exports 
that are displaced by GSM exports but rather third country exports a nd domestic production.   
4.189  Even if the GSM-supported sales to a particular market are indeed additional (i.e. they would 
not have taken place in the absence of the prog ramme), a second criticism is that they may not 
represent additional US export sales if these sales are simply diverted from commercial US sales to 
another market.  We note that Brazil accepts this possi bility.  It states:  "… it is reasonable to attempt 
to gain some insight about the magnitude of the offset caused by the indirect impact of GSM 102 on the US exports destined for n on-eligible market segments".
222  Brazil goes on to provide a 
methodology for doing this, but concludes "that the o ffsetting displacement of commercial exports is 
likely to be small".223  However, the calculation depends cr ucially on the figure assumed for the 
domestic price increase in the United States as a result of GSM guarantees, and we have no firm 
evidence on the appropriate value for this. 
                                                                                                                                                                     
of one country. This definition omits those programmes wh ich benefit a particular expo rter partly at the expense 
of other countries' exports.". (Exhibit US-92, p. 4, quoting the OECD study in Exhibit US-93, para. 42).  
219 Joint statement by Professor Daniel Sumner an d Rangarajan Sundaram regarding the United States' 
critique of Brazil's approach to "marginal additionality", para. 9. 
220 US comments on Brazil's responses to questions from the Arbitrator, question 93, paras. 76-82.  
221 Brazil's written submission, para. 208. 
222 Brazil's responses to questions from the Arbitrator, question 92, para. 123. 
223 Brazil's responses to questions from the Arbitrator , question 92, para. 132.  Using quite a high value 
for the price effect of GSM export cred it guarantees on US produ cer prices (0.5 per cent ), it calculates a possible 
value for net additional US exports, it calculates that additional US exports for the ten commodities might 
amount to US$870 million (if the price effect were smaller, this value would also be smaller). As the value of GSM transactions in 2006 was about US$1 billion, this would indeed suggest rather limited reshuffling of 
US exports.  WT/DS267/ARB/1 
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  4.190  In our view, however, it is not necessary to ta ke account of this effect when assessing the 
trade-distorting effects of the prohibited subsidy. It may be true that, in some other markets, there is 
less competition from US commercial exports becau se these have been reallocated to supply the 
GSM markets. However, Brazil makes a strong rebuttal that it is not legitimate or consistent with 
WTO practice to offset trade-distorting impacts wh ich are found by some possible positive effects in 
other markets.  The Arbitrator finds it useful to quo te Brazil in full on this point in its response to one 
of the questions from the Arbitrator:224  
"One benefit that Brazil measures is the additional US trade flows generated by 
GSM 102.  Other arbitrators have also measure d trade flows, in particular in assessing 
the value of the complainant's lost exports in quantifying nullification and 
impairment.  In these arbitrations, arbitrat ors have never taken into account the fact 
that goods not exported to the respondent's market could have been diverted to 
alternative markets ….  Thus, in previous arbitrations, the valuation of trade flows 
affected by WTO-inconsistent measures was not diminished by potentially mitigating 
factors, such as opportunity costs. Brazil c onsiders that this approach is correct." 
4.191  The third issue concerns the treatment of add itional demand in the target countries as a result 
of GSM-supported sales. Additional demand arises because of the price effect of the subsidized 
exports as discussed in the next section.  The subsid ized exports lower domestic prices in the target 
markets and may lead to increased consumption as consumers move down the demand curve. It might 
be argued that because this increased consumption is  truly additional, the a dditional quantity does not 
contribute to adverse effects on either domestic produ cers or third country exporters. In general, we 
believe that this additional consum ption (which will be a function of the size of the price effect and 
the elasticity of demand) will be relatively small relative to the overall size of GSM 102 transactions 
in these markets, but to the extent that it occurs, Brazil's measure of additi onality will overstate the 
displacement of domestic production and exports due to the programme. 
4.192  Despite this caveat, if we focus on the trade-dist orting effects of the subsidy, we find that in 
the target markets, there is displacement of bot h domestic production and th ird country exports by 
US GSM-supported exports, and that this is broa dly what is captured by Brazil's calculation of 
additionality.  Bearing in mind the latitude we have  as the Arbitrator to determine an "appropriate" 
level of countermeasures, and the f act that we are dealing with a prohibited subsidy, we have decided 
that it is appropriate to use Brazil's measure of a dditionality as a measure of th e market volume loss to 
other producers and exporters, while recognizing th at it may be an overestimate of the actual loss.  
The price effects of the GSM 102 programme  
4.193  In addition to these volume effects,  there will also be price effect s in the target markets.  We 
note that, from the point of view of the United States , the increase in import demand as a result of the 
GSM export credit guarantee subsidy is represented by a shift in the import demand curve that it 
faces, because it represents increased demand at the same  world price. Here, it is useful to distinguish 
between the cost of the commodity to the importe r (the world price, ignoring freight and handling 
charges) and the total cost of importing, which includes the cost of financing.225  B e c a u s e  o f  t h e  
interest rate subsidy, for creditworthy borrowers th e total cost of importing may be lower as a result of 
the guarantee ('sales discount'), even though there is  no change to the world price of the commodity. 
For uncreditworthy borrowers, the guarantee can lead to a relaxation of a credit or liquidity constraint 
                                                      
224 Brazil's responses to questions from the Arbitrator, question 28, para. 366. 
225 This distinction is drawn in the US written submi ssion, para. 212.  Brazil agrees with this and calls 
the total cost of importing the "effective sourcing price" (Brazil's written submission, para. 217). WT/DS267/ARB/1 
Page 56 
 
 
  which enables transactions that  would not otherwise occur.226  Both situations are appropriately 
represented as a shift in the import demand curve facing US exports.  
4.194  In the target market, however, there is a drop in price.  The reason for this is that the subsidy 
does not alter the purchasing power nor relax any li quidity constraint among domestic consumers, nor 
does it affect the production costs of domestic producers, so there is no shift in either domestic supply or demand curves as a result of the GSM guarantee.  Th erefore, in order to absorb the additional sales, 
there will be greater competition on the domestic market, domestic prices will drop, some third 
country exports will be squeezed out and domestic producers will be adversely affected even while 
domestic consumers increase their quantity demanded. 
4.195  We recall that the design and operation of the GS M 102 subsidy is such that the recipient of 
the IRS, i.e. the obligor, is a service provider, whose services serve to guarantee an export sales transaction relating to certain goods.  Ultimately, it is the export of those goods that is being 
facilitated through the granting of the subsidy, and it is the trade in these goods that is affected by the 
granting of the subsidy.   
4.196  The effect of the IRS is to lower the financing cost, and therefore the effective sourcing price, 
of US imports in the target markets.  We note th at the GSM programme provides subsidized credit to 
foreign obligors who are in all cases banks.  These banks pass on these favourable credit terms to the 
ultimate purchasers of the US exports. If there is no change in the credit conditions facing the ultimate 
purchasers, there can be no additional US sales ( nor additionality in the US sense of additional 
demand).  The United States points out, correctly, that Brazil assumes 100 per cent pass-through of the interest rate subsidy in its calculations.
227  However, while it raises a doubt about the validity of 
this assumption, it does not demonstrate conclusively  that it is an unreasonable assumption to make.228  
4.197  Under particular circumstances, the revenue loss due to the price effect will be exactly equal 
to  the IRS as defined by Brazil. The first require ment is that the export guarantee programme has no 
effect on the world market price. Both Braz il and the United States agree that the GSM 102 
programme does not affect the world market price.229 The other requirements are that the 
GSM-supported sales substitute on a one-to-one basis for either domestic production or unsubsidized 
imports and that the supply curve of other suppli es and the demand curve are perfectly inelastic and 
not responsive to price. In general, the price eff ect in the target market will be a function of the 
quantity of additional GSM-supported sales and of the elasticities of other supplies and domestic 
demand. In particular, as the sum of the other supply and demand elasticities approaches infinity, the 
price effect approaches zero.  
4.198  To accurately assess the price effect for each  GSM-supported commodity in each target 
market would therefore require information on all the relevant domestic supply and demand 
elasticities as well as the share of GSM sales in total supplies on each market.  As we have seen in 
other aspects of this dispute, these can be highly contested parameters.  Bearing in mind the latitude 
we have as the Arbitrator to determine an "appropriat e" level of countermeasures, and the fact that we 
are dealing with a prohibited subsidy, we have d ecided that it is appropriate to use the IRS as a 
measure of the global revenue loss to non-US producer s and exporters due to the price effect, while 
recognizing that it may be an overestimate of the actual loss.  
                                                      
226 Brazil notes that "the GSM program operates solely in circumstances in which credit would not 
otherwise be available to finance the export of US agri cultural goods" (Brazil's written submission, para. 208). 
227 It discusses the reasonableness of this assumption in Section IV of Exhibit US-92. 
228 Brazil provides a rebuttal of th e US argument in Annex 1 to its written submission ("Summer-
Sundaram Statement"), footnote 10. 
229 See paras. 4.259 and 4.263 of this Decision.  WT/DS267/ARB/1 
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  Apportionment  
4.199  In light of the above, the Arbitrator believes th at it is appropriate to use Brazil's methodology 
to calculate the trade-distorting impact of GSM 10 2 exports.  However, given that we have also 
determined that countermeasures should be linked to, if not necessarily equivalent to, the trade-
distorting impact  of the measure on Brazil, the amount of additionality and the IRS must be apportioned to Brazil's share of the market.   
4.200  In apportioning the amount of additionality to Brazil's share of the market, we have to 
distinguish between the trade-distorting impact that occurs in Brazil's domestic market as a result of 
the GSM 102 transactions involving Brazilian obligors, and the trade-distorting impact that occurs in 
non-Brazilian markets.  Apportionment will be necessar y for those trade-distorting impacts that occur 
in non-Brazilian markets sin ce the damage to Brazil's interest is linked to how large a share Brazil has 
of those markets.  In this apportionment, the Arbitr ator has used Brazil's share of world exports of the 
GSM 102 products, which is on average 11.7 per cent (see Table 1).
230  We have used Brazil's share of 
the world export market of GSM 102 products rath er than its share of imports plus domestic 
production in the target countries.  We use the world market rather than the target market share of 
GSM 102 products because of our belief that the ob served share of non-US imports in these countries 
has been depressed by the existence of the GSM 1 02 subsidized competition and is thus not an 
appropriate coefficient to apply.  We are also awar e that some of the adverse effects in the target 
markets would be absorbed by domestic producers ra ther than by non-US exporters such as Brazil. 
Nonetheless, it is more likely that it is non-US imports that bear the brunt of the subsidised competition because they will be more sensitive to  the price effects of the subsidy (since trade 
elasticities are typically larger in magnitude than  demand and supply elasticities), and thus Brazil's 
share of world exports is an appropriate indicator to use for the apportionment. 
Table 1: Brazil's Share of World Trade in GSM 102 Products
1, 2006 
 
GSM 102 Product Brazil Exports2 World Exports3 Brazil Share 
Cotton  341,275,226 9,280,297,827 3.7% 
Oilseeds  5,689,902,478 21,519,800,311 26.4% 
Protein meals  2,440,792,339 16,945,389,808 14.4% 
Feed Grains  481,894,034 12,987,102,389 3.7% 
Corn Products (Starch)  8,781,310 406,633,699 2.2% 
Hides/ Skins  2,693,441 4,257,484,051 0.1% 
Tallow  19,710,974 3,606,485,104 0.5% 
Rice  59,872,132 10,158,656,158 0.6% 
                                                      
230 The share is based on data submitted by Brazil from UN Comtrade, which is contained in 
Exhibit Bra-815, and additional data on world exports of GSM 102 products from the same source.  The 
additional data were extracted  from UN Comtrade on 16 June 2009.  The definition of GSM 102 products, in 
the Harmonised System (HS), is taken from Exhibit Bra-814. WT/DS267/ARB/1 
Page 58 
 
 
  GSM 102 Product Brazil Exports2 World Exports3 Brazil Share 
Poultry Meat   3,038,988,127 12,121,810,169 25.1% 
Pig Meat  1,010,288,388 20,653,942,499 4.9% 
TOTAL 13,094,198,449 111,937,602,015 11.7% 
Notes:  
1. Definition of GSM 102 products, in the Harmoni sed System (HS), is from Exhibit Bra-814. 
2. Data sourced by Brazil from UN Comtrade and found in Exhibit Bra-815. 
3.  Data sourced from UN Comtrade (extracted on 16 June 2009). 
 
4.201  However, no apportionment will be necessary for th e trade-distorting impact which occurs in 
Brazil's domestic market since the effect is felt in its entirety by its domestic producers or third country exporters. We accept that to the extent that some of the trade-distorting impacts are borne by third country exporters, this procedure may overs tate the damage suffered by Brazil alone but we 
believe that the importance of third country exports to  Brazil is small relative to the value of domestic 
production, and thus this is a reas onable latitude to take in defining  "appropriate countermeasures".   
4.202  Similar to the case of full additionality and ma rginal additionality, the IRS provided to non-
Brazilian obligors must also be apportioned while th e IRS that flows to Brazilian obligors will not be 
so apportioned.   
3. Calculations 
(a) Brazil's methodology 
4.203  Brazil's methodology involves determining the in terest rate discounts secured by creditworthy 
and uncreditworthy foreign obligors on credits backed by GSM 102 guarantees and estimating the 
additional export sales obtained by US exporters as a result of these discounts.  Brazil refers to the 
interest rate discounts as the "interest rate subsidy"  and to the additional export sales generated by the 
interest rate subsidy as "additionality".  It distin guishes between the additional export sales that come 
about through guarantees to creditwor thy and uncreditworthy foreign ob ligors, referring to the former 
as "marginal additionality" and to th e latter as "full additionality".   
4.204  Using its methodology, Brazil arrives at est imated annual countermeasures equal to 
US$1.122 billion.  This amount ca n be subdivided into:  (i) interest rate subsidy amounting to 
US$211 million, (ii) marginal additionality amountin g to US$94 million, and (iii) full additionality 
amounting to US$817 million.
231 
4.205  The United States claims that Brazil's methodol ogy is based on "numerous and incorrect 
assumptions" that result in a figure higher th an is appropriate under Article 4.10 of the 
SCM Agreement .  The particular problems, including genera l critiques and specific examples, that the 
United States finds with Brazil's methodology fo r calculating the interest rate subsidy, full 
additionality, and marginal additionality are taken up in the succeeding sections.   
4.206  Prior to doing so, we note that Brazil had initia lly applied the methodology to its estimates of 
the value of transactions supported by GSM 102 expor t credit guarantees on a foreign obligor-specific 
basis, based on publicly available data.  This w as because it did not have access to the internal USDA 
data.  Subsequently, however, and in response to a request from the Arbitrator, the United States 
                                                      
231 Brazil's oral statement, para. 100 and Exhibit Bra-794.  WT/DS267/ARB/1 
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  agreed to provide its data on GSM 102 export credit guarantees in FY 2006.232  Brazil consequently 
applied its methodology for calculating th e IRS and additionality to this data.233 
4.207  Secondly, Brazil's initial calculations did not consider whether the volumes and budgetary 
outlays of scheduled products exceeded their WT O export subsidy commitments.  The United States 
correctly notes that circumvention of the US expor t subsidy commitments occu rs for these scheduled 
products only to the extent that the export subsid ies exceed the volumes and budgetary outlays set out 
in the US reduction commitments.234  The United States argues that "the finding that the GSM 102 
programme conferred an export subs idy extended to the programme as a whole, but any calculation of 
an amount of prohibited subsidy in this case must  necessarily make allowance for permitted export 
subsidies pertaining to scheduled products".235  Brazil has accepted this argument and adjusted its 
calculations accordingly.236   
(i) Interest rate subsidy 
4.208  Brazil defines the interest rate subsidy as the pr esent value of the spread between the interest 
rate at which foreign obligors would have been able to borrow in the absence of GSM 102 export 
credit guarantees and the subsidized interest rate enabled by those guarantees.  Specifically, Brazil 
calculates the subsidy by measuring, over the tenor  of the guaranteed loan , the difference between a 
specific borrower's discounted payment stream unde r the conditions secured with a GSM 102 export-
credit guarantee, and the counterfactual discounted payment stream that could have been secured 
without the GSM 102 export credit guarantee, net of programme fees.237   
4.209  Brazil applies the "Ohlin formula" to calculate the subsidy rate for each foreign obligor.  The 
Ohlin formula computes a borrower's present value of the interest rate difference owing to the terms 
of the GSM 102 loan guarantee, net of guarantee fees, using a counterfactual market interest rate as 
the discount factor.238  Brazil claims that the Ohlin formula is widely used for present value 
calculations in agricultural economics.239  This is computed as follows: 
fGTrar
ar
rgSaT aG
−
⎟⎟⎟⎟⎟⎟⎟
⎠⎞
⎜⎜⎜⎜⎜⎜⎜
⎝⎛
−+−
+
−−=) () 1(1
) 1(1
1*) 1(*100 
where: 
S = subsidy rate, i.e., present value of the interest rate spread between guaranteed and market 
conditions; 
T = term of guarantee (in years), i.e., tenor  or maturity; 
G = grace period (in years); 
                                                      
232 US responses to questions from the Arbitrator, question 50, para. 100.  See also Exhibit US-78. 
233 Brazil's oral statement, para. 100.  See also Exhibit Bra-794. 
234 US written submission, para. 20. 
235 US written submissions, para. 86. 
236 Brazil written submission, para. 118.  See also Exhibit Bra-794.   
237 Brazil's Methodology Paper, para. 8. 
238 Brazil's Methodology Paper, para. 9. 
239 Brazil's Methodology Paper, fn 13. WT/DS267/ARB/1 
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  f = exporter fee (in % of the GSM 102 export credit guarantee); 
a = installments (in payments per year); 
g = interest rate (in %) with a GSM 102 export credit guarantee; 
r = annual discount rate (market interest rate,  i.e., importers' risk-adjusted rate). 
 
4.210  As can be seen from the formula, this requir es Brazil to estimate the counterfactual market 
interest rate that would have been demanded by commercial lenders from foreign obligors in the 
absence of a GSM 102 export credit guarantee. 
4.211  In Brazil's methodology, the market interest rate is comprised of a risk-based premium and 
the risk-free baseline interest rate  which is based on the London In terbank Offered Rate ("LIBOR").240  
It describes four intermediate steps to determining the market interest rate:  (i) identify a methodology 
for deriving market interest rates; (ii) sep arate creditworthy from non-creditworthy obligors, 
(iii) identify credit risk ratings for rated foreig n obligors and use a methodology to assign credit risk 
ratings to unrated foreign obligors;  and (iv) calculate the market interest rate to credit classes of 
borrowers.241 
4.212  According to Brazil, the methodology that it uses to  calculate the market interest rate is one 
used by the United States Department of Comme rce ("USDOC") in countervailing duty proceedings.  
It states that the USDOC approach proceeds from th e premise that a lender's expected return on all 
loans should be equal.242  This means that the market interest ra te will be greater the higher the risk of 
the borrower.  In addition, Brazil states that the approach requir es distinguishing between two risk 
groups:  creditworthy borrowers and uncreditworthy borrowers.243 
4.213  Wherever a foreign obligor has received a cred it rating, Brazil simply uses that rating to 
assign the obligor to the corresponding credit risk gr oup.  However, not every foreign obligor has a 
rating from the credit-rating institutions.  For unrated foreign obligors from countries in which at least 
one CCC-approved obligor has been ra ted, Brazil treats unrated foreign obligors as being, on average, 
one notch below the worst-rated obligor in that country.  For foreign obligors from those countries in 
which not a single CCC-approved foreign obligor has received a credit rating, Brazil imputes credit 
ratings.   
4.214  The imputation proceeds first by determining country-specific credit-risk averages for those 
countries that host at least one rated foreign obl igor.  Brazil compiles the average probability of 
default in each country by (i) adding up the defa ult probability of each rated and unrated foreign 
obligor and (ii) dividing the result by the tota l number of CCC-approved obligors for that country.  
This average default probability is matched back to  the relevant credit risk group on the numerical 
credit scale of 1-18 to arrive at a country -specific average obligor credit risk.   
4.215  In a second step, Brazil estimates the default probability of foreign commercial banks in 
unrated-obligor countries, using information of specifi c commercial risk in countries that host at least 
one rated foreign obligor.  Brazil determines the credit risk differen tial between average rated-bank 
risks and country risk for each country that has at l east one rated obligor.  Brazil claims that the data 
shows that a rated bank is, on average, three credit -risk "notches" below the sovereign risk of the 
country in which it is domiciled.  Consistent with its previous approach that, if evaluated, non-rated 
                                                      
240 Brazil's Methodology Paper, para. 11. 
241 Brazil's Methodology Paper, para. 18. 
242 Brazil's Methodology Paper, para. 19. 
243 Brazil's Methodology Paper, para. 21.  WT/DS267/ARB/1 
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  foreign obligors would on average receive a credit rating that is one notch below the worst-rated 
obligor in a country, Brazil treats unrated obligors in unrated countries as having a credit rating that is 
four notches below sovereign risk. 
4.216  To separate uncreditworthy borrowers from cr editworthy borrowers, Brazil uses credit rating 
information from Fitch, Moody's and S&P found in Ba nkscope.  Brazil explains that Bankscope is not 
itself a ratings agency, but combines data from different ratings agencies.244  It uses this ratings 
information to rank companies and sovereign States along a scale of 18 steps, with a numeric ranking 
of one for the lowest credit risk and 18 for the high est credit risk.  It uses as a threshold between 
creditworthiness and uncreditworthiness a credit-rating of "10" on the 18-point numerical rating scale.  
Brazil classifies borrowers with a rating of 11 (co rresponding to credit ratings of BB+ or Ba1 on the 
scales of S&P and Moody's, respectively) or worse as uncreditworthy.  
4.217  Brazil justifies the use of this threshold by sta ting that borrowers with a rating of 11 or worse 
are usually referred to as "below investment grade".  It states that the conventional threshold between 
creditworthiness and uncreditworthiness is a credit- rating of ten on the 18-point numerical rating 
scale. It claims that Moody's distinguishes between  "investment grade" and "non-investment" ("junk", 
or "speculative") grade and uses a numerical rating of ten as the threshold.245 
4.218  Brazil uses this information to calculate the mark et interest rate that will be assigned to the 
different credit classes of borrowers.  This market inte rest rate is made up of a risk-free interest rate 
and a risk premium.  For FY 2006, Brazil uses a risk -free interest rate of 5.18 per cent.  In Brazil's 
methodology, the risk premium depends on the probab ilities of default of the foreign obligors.  Brazil 
takes the cumulative default probabilities from a Moody's study of corporate historical default rates of corporate bond issuers in the period 1983-2005.  Brazil subdivides the group of creditworthy obligors to reflect the credit risk of each individual cred itworthy borrower.  Instead of imputing the same 
market interest rate for all creditworthy borrowers , Brazil breaks down creditworthy obligors into ten 
separate groups to reflect the actual credit risk of  each individual creditworthy borrower.  However, 
for those obligors that it classifies as uncreditwor thy, Brazil applies a si ngle default probability 
corresponding to the group with a rating of 18.   
4.219  The result of applying Brazil's methodology is an estimate of the interest rate subsidy of 
US$211 million for FY 2006.  The estimated subsidy ra te by obligor ranges from a low of 0 per cent 
(for the Korean banks) to a high of 29.24 per cent for a Mexican obligor, with a weighted average (with the share by each obligor of the total value of  GSM 102 transactions as weights) of 21.2 per cent 
for all obligors.  
Arguments of the parties
 
4.220  The United States claims that Brazil's methodol ogy for imputing risk to foreign obligors 
omits a reasonable inquiry into the obligors and r esults in exaggerated estimates of risk.  The 
United States objects to the reliance solely on ratings from credit rating agencies as the basis for 
classifying the riskiness of various foreign obligors.   It also calls into question Brazil's method for 
assigning ratings to unrated foreign obligors.  As a result of these incorrect imputations of risk, it 
claims that this makes the interest rate subsid y estimate, and calculations of marginal and full 
additionality, far too high.  The United States goes on to cite examples of foreign banks, which were 
classified as uncreditworthy by Brazil's methodolog y (a numerical rating worse than 10), but which 
were able to secure credit in ordinary credit markets.246   
                                                      
244 Brazil's written submission, para. 163. 
245 Brazil's Methodology Paper, fn 35. 
246 US written submission, paras. 151-153. WT/DS267/ARB/1 
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  4.221  The United States disputes Brazil's claim that it was following the USDOC methodology to 
calculate the interest rate subsidy.  Instead, the United States alleges that Brazil had misconstrued and 
misapplied the USDOC approach.  According to the United States, the Department of Commerce 
applies the expected return formula to construct a counterfactual market interest rate only if the 
particular firm under examination is  first determined to be "uncred itworthy" after a detailed analysis 
of financial statements.247  The Department of Commerce's defin ition of "uncreditworthy borrower" is 
not all borrowers with less than an investment -grade credit rating but is a borrower that the 
Department determines, after a detailed analysis of the borrower's financial health and ability to 
service debt obligations, cannot secure financin g from conventional commercial sources.  The 
Department's creditworthiness determination is based on a number of factors, including the receipt of any commercial long-term loans, the present and past fi nancial health of the firm, the firm's ability to 
meet its costs and fixed financia l obligations, and evidence of the firm's future financial position.
248   
4.222  In contrast, the United States says that Brazil has made no attempt to discern any comparable 
commercial loans taken out by any of the obligor s during the relevant time period, nor has it 
attempted to consider national average interest rate s in its assertion that obligors are uncreditworthy.  
Instead, Brazil assumes that any borrower with a numer ic rating of ten or wor se is uncreditworthy.  
But, according to the United States, the set of  borrowers who cannot secure financing from 
conventional commercial sources is fundamentally di fferent from the set of borrowers who can secure 
financing from conventional commercial sources, but just not at investment-grade rates.  The 
borrowers in the latter set are creditworthy by definition; they are just not investment-grade 
creditworthy.249  It states that Brazil's own written submission recognizes that "non-investment grade" 
or "speculative grade" is not synonymous with "unc reditworthy" and that capital markets therefore do 
not ascribe the same meaning of absolute uncre ditworthiness as Brazil to a credit rating worse 
than ten.250    
4.223  Finally, the United States claims that its re view of the academic literature on export credit 
guarantees show that Brazil's methodology is not su pportable.  While Brazil's methodology relies on 
an interest rate subsidy of more than 20 per cent, the range of possible interest rate subsidies in the 
literature described in Exhibit US-92 starts at  nearly zero and has a maximum of less than 
eleven per cent.251 
4.224  Brazil defends its method for imputing risks to the foreign obligors who made use of 
GSM 102 export credit guarantees in FY 2006.  It not es that the United States offers no criticism of 
the Ohlin equation and has itself employed the formula.252  It justifies its use of information from 
credit rating agencies – Fitch, Moody's and S&P – to  determine the credit quality of individual foreign 
obligors.  These are rating agencies which are r ecognized by the US Securities and Exchange 
Commission as Nationally Recognized Statistical Rating Organizations.253  In forming their opinions 
of the credit quality of a particular obligor, the cr edit rating agencies employ analysts and models to 
assess the obligor's financial condition, operating performance, funding sources, asset quality, risk 
management strategies, and policies.254  
4.225  Brazil maintains that the assumptions informing its assignment of ratings (i) to unrated 
obligors in "rated-obligor countries" and (ii) to unrated obligors in "unrated-obligor countries" are 
                                                      
247 US written submission, para. 157. 
248 US responses to questions from the Arbitrators, question 53, para. 128. 
249 US responses to questions from the Arbitrators, question 53, para. 128. 
250 US responses to questions from the Arbitrators, question 51, para. 107. 
251 Exhibit US-92. 
252 Brazil's written submission, para. 201. 
253 Brazil's written submission, fn 126. 
254 Brazil's responses to questions from the Arbitrator, question 25, para. 271.  WT/DS267/ARB/1 
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  justified.  Brazil argues that ratings are solicited by the banks themselves.  A strong bank would like 
its financial strength to be made pub lic or signalled to the investor and creditor populations at large.  
If a bank chooses not to use a credible quality-signa lling device when one is available, a prudent 
creditor, in gauging credit risk, will treat that bank as less creditworthy than a bank that has chosen to 
so signal.  Since it will not know why the unrated ba nk has decided not to secure a rating, the prudent 
creditor will assume the worst:  that the unrated ba nk fears it would receive a disadvantageous credit-
rating vis-à-vis its competitors.  Under these circum stances, its use of a single notch differential 
between unrated banks and the worst-rated CCC- approved bank in a country does not lead to 
countermeasures that are inappropriate or disproportionate.255  It also defends its approach to the 
situation in which an unrated obligor is from a country in which there are no rated CCC-approved 
foreign obligors.  In this case, the obligor is rate d four "notches" below the sovereign but this arises 
from taking what Brazil describes as "objective steps".256  
4.226  Brazil explains its choice of the numerical rati ng of ten to distinguish between creditworthy 
and uncreditworthy obligors as a practice that is widely applied in the capital markets.257  Brazil cites 
literature provided by the ratings agencies, Fitch,  Moody's and S&P, which purport to show how the 
agencies distinguish between "inv estment grade" from "speculative  grade" bonds and other debt 
securities.258  Brazil explains that the term "investment gr ade" historically referred to bonds and other 
debt securities that bank regulators and market par ticipants viewed as suitable investments for 
financial institutions.  Now the term is broadly used  to describe issuers and issues with relatively high 
levels of creditworthiness and credit quality. In contrast, the term "non-investment grade," or 
"speculative grade," generally refers to debt secur ities where the issuer curre ntly has the ability to 
repay but faces significant uncertainties, such as adverse business or financial circumstances that 
could affect credit risk.259  Based on these references, Brazil determines that "investment grade" 
would refer to numerical ratings of ten or bette r and that "speculative grade" would correspond to 
numerical ratings of 11 and worse. 
4.227  Brazil rejects the charge that it is misapplying the USDOC methodology.  First, it argues that 
the fact that the USDOC applies its methodology for calculating a counterfactual market interest rate 
only for uncreditworthy foreign obligors does not establish that using the methodology for 
creditworthy obligors leads to inappropria te and disproportionate countermeasures.260 
4.228  Second, it objects to the United States' argumen t that Brazil should have used some element 
of the USDOC methodology to make assessments of  creditworthiness of foreign obligors based on a 
detailed analysis of financial statements and on wh ether the obligor could have secured loans without 
government guarantees.  It provides several reasons fo r this.  First, employing financial information 
from the balance sheets of the borrowing financial in stitution will not reveal whether that borrower 
has been able to secure credit that is comparable to GSM 102.261  Brazil describes credit under the 
GSM 102 programme as US-dollar denominated, un secured, and long-term with maturities of 
3 years.262  It claimed to have analysed 24 examples give n by the United States and showed that for 
none of the applicable examples could a truly comparable loan be found.263  Second, Brazil argues 
that the ability to secure a single lo an does not make an uncreditworthy obligor creditworthy.  It cites 
the USDOC itself as stating that the fact that a resp ondent has taken out a single commercial loan is 
                                                      
255 Brazil's written submission, para. 178. 
256 Brazil's written submission, para. 179. 
257 Brazil's written submission, para. 184. 
258 Brazil's written submission, fn 152. 
259 Brazil's written submission, fn 152. 
260 Brazil's written submission, para. 193. 
261 Statement by Professor Rangarajan K. Sundaram concerning GSM 102, Exhibit Bra-793, para. 43. 
262 Statement by Professor Rangarajan K. Sundaram concerning GSM 102, Exhibit Bra-793, para. 42. 
263 Statement by Professor Rangarajan K. Sundaram concerning GSM 102, Exhibit Bra-793, para. 58. WT/DS267/ARB/1 
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  not dispositive evidence that the firm was creditworthy.264 Finally, unlike an investigating authority in 
a US countervailing duty proceeding which may have the power to demand information from 
respondents to enable a review of their individual borrowings (as well as the power to adopt adverse 
inferences if its requests are not complied with), Br azil says it does not have the ability to secure the 
relevant information from foreign ob ligors in preparing its methodology.265   
4.229  At the same time Brazil claims that its approach is flexible and that the Arbitrator can make 
appropriate adjustments to the calculation of the interest rate subsidy.266  The method by which market 
interest rates facing creditworthy borrowers are dete rmined can be adjusted if reliable interest-rate 
information is available from a different sour ce.  The threshold for distinguishing between 
creditworthy and uncreditworthy obligors can be ad justed, for example, choosing a threshold of 
14 instead of ten.  Unrated borrowers can be rate d on par with the worst-rated CCC-approved bank in 
the country.  Finally, the method could be adjusted, if necessary, to include a "scaling" of the full 
additionality calculation, so as to adjust the imp act of the creditworthiness assessment for unrated 
obligors assigned a credit rating at or inferior to 11.267   
4.230  Finally, Brazil disputes the conclusions reached  by the United States regarding the empirical 
literature on interest rate subsidy.  First, it sugg ests that the United States is comparing "apples and 
oranges".  Brazil's interest rate subsidy analys is concerns data from a single and recent year 
(FY 2006), while the studies cited by the United States use very different time periods, most 
terminating by the mid-1990s.268  It claims that using a different time period fundamentally drives the 
results, because the risk-free interest rate varied c onsiderably over the last three decades.  Moreover, 
Brazil's interest rate subsidy calculations are made at an obligor-specific level, whereas all of the 
studies cited by the United States use sovereign-level in formation.  Brazil's application of its interest 
rate methodology to FY 2006 data concerns obli gors in 17 countries, while two studies reviewed by 
the United States deal with only five and six import ma rkets, respectively.  S econd, Brazil claims that 
the United States is mistaken in its assertion that no previous study has found subsidy rates of the 
magnitude of Brazil's.  As counterexamples, it ci tes five studies that find interest rate subsidy 
estimates comparable to or greater than what it calculates.269  
Analysis by the Arbitrator  
4.231  We begin our analysis by reiterating that the in terest rate subsidy is an approximation of the 
price effects of the GSM 102 export credit guarant ees.  Our purpose in establishing, with some 
precision, the magnitude of the IRS is to allow us to ascertain the size of the price effects of the export 
credit guarantees in Brazilian and non-Brazilian markets for GSM 102 products. 
4.232  Under Brazil's methodology, the interest rate subsidy is calculated as the difference between 
the CCC rate and a counterfactual market interest, ta king into account the different tenor of the loans 
and the fees charged.  The loans guaranteed by GSM 102 vary in maturity.  For the 91 obligors in 
Brazil's sample, 55 have loan maturities of three y ears; 25 obligors have average loan maturities of 
two years; and 11 have average loan maturities of one year.  This means that the different payment 
streams have to be made comparable, i.e., discounted  to their present value, and for this Brazil uses 
the Ohlin formula.  The Arbitrat or notes that while the United States objects to many aspects of 
Brazil's methodology for calculating the interest rate s ubsidy, it does not criticize the Ohlin formula.   
                                                      
264 Brazil's written submission, para. 192. 
265 Brazil's written submission, para. 191. 
266 Statement by Professor Rangarajan K. Sundaram concerning GSM 102, Exhibit Bra-793, para. 49. 
267 Brazil's responses to questions from the Arbitrator, question 25, para. 291. 
268 Brazil's responses to questions from the Arbitrator, question 94, para. 159. 
269 Brazil's responses to questions from the Arbitrator, question 94, para. 164.  WT/DS267/ARB/1 
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  4.233  Brazil's methodology requires calculating the count erfactual market interest rate that the 
borrower would have had to pay a private lender in  the absence of GSM 102.  This requires Brazil to 
find a method for determining the credit risk of various foreign obligors since the counterfactual 
market interest will vary with the riskiness of the bor rower.  This feature of the credit market follows 
from rational behaviour by lenders who will need to charge higher risk borrowers a higher interest 
rate to compensate for the risk that the lender has to  bear.  More precisely, the risk-neutral lender will 
price credit to each borrower so that the expected return made on each bo rrower or loan is equal.  This 
pricing rule is a necessary requirement for the lender to maximize his expected profits.  This rule also 
underlies the USDOC method for determining the count erfactual market interest rate, although it is 
applied only to those obligors that the USDOC dete rmines to be uncreditworthy.  The United States 
has in fact taken Brazil to task for applying the USDOC method also to creditworthy obligors.  But 
the pricing rule has a far general application than that since it will be followed by expected profit 
maximizing lenders.  The Arbitrator therefore agrees with Brazil that there is no reason why the 
USDOC method for determining the counterfactual market interest rate cannot be applied to 
creditworthy obligors.   
4.234  For the Arbitrator, the key question in relation to Brazil's methodology for calculating the 
interest rate subsidy is whether its imputation of risk to foreign obligors is accurate and therefore 
leads to the correct estimate of the interest rate subsidy.  
4.235  To a large extent, Brazil's methodology for impu ting risk relies on the credit ratings available 
from international credit ratings agencies – Fitch, Moody's and S&P.  Out of the 91 obligors included 
in Brazil's calculations, 56 have ratings from intern ational credit rating agencies.  The Arbitrator notes 
that Fitch, Moody's and S&P are established credit ratings firms that are relied upon by credit markets 
for assessing the riskiness of debtors.  Issuers of de bt pay for the services of these agencies to rate 
their creditworthiness.  The Arbitrator finds a great a dvantage in this approach since the assignment of 
risks to foreign obligors relies on the decisions made  by third-party specialists who are in the business 
of determining the riskiness of debt issuers.   
4.236  The United States has argued for an approach th at determines the riskiness of foreign obligors 
based on a detailed analysis of financial statemen ts and on whether the obligor could have secured 
loans without government guarantees.  This argument a ppears to be directed at the issue of how to 
distinguish uncreditworthy from creditworthy obligors, an  issue to which the Arbitr ator turns to later.  
But the argument could as well be applied to th e more general question of  how to determine the 
counterfactual market interest rate.  Brazil's expert  has testified to the difficulty of obtaining the 
information needed to conduct this assessment from ba lance sheet or financial statements of financial 
institutions.270  The Arbitrator concurs with this evalua tion.  The loans taken out by the financial 
institution need to be comparab le to that available under GSM 102, namely, dollar-denominated, 
unsecured and long-term.  Only then can the interest  rate on those loans serve as a market benchmark 
for the loans obtained with a GSM 102 guarantee.  But there does not appear to be a way in which this 
could be done systematically for all the obligor s in Brazil's sample based on publicly available 
financial information.   
4.237  Not all the assignment of the credit risk of fore ign obligors is taken from the ratings agencies.  
Out of the 91 obligors included in Brazil's calculati ons, only 56 have ratings from international credit 
rating agencies while 36 are unrated.  But in order for Brazil to undertake the interest rate subsidy 
calculation, ratings for these obligors must be impu ted.  The approach outlined by Brazil requires 
judgements to be made.  As described earlier, fo r countries where at least one CCC-approved obligor 
was rated (rated-obligor countries), Brazil adopts a decision rule which assigns unrated obligors a 
ranking equal to one notch below the worst rated ob ligors in the country.  This affects 35 of the 
                                                      
270 Statement by Professor Rangarajan K. Sundaram  concerning GSM 102, Exhibit Bra-793, 
paras. 41-44 and Appendix to the Exhibit. WT/DS267/ARB/1 
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  36 unrated obligors.  For obligors in countries in  which no CCC-approved foreign obligor was rated 
(unrated-obligor countries), Brazil's decision rule  assigns a rating that is four notches below the 
sovereign rating.  This affects onl y one unrated obligor from Peru.   
4.238  The Arbitrator concurs with Brazil's explanation for these decision rules.  In the Arbitrator's 
view, a credit rating is a "signalling" device for the obligor to credibly signal its credit quality to the market.  If the obligor chooses not to do so, when the signalling device is available, it would be 
prudent to treat that obligor as less creditworthy than other obligors serving the same marketplace that 
have chosen to obtain a rating.  Thus, the decision rule adopted by Brazil for "rated-obligor countries" 
of assigning a credit rating that is one notch than the worst rated obligors in that country is both 
reasonable and prudent.  With respect to obligors in  unrated-obligor countries, the Arbitrator views 
this step as an extension of the approach taken by  Brazil with respect to obligors in rated-obligor 
countries.  Brazil asks:  what is the average diffe rence in credit rating between the sovereign and the 
worst rated obligor in rated-obligor countries?  Th e answer turns out to be equal to three credit 
ratings.  Since unrated foreign obligors would on av erage receive a credit rating that is one notch 
below the worst-rated obligor in a country, Brazil treats unrated obligors in unrated countries as 
having a credit rating that is four notches below sovereign risk. 
4.239  The second major issue arising from the imputation of risk is the classification of the obligors 
into creditworthy and uncreditworthy borrowers.  The Arbitrator notes that this differentiation of the 
borrowers is also made in the USDOC methodology.  What concerns the Arbitrator is whether the 
credit rating threshold chosen by Brazil to differe ntiate creditworthy from uncreditworthy obligors is 
the right one.  Brazil defends this threshold level of creditworthiness by claiming that international 
credit rating agencies distinguish between "investment grade" and "non-investment" grade.  This 
would imply a numerical rating of ten as the th reshold between creditworthy and uncreditworthy 
borrowers.   
4.240  But based on the description provided by Brazil,  and as the United States has also pointed 
out
271, non-investment grade refers to "debt securities where the issuer curren tly has the ability to 
repay but faces significant uncertainties, such as adverse business or financial circumstances that 
could affect credit risk."272  The description certainly does not app ear to be synonymous with Brazil's 
characterization of uncreditworthy obligors as "those borrowers that could not otherwise have secured 
credit at market at all"273 or as "those foreign obligors that w ould not have been able to secure 
comparable credit – that is, a 24-36 month, non-co llateralized loan in foreign currency – in the 
absence of a GSM 102 guarantee".274  Another way of reflecting on the appropriateness of this 
threshold is to consider the default probabilities cal culated by Moody's for bo rrowers with different 
credit risk ratings (see Table 2).  These default probabilities are an important component of Brazil's 
method for calculating the counterfactual market inte rest rate.  For borrowers with a numerical rating 
of 11 (who will be classified as uncreditworthy if Brazi l's threshold of ten is adopted), the three-year 
default probability is 3.567 per cent.  (The analys is could be applied to the two-year and one-year 
default probabilities as well but loans with three-year  maturities are the most common.)  This means 
that over the three-year life of the loan, there is a one in 28 chances that the borrower will default.  In 
contrast, the default probability for the worst rated borrowers (those with a numerical rating of 18) is 
43.498 per cent.  This implies that over the three- year life of a loan taken out by these borrowers, 
there is a one in two chances that they will default.   In the Arbitrator's view, this is a significant 
difference in default probabilities.  Adopting a threshol d of ten will likely lead to too high an estimate 
of the interest rate subsidy since Brazil's methodol ogy requires obligors with ratings of 11 and worse 
to be assigned default probabilities equal to the worst rated obligor.   
                                                      
271 US responses to questions from the Arbitrators, question 96, para. 41. 
272 Brazil's written submission, fn. 152. 
273 Brazil's Methodology Paper, para. 40. 
274 Brazil's comments on US responses to questions from the Arbitrator, question 96, para. 120.  WT/DS267/ARB/1 
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  Table 2: Cumulative Default probabilities (Moody's)275 
 
Rating Cumulative Default Probabilities 
Letter Numerical 1-Year 2-Year 3-Year 
AAA 1 0.000 0.000 0.000 
AA+ 2 0.000 0.000 0.000 
AA 3 0.000 0.011 0.048 
AA- 4 0.019 0.040 0.078 
A+ 5 0.003 0.091 0.241 
A 6 0.026 0.082 0.224 
A- 7 0.037 0.175 0.358 
BBB+ 8 0.166 0.449 0.794 
BBB 9 0.161 0.466 0.883 
BBB- 10 0.335 0.965 1.680 
BB+ 11 0.753 2.006 3.567 
BB 12 0.780 2.297 4.309 
BB- 13 2.069 5.749 10.151 
B+ 14 3.223 8.701 14.360 
B 15 5.457 12.511 18.535 
B- 16 10.460 19.782 28.532 
CCC+ 17 20.982 33.367 43.498 
CCC-C 18 20.982 33.367 43.498 
Source: Exhibit 36 of Hamilton, David, Praveen Varma, Sharon Ou, and 
Richard Conato, "Moody's Special Comment on Default and Recovery 
Rates of Corporate Bond Issuers, 1920-2005", released January 2006, 
revised March 2006 (Exhibit Bra-699 (Moody's special report (Hamilton, 
Varma, Ou, Conator 2006))).  
 
4.241  To ensure that the imputation of risk does not lead  to an inflated estimate of the interest rate 
subsidy, the Arbitrator has decided to change th e threshold to 14.  The Arbitrator notes that a 
borrower rated one notch lower than this thre shold has a three-year default probability of 
18.535 per cent.  This translates into about a 1 in  5 chances of a default over a period of three years, 
which is appreciably closer to that of the worst ra ted borrowers.  In making this change, the Arbitrator 
notes that Brazil has in several instances emphasized the flexibility  of its methodology, which would 
allow the Arbitrator to modify certain of the assump tions to values that the Arbitrator considers more 
appropriate.276  This change results in 52 of the 91 foreign obligors being deemed creditworthy, 
compared to just ten of the 91 foreign obligors when the threshold was ten.   
4.242  Finally, the Arbitrator turns to the economic lite rature on estimates of the interest rate subsidy 
cited by Brazil and the United States.  The United States claims that this literature does not support 
the calculation of the interest rate subsidy by Brazil since its survey of the literature suggests that the 
interest rate subsidy ranges between 0 and 11 per cen t.  Brazil has disputed the relevance of these 
studies to its estimates arguing that they cover diff erent periods in time, different credit guarantee 
programmes and are not calculated at the obligor leve l.  For its part, Brazil cites five studies that it 
claims arrive at estimates of the interest rate s ubsidy equal to or greater than what it estimates for 
GSM 102.277  However, the United States also disputes the relevance of these studies since they cover 
                                                      
275 Table 2 is taken from Exhibit Bra-794. 
276 Statement by Professor Rangarajan K. Sundaram concerning GSM 102, Exhibit Bra-793, para. 57. 
277 Brazil's responses to questions from the Arbitrator, question 94, para. 164. WT/DS267/ARB/1 
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  different periods in time, some of the programme s evaluated are not credit guarantee programmes and 
some do not employ the Ohlin formula.278   
4.243  In the Arbitrator's assessment, the review of  the literature conducted by the parties while 
informative is not determinative of the specific question before the Arbitrator, which is whether 
Brazil's methodology for calculating the interest rate subsidy results in an inflated estimate of the interest rate subsidy.  The main difficulty of draw ing any firm conclusion from the literature review is 
the "apples and oranges" comparison, which both parties have in fact highlighted.  The studies cited 
by the parties use different methods for calculating th e interest rate subsidy; they have been conducted 
at different periods of time; they cover different  countries, different product sectors, and different 
guarantee programmes.   
4.244  Given that the price effect (as reflected, for the purposes of our calculations, in the interest 
rate subsidy) is part of the trade-distorting im pact on Brazil, based on the principles set out in 
paragraphs 4.193 to 4.198 above, and based on our analysis of the arguments and evidence provided 
by the parties regarding Brazil's methodology for calcu lating the interest rate subsidy, we determine 
that the trade-distorting impact to Brazilian produ cers and exporters as reflected in the IRS amounts to 
US$25.27 million
.  It is comprised of two parts.  The first part, equalling US$12.64 million, 
represents those impacts in the Brazilian domestic ma rket. In addition, we determine that there are 
trade-distorting impacts in non-Brazilian markets, worth US$108 million, as a result of the export 
credit gurantees received by non-Brazilian obligors.  However, only a certain share of that amount represents trade-distorting impacts on Brazil.  Cons equently, this second amount must be apportioned 
using Brazil's share of world trade in GSM 102 prod ucts, which was 11.7 per cent in year 2006.  This 
leads to an additional estimate of trade-distorti ng impact on Brazil of US$12.63 million.  The detailed 
calculations are shown in Annex 1 . 
(ii) Full additionality 
4.245  Brazil claims that GSM 102 export credit guarantees confer a particular advantage on 
US exporters in that it generates additional expor ts for the United States that would not otherwise 
have occurred.
279  Brazil clarifies that this could result fr om new demand or come from diversion from 
sellers in other markets.  The sal es that Brazil's method does not account for are those US exports that 
would have occurred even without the GSM 102 export credit guarantees.280  
4.246  This additionality is of two forms:  full a dditionality accruing to uncreditworthy obligors and 
marginal additionality which accrues to creditworthy obligors.281  With respect to those foreign 
obligors that it has classified as uncreditworthy, Br azil claims that credit could not have been obtained 
without GSM 102 at any viable price; thus, export transactions would not have occurred in the 
absence of GSM 102.  For uncreditworthy borrowe rs, economic activity occurs due solely to 
GSM 102.  So, whenever a GSM 102 export cred it guarantees is extended to uncreditworthy 
borrowers, the entire volume of the exports constitut es the advantage conferred on US exporters.  Full 
additionality is hence calculated as the entire value of GSM 102-backed transactions involving 
uncreditworthy foreign obligors.282  Brazil estimates the amount of full additionality in FY 2006 at 
US$817 million based on its numerical threshold of 10. 
4.247  Brazil agrees that the relevant additionality be nefit to be considered is that of "net 
additionality".  A calculation of net additionalit y accounts for the negative revenue effect that 
                                                      
278 US comments on Brazil's responses to questions from the Arbitrator, question 94, paras. 89-91. 
279 Brazil's Methodology Paper, para. 39. 
280 Statement by Professor Daniel Sumner concerning GSM 102, Exhibit Bra-797, para. 3. 
281 Brazil's Methodology Paper, para. 40. 
282 Brazil's Methodology Paper, para. 43.  WT/DS267/ARB/1 
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  GSM 102 subsidies have on those US commercial exports that are not eligible for GSM 102.283  
Because the rate of the IRS is relatively large and the market share of the GSM 102-backed exports is 
very small as compared to other exports, Brazil's methodology finds that, if the GSM 102 subsidy were withdrawn, the United States, for most products  and in most foreign obligor markets, would lose 
all the exports that had formerly been made under GSM 102.
284 
Arguments of the parties  
4.248  The United States contends that the notion of full additionality as presented by Brazil is 
"entirely speculative".  In its view, it would account fo r an additional, indirect element to the interest 
rate subsidy that Brazil asserts is the first component for countermeasures.285   
4.249  Furthermore, full additionality hinges entirely on Brazil's determination of uncreditworthiness 
which the United States has argued relies on a "fatally  flawed" calculation of interest rate subsidy, 
particularly with respect to treatment of uncreditworthy obligors.286   
4.250  Based on its view of the economic literature, the United States argues that there is no support 
for the claim that exports would not occur in the absence of GSM 102 guarantees.  It argues that a useful perspective for thinking about additionality is whether the export credit guarantee is able to 
expand global demand for the product th at is the subject of the subsidy.
287  
4.251  Brazil defends full additionality by referring to the design and application of the GSM 102 
programme.  It refers to statements by USDA and FAS, which operates GSM 102 in cooperation with 
the CCC, that it alleges confirms that GSM 102 is  used to facilitate credit for the purchase of 
US exports, in instances where a foreign obligor, without a GSM 102 export credit guarantee, could not secure financing at all.
288  It claims that US regulations expressly provide that the GSM 102 
programme operates solely in circumstances in wh ich credit would not otherwise be available to 
finance the export of US agricultural goods.289  Specifically, it claims that the regulations provide that 
GSM 102 operates "in cases where credit is necessary to  increase or maintain US exports to a foreign 
market and where US financial institutions woul d be unwilling to provide financing without CCC's 
guarantee."290  Hence, in its view calculating full additionality for GSM 102-supported exports 
involving uncreditworthy foreign obligors is wholly consistent with the way in which USDA and FAS 
have characterized the programme in their regulations and elsewhere.291   
4.252  With respect to the empirical studies cited by  the United States, Brazil claims that these 
studies have empirical flaws and provide limited gui dance about the precise magnitude of impacts of 
GSM 102 subsidies on US exports.  Further, Brazil professes that some of the econometric analysis presented actually supports Brazil's positions.
292  For example, Brazil quotes an extract from one of 
these studies cited by the United States to the effect  "that a 1 per cent increase in the interest rate 
subsidy from a GSM 102 guarantee results in a 3 per cent increase in US export value".293 
                                                      
283 Brazil's responses to questions from the Arbitrator, question 92, para. 121. 
284 Brazil's responses to questions from the Arbitrator, question 92, para. 120. 
285 US written submission, para. 197. 
286 US written submission, para. 196. 
287 Exhibit US-92. 
288 Brazil's written submission, para. 207. 
289 Brazil's written submission, para. 208. 
290 Brazil's responses to questions from the Arbitrator, question 25, para. 275. 
291 Brazil's written submission, para. 211. 
292 Statement by Professor Daniel Sumner concerning GSM 102, Exhibit Bra-797, para. 17. 
293 Statement by Professor Daniel Sumner concerning GSM 102, Exhibit Bra-797, para. 20. WT/DS267/ARB/1 
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  Analysis by the Arbitrator  
4.253  In the Arbitrator's judgement, part of the trade-distorting impact of GSM 102 supported 
exports is its displacement of Brazilian production in its home mark et and Brazilian exports in third 
country markets.  While full additionality is not an  equivalent measure of this displacement effect 
arising from export credit guarantees issued to uncreditw orthy obligors, it is not an inappropriate basis 
for calculating this effect.  Again, to the extent that we can make the calculation of full additionality 
more precise, the closer we can arrive at the amount of Brazilian production and exports that are 
displaced by the export credit guarantees.   
4.254  The Arbitrator has determined that the thres hold level for uncreditworthy obligors is 14 so 
that those obligors with ratings worse than 14 are deemed uncreditworthy.  Out of the 91 obligors with GSM 102 transactions in FY  2006, 39 will be classified as uncreditworthy based on this 
threshold.  This group represents 43 per cent of the to tal number of obligors.  Collectively, this group 
accounts for a similar percentage of all GSM 102 tran sactions in FY 2006.  The interest rate subsidy 
for uncreditworthy obligors is 24.3 per cent.  Th is means that absent th e GSM 102 export credit 
guarantees, uncreditworthy foreign obligors would ha ve been charged an average of 24.3 per cent 
more by the market.   
4.255  The Arbitrator therefore determines that the displacement effect on Brazilian production and 
exports of export credit guarantees issued to uncre ditworthy obligors, and for which we use full 
additionality as an approximation, amounts to US$80.8 million
.  This is comprised of two parts.  The 
first is the displacement effect in Brazil's dome stic market which amounts to US$36.3 million.  The 
second part is the trade-distorting impacts in no n-Brazilian markets worth US$380.6 million.  But 
only a share of that amount represents displacement of Brazilian exports and so must be apportioned 
to Brazil's share of world trade in GSM 102 products, which was 11.7 per cent in 2006.  This 
apportioned amount is equal to US$44.5 million.   The detailed calculations are shown in Annex 2 . 
(iii) Marginal additionality 
4.256  With respect to creditworthy obligors,  Brazil estimates the additionality from 
GSM 102-subsidized transactions by applying a "but -for" counterfactual that calculates the reduction 
in sales volume in a given fiscal year that US exporters would have incurred if the United States had 
withdrawn the GSM 102 programme.294   
4.257  Brazil relies on a formal model to calculate the amount of marginal additionality.  It uses a 
partial equilibrium linear displacement model of impo rt demand and export supply, specified in linear 
difference form, to simulate the relative effects of  the withdrawal of the GSM 102-induced interest 
rate subsidy on US exports, relative to a situation in which GSM 102-re lated interest rate subsidies are 
in place.  This actual situation is then compared  with the counterfactual in which GSM 102 for all 
relevant commodities are permanently withdrawn.  The methodology considers three markets, the 
United States, an import market which benefits fro m the GSM 102 interest subsidies and the rest of 
the world.  Brazil's calculation of marginal additionality results in estimated benefits of 
US$93.8 million to US exporters. 
                                                      
294 Brazil's Methodology Paper, para. 46.  WT/DS267/ARB/1 
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  Arguments of the parties  
4.258  The United States brings two arguments to bear on the marginal additionality calculations by 
Brazil.   
4.259  First, it argues that the methodology assumes th at the subsidy from the export credit guarantee 
will pass through completely to the world price.295  It questions the justification for the assumption 
that as a result of GSM 102 guarantees, importers w ill be able to purchase these products at the world 
price minus the full subsidy.  It argues that the proposition that the price of the relevant commodity 
export under a GSM 102 programme is affected at a ll by the export credit guarantee is not supported 
by economic research.296   
4.260  It notes that the total cost of an import can be  seen as a sum of the price of the commodity 
plus the financing cost.  It acknowledges that the fi nancing cost may be reduced by the export credit 
guarantee because the guarantee is assumed to provide fo r an interest rate that is lower than what the 
importer could have received in the market without  the guarantee.  The total cost of importing may 
then be lower as a result of the guarantee, but that is due entirely to the interest rate subsidy, not to a 
change in the price of the commodity.297 
4.261  Second, the United States criticizes the formal model used by Brazil to calculate marginal 
additionally.  It questions what it implies is an ad hoc step employed by Brazil to adjust the results of 
its formal model.  The United States points to a part of Brazil's model (Equation E now modified by 
Brazil to Equation E') which calculates additiona l US exports as a result of GSM 102 export credit 
guarantees.  Brazil assumes that additional US e xports can range between 0-100 per cent of the 
amount of GSM 102 transactions.  But Brazil's simulati ons are such that the re sults are always greater 
than 100 per cent.298  In the view of the United States, this  outcome means that the model overstates 
the effects of GSM 102 on US exports.  It claims that eventually Brazil i gnores the simulation result 
and caps the elasticity to one (100 per cent).299   
4.262  Also related to its criticism of the formal mode l, the United States questions the value of the 
cotton elasticities used by Brazil in the marginal add itionality analysis.  It points out that these are 
different from the elasticities used in the cotton model300 to analyse the adverse effects of marketing 
loans and countercyclical payments.301  It argues that the elasticities employed may be appropriate in 
the context of basic supply and demand responses to  small changes in volumes and prices but not in 
scenarios where Brazil is assuming the full pass-through  of the GSM 102 interest rate subsidy to the 
US export price with sometimes large price swings.302   
4.263  Brazil has advanced a defence of its methods ag ainst the criticism of the United States.  It 
rejects the first criticism of the United States that it assumes a 100 per cent pass through of the interest 
rate subsidy to world prices.  Brazil clarifies that  in fact it assumes that world markets for the 
agricultural commodities at issue are highly competitiv e, and the demand curve facing US exporters is 
horizontal.303  In its view, exporters worldwide, including US exporters, are, "price takers" so that 
there is no substantial pass through.   
                                                      
295 US written submission, para. 211. 
296 US written submission, para. 212. 
297 US written submission, para. 212. 
298 US written submission, para. 215. 
299 US written submission, para. 217. 
300 Brazil's Methodology Paper, paras. 72-139 and Exhibit Bra-704. 
301 US written submission, paras. 222-223. 
302 US written submission, para. 221. 
303 Brazil's written submission, para. 216. WT/DS267/ARB/1 
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  4.264  It argues that the basis for US exports of the s ubsidized commodities in th e target markets lies 
in the effective price rebate afforded to forei gn obligors in the form of GSM 102 interest rate 
subsidies.304  Brazil distinguishes between what it te rms "effective sourcing prices" and "world 
prices".  It defines the effective sourcing price as the "cost of the commodity plus the interest costs in 
financing the purchase".305   It claims that the interest rate subsidy from GSM 102 export credit 
guarantees effectively lowers effective sourcing prices but the world prices of the commodities in 
question are not substantially affected by GSM 102 subsidies.306 
4.265  Brazil claims that it is not ignoring its ow n simulation results when it places a cap on the 
additional US exports that arise from GSM 102 guarantees.307  Brazil explains that it formulates 
equation (E'), as a "but-for" methodology that effectively asks: "What is the fraction of each GSM 102-backed transaction to a specific foreign obligor that the US exporter would forego if the 
United States were to withdraw its prohibited GSM 102 export subsidies in a given fiscal year?"
308  
To yield relevant results, it contends that the fa ctor must lie between zero and 100 per cent of the 
GSM 102-backed transaction value, which explains the cap of 100 per cent.  Brazil explains that it then applies a standard partial-equilibrium displacem ent model, specified in linear difference form, to 
find reliable estimates for the adjustment factor th at is to be used as input into equation (E').
309  I t  
argues that the results of that approximation, if left uncapped, answers an entirely different 
counterfactual than that posed in its equation E'.  Brazil claims it is not asking how a specific obligor 
generally reacts to changes in effective sourcing pric es offered by the United States, but rather how it 
does so for the limited transactions made under GSM 102.310  Since, logically, not more than the 
entire fraction (100 per cent) of each GSM 102-subsidized US sale can be foregone due to an elimination of the sales discount facilitated by the interest rate subsidy, Brazil maintains that a 
100 per cent cap is necessary to answer meaningf ully the question before the Arbitrator.   
4.266  Finally, Brazil defends its choice of the elasticity values by arguing that they must be 
calibrated to suit the policy scenario at issue.
311  It claims that in its marginal additionality analysis, 
withdrawal of GSM 102 subsidies affects a small fr action of total US export transactions for a range 
of crops.  In its view, this scenario requires a set of supply and demand responses that are tailored to policy shocks which are not significant enough to sh ift US domestic or world prices, and thus too 
small to cause large-scale supply or demand responses in the United States and elsewhere.
312   I n  
contrast, it considers the relevant counterfactua l underlying the cotton simulation model in the 
actionable subsidies case to require supply and de mand elasticities that reflect a large, permanent 
withdrawal of US marketing loans and countercyclical payments for upland cotton, while other programme crops remained eligible for subsidies.
313   
Analysis by the Arbitrator  
4.267  In our analysis of full additionality, we made clear that we saw it as an approximation of the 
displacement of Brazilian production and exports  because of export credit guarantees issued to 
                                                      
304 Brazil's written submission, Annex I (Joint Statement by Professor Daniel Sumner and Rangarajan 
Sundaram), para. 2. 
305 Brazil's written submission, Annex I (Joint Statement by Professor Daniel Sumner and Rangarajan 
Sundaram), para. 28. 
306 Brazil's written submission, para. 217. 
307 Brazil's written submission, Annex I (Joint Statement by Professor Daniel Sumner and Rangarajan 
Sundaram), para. 39. 
308 Brazil's written submission, para. 221. 
309 Brazil's written submission, para. 222. 
310 Brazil's written submission, para. 222. 
311 Brazil's written submission, para. 226. 
312 Brazil's written submission, para. 227. 
313 Brazil's written submission, para. 226.  WT/DS267/ARB/1 
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  uncreditworthy obligors.  Similarly, we note that while marginal additionality is not an equivalent 
measure of the displacement effect on Brazilian pr oduction and exports from export credit guarantees 
issued this time to creditworthy obligors, it is not  an inappropriate basis for calculating this effect.  
Furthermore, to the extent that we can make th e calculation of marginal additionality more precise, 
the nearer we shall be to determining the am ount of Brazilian production and exports that are 
displaced by the export credit guarantees.   
4.268  On the issue of the pass through, we reiterate  our concurrence with Brazil's position that the 
interest rate subsidy obtained by obligors reduces  the combined purchase price of US agricultural 
exports.  We have explained our  reasoning in the previous sub- section (see paragraph 4.193).  
4.269  The United States' criticism of th e elasticities used in Brazil's marginal additionality model is 
basically a claim that Brazil is "cherry picking" the elasticities.  Brazil's argument that different policy 
simulations call for different elasticities could lend itself easily to the United States' interpretation.  
But even if one accepts Brazil's argument that different policy simulations call for different 
elasticities, the introduction of a cap in Brazil's marginal additionality model raises a significant 
concern about its internal consiste ncy.  To consider this matter mo re carefully, the Arbitrator has 
conducted a set of exercises using the model.   
4.270  For the first exercise, the Arbitrator requested  Brazil to use its marginal additionality model 
without the cap to calculate the amount of additiona l US exports arising from interest rate subsidies 
received by obligors deemed creditworthy by Brazil.314  The Arbitrator recalls that based on the 
threshold of ten adopted by Brazil for distin guishing between creditwor thy and uncreditworthy 
obligors, Brazil's methodology finds only ten obligors creditworthy.  Of these only three obligors (two from Panama and one from Trinidad and Tobago) ha ve positive interest rate subsidies.  The other 
seven Korean obligors have been found not to enjoy any interest rate subsidies from GSM 102.  For 
the three obligors, Brazil confirms that without the cap, its marginal additionality calculations yield 
large multiples of the GSM 102 transaction value and the obligor-specific IRS.
315  In other words, 
even if the obligors had been cl assified by Brazil's methodology as creditworthy, the application of 
the marginal additionality model without the cap generated additionality that exceeded the amount 
that would have been calculated if they had been classified as uncreditworthy.   
4.271  Another way of looking at this is simply to take summary statistics of the uncapped 
elasticities calculated by Brazil's marginal additionality model.316  Excluding the seven Korean 
obligors, the uncapped elasticities range from a minimum of 6.17 to a maximum of 107 million.  The simple (weighted) average of the uncapped elasticities is 3.4 million. 
4.272  For the second exercise, the Arbitrator consider ed the other seven obligors (all of whom are 
Korean banks) deemed creditworthy by Brazil's meth odology.  Brazil had further determined that the 
receipt of GSM 102 export credit guarantees by these seven obligors involved no interest rate subsidy.  
That is, Brazil's methodology concluded that these seven obligors could have obtained financing at 
the risk-free market rate even without the GSM 102 guarantees.  Because no interest rate subsidy was 
involved, the methodology showed that there wa s no marginal additionality for these obligors.  
Imports of US agricultural goods into the Republic  of Korea would have taken place even in the 
absence of GSM 102 export credit guarantees.   
4.273  The second exercise conducted by the Arbitrat or involved ascertaining how much of an 
interest rate subsidy would be needed in the case of these Korean obligors for Brazil's methodology to 
generate additionality.  This exercise allows Brazil' s cap to be maintained.  If the introduction of a 
                                                     
 
314 Questions from the Arbitrator, question 30. 
315 Brazil's responses to questions from the Arbitrator, question 30, para. 389. 
316 See Worksheet "'Marg add. rate 2006" of Exhibit Bra-794. WT/DS267/ARB/1 
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  small interest rate subsidy results  in a sudden change in the result s so that full additionality ensues, 
then it calls Brazil's marginal additionality model into  further question.  Furthermore, the smaller the 
interest rate subsidy required to generate additionality, the more su spect the model becomes.  This 
second exercise showed that even a very small interest rate subsidy equal to 1/10305 basis points317 
produced full additionality for the Korean obligors.  The quantity 10305 is one followed by 306 zeros.  
Its reciprocal, 1/10305, is therefore an "infinitesimally" small number. 
4.274  Brazil's marginal additionality model appears to generate inflated resu lts, with large multiples 
resulting from the first exercise with the cap removed,  and with infinitesimally small interest rate 
subsidies required to generate additionality in the second exerci se with the cap maintained.  
Nevertheless, the Arbitrator is of the view that, ev en in the case of creditworthy obligors, the interest 
rate subsidy they receive lead to trade-distor ting impacts on Brazilian producers and exporters that 
must be accounted for.  While they are not necess arily equal to the value of GSM 102 transactions, 
they are also not zero.   
4.275  To determine this amount, we begin by noting th at the riskiness of even creditworthy obligors 
will have a bearing on the magnitude of the marginal additionality from GSM 102 transactions 
entered into by creditworthy obligors.  In the ab sence of the GSM 102 programme, the more risky an 
obligor is (the closer its rating is to the threshold of 14) the smaller the amount of trade financing of 
US agricultural goods that it would have been involve d in, all things being equal.  The less risky the 
obligor, the greater the likelihood that it woul d have been financing the same amount of 
US agricultural exports even in the absence of the programme.   
4.276  Building on this notion, we employ the data  on cumulative default probabilities that have 
been provided by Brazil.  Recall that we have determined that obligors rated 15 and worse are uncreditworthy, which implies a dditionality equal to the entire value of the GSM 102 transactions 
they enter into.  We shall assume that the only a fraction of the GSM 102 transaction that is entered 
into by a creditworthy obligor, which receives an interest rate subsidy, represents additionality.
318  
More specifically, we shall assume that this frac tion, for a creditworthy obligor with a numerical 
rating of i and an average loan maturity of n, is  equal to the ratio of default probabilities of a 
creditworthy obligor and of an obligor rated 15.  More formally: 
 (1) nn
i n
iDdt= ,  i =1, ..., 14 and n = 1, 2, 3  
 
where:  
n
it is the proportion of the GSM 102 transaction invo lving a creditworthy obligor with a numerical 
rating of i and an average loan of ma turity n that results in additionality; 
 
n
id is the cumulative default probability of a creditw orthy obligor with a rating of i and an average 
loan maturity n; and 
 
nD is the cumulative default probability of an ob ligor with a rating of 15 for an average loan 
maturity n. 
 
                                                      
317 One basis point is equal to 0.01 per cent (one hundredth of a per cent). 
318 It should be noted that, based on Brazil's IRS methodology, seven of the creditworthy obligors do 
not receive any interest rate subsidy.  Thus, equation (1) does not apply to them.  WT/DS267/ARB/1 
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  4.277  Based on this, we determine that the displace ment effect on Brazilian production and exports 
of export credit guarantees issued to creditwort hy obligors, and for which we use marginal 
additionality as an approximation, amounts to US$41.3 million .  Again, this can be decomposed into 
the trade-distorting impact in Brazil's domes tic market and in non-Brazilian markets. The 
displacement of Brazilian production because of GSM 102 transactions involving creditworthy 
Brazilian obligors amounts to US$18.7 million.  The trade-distorting impact in non-Brazilian markets 
as a result of the transactions of creditworthy, non-Brazilian obligors amounts to US$193 million.  
However, only a certain share of that represents di splacement of Brazilian exports.  In keeping with 
our framework of analysis, the second amount must be apportioned to Brazil's share of world  trade in 
GSM 102 products, which was 11.7 per cent in 2006.  The trade-distorting impact to Brazil in non-Brazilian markets therefore equals US$22.6 milli on.  The detailed calculations are shown in Annex 3 . 
(iv) Conclusion 
4.278  The Arbitrator determines that the amount of US$1.122 billion proposed by Brazil will not 
result in appropriate countermeasure s.  The Arbitrator has consequently made modifications to the 
calculation of the interest rate subsidy and additio nality in order to more accurately calculate the 
trade-distorting impact of the GSM 102 programme on Brazil.  Based on these modifications and in the light of other determinations  above, we find that the amount of countermeasures which can be 
authorized as being appropriate, based on the amount of GSM 102 transactions in FY 2006, is 
US$147.4 million
. 
4.279  The Arbitrator has taken note of Brazil's request for an amount of countermeasures 
authorization that would be variable on an annu al basis, depending on "the total of exporter 
applications received under GSM 102 ... for the most recent concluded fiscal year".  The Arbitrator 
has also noted that the United States does not disput e that it would be permissible for the level of 
appropriate countermeasures to be determined thro ugh a formula, provided that this formula was 
sufficiently well defined so as to make it applicable in a transparent and predictable manner.  We have 
therefore decided to authorize an amount of count ermeasures that would be variable on an annual 
basis and that would depend on, among other things , the total amount of GSM 102 transactions in the 
most recent concluded fiscal year.  The terms of this variable amount of countermeasures are 
contained in Annex 4 . 
V. BRAZIL'S REQUEST TO APPLY COUNTERMEASURES UNDER THE 
TRIPS AGREEMENT AND THE GATS  
5.1 In its request to the DSB, Brazil requests au thorization to suspend concessions or other 
obligations in the annual amount of approximate ly US$3 billion with respect to the prohibited 
subsidies at issue in this dispute.  In its view, given the amount, it is neither practicable nor effective 
for Brazil to suspend concessions only on imports of US goods and the circumstances are serious 
enough to justify the suspension of concession or obl igations under other cove red agreements.  Brazil 
therefore proposed to suspend obligations under GATT 1994, and also under the GATS and 
TRIPS Agreement under Article 22.3(c) of the DSU.319  
5.2 The United States challenges this request, arguing that Brazil had not followed the procedures 
and principles of Article 22.3 of the DSU.  The United States argues that given the size and diversity 
of the Brazilian economy, Brazil cannot justify and demonstrate its claim that applying 
countermeasures with respect to goods is not practicable or effective.320  In these proceedings, 
however, Brazil argued that the provisions of Artic le 22.3 of the DSU do not apply, and that its 
request must be considered on the basis of Article 4.10 of the SCM Agreement  only.   
                                                      
319 WT/DS267/21. 
320 US written submission, paras. 318-319. WT/DS267/ARB/1 
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  5.3 In light of the parties' disagreement as to the applicable legal standard for this part of our 
assessment, we must first consider whether the principles and procedures of Article 22.3 of the DSU 
apply, before we can proceed with an assessment of Brazil's request on the basis of the applicable 
legal standard.  
A. DO THE PRINCIPLES AND PROCEDURES OF ARTICLE  22.3  OF THE DSU  APPLY TO BRAZIL 'S 
REQUEST ? 
1. Arguments of the parties321 
5.4 Brazil argues in its Methodology Paper that th e countermeasures proposed by Brazil, which 
include the suspension of concessions or other obliga tions not only with respect to trade in goods but 
also under TRIPS and GATS, are "appropriate" and "c ommensurate with the degree and nature of the 
adverse effects determined to exist", within  the meaning of Articles 4.10 and 7.9 of the 
SCM Agreement .  Brazil argues that the countermeasures it proposes, both in their quantitative and in 
their qualitative aspects, must be assessed solely ag ainst the requirements of Articles 4.10 and 7.9 of 
the SCM Agreement .322  Brazil considers that these are the only standards against which the 
countermeasures must be assessed.323  
5.5 Brazil also argues that the United States, as th e party objecting to the proposed requests for 
countermeasures bears the burden of proving that th e type of the countermeasures proposed by Brazil 
is such as to render them not "appropriate" in the meaning of Article 4.10 of the SCM Agreement .  
Likewise, with respect to the actionable subsidies,  Brazil argues that the United States has the burden 
of proving that the type of the countermeasures pr oposed by Brazil is such as to render them not 
"commensurate with the degree and nature of the a dverse effects determined to exist" as required by 
Article 7.9 of the SCM Agreement .  Brazil argues that the United States failed to discharge its burden 
since it merely asserts that DSU Article 22.3 applies to the SCM Agreement .  In Brazil's view, 
Articles 4.10 and 7.9 of the SCM Agreement  provide for countermeasures that are different from those 
available under the DSU.324 
5.6 Brazil argues that Articles 4.10 and 7.9 of the SCM Agreement  provide for "countermeasures" 
and such countermeasures can well encompass the suspension of concessions or obligations under 
sectors or agreements other that in which a violation was found.325  Citing Article 49 of the Draft 
Articles on Responsibility of States for Internationally Wrongful Acts , Brazil argues that the purpose 
of a "countermeasure" as stated in that article is to induce the offending state to comply with its 
obligations. Therefore, Brazil advocates that there is  nothing in public international law to support the 
notion that a countermeasure has to be taken in the same area or under the same agreement in which a 
violation is found.326  Brazil is of the view that Articles 4.10 and 7.9 are "special or additional rules" 
within the meaning of Article 1.2 of the DSU, a nd that they address both the level and the type of 
countermeasures that may be imposed by the original complaining Member in sharp contrast to 
Article 22.4 and 22.3 of the DSU.327  Brazil contends that the Arb itrator should apply the standards 
                                                      
321 In this section, the arguments of the parties are reflected as they were presented by the parties in 
their submissions, i.e. with reference both to the prohi bited subsidies addressed in this Decision and to the 
actionable subsidies addressed in the separate Decision in WT/DS267/ARB/2.  In the subsequent assessment by 
the Arbitrator in section 2 below, only the arguments relating to the prohibited subsidies at issue in these 
proceedings are addressed.  
322 Brazil's Methodology Paper, para. 142. 
323 Brazil's written submission, para. 450. 
324 Brazil's written submission, paras. 452-453. 
325 Brazil's written submission, para. 454. 
326 Brazil's written submission, paras. 458-459. 
327 Brazil's written submission, paras. 464-465.  WT/DS267/ARB/1 
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  under the SCM Agreement , not the principles and procedures under Article 22.3 of the DSU.328 The 
mandate of the Arbitrator is solely to determ ine whether countermeasures are "appropriate" or 
"commensurate".329  
5.7 With respect to the issue whether SCM Agreement  and Article 22.3 of the DSU can be read as 
complementing each other, Brazil argues that "if a special or additional rule or procedure does not 
provide additional requirements that are to be met together with the corresponding provisions of the 
DSU – so as to effectively complement them without negatively affecti ng their legal integrity – the 
two sets of provisions cannot be applied together ."  Brazil continues to argue that if they cannot be 
applied together it is because there is a differe nce between them.  In such case, Brazil argues the 
special or additional rule or procedure must prevail over the corresponding DSU provisions.330 
5.8 Brazil considers that Article 22.3 of the DS U establishes a legal standard based on the 
consideration by the Member concerned of the practicability and effectiveness of suspension of 
concessions and sets out a number of elements that have to be considered, whereas Articles 4.10 
and 7.9 of the SCM Agreement  contain no restrictions on the type of countermeasures that may be 
taken.  Articles 4.10 and 7.9 of the SCM Agreement  grant to the Member concerned a margin of 
appreciation that is broader than the one reflecte d in the requirements of Article 22.3 of the DSU. 
They cannot be applied together.331 
5.9 The United States argues that DSU discip lines concerning suspension of concessions, 
including Article 22.3, apply to the SCM Agreement .332  In its view, the fact that the SCM Agreement  
does not provide for rules relating to cross-sector  suspension of concessions independent of DSU 
Article 22.3, when special rules for other i ssues were carved out, suggests the disciplines on 
cross-sector suspension of concessions remain securely tied to the existing DSU rules and 
procedures.333 
5.10 The United States also argues that Brazil itself explicitly invoked Article 22.3 of the DSU in 
its request for countermeasures for prohibited subsidi es and in its request for actionable subsidies.  
Therefore, in the United States' view, Brazil has act ually conceded that its requests are subject to 
Article 22.3 of the DSU.  The United States also argues that the fact that Article 22.3(g) cross-
references the agreements to which it applies, including the SCM Agreement , also indicates that 
Article 22.3 of the DSU applies to requests for countermeasures under the SCM Agreement .334 
5.11 The United States argues that given the general ru le for suspension of concessions within the 
same sector under the DSU and the absence of any rule  to the contrary in Articles 4.10 and 7.9 of the 
SCM Agreement , there is no conflict in applying both the SCM Agreement  and Article 22.3 of the 
DSU. Thus, the better interpretation – and one  that allows Articles 4.10 and 7.9 of the 
SCM Agreement  to be applied in a complementary fashi on with Article 22.3 of the DSU – is that 
Articles 4.10 and 7.9 deal with the amount of count ermeasures, while Article 22.3 of the DSU sets 
forth rules for determining when countermeasures can be applied on  a cross-sector basis.  To the 
extent there is conflict between them, it is in re gard to the assessment of quantity, or the amount, of 
the suspension of concessions. With regard to "t ype" or "form", the United States argues that the 
silence of the SCM Agreement  as to cross-agreement or cross-sec tor countermeasures mean that there 
                                                      
328 Brazil's written submission, para. 472. 
329 Brazil's written submission, para. 470. 
330 Brazil's responses to questions from the Arbitrator, question 40, para. 460. 
331 Brazil's responses to questions from the Arbitrator, question 40, paras. 461-462. 
332 US written submission, para. 320. 
333 US written submission, para. 323. 
334 US oral statement, para. 67. WT/DS267/ARB/1 
Page 78 
 
 
  is no "difference" in the meaning of Article 1.2 of  the DSU that would require ignoring the carefully 
articulated, hierarchical test under Article 22.3.335 
2. Assessment by the Arbitrator 
5.12 The question before us relates to the definiti on of our mandate, as well as to the substantive 
legal standard that is applicable to the imposition of cross-retaliation under the SCM Agreement .  Both 
aspects are closely related, in that the nature an d scope of our mandate is logically tied to the 
applicable substantive requirements, the application of which we must review. 
5.13 The parties essentially disagree about the extent to  which the provisions of Article 22.3 of the 
DSU, which set out specific principles and procedur es for the authorization of cross-retaliation in 
dispute settlement proceedings under the DSU, ar e applicable in the context of proceedings 
concerning prohibited subsidies under the SCM Agreement , which contains specific provisions 
relating to countermeasures.  
5.14 As a starting point, we need to consider the terms of the relevant provisions of the 
SCM Agreement  and of the DSU.  We recall that Article 4.10 of the SCM Agreement  specifically 
addresses the question of the coun termeasures that may be author ized in relation to prohibited 
subsidies, and Article 4.10 addresses the mandate of the arbitrator in relation to such countermeasures, 
in the event that an arbitration is requested unde r Article 22.6 of the DSU in relation to prohibited 
subsidies.  Article 4.10 requires countermeasures  in relation to prohibited subsidies to be 
"appropriate", and footnote 9 further informs this expression.  Article 4.11, in turn, provides that, in 
the event that a party to the dispute requests arb itration under paragraph 6 of Article 22 of the DSU, 
the arbitrator shall determine whether the countermeasures are "appropriate". 
5.15 Article 22.6 of the DSU, in turn, provides that: 
"When the situation described in paragraph 2 occurs, the DSB, upon request, shall 
grant authorization to suspend concessions or other obligations within 30 days of the 
expiry of the reasonable period of time unl ess the DSB decides by consensus to reject 
the request.  However, if the member con cerned objects to the level of suspension 
proposed, or claims that the principles and procedures set forth in paragraph 3 have 
not been followed where a complaining part y has requested authorization to suspend 
concessions or other obligations pursuant to pa ragraph 3(b) or (c), the matter shall be 
referred to arbitration." 
5.16 Paragraphs 10 and 11 of Article 4 of the SCM Agreement  constitute "special or additional 
rules" under Appendix 2 of the DSU.  In accordance w ith Article 1.2 of the DSU, "to the extent that 
there is a difference between the rules and pro cedures of this understanding and the special or 
additional rules and procedures set forth in Appendix 2, the special or additional rules and procedures 
in Appendix 2 shall prevail". 
5.17 The Appellate Body has clarified the circumstanc es in which such a "difference" would exist: 
"[I]t is only where the provisions of the DS U and the special or additional rules and 
procedures of a covered agreement cannot  be read as complementing  each other that 
the special or additional provisions are to prevail . A special or additional provision 
should only be found to prevail  over a provision of the DSU in a situation where 
adherence to the one provision will lead to a violation of the other provision, that is, 
in the case of a conflict  between them. An interpreter must, therefore, identify an 
                                                      
335 US responses to questions from the Arbitrator, question 67, para. 185.  WT/DS267/ARB/1 
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  inconsistency  or a difference  between a provision of the DSU and a special or 
additional provision of a covered agreement before  concluding that the latter prevails  
and that the provision of the DSU does not apply."336 
5.18 The question before us in this case is whethe r Article 22.3 of the DSU and Article 4.10 and 
4.11 of the SCM Agreement  can be read as complementing each other, or whether adherence to the 
principles and procedures contained in Article 22.3 of the DSU would lead to a violation of 
Article 4.10 or 4.11 of the SCM Agreement , such that there is a conflict  between the two provisions.  
In other words, we must clarify whether the special  or additional rules of Ar ticle 4.10 and 4.11 of the 
SCM Agreement  constitute the entirety of the applicable rules relating to the type and level of 
countermeasures that may be authorized in relation to  prohibited subsidies, or whether the principles 
and procedures of Article 22.3 of the DSU and these  provisions may be read as complementing each 
other in defining the rules applicab le to the suspension of concessions or other obligations in relation 
to prohibited subsidies.  
5.19 We first note that paragraphs 10 and 11 of Ar ticle 4, and more generally the provisions of 
Article 4 of the SCM Agreement  concerning "remedies", are closely tied to the terms and procedures 
of the DSU itself.  Indeed, the arbitration that is  addressed in Article 4.11, which defines the mandate 
of the arbitrator with reference to the terms of Article 4.10, is defined as an arbitration requested 
"under paragraph 6 of Article 22 of the DSU".  It is clear from the use of this cross-reference, that the 
arbitral proceedings at issue, even though they  are in relation to prohibited subsidies under the 
SCM Agreement , are initiated under Article 22.6 of the DS U.  The primary legal basis for such 
proceedings is therefore Article 22.6 of the DSU, as well as Article 4.10 of the SCM Agreement .  
5.20 Under the terms of Article 22.6 of the DSU,  the Member concerned may challenge two 
distinct aspects of a request for authorization to suspend concessions or other obligations.  The 
Member concerned may object to "the level of su spension proposed", or it  may "claim that the 
principles and procedures set forth in paragraph 3 (of Article 22) have not been followed" where a 
complaining party has requested authorization to su spend concessions or other obligations pursuant to 
paragraph 3(b) or (c).  If either of these two clai ms is made, then "the matter shall be referred to 
arbitration".  The reference to an arbitration requ ested "under paragraph 6 of Article 22 of the DSU" 
in Article 4.11 of the SCM Agreement , therefore, on its face, refers to the existence of (1) an objection 
to the "level of suspension proposed" and/or (2 ) a claim that the principles and procedures of 
Article 22.3 of the DSU have not been followed, which are to be referred to arbitration.   
5.21 In the case of an arbitration carried out under th e DSU alone, the mandate of the arbitrator is 
further defined in Article 22.7, which provides in its first sentence that "the arbitrator acting pursuant 
to paragraph 6 shall not examine the nature of th e concessions or other obligations to be suspended 
but shall determine whether the leve l of such suspension is equivalent to the level of nullification or 
impairment".  This is in line with the terms of Article 22.4, which provides that the level of the 
suspension shall be "equivalent to the level of nulli fication or impairment".  This is comparable, in 
structure, to the terms of Article 4.11 of the SCM Agreement , which provides that the arbitrator "shall 
determine whether the countermeasures are appropria te", which is in line with the terms of 
Article 4.10, which provides that the DSB sha ll grant authorization to take "appropriate" 
countermeasures.  
5.22 The provisions of Article 22.7 of the DSU and Article 4.11 of the SCM Agreement  differ, in 
that Article 22.7 of the DSU further articulates that , if the matter referred to the arbitrator includes a 
claim that the principles and procedures have not b een followed, the arbitrator shall examine that 
claim, whereas Article 4.11 of the SCM Agreement  contains no exact equivalent.  The question 
therefore arises as to how the mandate of the arbitr ator should be understood in a situation where a 
                                                      
336 Appellate Body Report, Guatemala – Cement I , para. 65. WT/DS267/ARB/1 
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  claim that the principles and procedures of Article 22. 3 of the DSU have not been followed is referred 
to arbitration in accordance with Article 22.6 of the DSU, in relation to prohibited subsidies.   
5.23 In order to give useful meaning to all the term s of the treaty, including those of Article 22.3 of 
the DSU and the reference to Article 22.6 of the DSU in Article 4.11 of the SCM Agreement , we must 
a priori  read the terms of that provision as envisaging that the principles and procedures of 
Article 22.3 of the DSU apply, including in cases re lating to prohibited subsidies, and that a claim 
may be made in relation to these principles and pro cedures.  In accordance with  the principle that the 
special or additional rules listed in Appendix 2 of the DSU would only prevail in the event of a "difference" (i.e. if it were not possible to apply bo th simultaneously), it is only in the event that we 
determine that there is a conflict or incompatib ility between such a reading and the terms of 
Article 4.11 of the SCM Agreement , that we should conclude otherwise.   
5.24 It appears to us that such a conflict or inco mpatibility would arise between the application of 
the principles and procedures in Article 22.3 of the DSU and the terms of Article 4.10 and 4.11 of the 
SCM Agreement  only if the terms "appropriate countermeasure s" in these provisions are interpreted to 
define not only the permissible le vel of countermeasures in the case of prohibited subsidies, but also 
the type of countermeasures that may be authorized, so that the principles and procedures of Article 22.3 of the DSU would be inoperative in cases relating to prohibited subsidies.  
5.25 We are not persuaded that this is the case.  As was discussed in detail in Section IV.D above, 
it is undisputed that the expression "appropriate co untermeasures" defines the permissible level of 
countermeasures in relation to prohibited subsidies.  In our view, it does not do more than that.  The 
term "appropriate", as informed by footnote 9, whic h clarifies that this expression is not meant to 
allow countermeasures that would be "disproportiona te", necessarily addresses the level of suspension 
that may be authorized.  This is suggested by th e use of the term "disproportionate", which can only 
be understood with reference to the level  of countermeasures.  By contrast, it is not clear that these 
terms provide any guidance as to the type of countermeasures that may be authorized.   
5.26 In light of the level of detail in which the matt er of cross-sectoral retaliation is addressed in 
the DSU, one would have expected the drafters of the SCM Agreement  to provide express guidance to 
this effect, if they had intended to address diffe rently the question of the type of permissible 
countermeasures, as well as their level.  In fact, th is would have been especially necessary in light of 
the fact that Article 22.6 of the DSU, which is  expressly referred to in Article 4.11 of the 
SCM Agreement , foresees that a challenge to proposed susp ension of concessions or other obligations 
may be based either on the level of suspension proposed, or on a claim "that the principles or 
procedures of paragraph 3 (of Article 22 of  the DSU) have not been followed".   
5.27 While the expression "the level of proposed suspension" does not in itself prejudge the 
standard upon which such "level" might be review ed, and thus allows th is standard to differ 
depending on the type of measure at issue, the reference to the "principles and procedures" of 
Article 22.3 of the DSU leaves no doubt as to the relevant  legal standard.  This pa rt of the reference to 
Article 22.6 of the DSU in Article 4.11 of the SCM Agreement  would have to be read out of the 
provision in order to conclude that the principl es and procedures of Article 22.3 of the DSU do not 
apply in the context of proceedings relating to prohibited subsidies.  In light of our analysis above, we 
see no basis to do so.  We also note that, as treaty inte rpreters, we are required to "read all applicable 
provisions of a treaty in a way that gives meaning to all of them, harmoniously".337  The only manner 
in which we can give full meaning to all the term s of the treaty harmoniously in this context is to 
understand the terms of Artic le 4.10 and 4.11 of the SCM Agreement  as meaning that the mandate of 
the arbitrator as defined in Article 4.11 of the SCM Agreement  relates to the determination of the level 
                                                      
337 See for example Appellate Body Report, Canada – Dairy , para. 133, and Appellate Body Report, 
US – Upland Cotton , para. 549.    WT/DS267/ARB/1 
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  of countermeasures, while the terms of the arbitr ator's mandate in relation to a claim that the 
procedures and principles of Article 22.3 of the DSU have not been followed are contained in 
Article 22.6 of the DSU.  
5.28 This interpretation is also consistent, in our view, with the context in which these provisions 
arise.  The various paragraphs under Article 4 of the SCM Agreement  may not be read in isolation 
from the DSU.  Rather, we understand the terms of Article 4 of the SCM Agreement  as providing 
specific additional rules on specifi c aspects of dispute settlement proceedings relating to prohibited 
subsidies, which replace the equivalent rules of the DSU only to the extent that they differ from and 
are incompatible with such rules.   
5.29 In Article 4.11 of the SCM Agreement , it was not necessary for the drafters to clarify that, in 
relation to a claim that the principles and proce dures of Article 22.3 have not been followed, the 
arbitrator would review that claim, since the terms of Article 22.7 of the DSU, which generally define 
the terms under which an arbitration under Article 22.6 is to be carried out, already address this point.  
Only to the extent that the mandate of the arbitrator differed from that set forth in Article 22.7 of the 
DSU, was it necessary to explicitly define it in Article 4.11 of the SCM Agreement , in order to ensure 
that the mandate of the arbitrator in relation to  the proposed level of countermeasures would be 
consistent with the manner in which the perm issible level of countermeasures is defined in 
Article 4.10 of the SCM Agreement  for prohibited subsidies.  Indeed, Article 22.7 of the DSU sets out 
a number of other aspects relating to arbitration pr oceedings pursuant to Ar ticle 22.6 of the DSU, 
which are not replicated in Article 4.11 of the SCM Agreement , but which nonetheless are clearly 
relevant and applicable to such proceedings.  In  particular, the last two sentences of Article 22.7 
provide that: 
"The parties shall accept the arbitrator's decision as final and the parties concerned 
shall not seek a second arbitration.  The DS B shall be informed promptly of the 
decision of the arbitrator and shall, upon request, grant authorization to suspend 
concessions or other obligations where the re quest is consistent with the decision of 
the arbitrator, unless the DSB decides by consensus to reject the request." 
These important provisions are clearly relevant to arbitral proceedings in relation to prohibited 
subsidies under the SCM Agreement .   
 5.30 Finally, we consider that our interpretation is faithful also to the object and purpose of dispute 
settlement proceedings in the WTO and to their integrated nature.  Th e DSU provides the common 
framework under which dispute settlement proceedings are initiated in the WTO, and brings together 
all the covered Agreements.  This is the overall framework in which the question of the possibility of 
seeking suspension of obligations under another sector , or another covered Agreement than that under 
which the violation has been found, arises, and this is logically addressed in the context of the DSU.   
5.31 We are mindful that we must give full meaning to all the terms of the treaty, including the 
special or additional rules identified in Appendix 2,  and that such special or additional rules may 
legitimately prevail over any relevant DSU rules and procedures.  However, we are not persuaded that 
there is a conflict, such that the principles a nd procedures of Article 22.3 of the DSU would be 
inapplicable in the case of disputes relating to prohibited subsidies under the SCM Agreement .  
5.32
 In light of all the above, we conclude that th e principles and procedures of Article 22.3 of the 
DSU apply to the claim before us and that we must review the United States' claim that these 
principles and procedures have not been followed by Brazil.   WT/DS267/ARB/1 
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  B. MANDATE OF THE ARBITRATOR AND BURDEN OF PROOF  
5.33 Having determined that the principles and pro cedures of Article 22.3 of the DSU apply to 
Brazil's request and that we are required to revi ew the United States' claim that Brazil has not 
followed these principles and procedures, we need to cl arify further what our mandate is, in relation to 
this claim, and what burden of proof applies to it.  
1. Main arguments of the parties 
5.34 The United States considers that the drafter' s intention was that suspending concessions 
across sectors and agreements was the exception rather  than the rule.  In the United States' view, 
Article 22.3 establishes a hierarchy of suspension:  Members must first try to suspend concessions 
within the same sector, and if that is not practicab le or effective, can then request permission to 
suspend in a different sector.  This distincti on is important in the GATS and TRIPS Agreements 
where there are multiple sectors, but does not apply with respect to goods. The bar for suspending 
concessions under other agreements is higher still.  The United States adds that not only does the 
suspension within the agreement have to be neither practicable nor effective, but the violation must be 
serious enough to warrant cross-agreement suspension.338  
5.35 The United States further considers that the discip lines of Article 22.3 are an integral part of 
the dispute resolution process a nd the rebalancing of concessions.  The United States cites the 
statement of the arbitrator on EC – Bananas III (US) (Article 22.6 – EC) , that "the basic rationale of 
these disciplines is to ensure that the suspension of concessions or other obligations across sectors or 
across agreements (beyond those sectors or agreem ents under which a panel or the Appellate Body 
has found violations) remains the exception and do es not become the rule".  The United States 
therefore considers it necessary for the Arbitrat or to determine whether Brazil has objectively 
followed these procedures.  The United States also cont ends that Brazil is entitled to a certain margin 
of appreciation in making this de termination, but the Arbitrator also has an oblig ation to judge 
whether Brazil has objectively reviewed the f acts and has reached a plausible conclusion.339  
5.36 The United States argues that for a party to request cross-agreement suspension of 
concessions, it must find that: 
(a) it is not practicable or effective to susp end concessions or other obligations with 
respect to other sectors under the same agreement; and  
(b) that the circumstances are serious enough to  warrant cross-agreement suspension of 
concessions. 
5.37 It considers that, when analysing these requirement s, the party must take into account:  (i) the 
trade in the sector or under the agreement under which the panel or Appellate Body has found a 
violation or other nullification or impairment, and the importance of such tr ade to that party, and 
(ii) the broader economic elements related to the nullification or impairment and the broader 
economic consequences of the suspension of concessions  or other obligations.  The complaining party 
must further explain how it has reached the c onclusion that cross-agreement suspension of 
concessions is warranted.340  
5.38 Brazil notes the arbitrator's "plausib ility" standard as enunciated in the US – Gambling 
(Article 22.6 – US) arbitration.  This standard calls for an objective assessment of the facts and a 
                                                      
338 US written submission, para. 325. 
339 US written submission, para. 326. 
340 US written submission, para. 327.  WT/DS267/ARB/1 
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  plausible conclusion on the issue of whether it is "pr acticable or effective" to seek countermeasures in 
the same sector and on whether th e circumstances are serious enough.341  Brazil considers, however, 
that the Arbitrator should be limited to examining wh ether Brazil has in fact considered the principles 
set forth in Article 22.3 of the DSU, not whether Brazil's considerations are plausible.342  Brazil notes 
the United States position, in the DSB meeting on the adoption of the  EC – Bananas III (US) 
(Article 22.6 – EC) arbitration report, that arbitrators are not supposed to "second guess" the 
conclusions reached by the Member who considers that  it is not practicable or effective to suspend 
concessions or other obligations under the same agre ement, and that the circumstances are serious 
enough within the meaning of Article 22.3.343   
5.39 Brazil also argues that the United States bears the burden of proving that Brazil has not 
followed the principles laid out in Article 22.3, sp ecifically, (i) that it is both "practicable" and 
"effective" for Brazil to suspend concessions only in  the goods sector, or (ii) that the circumstances 
are not "serious enough" to justify applying coun termeasures under another covered agreement.  With 
respect to Article 22.3(d), Brazil argues that the United States has to prove that in selecting 
countermeasures, Brazil did not take into account th e elements indicated in items (d)(i) and (ii).344 
2. Approach of the Arbitrator 
5.40 Article 22.3 sets out certain principles and pro cedures to be followed by a complaining party 
seeking to suspend concessions, as to the sector(s) an d/or covered agreement in which the suspension 
can take place, which the United States claims that Brazil did not follow.   
5.41 We recall our earlier determination that these principles and procedures apply to Brazil's 
request, and that Article 22.7 of the DSU provides th e basis for our mandate to review this claim.  
Article 22.7 provides that "if the matter referred to arbitration includes a claim that the principles and 
procedures set forth in paragraph 3 have not been fo llowed, the arbitrator shall examine that claim" 
and that "[i]n the event the arbitrator determines that those principles and procedures have not been 
followed, the complaining party shall apply them consistent with paragraph 3".   
5.42 We are therefore required to examine the United States' claim that Brazil has not followed the 
principles and procedures of Article 22.3 of the DSU. 
5.43 As a general principle, Article 22.3(a) of th e DSU provides that suspension of concessions or 
other obligations should first be sought in the same  sector as that in which a violation was found.  
Article 22.3 provides in relevant part that: 
"In considering what concessions or other obligations to suspend, the complaining 
party shall apply the following principles and procedures: 
(a) the general principle is that the complaining party should 
first seek to suspend concessions  or other obligations with 
respect to the same sector(s) as that in which the panel or 
Appellate Body has found a violation or other nullification or 
impairment." 
                                                      
341 Brazil's written submission, para. 501. 
342 Brazil's written submission, para. 406. 
343 Brazil's written submission, para. 505. 
344 Brazil's written submission, para. 509. WT/DS267/ARB/1 
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  5.44 Subparagraphs (b) and (c) of Article 22.3 furthe r specify the principles and procedures to be 
followed by a complaining party wishing to seek su spension in another sector, or another agreement, 
than that in which a violation was found: 
"(b) if that party considers that it is not  practicable or effective for it to suspend 
concessions or other obligations with respect to the same sector(s), it may 
seek to suspend concessions or other obligations in other sectors under the 
same agreement; 
(c) if that party considers that it is not practicable or effective to suspend 
concessions or other obligations with respect to other sectors under the same 
agreement, and that the circumstances are serious enough, it may seek to suspend concessions or other obligations  under another covered agreement."   
5.45 In addition, subparagraph (d) of Article 22.3 provides that: 
"(d) in applying the above principles,  that party shall take into account: 
(i)  the trade in the sector or under the agreement under which 
the panel or the Appellate Body has found a violation or 
other nullification or impairment, and the importance of such trade to that party; 
(ii) the broader economic elements  related to the nullification or 
impairment and the broader ec onomic consequences of the 
suspension of concessions or other obligations."  
5.46 Two prior arbitrators have considered the mandate  of the arbitrator set out in Article 22.7 of 
the DSU with respect to the principles and procedures se t forth in Article 22.3, and we find it useful to 
refer to their findings in clarifying the terms of our own mandate.  
5.47 The arbitrator on EC – Bananas III (Ecuador) (Article 22.6 – EC) , in determining the scope 
of its authority to review the principles and procedures relating to requests for suspension of 
concessions or other obligations under subparagraphs (b) and/or (c), cons idered that "the fact that the 
powers of arbitrators under subparagraphs (b)-(c) ar e explicitly provided for in Article 22.6 implies 
a fortiori  that the authority of Arbitrators includes th e power to review whether the principles and 
procedures set forth in these subparagraphs have be en followed by the Member seeking authorization 
for suspension".
345     
5.48 The arbitrator also considered the terms of Ar ticle 22.3, including the fact that a certain 
margin of appreciation is left to the complaining part y in arriving at conclusions in respect of certain 
factual elements (i.e. "if that party considers " in subparagraphs (b) and (c)) as well as the fact that the 
party concerned is required to apply th e principles of Article 22.3 (i.e. " shall  apply the following 
principles and procedures" in the introductory clause of Article 22.3).  On the basis of that textual 
analysis, the arbitrator determined that: 
"[T]he margin of review by the Arbitrat ors implies the authority to broadly judge 
whether the complaining party in ques tion has considered the necessary facts 
objectively and whether, on the basis of these facts, it could plausibly arrive at the 
conclusion that it was not practicable or eff ective to seek suspen sion within the same 
                                                      
345 Decision by th e Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 50.  WT/DS267/ARB/1 
 Page 85 
 
 
  sector under the same agreements, or only under another agreement provided that the 
circumstances were serious enough."346    
5.49 The arbitrator in that dispute also considered more broadly the terms of  Article 22.3 and noted 
that "these provisions imply a sequence of steps towards WTO-consistent suspension of concessions 
or other obligations which respects both a margin of  appreciation for the complaining party as well as 
a margin of review by Arbitrators, if a request  for suspension under Article 22.2 is challenged under 
Article 22.6".347    
5.50 Like the arbitrator on US – Gambling (Article 22.6 – US) , we agree with these determinations.  
We agree that the principles and procedures set fort h in Article 22.3 of the DSU, which require the 
complaining party to make certain determinati ons, imply "a margin of appreciation" for the 
complaining party in making these determinations.  At the same time, Article 22.3 sets out specific 
principles and procedures that the complaining party must follow, and we understand the role of the 
arbitrator acting pursuant to Article 22.7 of the DSU to involve a review of whether those principles and procedures have been followed.  It would not  be sufficient for a complaining party to have 
considered those principles and procedures solely fro m the viewpoint of being able to say that it did 
so.  The consideration must be a substantive a nd reasoned one, and a claim to be entitled to impose 
countermeasures outside the relevant sector, and then  outside the relevant agreement, must arise from 
that consideration. 
5.51 We also agree with the arbitrator on EC – Bananas III (Ecuador) (Article 22.6 – EC)  that this 
mandate includes a determination of "whether the complaining party in question has considered the 
necessary facts objectively" and also "whether, on the b asis of these facts, it could plausibly arrive at 
the conclusion that it was not practicable or effec tive to seek suspension within the same sector under 
the same agreements, or only unde r another agreement provided that the circumstances were serious 
enough".   
5.52 In addition, should we determine that Brazil has not followed these procedures or principles, 
we believe it to be both necessary and appropriate fo r us to articulate how the analysis could properly 
take place to the extent necessary to ensure that Brazil is in a position to apply these procedures and 
principles "consistent with paragr aph 3" and present a request "cons istent with the decision of the 
arbitrator" in a subsequent phase of these disput e settlement proceedings, as foreseen in Article 22.7 
of the DSU.   
5.53 We note in this respect that Article 22.7 provides in relevant part that:  
"[I]f the matter referred to arbitration includes a claim that the principles and 
procedures set forth in paragraph 3 have not been followed, the arbitrator shall 
examine that claim.  In the event the arbitrator determines that those principles and 
procedures have not been followed, the compla ining party shall apply them consistent 
with paragraph 3.   The parties shall accept the arbitrator's decision as final and the 
parties concerned shall not seek a second arbitration.  The DSB shall be informed 
promptly of the decision of the arbitrator and shall upon request, grant authorization 
to suspend concessions or other obligations where the request is consistent with the 
decision of the arbitrator , unless the DSB decides by consen sus to reject the request." 
(emphasis added) 
5.54 This approach is consistent with the objectiv e of prompt and positive settlement of disputes. 
This approach is also consistent with the prac tice of arbitrators acting under Article 4.10 of the 
                                                     
 
346 Decision by th e Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 52. 
347 Decision by th e Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 55. WT/DS267/ARB/1 
Page 86 
 
 
  SCM Agreement  and/or Article 22.6 of the DSU, of proceeding with a calculation of the permissible 
level of countermeasures in the event that they  find the proposed countermeasures not to be in 
accordance with the applicable legal standard.348 
5.55 In terms of burden of proof, we consider that it is for the United States, as the party 
challenging Brazil's determinations , to demonstrate that Brazil has not followed the principles and 
procedures of Article 22.3 of the DSU.  At the same  time, it is essential that Brazil provides us with 
explanations on how it made this dete rmination, in order for us to be in a position to review it, and to 
determine whether Brazil has, in making its de terminations, "considered the necessary facts 
objectively" and whether it could plausibl y reach the conclusions that it did.  
5.56 The United States also asks the Arbitrator to  indicate in its decision, if necessary, the 
maximum amount up to which Brazi l would be permitted to impose cross-agreement suspension of 
concessions.349  The United States requests the Arbitrator to issue separate awards, one in relation to 
the prohibited subsidies and one concerning actionabl e subsidies so that, in case the United States 
brings one subsidy into compliance with the DSB recommendations and rulings before it is able to 
comply with the other, the separate awards provide  a legal basis to ensure that countermeasures are 
still consistent with the legal standards of the SCM Agreement  and the DSU in that situation.350   
5.57 We first recall that two separate decisions are being issued, one in relation to the prohibited 
subsidies (this Decision) and one concerning ac tionable subsidies (in WT/DS267/ARB/2), as the 
United States requests.351     
5.58 We agree that, to the extent that we might determine that Brazil may impose part of the 
proposed countermeasures in another sector or agre ement, we would need to indicate clearly the 
amount of countermeasures in respect of which it would be entitled to suspend concessions or other 
obligations in such other sector or agreement.  
5.59 We do not consider it necessary, however, to determine in this Decision what our conclusion 
might have been, in the event that the United States s hould, at some future point in time, comply with 
the DSB's recommendations and rulings in rela tion to the measures covered by the other 
proceedings.352  This is a hypothetical matter on which it would not be appropriate for us to speculate.  
Rather, we base our assessment on the situation as it ex ists at the time of our determination, which 
includes the fact that the United States has not comp lied with two separate asp ects of the underlying 
recommendations and rulings in this dispute and that this gives rise to an entitlement for Brazil to take 
countermeasures in relation to both aspects.   
5.60 At the same time, we recall that our determina tions in these proceedings relate only to Brazil's 
request in relation to the prohibited subsidies at issue.  Our determinations on Brazil's request for 
cross-retaliation take into account the factual ci rcumstances arising from the separate proceedings 
relating to the actionable subsidies also ruled on in the underlying proceedings, but no entitlement 
arises from this Decision for Brazil to take count ermeasures in relation to such subsidies.   
                                                      
348 See for example Decision by the Arbitrators,  EC – Hormones (US) (Article 22.6 – EC) , para. 12. 
349 US responses to questions from the Arbitrator, question 134, para. 165. 
350 US comments on Brazil's responses to questions from the Arbitrator, question 134, para. 171. 
351 See Section I.C above, at paras. 1.27-1.31. 
352 See WT/DS267/ARB/2.  WT/DS267/ARB/1 
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  C. BRAZIL 'S DETERMINATION THAT IT IS NOT PRACTICABLE OR EFFECTIVE TO TAKE 
COUNTERMEASURES WHOLLY IN TRADE IN GOODS AND THAT THE CIRCUMSTANCES ARE 
SERIOUS ENOUGH  
1. The principles and procedures of Article 22.3 of the DSU 
5.61 Article 22.3 of the DSU, as we have observed earlier, foresees certain "procedures and 
principles" to be followed by the complaining pa rty, in order to seek to suspend concessions in 
another sector or another agreement than that in which the violation was found.   
5.62 As observed by the arbitrator on US – Gambling (Article 22.6 – US):  
" '[T]hese provisions imply a sequence of steps towards WTO-consistent suspension 
of concessions or other obligations'.353  In other words, as Antigua has expressed it, 
Article 22.3 of the DSU provides a 'hierarchy' of remedies that a complaining party 
must follow in determining in which sector s or under which agreements suspension 
of concessions or other obligations can be sought, namely (1) seek to suspend in the 
same sector in the same agreement, (2) seek to suspend within the same agreement 
and (3) seek to suspend under another agreement."354  
5.63 In this case, the initial violation was found in rela tion to trade in goods, and this is the "sector" 
(as defined in subparagraph (g) of Article 22.3) in which Brazil woul d normally be expected to apply 
countermeasures under subparagraph (a).  Subparagr aph (b) affords the possibility of seeking to 
suspend concessions or other obligations "in othe r sectors under the same agreement".  For the 
purposes of this provision, all the agreements on tr ade in goods contained in  Annex 1A of the WTO 
Agreement "taken as a whole" are considered to be  an "agreement", and a sector is defined, with 
respect to goods, as "all goods".  
5.64 Therefore, recourse to subparagraph (b) would in principle allow Brazil to seek to suspend 
concessions or other obligations in all goods, under the Agreements on trade in goods.  Brazil seeks to 
apply countermeasures under the TRIPS and GATS Agre ement.  This would constitute suspension of 
concession or other obligations "under another agreem ent" within the meaning of subparagraph (c) of 
Article 22.3.   
5.65 Accordingly, Brazil will have followed the principles and procedures of Article 22.3 if it has 
determined, in accordance with the terms of subparagraph (c),  that : 
(a) "it is not practicable or effective" to seek  suspension under the same agreement (i.e. 
under the agreements on trade in goods); and 
(b) "the circumstances were serious enough".  
5.66 In addition, in applying these principles, Braz il is required to have taken into account the 
factors identified in subparagraph (d) of Article 22.3.  
5.67 As we have determined above , our mandate is to review whether, in making these 
determinations, Brazil has considered the necessar y facts objectively and whether, on the basis of 
these facts, it could plausibly arrive at the conclusi on that it was not practicable or effective to seek 
suspension under the same agreement and that the circumstances were serious enough.  In order to 
                                                      
353 (original footnote ) Decision by the arbitrators,  EC – Bananas III , (request by Ecuador),  para. 55. 
354 Decision by the Arbitrator, US – Gambling (Article 22.6 – US) , para. 4.19. WT/DS267/ARB/1 
Page 88 
 
 
  conduct this assessment, we must first clarify the te rms of these requirements, as well as the role of 
the elements referred to in subparagraph (d).   
5.68 At the outset, we note that the two requirements within subparagraph (c) are cumulative, 
i.e. the complaining Member must consider that "it is not practicable or effective" to seek suspension 
of concessions or other obligati ons under the same agreement and that "the circumstances are serious 
enough".  The additional requireme nt, under subparagraph (d), to take into account certain 
considerations, further qualifies the manner in whic h the principles contained in subparagraph (c) are 
to be applied.  
(a) First requirement under subparagra ph (c):  a determination that it is "not practicable or 
effective" to suspend concessions or other oblig ations with respect to other sectors under the 
same agreement  
5.69 In order to seek to suspend concessions or ot her obligations under another agreement, the 
complaining party must in the first instance consider that it is "not practicable or effective" to seek 
suspension under the same agreement.  Brazil c onsiders that it does not need to meet both the 
"practicable" and "effective" criteria, and that it is  sufficient to satisfy one of the two conditions.355    
5.70 We agree that the wording of the provision imp lies that the complaining party may consider 
either that it is "not practicable" or that it is  "not effective" to seek suspension under the same 
agreement, and that it need not conclude that same -agreement suspension is both "not practicable" and 
"not effective", in order to reach the conclusi on that it is "not practicable or effective".356 
(i) "practicable" 
5.71 In Brazil's view, the standard of "practicability " under Article 22.3 refers to the availability 
for application in practice of the suspen sion of concessions only in the goods sector.357  In Brazil's 
view, "practicability" refers to whether susp ension in the same sector or agreement is available for 
application in practice , as well as suited for being used in a particular case .  If it is not a real option 
or it is not suited to be used in the circumstances, it will be not practicable.358  This is how the 
arbitrators on EC – Bananas III  and US – Gambling  understood this term, and we agree with this 
determination.  
5.72 As Brazil describes it, and as the arbitrator on EC – Bananas III (Ecuador) (Article 22.6 – 
EC) put it, a consideration of whether suspension in a given sector or agreement is "practicable" 
relates primarily to whether it is actually "available in  practice" to the complaining party.  We find the 
example used by the arbitrator on EC – Bananas III (Ecuador) (Article 22.6 – EC)  helpful in 
clarifying the types of considerations that may be pertinent in such a determination:  
"To give an obvious example, suspension of commitments in service sub-sectors or in 
respect of modes of service supply which a particular complaining party has not 
bound in its GATS schedule is not available for application in practice and thus cannot be considered as practicable."
359   
5.73 There may be a range of situations in wh ich the suspension of concessions or other 
obligations in relation to a certain sector or agreemen t is not "available in practice".  In our view, the 
                                                      
355 Brazil's responses to questions from the Arbitrator, question 8, para. 127. 
356 See Decisions by the Arbitrator, US – Gambling (Article 22.6 – US) , para. 4.29 and EC – Bananas 
III (Ecuador) (Article 22.6 – EC) , para. 74. 
357 Brazil's written submission, para. 510. 
358 Brazil's responses to questions from the Arbitrator, question 8, para. 126. 
359 Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 71.  WT/DS267/ARB/1 
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  essence of a consideration of "practicability" of susp ension is that it relates to its actual availability 
and feasibility.  The impracticability could be either a legal one, as postulated in the example given in 
EC – Bananas III (Ecuador ) (Article 22.6 – EC) , or a factual one, such as might arise if the 
countermeasure exceeds the total amount of the trade available to be countered. 
(ii) "effective" 
5.74 Citing the EC – Bananas III (Ecuador) (Article 22.6 – EC)  arbitrator, Brazil argues that the 
"effectiveness" standard encourages the offending st ate to comply with WTO obligations, in other 
words, to induce compliance360 and allows the party seeking suspensi on to ensure that the impact of 
that suspension is strong and has the desired result,  namely to induce compliance.  Brazil considers 
that "the countermeasures that are best tailored to  provide such a response are those that can maximize 
the likelihood of compliance".361 
5.75 In the United States' view, the likelihood of compliance is not a factor that the DSU provides 
in assessing the appropriate level or nature of the countermeasure.362  The United States considers that 
the DSU authorizes rebalancing of trade concessions in case a Member does not comply with its trade 
obligations.  While the ultimate political goal of the DSU is to promote compliance, the legal 
standards for assessing countermeasures are the effects of nullification and impairment and these are two separate issues in the United States' view.
363  
5.76 The United States considers that the word "eff ective" means that a Member should not be 
prevented from imposing countermeasures of the intende d weight as a result of the limitation of those 
countermeasures to the same sector/agreement.  The in tended "weight" is what is authorized based on 
the applicable standard, including where special or additional rules apply.  Thus, a Member should be 
able to take the "appropriate" amount  of countermeasures with respect to prohibited subsidies and, for 
subsidies causing adverse effects, a Member should be able to take countermeasures commensurate 
with those effects.364 
5.77 Dictionary definitions of the term "effective" include "producing a decided, decisive, or 
desired effect"365 and "powerful in effect; producin g a notable effect; effectual".366  The arbitrator on 
EC – Bananas III (Ecuador) (Article 22.6 – EC)  relied on comparable definitions to conclude that 
"the thrust of this criterion empowers the party seeki ng suspension to ensure th at the impact of that 
suspension is strong and has the desired result, name ly to induce compliance wi th DSB rulings within 
a reasonable period of time".367  That arbitrator further elaborat ed on the types of circumstances in 
which a complaining party might consider that su spension in a given sector or agreement would not 
be "effective": 
"One may ask whether this objective [of i nducing compliance] may ever be achieved 
in a situation where a great imbalance in  terms of trade volume and economic power 
exists between the complaining party seek ing suspension and the other party which 
has failed to bring WTO-inconsistent meas ures into compliance with WTO law.  In 
such a case, and in situations where the complaining party is highly dependent on 
imports from the other party, it may happen th at the suspension of certain concessions 
                                                      
360 Brazil's written submission, para. 511. EC – Bananas III (Ecuador) (Article 22.6 – EC),  para. 72. 
361 Brazil's Methodology Paper, para. 143. 
362 US written submission, para. 337. 
363 US written submission, paras. 339 and 341. 
364 US responses to questions from the Arbitrator, question 137, para. 177. 
365 In Merriam-Webster Online Dictionary . Retrieved 4 June 2009, from http://www.merriam-
webster.com/dictionary/effective. 
366 Oxford English Dictionary , at www.oed.com. 
367 Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 72. WT/DS267/ARB/1 
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  or certain other obligations entails mo re harmful effects for the party seeking 
suspension than for the other party.29 In these circumstances, a consideration by the 
complaining party in which sector or under which agreement suspension may be expected to be least harmful to itsel f would seem sufficient for us to find a 
consideration by the complaining party of th e effectiveness criterion to be consistent 
with the requirement to follow the principles and procedures set forth in 
Article 22.3."
368  
(original footnote)  29 Of course, suspension of concessions or other obligations is always 
likely to be harmful to a certain, limited extent also for the complaining party requesting 
authorization by the DSB. 
5.78 We do not share the view of the arbitrator on EC – Bananas III (Ecuador ) (Article 22.6 – EC)  
that a consideration by the comp laining party of the sector or ag reement in which suspension would 
be "least harmful" to itself would necessarily be pertin ent.  As we read the terms of subparagraphs (b) 
and (c), a consideration of the "effectiveness" cr iterion under these provisions involves an assessment 
of the effectiveness – or lack thereof – of suspension in the same sector or under the same agreement , 
rather than an assessment of the relative effectiven ess of such suspension, as compared to suspension 
in another sector or agreement.  In other words,  the procedures and principles under Article 22.3 do 
not entitle a complaining party to freely choose the most  effective sector or agreement under which to 
seek suspension.  Rather, it entitles the complaining pa rty to move out of the same sector or same 
agreement, where it considers that suspension in that sector or agreement  is not "practicable or 
effective".  
5.79 We agree with the arbitrator on EC – Bananas III (Ecuador) (Article 22.6 – EC),  however, 
that the question of whether "the suspension of certa in concessions or certain other obligations entails 
more harmful effects for the party seeking suspension than for the other party" would be pertinent to a 
consideration of the "effectiveness" of the sai d suspension.  Indeed, as the arbitrator on EC – Bananas 
III (Ecuador) (Article 22.6 – EC)  notes, there may be situations  in which, for example, the 
complaining party is heavily dependent on imports from the other party, to such an extent that it may 
cause more harm to itself than it would to the other party, if it were to suspend concessions or other 
obligations in relation to these imports.  In such a situation, where the complaining party would cause 
itself disproportionate harm, such that it would in fact be unable to use the authorization, there would be a basis for concluding that such suspension would not be "effective".  
5.80 It may well be that the suspension of concessions or other obligations "i s always likely to be 
harmful to a certain, limited extent also for the co mplaining party" applying it.  However, this does 
not, in our view, imply that a consideration of su ch harm may not be relevant for the purposes of 
assessing the "effectiveness" of suspension in a gi ven sector or agreement. In foreseeing that the 
complaining party may consider that same-sector or  same-agreement suspension is "not practicable or 
effective", the drafters of the DSU have preci sely acknowledged and recognized the possibility of 
circumstances in which suspension of certain obligati ons would not be effectiv e, and they have sought 
to allow the complaining party the possibility of ensuring that it nonetheless has at its disposal an 
effective remedy in such circumstances, i.e. a re medy that may produce its intended effects.  This 
includes, in our view, situations in which the harm that may arise from same-sector or same-
agreement suspension would be so significant for the complaining party as to deter it from having  
recourse to it.  
5.81 This is consistent with the objective of inducin g compliance, in that this provision seeks to 
ensure that the complaining party will be in a po sition to actually have recourse to the authorized 
remedy, and thus enable it to contribute to induci ng compliance, as is its legitimate purpose.  At the 
                                                     
 
368 Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 73.  WT/DS267/ARB/1 
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  same time, we agree with the United States that the "likelihood of compliance", as such, is not at issue 
in this determination.  Rather, what is at issue is  the ability of the complaining party to make effective 
use of the awarded countermeasures in order to induce such compliance.   
(b) The second element under subparagraph (c):  a de termination that "the circumstances are 
serious enough"   
5.82 As noted by the arbitrator on US – Gambling (Article 22.6 – US) , the text of Article 22.3(c) 
provides no specific guidance on how the terms "the circumstances are serious enough" are to be 
understood.  The elements of subparagraph (d) do, howe ver, provide useful guidance in this respect.   
5.83 We therefore consider that the trade at issue,  and its importance to the complaining party, as 
well as the broader economic elemen ts relating to the nullification or impairment and the economic 
consequences of the suspension, may all be re levant in assessing whether the "circumstances are 
serious enough" in a given case.   
5.84 At the same time, we consider  that these terms inherently imply a degree of flexibility in 
assessing what "circumstances" may be pertinent in a given case, so that these may not be the only 
relevant considerations in such an assessment.  We agree, in this respect, with the following 
determinations of the arbitrator on US – Gambling (Article 22.6 – US) : 
"We also consider, more generally, that this  aspect of the determination, which relates 
to "circumstances", is of necessity an as sessment to be made on a case-by-case basis, 
and that the circumstances that are relevant may vary from case to case.  We note however, that these circumstances should be serious "enough", which suggests that it 
is only when the circumstances reach a certain degree or level of importance, that 
they can be considered to be serious enough."
369 
(c) The elements under subparagraph (d) of Article 22.3 
5.85 Subparagraph (d) of Article 22.3 directs the complaining party to take into account two 
specific considerations, in applying the pr inciples under the previous subparagraphs: 
(a) the trade in the sector or under the agreem ent under which the panel or the Appellate 
Body has found a violation or other nullifi cation or impairment , and the importance 
of such trade to [the complaining] party; and  
(b) the broader economic elements  related to the nullificati on or impairment and the 
broader economic consequences of the suspension of concessions or other 
obligations.  
5.86 The first element, the "trade in the sector or under the agreement under which the panel or the 
Appellate Body has found a violation" is to be understood with reference to  the definitions of the 
terms "sector" and "agreement" contained in subparagr aph (g) of Article 22.3.  As the arbitrator on 
US – Gambling (Article 22.6 – US)  observed: 
"[I]n order to determine whether suspension is practicable or effective in a certain 
sector, it is appropriate to take into account all the trade in that sector and its 
importance to the complaining party.  This also appears to us consistent with the 
                                                      
369 Decision by the Arbitrator, US – Gambling (Article 22.6 – US) , para. 4.108. WT/DS267/ARB/1 
Page 92 
 
 
  purpose of this provision, which is to provi de certain objective parameters to guide 
the conduct of such determination."370 
5.87 In the circumstances of this case,  this means that what is to be taken into account is "the 
trade" in all goods under the trade in goods agreem ent, that is, trade in goods generally, and its 
importance to Brazil.   
5.88 The second consideration required to  be taken into account is th e "broader economic elements 
related to the nullification or impairment" and the "broader economic consequences of the suspension.  
We agree with the determinations of the arbitrator on EC – Bananas III (Ecuador) (Article 22.6 – 
EC), as endorsed also by the arbitrator on US – Gambling (Article 22.6 – US) , that:  
"The fact that the former criterion relates to 'nullification or impairment' indicates in 
our view that this factor primarily concer ns 'broader economic elements' relating to 
the Member suffering such nullification or impairment, i.e. in this case Ecuador.   
We believe, however, that the fact that the latter criterion relates to the suspension of 
concessions or other obligations is not necessarily an indication that "broader 
economic consequences" relate exclusively to the party which was found not to be in 
compliance with WTO law, i.e. in this case the European Communities.  As noted 
above, the suspension of concessions may not on ly affect the party retaliated against, 
it may also entail, at least to some extent, adverse effects for the complaining party 
seeking suspension, especially where a great imbalance in terms of trade volumes and 
economic power exists betw een the two parties such as in this case where the 
differences between Ecuador and the European  Communities in regard to the size of 
their economies and the level of socio- economic development are substantial."371 
5.89 Accordingly, the "broader economic elements rela ted to the nullification or impairment" to be 
taken into account in this case are those relating to  the nullification or impairment arising for Brazil 
from the subsidies at issue, while the broader ec onomic consequences of the suspension may include a 
consideration of the economic consequences of  the suspension both for Brazil and for the 
United States.   
5.90 The terms of subparagraph (d), which require these elements to be taken into account in 
applying the principles of subparagraph (c), make it clear that an assessment  of whether same-sector 
or same-agreement suspension is "not practicable or  effective" and of whether "the circumstances are 
serious enough" may legitimately, and indeed should , take into consideration not only the trade to 
which the suspension would apply, but also the ec onomic consequences arising from the suspension.   
5.91 With these considerations in mind, we now turn to consider whether a plausible determination 
that it is not practicable or effective to suspend ob ligations in trade in goods alone could be made in 
this case, and that the circumstances are serious enough, so that an authorization to suspend 
concessions or other obligations also under the TRIPS Agreement and the GATS could be given.  
2. Factual assumptions  
5.92 As we have found above, our manda te requires us to consider whether Brazil has followed the 
procedures and principles of Article 22.3 of the DSU,  in determining that it is not practicable or 
                                                      
370 Decision by the Arbitrator, US – Gambling (Article 22.6 – US) , para. 4.34. 
371 Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC ), paras. 85-86.  See also  
Decision by th e Arbitrator, US – Gambling (Article 22.6 – US) , para. 4.35.  WT/DS267/ARB/1 
 Page 93 
 
 
  effective to suspend concessions in trade in goods and in the agreements of Annex 1A and that the 
circumstances are serious enough. 
5.93 In making its determinations, Brazil assumed that the countermeasures would be in the 
amount that it had requested, namely, a total of  US$1.644 billion in relation to the prohibited 
subsidies at issue in these proceedings (Step 2 pl us GSM 102).  We have determined, however, that 
countermeasures in an amount of US$147.4 million annually372 would be "appropriate" in this case.   
5.94 In addition, our determination in these proceed ings takes place against the background of 
another arbitration proceeding concerning actiona ble subsidies, in which Brazil had requested 
countermeasures in the amount of US$1.037 billion annuall y.  The arbitrator in those proceedings has 
determined that countermeasures in the amount of US$147.3 million would be "commensurate with 
the degree and nature of the adverse effects determined  to exist" within the meaning of Article 7.9 of 
the SCM Agreement .373   
5.95 These circumstances raise two questions for our consideration.  First, we must consider 
whether, for the purposes of our assessment, we mu st take into account the cumulated amount of 
countermeasures resulting from both proceedings or only the amount arising from this Decision.  Secondly, we must consider what are the implications of the fact that Brazil has assumed, in making its determination, an amount of countermeasures si gnificantly in excess of the amount that has been 
determined to be permissible.  
(a) Whether it is appropriate to consider the cu mulated amount of countermeasures arising from 
both proceedings 
5.96 Although the arbitral proceedings relating to  the prohibited and actionable subsidies 
respectively were conducted in parallel, they relate to different aspects of the DSB's findings in this 
dispute and are legally distinct.  In both cases, Br azil has requested an authorization to apply the 
proposed countermeasures in the form of suspen sion of obligations under the GATS and the TRIPS 
Agreement, as well as under trade in goods.  The ques tion therefore arises as to the extent to which 
the Arbitrator in these proceedings must take into ac count the determinations of the arbitrator in the 
other proceedings, in assessing whether Brazil h as followed the principles and procedures of 
Article 22.3 of the DSU.  
5.97 Brazil considers that the amount of counterm easures on prohibited subsidies and the amount 
of countermeasures for actionable subsidies should be  cumulated in considering whether suspension 
of concessions or obligations in the goods sector is practicable or effective.  Brazil observes that the 
total amount of countermeasures is part of the objective reality in which the Member operates  and in 
which it undertakes its consideration of the prac ticability or effectiveness of the countermeasures 
under Article 22.3 of the DSU.
374 
5.98 The United States argues that, since the Arbitrator  should issue two separate reports to reflect 
the two separate arbitration proceedings, sep arate assessments of Brazil's requests for 
countermeasures under the GATS and the TRIPS Agreement would be needed.375  However, the 
United States also considers that the Arbitrator in  each proceeding may consider the circumstances of 
the other proceeding.  Consequently, the Arbitrator in one proceeding may take account of 
countermeasures awarded in the other proceeding in de termining if the total of the countermeasures in 
                                                      
372 We recall that this is not a fixed amount, so it may vary over time.  However, at this stage of our 
analysis, we find it appropriate to rely on the amount that we have calculated in relation to FY 2006. 
373 See WT/DS267/ARB/2, para. 4.195. 
374 Brazil's responses to questions from the Arbitrator, question 9, para. 133. 
375 US responses to questions from the Arbitrator, question 9, para. 47. WT/DS267/ARB/1 
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  the two proceedings together would justify suspending concessions under another sector or 
agreement.376    
5.99 We first take note of the parties' agreement th at, even in the context of separate assessments 
under the two proceedings, the Arbitrator in each pr oceeding would be entitled, in the circumstances 
of this case, to take account of the amount of co untermeasures awarded in the other proceedings.  
5.100  The determinations arising from this Decision are only in relation to the countermeasures 
concerning the subsidies covered by these proceedi ngs, namely Brazil's proposals in relation to the 
Step 2 and GSM 102 payments.  At the same time, we agree that it is appropriate for us to take into 
account the amount of countermeasures to which Braz il is entitled to under the other proceedings.  As 
Brazil has expressed it, the amount of countermeasures de termined in the other proceedings is "part of 
the objective reality in which the Member opera tes".  We assume that both amounts would be 
applicable at the same time and that the two am ounts of countermeasures would potentially be applied 
cumulatively by Brazil.  This circumstance may ha ve an impact on an assessment of whether it is 
"practicable or effective" to seek countermeasures  in the same sector or the same agreement and 
whether "the circumstances are serious enough".  As  observed above, the parties agree that we can 
adopt a cumulative approach in this case.377   
5.101  We will therefore take into account the cumula ted level of countermeasures arising from both 
decisions, which amounts to US$294.7 million annually, in reviewing whether Brazil has followed the 
principles and procedures of Article 22.3 of the DS U in determining that it is not practicable or 
effective to seek to suspend concessions or other ob ligations in trade in go ods alone and that the 
circumstances are serious enough.   
(b) Implications of the difference between the le vel of countermeasures requested by Brazil and 
the level determined to be permissible 
5.102  The amount of the countermeasure is a central aspect, possibly the most critically important 
aspect, of the consideration required to be undert aken by a complaining Member in following the 
principles and procedures of Article 22.3 of the DSU.   
5.103  In these proceedings, Brazil has assumed, in  applying the procedures and principles of 
Article 22.3, that it would be entitled to a to tal amount of countermeasures in the amount of 
US$2.681 billion (US$1.644 billion in relation to the prohibited subsidies plus US$1.037 billion in 
relation to the actionable subsidies).  However, as we have determined a bove, the cumulated amount 
of countermeasures to which Brazil is entitled to is US$294.7 million.   
5.104  In this case, the amount of countermeasures that  we have determined to be permissible is 
significantly lower than the amount assumed by Brazil in its request, and this fact alone compels a finding that the complaining party has not followed the principles and procedures of Article 22.3.  We 
must therefore find that in adopting the assumption of a total of US$2.681 billion of countermeasures 
as the central "fact" underlying its consideration of Ar ticle 22.3, it did not properly consider, or cannot 
be taken to have properly considered, "the necessar y facts objectively".  Consequently, it cannot have 
properly applied the princi ples and procedures of Article 22.3 on the basis of these facts.  Therefore 
our finding must be that Brazil has not followed the principles and procedures as laid out in that 
Article. 
5.105  It is not possible to go "back in time" for Braz il to rectify its request for the purposes of these 
proceedings, taking into account our determina tion relating to the permissible amount of 
                                                     
 
376 US responses to questions from the Arbitrator, question 9, para. 48. 
377 See para. 5.94.  WT/DS267/ARB/1 
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  countermeasures.378  However, Brazil will have the right to  present a request for countermeasures to 
the DSB at the level determined in this Decision.  Thus it would be both unreasonable and 
uninstructive to say nothing more about the way in which the principles and procedures should be applied to the lower countermeasure calculated by the Arbitrator.   
5.106  We recall in this context our de termination in paragraph 5.52 above that, should we determine 
that Brazil has not followed these procedures or pr inciples, we should articulate how the analysis 
could properly take place to the extent necessary to en sure that Brazil is in a position to apply these 
procedures and principles "consistent with paragra ph 3" and present a request  "consistent with the 
decision of the arbitrator" in a subsequent phase of  these dispute settlement proceedings, as foreseen 
in Article 22.7 of the DSU.   
5.107  In light of these considerations, and notwithst anding our determination that Brazil has not 
followed the principles and procedures of Article 22.3 because it based its determination on an 
amount of countermeasures which is significantly in  excess of the amount we have authorized, we 
thus now proceed to describe how, in our view, Artic le 22.3 should be applied in the context of a 
countermeasure in the amount of US$294.7 million. 
5.108  In conducting this analysis, we will take into consideration the elements and arguments that 
have been presented to us by Brazil and the Unite d States in these proceedings.  We recognize that 
Brazil applied these arguments to a significantly larg er amount of countermeasures.  What we aim to 
determine in our examination of this issue, is whether the considerations that Brazil has brought 
forward to explain why it considered that it is not  practicable or effective to suspend concessions or 
other obligations solely in trade in goods to th e level that it assumed it w as entitled to, would justify 
the same conclusion when applied to the level of co untermeasures that we have determined would be 
"appropriate".  
3. Whether it is practicable or effective for Brazil to suspend concessions in trade in goods 
5.109  Although Brazil considers that the countermeasures must be assessed exclusively against the 
requirements of Article 4.10 of the SCM Agreement , Brazil claims that it has, in any event, followed 
the principles and procedures of Article 22.3 of the DSU.  Specifically, Brazil considers that it is not 
practicable or effective to suspend concessions or other obligations exclusively under trade in goods, 
and that the circumstances are serious enough to jus tify suspension of concessions or other obligations 
under TRIPS and GATS.
379  Brazil also argues that it considered the elements under Article 22.3(d) of 
the DSU.380   
5.110  The United States argues that the text of the DSU does not explicitly define what 
countermeasures are "practicable or effective", but th e negotiators were clear in their intention that 
this be a high bar.  Brazil does not reach this bar.  In the United States' view, Brazil advances a claim 
for cross-agreement and sector suspension of con cessions that is contrary to the Article 22.3 
disciplines.381  The United States therefore requests the Arbitr ator to reject Brazil's request to suspend 
concessions with respect to TRIPS and GATS for the reason that Brazil does not meet the requirements of Article 22.3.
382 
                                                      
378 This is not to say that a Member could not base its consideration on a range of possible 
countermeasure amounts, in order to come before an arbitrat or in Article 22.6 proceedin gs and validly say that it 
did use a range of assumed facts, and arrived at the same or different outcomes in relation to cross-retaliation.  In these proceedings that did not happen.  
379 Brazil's Methodology Paper, para. 144;  Brazil's written submission, para. 499. 
380 Brazil's written submission, para. 506. 
381 US written submission, para. 329. 
382 US written submission, para. 342. WT/DS267/ARB/1 
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  (a) Main arguments of the parties 
5.111  Brazil states that it does not consider it adequa te to suspend concessions "by creating barriers 
to Brazilian imports of US goods  and thereby imposing additional costs on the Brazilian economy in 
general."383   
5.112  The United States  considers that this claim runs head long into the thoughtful and purposeful 
design of the DSU system.  According to the United States, the treaty negotiators specifically created 
a system where Members had to first resort to  suspension of concessions within the relevant 
agreement.  Suspension of concessions with respec t to goods always entails creating barriers to 
another Member's goods and thereb y imposing additional costs on the sanctioning state's economy.  
The United States argues that the negotiators of  the DSU were well aware that suspension of 
concessions with respect to goods would be pain ful for both the sanctioned government and the 
sanctioning government.384  In the United States' view, if the me re fact of additional costs on Brazil's 
domestic economy were sufficient for suspension of c oncessions in the same sector to be not practical 
or effective, it could be argued th at any and all violations with re spect to goods would warrant cross-
agreement suspension of concessions.  The United Stat es argues that this approach is not compatible 
with the fact that designers of the DSU chose to impose disciplines on suspension of concessions.385 
5.113  The United States considers that it can demonstrate that Brazil can effectively and practicably 
suspend concessions with respect to goods, and that  any request by Brazil to suspend concessions 
across sectors or across agreements is not a reas onable and objective assessment of the conditions 
established by Article 22.3.386 The United States points out that Brazil imports a sufficient amount of 
goods from the United States to provide practicab le and effective suspension of concessions.  
Between 2005-2007, Brazil importe d between US$15.3 billion to US$24.6 billion annually in 
US goods.387  In consumer goods, excluding food a nd automotive goods, Brazil imported between 
US$1.125 billion and US$1.676 billion annually in  the same time period.  Including food and 
automotive goods in the consumer goods categor y, the level of imports jumps to between 
US$1.826 billion and US$2.717 billion annually.   
5.114  According to the United States, the level of bilateral trade between the United States and 
Brazil is thus sufficient to provide for suspensi on of concessions with respect to goods alone.  
Moreover, given Brazil's large and diverse ec onomy and the actual level of nullification and 
impairment incurred by the US policies at issu e, suspension in consumer goods alone should be 
effective and practicable.388  In the United States' view, the ec onomic size and the diversity of the 
economy makes it possible for Brazil to suspend con cessions in the goods sector without resort to 
exceptional cross-sector countermeasures.389 In the past, Brazil has proposed suspension of 
concessions in the amount of US$3.36 billion only in the goods sector in the Canada – Aircraft 
Credits and Guarantees (Article 22.6 – Canada) dispute.  In the United States' view, it is difficult to 
understand why it was practicable and effective to suspend concessions in the goods sector in that 
dispute while Brazil considers it is not practicable  or effective to suspend concessions in the goods 
sector in this case.390  
                                                      
383 Brazil's Methodology Paper, para. 143. 
384 US written submission, para. 329. 
385 US written submission, para. 330. 
386 US written submission , para. 335. 
387 Exhibit US-62, US-ITC Export Data to Brazil. 
388 US written submission, para. 336.  The Arbitrator takes note that these US arguments are made in 
the context of Brazil's requested amount of countermeasur es, i.e.,  US$1.644 billion,  for prohibited subsidies 
and US$ 1.037 billion for actionable subsidies respectively.   
389 US responses to questions from the Arbitrator, question 135, paras. 168-170. 
390 US oral statement, para. 71.  WT/DS267/ARB/1 
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  5.115  Citing the EC – Bananas  III (Ecuador) (Article 22.6 – EC)  arbitration, the United States 
argues that if a developing country, even one with  a relatively small and undiversified economy such 
as Ecuador, has sufficient bilateral trade in consum er goods to impose suspension of concessions, then 
it must do so.  Only where the government lacks the capacity to suspend concessions in the same 
agreement does the DSU permit the cros s agreement suspension of concessions.391 
5.116  Brazil  explains that it would not be feasible or reasonable to apply countermeasures on capital 
goods, intermediate goods and other essential inputs to  the Brazilian economy, which it says comprise 
95 per cent of Brazil's imports from the United States .  The costs involved in switching suppliers are 
normally prohibitive for capital goods and intermediate  goods.  In addition to prices, decisions on the 
purchase of capital or intermediate goods are conditione d by several factors that severely constrain the 
ability of producers to switch suppliers.  These f actors include:  (i) long-term contracts cannot be 
terminated easily or without heavy pecuniary penaltie s;  (ii) capital goods in particular are tailor-made 
to respond to the specific needs of the producer and are ordered many months or even years in 
advance;  (iii) in most industries, inputs must have the exact technical specifications that match the requirements of the machinery in place.  These specifications will be di fferent depending on the 
brand, origin, age etc. of the machinery that equips  assembly lines.  As a result, theoretically similar 
products are not substitutable;  (iv) intellectual pr operty protection and intra-company trade determine 
purchase decisions and curb the ability of producers to change suppliers.
392 
5.117  Moreover, Brazil says that its imports of c onsumer goods from the United States amount to 
US$1.27 billion.  Of that amount, almost US$1.1 b illion, or 86 per cent, correspond to medical and 
educational supplies, food, automotive goods and arms, sectors where, according to Brazil, any 
raising of barriers would entail serious a nd unreasonable costs to the Brazilian economy.393  In Brazil's 
view, the profile of Brazilian imports of consum er goods from the United States leaves very little 
room of manoeuvre for Brazil to adopt countermeasures that target such goods.394    
5.118  However, Brazil also considers that of the US$1.27 billion of  annual imports of consumer 
goods from the United States (in 2007), approximately US$28.5 million, or 2.2 per cent, can be considered as luxury goods, in relation to which,  arguably, the imposition of countermeasures would 
not be disproportionately costly to Brazil.  In Brazil's view, these luxury goods are consumed by a 
very small share of Brazil's population and an increa se in the costs of their importation is likely to 
generate limited impacts on th e Brazilian economy in general.
395  
5.119  The United States observes that Brazil has failed to explain why, given the availability of 
alternative sources of supply, the suspension of co ncessions in the goods sector is not practicable or 
effective.  Rather, the United States argues, Braz il simply takes a broad category of goods out of 
consideration based on mere assertion.396  The United States considers that the goods sector is "all 
goods", and that while it may be appropriate to ex amine the negative impact on particular goods that 
are necessities, where goods are not necessities or wh ere alternative sources of supply are available, 
there is no basis to assert that suspension of concessions for those goods is not practicable or 
effective.397 
5.120  Brazil considers that the United States bears th e burden of proving that it is practicable and 
effective for Brazil to change suppliers when ta king countermeasures in the goods sector alone, and 
                                                      
391 US written submission, para. 333. 
392 Brazil's responses to questions from the Arbitrator, question 140, para. 334. 
393 Brazil's responses to questions from the Arbitrator, question 140, para. 336. 
394 Brazil's written submission, para. 516. 
395 Brazil's written submission, para. 523. 
396 US responses to questions from the Arbitrator, question 135, para. 171. 
397 US responses to questions from the Arbitrator, question 135, para. 166. WT/DS267/ARB/1 
Page 98 
 
 
  that merely identifying that alternative sources of  supply exist for some products is not sufficient.398  
In this regard, Brazil considers that the United St ates failed to demonstrate that countermeasures in 
the goods sector alone is "practicable" and "effective".399 
5.121  Brazil considers that the crucial question is not  whether alternative sources of supply exist, 
but whether it would be feasible and sensible for Braz il, in practice, to force its economic agents to 
switch to other suppliers.  Such analysis would ha ve to take into account, among other factors, the 
US share in Brazil's total imports; the price levels of alternative suppliers; technical specifications and 
product differentiation; intellectual property and in tra-company trade restrictions; and the economic, 
welfare and inflationary costs resulting from the disruption of production and supply chains.400  Brazil 
considers that the burden is on the United States to explain why and how the US imports can be 
replaced by imports from other sources, so that it is practicable for Brazil to take countermeasures 
only in the goods sector.401 
5.122  The United States comments that Brazil focuses on an even narrower scope of products than 
the arbitrator on EC – Bananas III (Ecuador) (Article 22.6 – EC)  did.  In that dispute, the arbitrator 
looked at the category of consumer goods because the suspension of concessions on these goods could 
not cause any direct adverse effects on Ecuador's domestic manufacturing and processing industries.  
The United States says that there is no reason to ex clude such end use products as "books" and "food" 
(which Brazil indicates as necessity commodities) fr om the products for applying countermeasures.  
Also, the United States considers that the potential co st of changing suppliers is not unusual, but an 
expected result of suspension of concessions.  The United States' main point is that Brazil is not 
constrained to the narrow range of choices of goods as it suggests given that it is one of the world's 
largest economies and it has many sources of supply.402  
5.123  Brazil further argues that within the very lim ited scope of consumer goods that Brazil has to 
target, the costs and welfare-reducing effects resulting from the adoption of countermeasures 
exclusively in that sector would render such an a lternative not practicable.  In Brazil's view, the 
additional costs generated by these measures would a dd to inflationary pressures – at a time when 
increasing prices have pointed to a worrying inflationary scenario – and would limit access of Brazilian consumers to these impor ted goods, negatively affecting Brazil's economy and the welfare 
of its population.
403 
5.124  Furthermore, in Brazil's view, any measures that are contrary to the objectives of a developing 
country to ensure steady and sustainable development; to pursue high growth rates; to fight poverty; and to promote the increased welfare of its popul ation within a stable macroeconomic environment 
will necessarily be costly and impracticable by definition.
404  Brazil also contends that the 
significantly unbalanced nature of the trade relati ons between Brazil and the United States, and the 
considerable economic differences between the tw o countries, render the suspension of concessions 
and other obligations under trade in goods alone ne ither practicable nor effective as a response to the 
United States' failure to comply with its obligations.405  
                                                      
398 Brazil's responses to questions from the Arbitrator, question 140, para. 337. 
399 Brazil's responses to questions from the Arbitrator, question 140, para. 349. 
400 Brazil's responses to questions from the Arbitrator, question 140, para.  337. 
401 Brazil's comments on US responses to questions from the Arbitrator, question 135, para. 394. 
402 US comments on Brazil's responses to questions from the Arbitrator, question 140, paras. 179-181. 
403 Brazil's written submission, paras. 517-519. 
404 Brazil's written submission, para. 520. 
405 Brazil's written submission, para. 521.  WT/DS267/ARB/1 
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  5.125  In Brazil's view, countermeasures that are simply most likely to add to those costs and effects 
are not practicable, as the Brazilian Government does not consider that they could be employed in 
practice.406  
5.126  Brazil also considers that countermeasures restri cted solely to trade in goods may not have 
sufficient political influence to press for the United St ates' withdrawal of the billions in US dollars 
annually paid subsidies or to remove their adverse effects.  Therefore, such  countermeasures are not 
"effective" for the purpose of encouraging compliance.407 
5.127  Brazil submits that, at the very least, it "could plausibly arrive at the conclusion that it was not 
practicable or effective for it to suspend con cessions and other obligations" in respect of the 
importation of goods alone.408  Brazil reiterates that, besides being authorized to take countermeasures 
under trade in goods, it needs to have the option to suspend concessions or  other obligations under 
TRIPS and GATS.  In this regard, Brazil is seeking to take counter measures that "produce the greatest 
likelihood of compliance with minimal damage to its own economy", as commented by the United 
States itself in a DSB meeting adopting the arbitration report in EC – Bananas III (Ecuador) 
(Article 22.6 – EC) .409  
(b) Analysis by the Arbitrator  
5.128  We recall our determination above that Braz il cannot be taken to have applied a proper 
consideration of the principles and procedures of Article 22.3, because the amount of the 
countermeasure it assumed was much greater than the countermeasure determined by the Arbitrator.  
Nonetheless we have proceeded further, to give gui dance whether, on the basis of the level of the 
countermeasures authorized under this Decision, and in the circumstances of the trade between the 
two Members involved, an objective and plausible conclusion could be reached that it is "not 
practicable or effective" to seek suspension in tr ade in goods alone and that "the circumstances are 
serious enough".   
5.129  We also recall that, as we have explained in our preliminary observations above, we will take 
into account in our review of Brazil's determinati ons the amount of countermeasures that we have 
determined that Brazil is entitled to, in relation to the ML and CCPs (US$147.3 million), as well as 
the amount of countermeasures determined to be "app ropriate" in the separate proceedings relating to 
the prohibited subsidies at issue in the underlying dispute (US$147.4 million).  The total amount of 
countermeasures in relation to which we cons ider Brazil's determinations is therefore 
US$294.7 million.  
(i) Initial observations 
5.130  Brazil observes at the outset that it would not be adequate to suspend concessions "by 
creating barriers to Brazilian imports of US goods and thereby imposing additional costs on the 
Brazilian economy in general".  The United States  responds that suspension of concessions with 
respect to goods always entails creating barrier s to another Member's goods and thereby imposing 
additional costs on the sanctioning state's economy, and that the DSU negotiators were "well aware 
that suspension of concessions with respect to  goods would be painful for both the sanctioned 
government and the sanctioning government".  If the me re fact of additional cost on Brazil's domestic 
economy were sufficient for suspensi on of concessions in the same sector not to be practical or 
                                                      
406 Brazil's written submission, para. 522. 
407 Brazil's written submission, para. 524. 
408 Brazil's written submission, para. 526. 
409 Brazil's written submission, para. 52 7;  WT/DSB/M/78, paras. 44-45. WT/DS267/ARB/1 
Page 100 
 
 
  effective, the United States observes, then it could be argued that "any and all violations with respect 
to goods would warrant cross-retaliation".   
5.131  We agree with the United States that "the mere  fact of additional cost on Brazil's domestic 
economy" would not be sufficient, in and of itself, to conclude that suspension of concessions or other 
obligations is "not practicable or effective" within  the meaning of Article 22.3 of the DSU.  To the 
extent that the imposition of a barrier to trade on certain imports inherently  generates economic costs 
on the Member imposing them, the suspension of co ncessions on trade in goods may always have the 
potential to cause some harm to the economy of th e Member imposing the barriers.  To assume that 
this inherently would justify recourse to cross-re taliation would amount to reading out of Article 22.3 
the principle contained in subparagraph (a).  Rather , subparagraphs (b) and (c ) of Article 22.3 set out 
the specific circumstances in wh ich a complaining Member may be entitled to seek to suspend 
concessions in another sector or another agreement,  whatever the sector in which the violation was 
found.   
5.132  At the same time, as we have observed in our analysis of the terms "not practicable or 
effective" above, it is quite possible that the pot ential costs associated with the suspension of 
concessions or other obligations in a given sector or  under a certain agreement would precisely be of 
such an extent and magnitude that such suspension is  "not practicable or effective".  The fact that 
subparagraph (d) requires a consideration of the "b roader economic consequences of the suspension" 
further confirms, in our view, that it is appropriate  and legitimate for the complaining party to take 
into account the potential costs that may be associated  with the suspension, and not simply the legal 
feasibility of that suspension, in a determination of whether it is "practicable or effective".  
5.133  In short, a consideration of the economic costs associated with the suspension is legitimate, 
but it is not just any economic costs associated with the suspen sion of concessions or other obligations 
in a given sector or agreement that would justify a conclusion that such suspension would be "not 
practicable or effective".  Rather, the costs at issue would have to be of such extent and magnitude as 
to render the suspension "not practicable or effective".  
5.134  In these proceedings, Brazil has provided general explanations as to the profile of its trade 
with the United States, which in its view affect its ability to suspend concessi ons or other obligations 
in trade in goods, as well as specific explanations wh y it considers that it would not be practicable or 
effective to seek to suspend obligations with respect  to certain categories of imports of goods from the 
United States, so that the range of imports that it can actually target is very limited.  Finally, Brazil 
also argues that, even within the range of produc ts that it could target, suspension would not be 
"practicable or effective", for various reasons .  We consider these three aspects in turn.   
(ii) Overall profile of US imports of goods to Brazil 
5.135  Brazil argues that there is a great imbalance of trade between Brazil and the United States, 
and that its imports account for only a small sh are 1.7 per cent (or US$18.7 billion) of total 
US exports (US$1.16 trillion)  Hence an increase  in tariffs imposed on this trade would not 
sufficiently affect the United States and therefore w ould be an ineffective response to the continued 
violation of its obligations in this dispute.410  
5.136  In Brazil's view, it would be much easier for the United States to redirect 1.7 per cent of its 
exports to other destinations than for Brazil to fi nd suitable alternative sources for its imports.  Brazil 
is much more dependent on imports from the Un ited States.  Brazil indicates that among the top 
20 products in the list of Brazil's imports from th e United States, the United States accounts for more 
than 50 per cent of total Brazilian imports in 12 cases, and greater than 90 per cent of Brazilian 
                                                      
410 Brazil written submission, para. 514.  WT/DS267/ARB/1 
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  imports in five of these products.411  Brazil also presented an exhibit showing that out of the 
30 HS chapters in value of imports that represen ts 96 per cent of total Brazil's imports from the 
United States in 2007, the US share was above 10 pe r cent in 26 cases.  This share was higher than 
20 per cent in 20 cases and above 30 per cent in eight cases.412 
5.137  The United States responds that the difference be tween the percentage of US imports into 
Brazil and the percentage of Brazil's imports into th e United States is not the question.  The question 
is whether, within trade from the Un ited States that does occur, it would be practicable or effective to 
impose countermeasures in goods.  The United Stat es considers that Brazil, in fashioning its 
countermeasures, could take into account the difficu lty of finding substitute goods from other sources 
(e.g., focusing on luxury goods to the extent possibl e, where increased costs would have little impact, 
and then exploring other goods wher e substitute goods are available).413 Given the size and diversity 
of the Brazilian economy, and the availability of goods from other countries or from Brazil itself, 
Brazil has many tools at its disposal to apply countermeasures within the goods sector.414 
5.138  The United States further observes that Brazil is  an important market for the United States, 
which exported between US$15.3 a nd US$24.6 billion annually to Br azil between 2005 and 2007.  If 
Brazil suspends concessions in the goods sector, it would deprive the United States of access to the 
important Brazilian market.  At a time of economic ch allenges, loss of this large market would lead to 
a serious economic cost.415 
5.139  We take note of the fact that the total annua l value of trade in goods from the United States 
represents more than 15 per cent of Brazilian impor ts overall, and that this represents less than 
2 per cent of total US exports of goods.  We are no t persuaded, however, that this "imbalance" that 
Brazil describes in its trade in goods from the Unite d States would in itself be a sufficient basis to 
conclude that a suspension of c oncessions or other obligations in re lation to such goods would be "an 
ineffective response", as Brazil argues.  In order to arrive at the conclusion that suspension in a given 
sector or agreement is not "practicable or effectiv e", a more detailed consideration of the possibilities 
for suspension of concessions or obligations within the range of imports that could potentially be 
targeted is appropriate, especially where the total level of imports is not insignificant and greatly 
exceeds the level of permissible countermeasures to which the complaining party is entitled.  
5.140  We note that the total value of Brazil's impor ts of goods from the United States, as estimated 
by Brazil, is US$18.7 billion.  The United States estimates these imports at between US$15.3 and US$24.6 billion annually.  Brazil's estimation of th e value of its total imports of goods from the 
United States is therefore within th e range cited by the United States.  
5.141  These figures suggest that, in principle, Braz il has at its disposal a total value of 
US$18.7 billion of US exports that could potentially be subjected to suspension of concessions or 
other obligations.  The question we must now c onsider is whether Brazil could plausibly have 
considered that, from those imports, it is not practic able or effective to suspend concessions or other 
obligations under the agreements on trade in goods  alone, to a level of US$294.7 million.  We are 
aware that Brazil, in making its determination, w as assuming that it would be entitled to a total level 
of suspension significantly in excess of this figure an d we have already outlined why it is that we are 
reviewing the application of the principles and pr ocedure of Article 22.3 despite that supervening 
obstacle to Brazil's claim in the circumstances of this  case (i.e. that it did not actually undertake the 
consideration that it would have had to have done in order to argue its position before the Arbitrator).   
                                                     
 
411 Brazil's written submission, para. 515. 
412 Brazil's oral statement para. 124. 
413 US responses to questions from the Arbitrator, question 68, paras. 202-203. 
414 US responses to questions from the Arbitrator, question 68, para. 206. 
415 US oral statement, para. 69. WT/DS267/ARB/1 
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  5.142  We recall our determination above that whether suspension in a given sector or agreement is 
"practicable" essentially relates to whether it is availa ble or feasible in practice.  This question is in 
part answered by a consideration of the total leve l of trade, to which suspension of concessions or 
other obligations could be applied.  To the extent th at the total level of imports from the United States 
exceeds the total value of imports to which suspen sion could apply, such suspension is at least 
available in principle.  We also recall our determin ation that whether suspension in a given sector or 
agreement is "effective" relates more directly to the question of whether the complaining party could 
effectively make use of the authorization, and that  this may in particular depend on the extent to 
which that party would cause itself significant harm in suspending concessions on the imports concerned, to such an extent that th e suspension would not be effective.   
5.143  Bearing in mind these general considerations, we now consider Brazil's arguments to the 
effect that it only has, in fact, limited scope to seek suspension in relation to its imports of goods from 
the United States. 
(iii) Detailed profile of US imports to Brazil and ava ilability of suspension in relation to various 
categories of imports 
5.144  Among its US$18.7 billion of annual imports from the United States, Brazil indicates that 
95 per cent is composed of imports of intermed iate goods, capital goods, and other essential inputs 
into Brazil's economy.  Brazil argues that the costs involved in switching suppliers are normally 
prohibitive for capital goods and intermediate  goods.  Brazil further argues that, of the 
US$1.27 billion of annual imports of  consumer goods from the United States, almost US$1.1 billion, 
or 86 per cent, correspond to medical and educa tional supplies, food, automotive goods and arms, 
sectors where any raising of barriers would enta il serious and unreasonable costs to the Brazilian 
economy.
416 We consider in turn Brazil's determinatio n relating to capital, intermediate and other 
input goods, and its determination in relation to consumer goods.  
Capital goods, intermediate goo ds and other goods constituting inputs into Brazil's economy  
5.145  Brazil observes that in addition to prices, decisi ons on the purchase of capital or intermediate 
goods are conditioned by several factors that sever ely constrain the ability of producers to switch 
suppliers, including long-term cont racts that cannot be terminated easily or without heavy pecuniary 
penalties, the fact that capital goods in particular are tailor-made to respond to the specific needs of 
the producer and are ordered many months or even year s in advance, the fact that in most industries, 
inputs must have the exact technical specifications that match the requirements of the machinery in 
place, as well as the fact that intellectual prope rty protection and intra-company trade determine 
purchase decisions and curb the ability of producers to change suppliers.417  
5.146  The United States does not specifically comment on Brazil's assessment that suspension of 
concessions in relation to capital, intermediate or  other input goods would not be practicable or 
effective.  The United States generally considers, however, that Brazil takes a broad category of goods 
out of consideration based on mere assertion, and th at "while it may be appropriate to examine the 
negative impact on particular goods that are ne cessities, where goods are not necessities or where 
alternative sources of supply are available, there is no basis to assert that suspension of concessions 
for those goods is not practicable or effective".  
5.147  We note that the arbitrator on EC – Bananas III (Ecuador) (Article 22.6 – EC)  considered a 
comparable argument in relation to "primary goods  and investment goods".  In approaching this 
question, the arbitrator made the following assumption: 
                                                      
416 Brazil's responses to questions from the Arbitrator, question 140, para. 336. 
417 Brazil's responses to questions from the Arbitrator, question 140, para. 334.  WT/DS267/ARB/1 
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  "[W]e presume that the suspension of c oncessions on imports by Ecuador from the 
European Communities of those types of  goods and the imposition of additional 
tariffs would increase the cost of domestic production in the absence of alternative 
sources of supply at a similar price".418 
5.148  The arbitrator in that dispute then cons idered whether the European Communities had 
provided sufficient information and evidence to dem onstrate that alternative sources of supply existed 
for these products at a similar price.  It ultimatel y concluded that the European Communities had not 
succeeded in rebutting Ecuador's argument that switching to other than EC sources of supply would 
involve transitional costs of adjusting to those sources of supply, which Ecuador considered were 
relatively significant for it as a developing country. 
5.149  We first note, as the arbitrator on EC – Bananas III (Ecuador) (Article 22.6 – EC) did in 
relation to "primary goods and investment goods",  that suspension of concessions in relation to 
capital, intermediate or other input  goods, which constitute direct input s into domestic production, has 
the potential to be damaging to economic operato rs domestically.  We also note the arguments 
presented by Brazil to explain why, in relation to such goods specifically, it may be especially 
difficult to have recourse to alternative suppliers without significantly upsetting the supply chain.   
5.150  We see merit in this argument particularly in relation to capital and intermediate goods, 
although we consider it may have less force in re lation to primary goods which are more homogenous 
in character.  It could be expected that a signi ficant proportion of imports of goods constituting inputs 
for manufacturing or processing are in the form of such primary goods, for which alternative sources 
of supply may be more readily available than for certain other more differentiated products.419   
5.151  However, the United States has not specifically addressed this question or attempted to rebut 
Brazil's arguments by identifying such imports.  Although the United States has presented a number 
of examples of products in relation to which Brazil could, in the view of the United States, easily find 
alternative suppliers, none of these examples appear to  relate to capital, inte rmediate or input goods 
(except arguably computers, discussed below).420  We also note the acknowledgement, by the United 
States, that it could be appropriate to consider the negative impact of suspension of concessions in 
relation to goods that are "necessities".  
5.152  There remains a question of definition of the scope of capital goods, as far as computers are 
concerned.  Brazil considers that computers, in relation to which the United States argues that Brazil 
has the opportunity to import from other sources than the United States, are capital goods, in relation 
to which it would be harmful to retaliate.  The United States has not specifically responded to this 
assertion. The United States has also not indicated what level of imports computers represent.421 
5.153  In light of the elements presented to us, a nd in the absence of any sufficiently specific 
argument of the United States to the effect that suspension in relation to capital goods, intermediate 
                                                      
418 Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 91. 
419 We note, in this context, that with respect to  agricultural goods specifica lly, Brazil's experts state 
that: "Agricultural goods are largely undifferentiated,  relatively homogeneous and therefore highly fungible." 
(Annex 1 to Brazil's written submission (the  "Sumner-Sundarm Statement", para. 8). 
420 See US oral statement, paragraph 70.  The Unite d States identifies the fo llowing product categories 
as examples of goods for which alte rnative sources of supply can be found easily: passenger cars, antibiotics, 
computers, salmon. See also Brazil's responses to questions from the Arbitrator, question 140, para. 344. 
421 We note in this respect that Exhibit US-109, presented by the United States for the purposes of 
illustrating the US share of imports to Brazil in various product categories, was contested by Brazil, who stated 
that this table was in fact erroneous and represented th e share of that HS chapter in Brazil's imports from the 
United States, rather than the US share in Brazil's total imports. See Brazil's oral statement, paras. 122-123. The 
United States did not present alternative figures.  WT/DS267/ARB/1 
Page 104 
 
 
  goods or other inputs into the Brazilian economy would be  practicable or effectiv e, we accept, for the 
purposes of our determination, Brazil's position that it would not be practicable or effective to seek to 
suspend concessions or other obligat ions in relation to imports of capital, intermediate and other 
essential inputs into Brazil's economy.   
Consumer goods  
5.154  Brazil further argues that, of the US$1.27 billi on of annual imports of  consumer goods from 
the United States, almost US$1.1 billion, or 86 per cent, correspond to medical and educational 
supplies, food, automotive goods and arms, sectors wh ere any raising of barriers would entail serious 
and unreasonable costs to the Brazilian economy.422  
5.155  The United States provides different figures fo r Brazilian imports of consumer goods from the 
United States.  It states that, including food a nd automotive goods in the consumer goods category, 
Brazil imported between US$1.826 billion and US$2.717 billion annually from the United States 
between 2005-2007.423  Excluding food and automotive goods, the United States estimates that Brazil 
imported between US$1.125 billion and US$1.676 billi on in consumer goods annually in the same 
time period.  In the United States' view, given Brazi l's large and diverse economy and the actual level 
of nullification and impairment incurred by the US  policies at issue, suspension in consumer goods 
alone should be effective and practicable.424 
5.156  Neither party provides an explanation for th e significant differences in values that they 
present concerning Brazil's imports of consumer goods from the United States.  Apart from the fact that Brazil uses import data and the United States re lies on export data, the most likely explanation for 
the difference is that the parties do not have the same definition of consumer goods.  However, it is 
not possible to confirm this since the United States has provided only an aggregate figure and does not provide a listing of the individual tariffs lines (as Br azil does) of what it cons iders to be consumer 
goods.
425  
5.157  In light of these elements, and given that th e United States has not explained why Brazil's 
classification of consumer goods would be incorrect  and provides no detailed list of its own, the 
Arbitrator assumes, for the purposes of its analysis, that Brazil's figures in respect of consumer goods 
(as found in Exhibit Bra-754) reflect an adequate classification of such goods (see Table 3).  At the 
same time, we take note of the fact that there is a very significant difference between the two sets of 
figures presented, and that Brazil's total figure for imports of consumer goods from the United States 
is more than 50 per cent lower than those presente d by the United States, for the same categories of 
products.   
5.158  This means that, in principle, assuming that Braz il's figures are accurate, it has at its disposal 
a total value of at least US$1.127 billion worth of US imports of consumer goods to which suspension 
of concessions or other obligations c ould in principle be applied.   
                                                      
422 Brazil's responses to questions from the Arbitrator, question 140, para. 336. 
423 US written submission, para. 336 and Exhibit US-62. 
424 US written submission, para 336. 
425 The only specific product category, the classification of which the parties have discussed, is 
"computers".  In response to an argument that Brazil has alternative sources of supply  for computers,  Brazil has 
responded that computers are "capital goods", in relation to which it would not be appropriate to suspend 
obligations.  It is therefore possible that the United States classifies computers as "consumer goods", while 
Brazil has classified them as "capital goods".  However, we are not in a position to determine what impact this difference in classification has, in the absence of fu rther information on the level of Brazilian imports of 
computers from the United States.   WT/DS267/ARB/1 
 Page 105 
 
 
  5.159  We also note at the outset the followi ng observations of the arbitrator on EC – Bananas III 
(Ecuador) (Article 22.6 – EC) :  
"Suspension of concessions with respect to  consumer goods cannot cause any direct 
adverse effects on Ecuador's domestic manuf acturing and processing industries.  Thus 
Ecuador's main argument with respec t to investment goods and primary goods 
referred to above cannot apply with respect to  consumer goods.  It is also true that 
resulting price increases resulting from the suspension of concessions on consumer 
goods could cause welfare losses to end-c onsumers in the country suspending 
concessions."426   
5.160  Similarly, in these proceedings, it cannot be assu med that the types of economic costs that we 
have accepted would be likely to arise as a result of  a suspension affecting capital goods, intermediate 
goods and other goods constituting inputs into Brazi l's economy would be e qually relevant to 
consumer products.  While some welfare costs to end-consumers might arise in the event that the 
suspension leads to price increases, this would only o ccur if no alternative substitute is available at a 
comparable price.   
5.161  In light of the fact that the value of Br azil's annual imports of consumer goods from the 
United States (at least US$1.273 billion) significan tly exceeds the total level of countermeasures that 
it is entitled to take (US$294.7 million), it would th erefore in principle be possible for Brazil to 
suspend concessions or other obligations entirely in  relation to imports of  consumer goods from the 
United States.  
5.162  However, Brazil suggests that, out of the US $1.273 billion of consumer  goods that it imports 
from the United States, a total of only US$182.8 m illion would potentially be available for suspension 
of concessions or other obligations, once the sectors where raising of barriers would entail "serious 
and unreasonable costs to the Brazilian economy" are deducted.   
Table 3: Total Consumer Goods imports from the United States 
 
(in US$millions) 2007 
Total Consumer Goods Imports from the United States   1,273.1 (=)  
Tag*  Description  
Medical Medicines and other medical or safety products   909.5 (-) 
Food Food Products   88.7 (-) 
Books Books, teaching material and related products   28.9 (-) 
Arms Arms and ammunition   0.6 (-) 
Autos Automobiles and related goods   62.6 (-) 
Total minus selected groups of products   182.8 (=)  
Source :  Exhibit Bra-754 
 
5.163  The United States considers, however, that Braz il has simply taken broad categories of goods 
out of consideration based on mere assertion, and that, while it may be appropriate to examine the 
negative impact on particular goods that are ne cessities, where goods are not necessities or where 
alternative sources of supply are available, there is no basis to assert that suspension of concessions 
for those goods is not practicable or effective.  The United States observes that Brazil's economy is 
sufficiently diversified, that it could easily turn to other sources of supply, and that the key question is 
whether alternative sources of supply exist.  
                                                      
426 Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , para. 100. WT/DS267/ARB/1 
Page 106 
 
 
  5.164  Brazil considers that the crucial question is not  whether alternative sources of supply exist, 
but whether it would be "feasible and sensible for Braz il, in practice, to force its economic agents to 
switch to other suppliers".  Brazil identifies a number of considerations that would be relevant to such 
an assessment: "the US share in Brazil's total im ports; the price levels of alternative suppliers; 
technical specifications and product differentiati on; intellectual property and intra-company trade 
restrictions; and the economic, welfare and inflat ionary costs resulting from the disruption of 
production and supply chains".427    
5.165  We agree that the question of whether suspensi on of concessions or other obligations is 
"practicable or effective" is not strictly limited to whether alternative sources of supply exist, but 
involves a broader consideration of whether it would be  feasible, in practice, for Brazil to require its 
economic agents to switch to other operators, taking into account the ra nge of factors that may have a 
bearing on this question.   
5.166  Bearing this general observation in mind, we now  consider Brazil's arguments to the effect 
that suspension of concessions or other obligati ons on imports of medica l and food products, books, 
arms and automobiles would entail "serious and un reasonable costs".  In doing so, we recall that 
Brazil accepts that in relation to "other" cons umer goods, the costs of suspension would not be 
excessive.  This represents an amount of US$182.8 million of imports of consumer goods from the 
United States, in relation to which it is undisputed th at it would be practicable or effective to suspend 
concessions or other obligations. The margin betw een this figure and the amount of authorized 
countermeasures is small, in relative terms. 
5.167  The first category of consumer goods for which Br azil considers that the costs of suspension 
concessions would be "serious and unreasonable" is " medicines  and other medical or safety 
products."  This category, according to Brazil, represents a value of US$909.5 million in annual 
imports (2007).428  The United States observes that medical sterilizers exported by Brazil exceed the 
imported amount from the United States in 2007 (U S$4.6 million in exports, US$1.5 million in 
imports).  The United States further notes that both China and Korea exported about twice as much antibiotics into Brazil as the United States in 20 08, by value, and that China and Korea both 
substantially increased their share of exports to Br azil from the prior year (19.4 per cent to 33 per cent 
for China and 13 per cent to 31 per cent for South Korea).  Brazil responds that a "big share" of 
purchases of antibiotics is made by the Ministry of Health after arduous price negotiations and following the rules of public procurement.  Theref ore, Brazil argues, finding other suppliers is not 
easy, and there are sometimes no alternatives at all.   Moreover, Brazil argues, increasing the costs of 
health care provision will affect the welfare of the people.   
5.168  We see merit in Brazil's argument with respect  to the specificities of the market and 
purchasing practices for certain pharmaceutical produc ts, which may make it difficult to freely switch 
suppliers with respect to such products.  We also note that, even within a given category of medicines, 
such as "antibiotics", products are not necessarily freely interchangeable.  Brazil has not provided 
exact indications, however, as to what proportion of its imports of "medicines and other medical or 
safety products" is subject to such purchasing practi ces or requirements, such that would allow us to 
ascertain what proportion of such imports would be a dversely affected in the event of a suspension of 
concessions in this sector.
429    
                                                      
427 Brazil's responses to questions from the Arbitrator, question 140, para. 337. 
428 See Exhibit Bra-754, repro duced above as Table 3. 
429 We observe that even within this sub-category of consumer go ods, there are items where the 
US share of imports is less than 20 per cent.  If one adds up the value of these imports of medical goods, where the US share was below 20 per cent in 2007, the total amounted to US$193.7 million. The import share is not 
the only relevant consideration in evaluating the ease of  sourcing alternative supplies, as domestic producers  WT/DS267/ARB/1 
 Page 107 
 
 
  5.169  Brazil also excludes imports in the "food" and "books" categories from the range of consumer 
products that could be considered for suspension of  concessions.  The United States considers that 
there is no reason to exclude such end use pr oducts from the range of products to which 
countermeasures could be applied.   
5.170  With respect to food products , where US imports represent a total value of US$88.7 million, 
the United States notes for example that US$1.8 million of sugarless chewing gum is imported.  The 
United States also indicates that under the "food" category, US$10.071 million of pears and quinces 
were imported from the United States in 2007, but imports from Argentina jumped from US$73 million in 2007 to US$98 million in 2008. Brazil argues that more Brazilians have sufficient 
income today to buy food items than before and th at such social and econom ic development should be 
preserved at all costs.  However, Brazil accepts that certain items classified as food, could be 
considered luxury products, though the amount and va lue of such products is rather limited.   
5.171  Brazil therefore essentially argu es that, except for a limited range of foods that can be 
considered as luxury products, food products as a whole should not be targeted because "more 
Brazilians have sufficient income" than in the p ast to buy food and this  should be preserved.  
Naturally, if the suspension of concessions or othe r obligations were to deprive consumers of the 
opportunity to purchase food, it could legitimately be  concluded that such suspension would not be 
"practicable or effective".  However, this would only be the case if there was no opportunity to source 
the same or substitutable goods from other domestic or imported sources.  Brazil has not explained, 
however, why this would be the case with resp ect to the entire category of food products.
430   
5.172  With respect to books , for which it estimates the total value of imports from the United States 
at US$28.9 million, Brazil observes that increased ta riffs would be highly detrimental to the policy 
goal of increased access to education and the improvement of education standards.  Also, 
Article 150 VI (d) of the Federal Constitution exempts printed publications from import taxes, so that 
it is not practicable to take countermeasure on books . We note that books, almost by definition, are 
totally differentiated products, such that it may not be  possible to assume that one title could easily be 
substituted for another. However, we also note that  many books have a primarily entertainment rather 
than educational purpose. 
5.173  Brazil also considers that the automotive sector  (for which imports from the United States 
amount to US$62.6 million annually) should not be targeted.  The United States observes that it accounts for less than 2 per cent of imports to Br azil of passenger cars in 2007-2008, and that auto 
parts, similarly, range from about 6 to about 8 per cent.  Brazil responds that many limitations, 
including intra-company restrictions, apply to auto parts, making it virtually impossible or extremely costly for this industry to change suppliers.  With respect to passenger cars, the main characteristic of 
trade in this sector, Brazil argues, is intra-comp any trade.  Countermeasures on cars of "General 
Motor do Brasil", and "Ford do Brasil", for exampl e, are unlikely to be well received by these 
subsidiaries and will affect their operations in Br azil.  Moreover, imports of vehicles from the 
United States rely on long-established networks of  authorized retailers and maintenance services, 
which make it virtually impossible for importers to  easily switch suppliers.  In addition, Brazil 
observes, car sales in Brazil fell more than 40 pe r cent in December 2008, and given the present crisis 
                                                                                                                                                                    
 
may also be potential suppliers. However, neither party has given us information on the US share of the market 
including domestic products. 
430 We note that Brazil's imports of food from the United States in 2007 accounted for only 10 per cent 
of its entire imports of food.  Adding up the value of those food imports where the US share was below 
20 per cent in 2007 gives an amount of US$33.2 million.  As noted above, the impot share is not the only 
relevant consideration in evaluating the ease of sourcing alternative supplies, as domestic producers may also be potential suppliers.  However, neither party has given us information on the US share of the market including 
domestic products. WT/DS267/ARB/1 
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  affecting the car industry worldwide, the Brazilia n Government has adopted several measures to 
improve the car market conditions including reduc ing the rates of federal tax on industrialized 
products.  Brazil considers that it is therefore not viable to adopt measures that will distort the car 
market and prevent consumers from reaping the bene fits of such incentives.  Finally, Brazil notes that 
it wishes to maintain the conditions of competiti on and prices prevailing in Brazilian car market.431  
We note that the US share of Brazil's imports in  the automotive sector is only 2 per cent, which 
suggests that only limited competitive pressure could be exerted through such imports.  However, we 
see merit in Brazil's arguments relating to the struct ure of trade in the automotive sector being such 
that a suspension could be harmful to Brazilian subs idiaries importing the cars.  We also agree that 
auto parts from different manufacturers are not necessar ily substitutable for each other.  In light of 
these elements and in the absence of specific ar guments from the United States disputing Brazil's 
description of the situation on the automotive market in Brazil, we accept Brazil's position that 
suspension in this sector would entail "serious and unreasonable costs".   
5.174  In the arms  category (annual value of imports from the United States estimated at 
US$0.6 million), the United States observes that Braz il has not indicated the extent to which these 
imported goods are to be used by the police, military , or others in the public service.  In response, 
Brazil indicated that "a very high percentage" of imports are to be used by the police or military and 
the level of imports of these products is  very low as shown by Exhibit Bra-754.432  This very general 
indication, however, expressed only in terms of "a very high percentage" does not allow us to 
ascertain exactly what amount of imports would fall into this category.  The total annual value of 
imports from the United States is in any event very small.   
5.175  The United States also observes that exports of computers from China to Brazil continue to 
outpace those from the United States, at 36.7 per cent in 2008 compared to 18.5 per cent.  Brazil 
considers, however, that computers are in the category of "capital goods", and that it would be 
unreasonable and very costly to impose additi onal hurdles on the importation of information 
technology products, as increased costs of informat ion technology products would have widespread 
effects on the whole economic structure and would have a direct negative impact on the welfare of Brazil's population.
433  Since the United States has not sufficiently rebutted Brazil's classification of 
consumer goods, we do not consider the treat ment of computers under this category.  
Conclusion  
5.176  Overall, in light of the above, we are not convi nced that Brazil could plausibly conclude that 
suspension of concessions or other obligations woul d entail "serious and unreasonable costs" in the 
entirety of these various sectors.  At best, Brazil ha s plausibly explained why suspension in relation to 
some imports within these categories of consumer goods might not be practicable or effective.   
5.177  We are therefore not convinced that Brazil c ould plausibly determine, on the basis of the 
elements presented to us in these proceedings, that it is not practicable or effective to seek to suspend 
concessions or other obligations in relation to the entirety of the broad range  of consumer products 
that it proposes to exclude from consideration, in pa rticular in the areas where the US share of imports 
is relatively small. 
5.178  In light of the elements presented to us  as discussed above, we can accept Brazil's 
determinations, on the whole, in re lation to books and the automotive sector.  However, in relation to 
the categories of medical products, food and arms, we are not persuaded that Brazil could plausibly 
                                                      
431 Brazil's responses to questions from the Arbitrator, question 140, paras. 345-347. 
432 Brazil's comments on US responses to questions from the Arbitrator, question 135, paras. 395-397. 
433 Brazil's responses to questions from the Arbitrator, question 140, paras. 342-344.  WT/DS267/ARB/1 
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  determine, on the basis of the elements that it has presented to us alone, that suspension would entail 
"serious and unreasonable costs" in relation to th e entire range of products in these sectors.   
5.179  We find it useful, in this context, to consider  the extent to which it may be expected that 
Brazil would in fact have alternative sources of supply at its disposal for these remaining product 
categories, as a further indication of whether Brazil could plausibly determine that it is not practicable 
or effective to suspend concessions or other obligations on such imports.   
5.180  We recognize that within the broad categori es of "medicines" and "food", certain products 
may not be readily substitutable.  In particular, we recognize that some medicines, including those 
that are subject to proprietary rights, may need to be sourced from a specific supplier.  We also recall 
our determination above that we see merit in Braz il's argument that certain medicines, such as 
antibiotics, are sourced through public procurement in  such a manner that a change in supplier may be 
impracticable.  We also note, however, that medical  products and food, as a whole and taken together, 
represent the vast majority of Brazil's consumer goods imports from the United States and that they 
both contain a very broad range of products.  Th e category "[m]edicines and other medical or safety 
products" thus include, for example, items such as  "[t]ooth brushes, incl. dental-plate brushes".434  In 
these circumstances, we find that the US share of imports in these product categories as a whole may 
provide a useful indicator of the likelihood of other sources of supply being available, and thus of the 
level of substitutability on the market , for these product categories.   
5.181  While there is no exact mathematical precision to this determination, we consider that, for the 
purposes of our assessment in these proceedings, a US  share of imports of 20 per cent constitutes a 
reasonable threshold by which to estimate the extent to which Brazil may be able to find alternative 
sources of supply for these three remaining categories of consumer goods imports.  This does not take 
into account the fact that the actual market shar e of US products might be smaller if domestic 
competition were to be included also, but we have  not been provided any figures that would have 
allowed us to estimate that.  In selecting this indi cative threshold, we also bear in mind our earlier 
determinations in relation to other categories of imports.  In particular, we recall that we have 
accepted Brazil's broad assertion that all capital goods , intermediate goods and other inputs to the 
Brazilian economy should be excluded from considera tion.  We have also accepted Brazil's overall 
classification of consumer goods, including the excl usion of computers from this category. At the 
same time, in future arbitrations of this nature , a Member arguing against the plausibility of another 
Member's determination of the practicality and e ffectiveness of taking countermeasures only within 
the goods sector might present a more detailed and sci entific rebuttal of the determination made by 
that other Member.  In applying a benchmark of 20 per cent, this Arbitrator is not intending to signal that this is the appropriate percentage to  use in this kind of analysis in all cases. 
5.182  The table below (Table 4) reflects the results of this assessment.  It calculates the amount of 
Brazil's imports of consumer goods from the Un ited States that could be the subject of 
countermeasures.  It is based on data at the 8-digi t level of the tariff headings within the relevant 
consumer good categories, as reflec ted in Brazil's own submission.
435  The calculations proceed as 
follows.  First, it excludes the value of imports of books and autos from the United States reflecting 
Brazil's determination that suspension of con cessions in these sectors would entail "serious and 
unreasonable costs".  Second, it includes imports  of "other" consumer goods, which amount to 
US$182.8 million, reflecting Brazil's acceptance that in relation to "other" consumer goods, the costs 
of suspension would not be excessive.  Finally, for food, pharmaceutical products and arms, it 
includes only the import value of those tariff lines wher e the US share in Brazil's imports is less than 
20 per cent.  For illustrative purposes, the table also includes the results of the same calculation for a 
10 per cent and 30 per cent threshold.  
                                                      
434 Tariff line 9603.21.00, Exhibit Bra-823. 
435 Exhibit Bra-823. WT/DS267/ARB/1 
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  Table 4: Amount of Brazil's imports of  consumer goods from the United States 
that could be the subject of countermeasures 
(Millions of dollars) 
 
Threshold Applicable to Food, Medical Products and Arms 
Item 
10% 20% 30% 
 – Food $11.0 $33.2 $48.8
 – Medical products $15.3 $193.7 $333.1
 – Arms $0.0 $0.0 $0.0
 
 – Books $0.0* $0.0* $0.0*
 – Autos $0.0* $0.0* $0.0*
 
 – Others $182.8** $182.8** $182.8**
All Consumer goods $209.1 $409.7 $564.6
 
 * In respect of Books and Autos, no amount is included, to take into account our determination that we 
accept Brazil's pos ition that suspension in thes e sectors would entail "serious and unreasonable costs".  
 
 ** In respect of the "Others" category, the total amount of imports from the United States is included, 
as Brazil accepts that suspension in these sectors would not entail "serious and unreasonable costs". 
 
 Sources :  Exhibit Bra-754 and Exhibit Bra-823. 
 
5.183  Using the 20 per cent benchmark for the shar e of the US imports (and not taking into 
consideration the availability of dom estic products that also can substitu te imports), the results of this 
calculation suggest that, even if we were to assume that Brazil would choose not to suspend 
concessions in any category of imports of capital go ods, intermediate goods and other inputs into its 
economy, and that it would also not suspend concess ions in books or the automotive sector, it would 
still have at its disposal imports  of other consumer goods from the United States amounting to a total 
value of at least US$409.7 million, from which to su spend concessions or other obligations.  This 
would therefore still leave a value of US imports of consumer goods significantly in excess of 
US$294.7 million, to which suspension could be applied.436  
5.184  We also recall that, of these US$409.7 m illion of consumer goods imports from the 
United States, Brazil itself concedes that the costs would not be "serious and unreasonable", up to a level of US$182.8 million.  This means that Brazil would only in fact need to find an additional 
amount of imports of other goods from the United States to a total value of US$112.1 million to 
which to apply the suspension of concessions or othe r obligations, in order to apply the full level of 
suspension that it is entitled to, on imports of goods from the United States.   
5.185  We further observe that the above calculation is made on the basis of the arguments and 
information provided by the parties.  For the purposes of the calculation, we have accepted Brazil's 
                                                     
 
436 We also note that Brazil accepts that suspension of concessions in relation to certain items that 
could be considered luxury products, amounting to a total of US$28 million, would probably not lead to excessive costs on the Brazilian economy.  This amount may partially overlap with othe r categories, so we have 
not added it to the figures considered in this section.    WT/DS267/ARB/1 
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  determinations in relation to cap ital goods, intermediate goods and other inputs into the economy, and 
also in relation to various categories of consumer  goods.  However, our analysis does not imply that 
Brazil necessarily has to retaliate in the categories in question.  It would in fact remain entitled to 
apply the suspension to any imports of goods that it chooses to target for suspension.  Keeping in 
mind that the overall amount of imports from the Un ited States to Brazil is US$18.7 billion, and that 
imports of consumer goods alone represent at leas t US$1.273 billion in total, we are confident that, on 
the basis of what was put before us in these proceedi ngs and at current levels, Brazil has at its disposal 
a sufficient level and variety of imports from the United States, to which it could apply the suspension 
that it is entitled to, without incurring "seri ous or unreasonable costs" to its economy.  
(iv) General considerations 
5.186  Even in relation to the range of imports in re lation to which Brazil considers that it could in 
principle be practicable to retaliate  (which it estimates at US$182.8 million)437, Brazil also argues that 
such suspension would not be practicable or effective,  due to its potential adverse welfare effects in an 
inflationary environment and also because any meas ures contrary to Brazil's development objectives 
should be avoided.  Brazil also generally argues th at the trade imbalance between the parties would 
render such suspension ineffective.  We  therefore now consider these aspects. 
General economic and welfare costs  
5.187  Brazil considers that "within the very limited scope of consumer goods that it has to target, 
the costs and welfare-reducing effects resulting fro m the adoption of counter measures exclusively in 
that sector would render such an alternative not practicable".   
5.188  As we have observed in para graph 5.133 above, a consideration of the economic costs 
associated with the suspension is legitimate, but it is not just any economic costs associated with the 
suspension of concessions or other obligations in a given sector or agreement that would justify a 
conclusion that such suspension would be "not practi cable or effective".  Rather, the costs at issue 
would have to be of such extent and magnitude as to render the suspension "not practicable or 
effective". We have also already considered in  detail Brazil's specific arguments relating to the 
economic and welfare costs of the suspension of  concessions and other obligations on various 
categories of US imports.  Even considering cons umer goods alone, our determ inations above suggest 
that, at current levels, Brazil has at  its disposal a total value of at least US$409.7 million of imports of 
goods from the United States, to which it could apply a suspension.   
5.189  This confirms to us that, in principle, Brazil has at its disposal sufficient imports of goods 
from the United States and elsewhere in order to allow it to suspend concessions on a total value of 
US$294.7 million of imports from the United States without incurring significant costs to its economy.  We further emphasize that nothing w ould compel Brazil to apply the suspension of 
concessions or other obligations "exclusively in that sector".  As we have ob served in paragraph 5.185 
above, Brazil would be entitled to apply the suspensi on to any imports of US goods that it chooses to 
target for suspension.  As we also observed above, keeping in mind that the overall amount of imports 
from the United States to Brazil is of US$18.7 billi on, and that imports of  consumer goods alone 
represent at least US$1.273 billion, we are confident th at, on the basis of what was put before us in 
these proceedings and at current levels, Brazil has at  its disposal a sufficient level and variety of 
imports from the United States, to which it could apply the suspension that it is entitled to, without incurring "serious or unreasonable costs" to its economy.  
                                                     
 
437 Based on Exhibit Bra-754. WT/DS267/ARB/1 
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  Inflationary pressure  
5.190  Brazil also argues that the adoption of counter measures exclusively in the small range of 
consumer goods that it has to target would add to  inflationary pressures at a time when increasing 
prices have pointed to "a worrying inflationary scenario" and would limit access of Brazilian consumers to these imported goods, negatively affec ting Brazil's economy and the welfare of its 
population.
438  
5.191  As evidence of the threat of inflation, Brazil, points out that all its price monitoring agencies 
have recorded rising inflation in 2008, whichever measuring standard is used.  As an example, it 
claims that the annualized change in the Broad C onsumer Price Index (IPCA), which is used as the 
standard inflation index by the Brazilian Central Bank, reached 5.9 per cent in 2008.439  Brazil 
contends that this surpassed the inflation target  of 4.5 per cent set by the Central Bank.   
5.192  As a result of these strong inflationary pressures,  it claims that the Brazilian Central Bank has 
been compelled to consistently raise basic interest  rates since the beginning of 2008.  After four 
consecutive increases, yearly basi c interest rates reached 13.75 per cent in September 2008, making 
Brazil one of the countries with the high est real interest rates in the world.440 
5.193  The United States does not dispute that there are co sts, including the risk of inflation, from 
imposing countermeasures on merchandise goods.  But it argues that countermeasures are by 
definition counter to WTO disciplines.  Furthermore,  given the size and diversity of Brazil's economy, 
and the availability of goods from other sources or from Brazil itself, it claims that Brazil has many 
tools at its disposal to apply countermeasures within the goods sector.441 
5.194  Brazil has provided sufficient evidence to show that  the threat of inflation seriously concerns 
Brazilian policymakers.  The United States has not dis puted the magnitude of the inflation rate in the 
country nor of the successive steps taken by the Ce ntral Bank to increase the interest rate.  However, 
we believe that while the risk of price incr eases from applying countermeasures on merchandise 
goods exist, it does not rise to a level where Br azil has no room to apply countermeasures on 
merchandise goods.   
5.195  The size of the countermeasures, at current le vels, is not large relative to the value of 
consumer goods imports from the United States.  We also note that the inflation index is based on 
domestic consumption, which is  made up predominantly of dom estically-produced goods. This 
suggests that countermeasures on merchandise goods imports may only have a limited impact on 
inflation given the composition of the basket of good s that enter into the calculation of the inflation 
index. 
Development objectives, imbalance in trade relations and political influence  
5.196  Brazil further argues that any measures that are contrary to the objectives of a developing 
country to ensure steady and sustainable developmen t will necessarily be costly and impracticable by 
definition, and that the significantly unbalanced na ture of the trade relations between Brazil and the 
United States, and the considerable economic di fferences between the tw o countries, render the 
suspension of concessions and other obligations un der trade in goods alone neither practicable nor 
effective as a response to the US failu re to comply with its obligations.  
                                                      
438 Brazil's written submission, para. 487. 
439 Brazil's written submission, para. 488. 
440 Brazil's written submission, para. 489. 
441 US responses to questions from the Arbitrators, question 68, para. 206.  WT/DS267/ARB/1 
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  5.197  Finally, Brazil also argues that suspension in the area of trade in goods alone may not have 
sufficient political influence to press for the United States' withdrawal of the billions of dollars it pays 
annually in subsidies or to remove their adverse effe cts, and that, therefore, they are not "effective" 
for the purpose of encouraging compliance.   
5.198  We agree that a complaining Member seeking to suspend concessions or other obligations 
should not be required to act against its own intere sts in applying such suspension.  However, our 
findings above suggest to us that Brazil has at its disposal a sufficient range of imports of goods, 
including consumer goods, from the United States, so  as to enable it to suspend concessions in the 
area of trade in goods alone, without causing itself such economic harm as to render such suspension "not practicable or effective".  In the absence of  other specific detailed arguments as to why such 
suspension would otherwise adversely affect Brazil's interests, we conclude that, on the basis of the 
elements presented to us and at current levels, Br azil could not conclude that suspension in trade in 
goods alone would not be "practicable or effec tive".  Further, Brazil's insistence that its 
countermeasures must have "sufficient political infl uence" from the perspective of the United States 
to press for the withdrawal of the subsidies and the removal of their adverse effects is misplaced.  "Effectiveness" relates to the ability of a Member to have recourse to the authorized remedy, such that 
it can serve to induce compliance.  However, the pr eference of a Member for a particular type of 
countermeasure, because it would constitute a more powerful form of persuasion in a political sense, 
is not a relevant consideration for an arbitrator in these proceedings.  
5.199  Our conclusion is not modified by the "signifi cantly unbalanced nature of the trade relations 
between Brazil and the United States".  As we have  observed above, the elements presented to us do 
not suggest that Brazil's dependence on US imports  is such that it could not find at least 
US$294.7 million worth of imports of goods from the Un ited States in relation to which it would have 
sufficient alternative domestic or imported sour ces of supply at its disposal, so as to suspend 
concessions effectively.  In addition, the fact that exports to Brazil only represent a very small 
proportion of US exports generally does not, in itsel f, necessarily imply that countermeasures applied 
to some of these goods would not be "effective" for the purposes of inducing compliance.  It would be 
up to Brazil to identify those US exports in relation to which it would apply the suspension, and to do 
this in a manner that would make such measures as effective as possible within the limits of the 
permissible level of countermeasures.  In light of th e fact that the total value of imports to Brazil from 
the United States, at current levels, significantly ex ceeds the level of permissible countermeasures, we 
see no reason to assume that this would not provide a sufficient margin or discretion for Brazil to 
target accordingly the specific products to which suspension would be applied.  
(v) Overall conclusion 
5.200  In light of all the above, we conclude that, on th e basis of the elements presented to us and at 
current levels, Brazil could not plausibly have reac hed the conclusion that it is not practicable or 
effective to suspend concessions or other obligations in trade in goods alone, even if it had considered 
the "necessary facts", i.e. taking into account a level of permissible countermeasures not exceeding 
US$294.7 million.   
5.201  We recall, however, that the level of counter measures that we have determined to be 
permissible in these proceedings is variable.  We ha ve based our determinati ons above on the level of 
countermeasures as calculated on the basis of FY 2006 and on the basis of Brazil's imports of 
consumer goods in the year 2007.  Given the volume and composition of Brazil' s imports of consumer 
goods in the year 2007, we determined that there was at least US$409.7 million worth of Brazil's 
imports of consumer goods from the United States that could be the subject of countermeasures 
("threshold").  However, in the event that the le vel of countermeasures that Brazil would be entitled to WT/DS267/ARB/1 
Page 114 
 
 
  in a given year442 should increase to a level that would ex ceed this threshold, updated for the same  
year in a manner described in Section V.C.6 below to account for the change in Brazil's total imports 
from the United States, then, we find that it woul d be concluded, on the basis of the elements 
presented to us, that the suspension of concessions or obligations applied to  trade in goods alone 
would not be "practicable or effective" within  the meaning of Article 22.3(c) of the DSU.   
5.202  In light of this determination, we must cons ider further Brazil's determination that "the 
circumstances are serious enough" within the mean ing of Article 22.3 and its consideration of the 
elements of subparagraph (d) of Article 22.3.   
4. Whether "the circumstances are serious enough"   
(a) Main arguments of the parties 
5.203  Brazil says that, with respect to prohibited s ubsidies, the granting or maintenance of such 
subsidies constitutes in itself, at the very least, a strong indication that "circumstances are serious 
enough".  In addition, the seriousness of the breach  in the present case is compounded by the specific 
characteristics of the subsidy at issue.  Th e GSM 102 programme and the guarantees granted 
thereunder constitute recurrent export subsidies, granted year after year in connection with billions of 
dollars in agricultural exports in violation of US WTO obligations.  Brazil notes that these subsidies 
have been granted since 1981 and have been dist orting international markets on a continuous and 
cumulative basis for the whole period covered by this dispute (from 1999 up to 2009).  The statutory 
framework of the programme ensures that it is of fered continuously and requires that billions of 
dollars in guarantees be made available every year.  Brazil argues that the subsidies are particularly 
pernicious in light of their stated objective and pe rformance measure, to open high risk markets to US 
commodities and establish the dominance of US exporters by means of prohibited export subsidies, to the detriment of competing exporters.  In a single day, on 6 October 2008, the USDA received 
applications for ECGs worth US$3.5 billion.  Acco rding to a director of CoBank, this enormous 
amount of applications is a result of "the credit markets seizing up".
443 
5.204  With respect to the actionable subsidies, Br azil considers that the sheer amount of the 
subsidies granted under the ML and CCP progra mmes, which have been found to cause adverse 
effects in the form of significant price suppression in the world market; the repeated refusal of the 
United States to comply, since 2005, with the ruli ngs and recommendations adopted by the DSB; and 
the concrete expectation, confirme d in the 2008 Farm Bill, that the same design and structure for the 
granting of the same subsidies will be maintain ed in the future also demonstrate that the 
circumstances are serious enough to justify th e types of countermeasures proposed by Brazil.444  
5.205  Brazil says that these subsidies provide a pern icious predictability for US producers and 
exporters – who may take for granted that they will enjoy an artificial competitive advantage vis-à-vis 
other competitors every year – and for producers of the other Members – who have their production 
and investment decisions negatively affected in the long term by the chilling effect caused by the 
permanent availability of the US subsidies.  Braz il argues that these subsidies constitute a structural 
element of the world markets for the wide range of  products they support, and that the current credit 
crisis only heightens their distorting effects.  Producers and exporters all over the world, who are 
struggling to find credit for their operations, have to compete with US producers and exporters that 
are cushioned from the effects of the crisis by the unlawful subsidies, as the US$5.5 billion worth of 
                                                      
442 It is understood that this amount is to be calcu lated taking into account the entirety of the level of 
countermeasures that Brazil is entitled to at that point in  time, arising both from the application of the formula 
identified in paragraph 6.5(a) and from the Decision by the Arbitrator contained in WT/DS267/ARB/2. 
443 Brazil's written submission, para. 530. 
444 Brazil's written submission. para. 530.  WT/DS267/ARB/1 
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  ECGs under the GSM 102 available in FY 2008 strikingl y reminds us.  In Brazil's view, these features 
render the circumstances certainly no less than serious enough.445  
5.206  In Brazil's view, the fact that the United St ates has revived in the 2008 Farm Bill, under a 
slightly different disguise, the only subsidy it had eliminated as part of its implementation of the 
recommendations and rulings of the DSB in the pr esent case – the "Step 2" programme – constitutes 
additional indication that the circumstances are serious enough.446  
5.207  The United States argues that "'circumstances ar e serious enough' may refer to the potential 
consequences for the Member of suspending concessi ons in the same sector and agreement, or the 
potential consequences of forgoing the right to suspend concessions".447  In the circumstances of this 
dispute, where Brazil's proposal for countermeasur es does not substantiate any adverse effect on 
Brazil from the measure at issue, it is not clear, in the United States' view, what consequences these 
would be or whether they would be serious at all.448  In the United States' view, Brazil's agricultural 
sector, and its cotton producers in par ticular, have been effective comp etitors worldwide even with the 
existence of GSM 102, marketing loan payments and countercyclical payments and without any 
countermeasures, and Brazil's cotton exports ha ve reached record levels in recent years.449  
5.208  Brazil responds that the United States' erroneous legal analysis first equates the meaning of 
"circumstances" with that of "potential conseque nces" and then moves on to argue that "potential 
consequences" means trade damage to Brazil.  In Brazil's view, however, there is no legal basis to 
argue that in selecting the type of countermeasures Brazil must show "any adverse effect on Brazil 
from the measures at issue" to enab le an assessment of whether circ umstances are serious enough.  In 
any event, Brazil argues, as regards actionable subs idies, the existence of adverse effects of the 
measures at issue has already been determined by two panels and the Appellate Body.  Brazil notes 
that with respect to the GSM 102 subsidies, the tw o panels and the Appellate Body found that they 
constitute prohibited  subsidies – arguably the most egregious violation of WTO disciplines, as can be 
inferred from the special rules app licable to them – and that they should have been withdrawn without 
delay .  Hence, Brazil argues, even under the US flawed  and convoluted logic, circumstances would be 
serious enough because the consequences of maintaini ng the subsidies in place could not be anything 
less than serious, as is made clear by the findings, rulings and recommendations of the panels and the 
Appellate Body in this dispute.450 
5.209  Brazil considers that Article 22.3(c) of the DSU can encompass the impact on Brazil of 
applying countermeasures under trade in goods  alone, as well as broader circumstances which 
surround Brazil's consideration of retaliatory action ag ainst the United States' failure to comply with 
the DSB's recommendations and rulings in this disp ute, such as the demonstrated lack of willingness 
of the United States to comply.451   
5.210  In the view of the United States, the circum stances surrounding potential countermeasures in 
services and intellectual property are also a factor .  Brazil has not detailed how it might impose such 
countermeasures; and in fact it is not obligated to do so at this time.  Effectively, the United States 
argues, if Brazil is authorized to impose c ountermeasures under these other Agreements it would 
                                                      
445 Brazil's written submission, para. 531. 
446 Brazil's written submission, para. 532. 
447 US responses to questions from the Arbitrator, question 136, para. 174. 
448 US responses to questions from the Arbitrator, question 136, para. 174. 
449 US responses to questions from the Arbitrator, question 136, para. 175. 
450 Brazil's comments on US responses to questions from the Arbitrator, question 136, paras. 401-402. 
451 Brazil's comments on US responses to questions from the Arbitrator, question 136, para. 403. WT/DS267/ARB/1 
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  cause an additional layer of uncertainty fo r these sectors, with potentially devastating 
consequences.452 
5.211  Brazil welcomes the United States' acknowledgement  that Brazil "is not obligated" to detail 
how it might impose countermeasures with respect to services and intellectual property rights.453  
Brazil also notes that the United States, by refe rring to "potentially devastating consequences",454 
seems to agree with Brazil's view that count ermeasures under the TRIPS Agreement and the GATS 
would be much more effective within the meaning of Article 22.3 of the DSU than countermeasures 
under trade in goods alone.455 
(b) Analysis by the Arbitrator 
5.212  Under Article 22.3(c) of the DSU, in order for su spension of obligations to be permissible, the 
complaining party is required to have determined  that "the circumstances are serious enough", in 
addition to having determined that suspension unde r the same agreement is "not practicable or 
effective".   
5.213  We recall our determination in paragraph 5.84 above that an assessment of whether "the 
circumstances are serious enough" is necessarily a case-by-case assessment depending on the specific 
circumstances of the case.   
5.214  The United States argues that "'circumstances ar e serious enough' may refer to the potential 
consequences for the Member of suspending concessi ons in the same sector and agreement, or the 
potential consequences of forgoing the right to suspend concessions".456  In Brazil's view, 
Article 22.3(c) of the DSU can encompass the impact on Brazil of applying countermeasures under trade in goods alone, as well as broader circum stances which surround Brazil's consideration of 
retaliatory action against the United States' failure  to comply with the DSB's recommendations and 
rulings in this dispute, such as the demonstrated  lack of willingness of the United States to comply. 
5.215  As we have determined in paragraph 5.83 a bove, an assessment of whether circumstances are 
"serious enough" would legitimately include a c onsideration of the elements identified in 
subparagraph (d) of Article 22.3, namely the trade in the sector in which a violation has been found 
and its importance to the complaining party (in th is case, trade in goods, including trade in cotton and 
other products affected by the measures at issue), as  well as "the broader econom ic elements related to 
the nullification or impairment and the broader ec onomic consequences of the suspension".  At the 
same time, the assessment is not limited to these factors, and may include other elements, depending on the specific "circumstances" of the case.  We ther efore agree with Brazil that a determination of 
whether "the circumstances are serious enough" may in principle encompass both the impact on Brazil 
of applying countermeasures under trade in goods (i.e . "the broader economic consequences of the 
suspension") and "broader circumst ances which surround Brazil's consid eration of retaliatory action" 
against the US failure to comply with the DSB's recommendations and rulings.   
5.216  Brazil considers that a number of elements rende r the circumstances "serious enough" in this 
case, including the granting or maintenance by the United States of the prohibited subsidies, the 
fourfold increase in the transactions supported by  the GSM 102 programme in 2009; the continued 
granting of actionable subsidies and the enactment of 2008 Farm Bill.  In Brazil's view, these facts 
show that the United States has no intention of  complying with the DSB recommendations and 
                                                     
 
452 US responses to questions from the Arbitrators, question 136, para. 176. 
453 US response to questions from the Arbitrators, question 136, para. 176. 
454 US response to questions from the Arbitrators, question 136, para. 176. 
455 Brazil's comments on US responses to questions from the Arbitrator, question 136, para. 399. 
456 US responses to questions from the Arbitrator, question 136, para. 174.  WT/DS267/ARB/1 
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  rulings.  Brazil further argues that the design and struct ure of the subsidies at issue is such as to create 
"an artificial competitive advantage for US operators  vis-à-vis other competitors every year" to the 
detriment of producers of other Members "who ha ve their production and investment decisions 
negatively affected in the long term by the chilling effect caused by the permanent availability of the 
US subsidies".  Brazil argues that these subsidies c onstitute "a structural element of the world markets 
for the wide range of products they support", and that the current credit crisis only heightens their 
distorting effects.  Brazil further considers that th e conditions that render the circumstances "serious 
enough" also include the potential effects on Braz il if countermeasures are confined to the goods 
sector, which will lead to disproportionate costs to the Brazilian economy and to the welfare of its population.
457 
5.217  In our view, Brazil's determination that the circumstances are serious enough within the 
meaning of Article 22.3(c) of the DSU is reasonable in light of the circumstances of the case.   
5.218  In this regard, we recall some salient aspects of the findings of the original and compliance 
panels and of the Appellate Body in relation to the subsidies concerned:  
"As we have just indicated, several of the United States subsidies are directly linked 
to world prices for upland cotton, thereby numbing the response of United States 
producers to production adjustment decisions when prices are low .  We have readily 
available information on the record showing us  that the price-contingent subsidies in 
question involve very large amounts of Un ited States government money benefiting 
United States upland cotton.  In our view, the collective operation of these subsidies 
was akin to a very large, counter cyclical, deficiency payment laced with additional 
enhancements.   We believe that the structure, d esign and operation, particularly of the 
price-contingent subsidies, constitutes st rong evidence supporting a finding of price 
suppression."458 (emphasis added) 
"Given that in most recent years actual mark et prices have been lower than expected 
market prices at the time of planting and th at the adjusted world price has been below 
the marketing loan rate, the Panel considers that it is reasonable to conclude that the 
fact that US cotton producers know that th ey will receive marketing loan payments 
whenever the adjusted world price is below th e marketing loan rate continues to be an 
important factor affecting the level of acreag e planted to cotton (and thus the level of 
production), even when, as in MY 2006, the expected market price for upland cotton 
at the time of planting is higher than the ma rketing loan rate.  The Panel also notes in 
this regard that accordi ng to FAPRI and USDA data, the projected amount of 
marketing loan payments in MY 2006 is very significant. "459 (emphasis added, 
footnote omitted)  
"First, we recall that the original panel noted that the CCC has access to funds from 
the US Treasury and benefits from the fu ll faith and credit of the US Government. 
This is still the case, and were the GSM 102 programme to incur massive losses, it 
would have access to additional funds from the US Treasury ."460 (emphasis added, 
footnote omitted)  
"The Panel considers, in light of the appr oach taken by the pa nel and Appellate Body 
in the original proceeding, that in determ ining whether the magnitude of the subsidies 
                                                      
457 Brazil's comments on US responses to questions from the Arbitrator, question 136, paras. 404-405. 
458 Panel Report, para. 7.1308.   See also para. 7.1349 of that report. 
459 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 10.81. 
460 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 14.110. WT/DS267/ARB/1 
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  at issue in this proceeding supports a findi ng that the effect of these subsidies is 
significant price suppression, it is necessary to examine this factor in relation to other 
factors.  Thus, the relevance of the magnitude  of the subsidies in this connection must 
also be assessed in light of our analysis above of the structure, design and operation 
of the subsidies.  We recall, in this re spect, our conclusion regarding the important 
revenue-stabilizing effect of these mandatory, pr ice-contingent subsidies.  In the latter 
regard, the evidence before us indicates th at marketing loan and counter-cyclical 
payments play a significant role in stabilizing the revenues of US upland cotton producers. The share of marketing loan payments and counter-cyclical payments in 
total revenues of US upland cotton produ cers was 35 per cent in MY 2004 and 27 per 
cent in MY 2005 ."
461 (emphasis added, footnotes omitted) 
"Table 6B shows market revenue from cotton lint, total costs (less ginning costs) and 
the difference between market revenue a nd total costs on a per acre basis in MY 
2002-2006.  Over the period examined, US cotton producers' market revenue exceeded total costs of production twice, in MY 2003, when cotton prices were at 
their highest since MY 1997, and also in  the year immediately following that.  In 
other marketing years, total costs of pr oduction exceeded market revenue, at times by 
very huge margins.   In MY 2002, for example, total costs exceeded market revenue 
by 84 per cent.  Data provided by Brazil for MY 2006 suggests that total costs will 
continue to exceed market revenue.  The gap is expected to be about 56.25 dollar per 
acre, which would be equivalent to about 14 .7 percent of US cotton producers' market 
revenue in that marketing year.  Cumulated over the five marketing years 2002-2006, 
US cotton farmers' costs of production have exceeded market revenues by an average 
of  227.49 dollars per acre ."
462 (emphases added) 
"In conclusion, the Panel finds that there exists a significant gap between the total 
costs of production of US upland cotton producers and their market revenue.  The 
Panel considers that this  gap between costs and revenue, when analyzed in 
conjunction with the magnitude of the mark eting loan and counter-cyclical subsidies 
and their importance as a share of the revenue of US cotton producers, supports the 
proposition that the marketing loan and counter-cyclical payments are an important 
factor affecting the economic viability of US upland cotton farming .  The Panel 
therefore also considers that without these subsidies the level of US upland cotton 
acreage and production would be considerably lower."463 (emphasis added, footnotes 
omitted) 
"We do not see a contradiction between the fact that United States shares of world 
production and exports of upland cotton have remained stable at consistently high 
levels between MY 2002 a nd MY 2007 and the Panel's findings of substantial 
proportionate influence of the United States in the world market for upland cotton.  
This is because stable high United States shares of world production and exports of 
upland cotton could be seen as evidence of th e fact that the United States continued to 
exert a substantial proportionate influence  in the period examined by the Panel, just 
as it had during the period examined by the original panel.  We also observe that the 
Panel specifically noted that this element supported its finding of significant price 
suppression when "analysed in the light of th e totality of the evidence". Therefore, we 
do not consider that the Panel erred in finding that the United States exerts a 
                                                      
461 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 10.111. 
462 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 10.190. 
463 Panel Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 10.196.  WT/DS267/ARB/1 
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  substantial proportionate influence on  the world market for upland cotton ."464 
(emphasis added, footnotes omitted)  
5.219  We are not persuaded that, as Brazil argues, the very granting of the subsidies at issue would 
be sufficient to conclude that the circumstances are "s erious enough".  It is inherent in the situation at 
hand that a violation has taken place and that comp liance has not been achieved in a timely manner.  
This circumstance alone, which is common to all ca ses in which suspension of obligations is sought 
under the DSU, would not in our view justify the conclusion that the circumstances are "serious enough".  However, we agree with Brazil that the specific design and structur e of the subsidies at 
issue, as they have been maintained over a signifi cant period of time, is such as to have created an 
artificial and persisting competitive advantage for US producers over all other operators, and that this 
has a significant trade-distorting impact, not just on  the US domestic market, but on the world market 
in these products.   
5.220  The United States responds that Brazil has in  fact remained very competitive in the 
agricultural sector, including cotton, even w ith the US subsidies in place and without 
countermeasures.  We are not persuaded, however, th at this consideration alters the essence of the 
situation. The fact that Brazil may have remain ed competitive in spite of the trade-distorting 
conditions arising from the granting and maintenanc e of the subsidies at issue does not in essence 
modify the fact that these subsidies have a trade- distorting impact on the world market for cotton and 
the other products affected by them.  Given the st ructure and design of the programmes at issue, and 
in light of the time period over which they have been in place, these distortions are virtually, as Brazil puts it, a "structural" element of the world market  for the affected products, including cotton, as long 
as they remain available.  Our earlier determin ations in relation to the level of permissible 
countermeasures suggest that these trade-distorting e ffects are not insignificant, including on Brazil.  
Furthermore, these impacts are felt not only on the US  market but on other markets for the products at 
issue.  In addition, as Brazil observes, in times of  credit crisis, this trade-distorting impact will be 
further amplified, at least in so far as the GSM 102 programme is concerned.  These considerations, in 
our view, support the conclusion that "the circumstances are serious enough". 
5.221  In addition, Brazil observes that the dispropor tionate adverse impact of the suspension of 
concessions or other obligations on its economy, if a pplied only to trade in goods, also contributes to 
the "circumstances" being "serious enough".  We agree that this may also be a relevant consideration 
in such determination.
465  We have considered extensively Br azil's arguments concerning the potential 
adverse impact on its economy of a suspension applie d to trade in goods alone, in reviewing whether 
it is "practicable or effective" for Brazil to seek su spension in trade in goods alone.  In this context, 
we concluded that, to the extent that the level of  countermeasures that Brazil would be entitled to take 
would exceed a certain threshold, such suspension would be "not practicable or effective".  These 
considerations also inform the determination of whether "the ci rcumstances" would be "serious 
enough" to justify cross-agreement suspension.  If the threshold were reached, such that suspension of 
concessions or other obligations under the same sect or or agreement would not be practicable or 
effective for Brazil, this would also directly contri bute to the circumstances being "serious enough" to 
justify recourse to suspension under another agreement.   
5.222  In light of all the above, and on the basis of the elements pr esented to us, we find that Brazil 
could reasonably determine that "the circumstan ces are serious enough" within the meaning of 
Article 22.3(c) of the DSU.   
                                                      
464 Appellate Body Report, US – Upland Cotton (Article 21.5 – Brazil) , para. 446. 
465 We note in this respect the observation of the arbitrator on US – Gambling  that the circumstances 
that justified a determination that "the circumstances ar e serious enough" in that case could be "directly related 
to the practicability and effectiveness of suspension under the agreement in which the violation was found (in 
that case, the GATS).  See Decision by the Arbitrator, US – Gambling (Article 22.6 – US) , para. 4.115. WT/DS267/ARB/1 
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  5.223  In light of our determinations in the previ ous section above, we note that the two conditions 
foreseen in Article 22.3(c), i.e. a determination th at "it is not practicable or effective" to seek 
suspension under the same agreement and a determina tion that "the circumstances are serious enough" 
would only be met simultaneously in this case when ever the threshold identified in paragraph 5.201 
above would be exceeded.   
5.224  The United States has suggested that the potential implications of a suspension of obligations 
under the TRIPS Agreement is also a consideration to be taken into account, in light of the "layer of 
uncertainty" that may arise from such suspensi on in the sectors concerned and the "potentially 
devastating consequences" of such suspension.   We recognize that there may be legitimate 
considerations to which the complaining Member should be attentive in applying any suspension of 
obligations under the TRIPS Agreement.466  We are not persuaded, however, that this is a relevant 
consideration for us to take into account in revi ewing the question of whether the "circumstances are 
serious enough" to justify suspension of obligations u nder that agreement.  We first note that there is 
no general hierarchy in the DSU as between susp ension in various sectors or under various WTO 
Agreements, such that we should assume that a su spension of obligations under the TRIPS Agreement 
would be inherently more detrimental to the respond ing Member than another.  The only hierarchy to 
be found in the DSU in this respect is relative to the sector and agreement in which the violation has 
been found (thus, in a case involving a TRIPS viola tion, same-sector suspension would  have to be 
sought first under the TRIPS Agreement). We also not e that the level of suspension authorized will be 
the same whatever sector or agreement it may apply to.  We further note that, as the United States 
itself has observed in these proceedings, Brazil is not ob ligated at this time to explain in detail how it 
might impose such countermeasures.  This question is , in our view, beyond the scope of this enquiry, 
and it is not for us to speculate how a suspensi on of certain obligations under the TRIPS Agreement 
might be applied by Brazil or to assume that it wo uld have more detrimental consequences than a 
suspension in another sector or agreement.  In fact the United States itself does not explain what 
"devastating consequences" it is referring to.   
5.225  We make no determination in relation to th e United States' willingness or unwillingness to 
comply with the recommendations and rulings at issue.   We assume that the United States intends in 
good faith to promptly comply with these recommendati ons and rulings.  We have also not based our 
findings on Brazil's arguments relating to the adopti on of the 2008 Farm Bill, as such, in relation to 
which we have made no sp ecific determinations.   
5. Brazil's consideration of the elements under subparagraph (d) of Article 22.3 
5.226  Subparagraph (d) of Article 22.3 of the DSU requires the complaining party to "take into 
account", in applying the principles of s ubparagraphs (a) to (c), two elements: 
"(i) the trade in the sector or under the ag reement under which the panel or Appellate 
Body has found a violation or other nullifi cation or impairment , and the importance 
of that trade to [the complaining] party 
(ii) the broader economic elem ents related to the nullification or impairment and the 
broader economic consequences of the suspension of concessions or other 
obligations". 
5.227  As we have determined in Section V.C.1(c) above, in the circumstan ces of this case, this 
means that what is to be taken into account is "the trade" in all goods under the trade in goods 
agreement, that is, trade in goods generally, and its importance to Brazil, as well as "the broader 
economic elements"  relating to the nullification or impairment arising for Brazil from the subsidies at 
                                                      
466 See para. 5.233.  WT/DS267/ARB/1 
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  issue and the broader economic consequences of th e suspension, including a consideration of the 
economic consequences of the suspension.   
5.228  As we have discussed extensively in the pr eceding sections above, Brazil's determinations 
that it was not practicable or effective for it to seek to suspend obligations in trade in goods alone and 
that the circumstances are serious enough, were based importantly on a consideration of the 
importance to its economy of its trade in goods with the United States, and of the potential 
consequences of the proposed suspension, which it considers would be dispro portionately detrimental 
to its economy if applied solely to trade in goods.  In addition, Brazil has also taken into account the 
economic impact of the measures on the market of th e products affected by the measures at issue.  
5.229  In light of these elements, we are satisfied th at Brazil has taken into account the relevant 
elements under subparagraph (d) of Article 22.3 in accordance with the requirements of that 
provision.  
6. Conclusion 
5.230  In light of our determinations above, we find that in the event that the level of 
countermeasures that Brazil would be entitled to in a given year467 should increase to a level that 
would exceed the threshold identified in paragraph 5.201 above, updated for the same  year in a 
manner described in the next paragraph to account for the change in Brazil's total imports from the 
United States, then Brazil would be entitled to  suspend certain obligations under the TRIPS 
Agreement and/or the GATS as identified in its request pursuant to Article 4.10 of the 
SCM Agreement  and Article 22.2 of the DSU468, with respect to any amount of permissible 
                                                      
467 It is understood that this amount is to be calcu lated taking into account the entirety of the level of 
countermeasures that Brazil is entitled to at that point in  time, arising both from the application of the formula 
identified in paragraph 6.5(a) and from the Decision by the Arbitrator contained in WT/DS267/ARB/2. 
468 See WT/DS267/21.  Brazil identifies the following obligations in its request: 
 
With respect to the TRIPS Agreement: 
 "The following sections of Part II of the Ag reement on Trade-Related Aspects of Intellectual 
Property Rights: 
 
 Section 1: Copyright and related rights 
 Section 2: Trademarks 
 Section 4: Industrial designs 
 Section 5: Patents 
 Section 7: Protection of undisclosed information." 
 
With respect to the GATS: 
 
"horizontal and/or sectoral concessions and obligations for all sectors contained in Brazil's 
Schedule of Specific Commitments  (GATS/SC/13) under the General Agreement on Trade in 
Services. Those sectors are: 
 
 1. Business Services 
 2. Communication Services 
 3. Construction and Related Engineering Services 
 4. Distribution Services 
 7. Financial Services 
 9. Tourism and Travel Related Services 
 11. Transport Services" 
 WT/DS267/ARB/1 
Page 122 
 
 
  countermeasures applied in excess of that figure.  In any subsequent year where the level of 
countermeasures that Brazil would be entitled to falls  below this threshold, updated to account for the 
change in Brazil's total imports from the Unite d States, Brazil would be entitled to suspend 
concessions or other obligati ons only in trade in goods.  
5.231  As stated in the previous paragraph, in or der to determine whether suspension of certain 
obligations under the TRIPS Agreement or the GATS is permissible in a given year, the threshold 
should be updated to account for the change in Br azil's total imports from the United States.  For 
year 2008, for example, the updated amount of the threshold would be equal to US$409.7 million 
multiplied by (1 + g 2008), where g 2008 is the percentage change in the value of Brazil's total imports 
from the United States between the years 2007 and 2008,  or in the absence of the trade data for years 
2007 and 2008, the percentage change in the value of Brazil's total imports from the United States 
based on the last available annual trade statistics.469  In general, the following difference equation and 
initial condition shall determine the updated amount of the threshold:  
 (2) ) 1(*1 1 + + +=t t t g T T ,  T 2007 = US$409.7 million 
where:  
Tt+1=threshold value in year t+1; 
Tt =threshold value in year t; 
gt+1 = percentage change in the value of Brazil's to tal  imports from the United States between the 
years t and t+1, or in the absence of the trade data for years t and t + 1,  the percentage change in the 
value of Brazil's total imports from the United States based on the last available annual trade 
statistics. 
5.232  The "same" year shall mean that the amount  of countermeasures, calculated based on 
GSM 102 transactions in, for example, fiscal year  2008 (1 October 2007 to 30 September 2008) and 
the fixed amount from the Decision by the Arbitrator contained in WT/DS267/ARB/2, shall be 
compared to the value of the threshold in year 2008 (1 January 2008 to 31 December 2008).  
5.233  In light of our determination that Brazil, ma y, in application of the above, be entitled to 
suspend certain obligations under the TRIPS Agreem ent and the GATS, we note the remarks made by 
the arbitrators on EC – Bananas III (Ecuador) (Article 22.6 – EC), with respect to the suspension of 
obligations under the TRIPS Agreement470, which were also noted by the arbitrator on US – Gambling 
(Article 22.6 – US) .471  We consider these remarks to be releva nt also to this case, in that the same 
considerations will be pertinent to the manner in  which Brazil might implement a suspension of its 
obligations under the TRIPS Agreement in this case.   
5.234  In light of the fact that the level and form of permissible countermeas ures may vary over time, 
we urge Brazil, if and when it submits a revised request for authorization to suspend concessions or 
other obligations to the DSB in accordance with this  Decision, to be as specific as possible about the 
terms of the measures to be adopted, so as to promot e transparency and predictability in this process. 
                                                      
469 Brazil shall use UN Comtrade data for the purpose of calculating the percentage change of its total 
imports from the United States. 
470 Decision by the Arbitrators, EC – Bananas III (Ecuador) (Article 22.6 – EC) , Section V, 
paras. 139-165 . 
471 Decision by the Arbitrator, US – Gambling (Article 22.6 – US) , para. 5.11.   WT/DS267/ARB/1 
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  5.235  We also take note of the undertaking by Br azil in its request under Article 4.10 of the 
SCM Agreement  and Article 22.2 of the DSU, that: 
"Every year, Brazil will notify to the DSB th e amount and the form of the suspension 
of concessions and other obligations in the light of data concerning the operation of 
the identified programmes in the most recent concluded marketing and fiscal year, as 
applicable."472 
5.236  Finally, like previous arbitrators473, we also note that the United States may have recourse to 
the appropriate dispute settlement procedures in the event that it considers that the level of 
concessions or other obligations suspended by Br azil exceeds the level of countermeasures we have 
determined to be "appropriate" in this case.  
VI. CONCLUSIONS AND AWARD 
6.1 For the reasons set out above, the Arbitrator de termines that the annual level of "appropriate 
countermeasures" in relation to the GSM 102 payments  is as described in pa ragraphs 4.231-4.244, 
4.253-4.255 and 4.267-4.277 above (also see Annex 4 ).  For FY 2006, this amounts to 
US$147.4 million.   
6.2 We have also determined that Brazil has not  followed the principles and procedures of 
Article 22.3 of the DSU in determining that it is not  practicable or effective to suspend concessions or 
other obligations in trade in goods and that, at cu rrent levels, it could not ha ve plausibly determined 
that it is not practicable or effective to suspend c oncessions or other obligations  in trade in all goods 
under the Agreements contained in Annex 1A of the WTO Agreement.  We have also found, 
however, that, in the event that the level of counter measures that Brazil would be entitled to in a given 
year474 should increase to a level that would exceed a threshold, as identified in paragraph 5.201 
above, updated for the same  year in a manner described in paragraphs 5.231-5.232 to account for the 
change in Brazil's total imports from the United Stat es, then, it could be reasonably concluded that it 
is not practicable or effective for Brazil to susp end concessions or other obligations on trade in goods 
alone.  We have also determined that the ci rcumstances are serious enough and that Brazil has 
complied with the requirements of s ubparagraph (d) of Article 22.3.   
6.3 In light of these findings, we find that Brazil w ould be entitled to suspend certain obligations 
under the TRIPS Agreement and/or the GATS, w ith respect to any amount of permissible 
countermeasures applied in excess of the threshold identified in paragraph 5.201 above, updated for 
the same  year in a manner described in paragraphs 5.231-5.232 to account for the change in Brazil's 
total imports from the United States.  In any subse quent year where the level of countermeasures that 
Brazil would be entitled to falls below this threshol d, updated to account for the change in Brazil's 
total imports from the United States, Brazil woul d be entitled to suspend concessions or other 
obligations only in trade in goods.  
6.4 We have also found that, in determining whether the level of countermeasures that Brazil 
would be entitled to has increased to an amount th at would allow it to suspend certain obligations 
under the TRIPS Agreement and/or the GATS, the data  in Table 4 shall be updated to reflect the 
amount of imports in the same  year, as described in paragraph 5.232 above.   
                                                      
472 WT/DS267/21. 
473 Decisions by the Arbitrators, EC – Hormones (US) (Article 22.6 – EC), para. 82;  US – 1916 Act 
(EC) (Article 22.6 – US ), para. 9.2;  US – Offset Act (Byrd Amendment) (EC) (Article 22.6 – US),  para. 4.27;  
and US – Gambling (Article 22.6 – US),  para. 5.12. 
474 It is understood that this amount is to be calcu lated taking into account the entirety of the level of 
countermeasures that Brazil is entitled to at that point in  time, arising both from the application of the formula 
identified in paragraph 6.5(a) and from the Decision by the Arbitrator contained in WT/DS267/ARB/2. WT/DS267/ARB/1 
Page 124 
 
 
  6.5 Accordingly, the Arbitrator determines that: 
(a) Brazil may request authorization from th e DSB to suspend concessions or other 
obligations under the Agreements on trade in  goods in Annex 1A, at a level not to 
exceed the value of US$147.4 million for FY 2006, or, for subsequent years, an annual amount to be determined by applying the methodology described in Annex 4 . 
(b) In the event that the total level of counter measures that Brazil would be entitled to in 
a given year
475 should increase to a level that would exceed the threshold described in 
paragraph 5.201, updated to account for the change in Brazil's total imports from the 
United States, then, Brazil would also be entitled to seek to suspend certain 
obligations under the TRIPS Agreement and/or the GATS, as identified in 
footnote 468, with respect to any amount of permissible countermeasures applied in excess of that figure. 
 
_______________ 
                                                     
 
475 It is understood that this amount is to be calcu lated taking into account the entirety of the level of 
countermeasures that Brazil is entitled to at that point in  time, arising both from the application of the formula 
identified in paragraph 6.5(a) and from the Decision by the Arbitrator contained in WT/DS267/ARB/2.  WT/DS267/ARB/1 
 Page 125 
 
 
  ANNEX 1 
 
 
Trade-distorting impact (price effect) 
(Millions of dollars)  
1. in Brazil's domestic market $12.64
2. in non-Brazilian markets $12.63
Total $25.27
 
Exports of GSM 102 products 
(Billions of dollars) 
 Year 2006 
Brazil 13.1
World 111.9
Share 11.7%
Sources :  Exhibit Bra-815 and UN Comtrade. 
  
  WT/DS267/ARB/1 
Page 126  
IRS by individual average obligor 
Country/Obligor ECGs 
issued by 
country/ 
obligor in 
FY 2006 Transaction 
value 
secured by 
ECGs in FY 
2006 Obligor 
rating 
(average 
over all 
obligors for 
country) Maturity of 
the credit Cumulative 
default 
probability Benchmark 
interest rate Payments 
per year CCC risk-
based fee Subsidy rate 
S (Ohlin 
formula) Interest rate 
subsidy 
(IRS) 
 (mUSD) (mUSD) (numerical) (years) (%) (%)  (%) (%) (mUSD$) 
Jamaica                     
Bank of Nova Scotia Jamaica 
Ltd., Jamaica  4.80 4.894 16 1 20.982 33.11 2 0.924 16.20 0.793 
Capital Credit Merchant Bank 
Ltd 4.90 5.000 16 3 43.498 27.23 1 0.924 29.05 1.453 
Trinidad & Tobago                     
RBTT Bank Limited, T&T 28.57 29.155 10 3 1.68 5.78 1 0.637 0.45 0.131 
Costa Rica                     
Banco BAC San Jose, Costa 
Rica 0.94 0.960 12 3 4.309 6.74 1 0.688 2.11 0.020 
Banco BCT, Costa Rica 3.83 3.909 13 3 10.151 9.00 1 0.688 5.94 0.232 
Banco Cuscatlan de Costa 
Rica, Costa Rica 2.94 3.000 13 3 10.151 9.00 1 0.688 5.94 0.178 
Banco HSBC, Costa Rica 1.32 1.344 13 3 10.151 9.00 1 0.688 5.94 0.080 
Banco Improsa S.A. 2.29 2.341 13 3 10.151 9.00 1 0.688 5.94 0.139 
El Salvador                     
Banco Agricola, El Salvador 0.19 0.193 12 3 4.309 6.74 2 0.799 1.70 0.003 
Banco de America Central 
(BAC), El Salvador  5.13 5.232 13 3 10.151 9.00 1 0.799 5.83 0.305 
Banco Uno S.A., El Salvador 1.67 1.701 13 3 10.151 9.00 1 0.799 5.83 0.099 
Banco HSBC, El Salvador 10.75 10.973 12 3 4.309 6.74 1 0.799 2.00 0.219 
Guatemala                     
Banco Agromercantil de 
Guatemala, Guatemala 2.81 2.871 14 1 3.223 8.68 2 0.799 1.68 0.048 
Banco de la Republica, 
Guatemala 1.61 1.643 14 3 14.36 10.76 2 0.799 7.71 0.127 
Banco G and T Continental, 
S.A., Guatemala 2.62 2.672 13 3 10.151 9.00 1 0.799 5.83 0.156 
Banco Industrial, 
S.A.,Guatemala 10.48 10.697 13 3 10.151 9.00 1 0.799 5.83 0.624  
   WT/DS267/ARB/1
 Page 127Country/Obligor ECGs 
issued by 
country/ 
obligor in 
FY 2006 Transaction 
value 
secured by 
ECGs in FY 
2006 Obligor 
rating 
(average 
over all 
obligors for 
country) Maturity of 
the credit Cumulative 
default 
probability Benchmark 
interest rate Payments 
per year CCC risk-
based fee Subsidy rate 
S (Ohlin 
formula) Interest rate 
subsidy 
(IRS) 
 (mUSD) (mUSD) (numerical) (years) (%) (%)  (%) (%) (mUSD$) 
Banco Reformador, 
Guatemala 2.00 2.041 14 3 14.36 10.76 1 0.799 8.64 0.176 
Banco SCI 0.45 0.459 14 1 3.223 8.68 1 0.799 2.42 0.011 
Panama                     
BAC International Bank, Inc., 
Panama 22.50 22.959 10 3 1.68 5.78 1 0.799 0.29 0.066 
Banco Aliado, Panama 4.30 4.385 13 3 10.151 9.00 1 0.799 5.83 0.256 
Banco Cuscatlan de Panama 
(Formerly Banca 
Panamericano) 3.83 3.910 13 3 10.151 9.00 1 0.799 5.83 0.228 
Banco General, Panama 40.81 41.646 10 3 1.68 5.78 1 0.799 0.29 0.119 
Global Bank Corporation, 
Panama 10.38 10.588 13 3 10.151 9.00 1 0.799 5.83 0.618 
Multi Credit Bank, Inc., 
Panama 9.22 9.405 13 3 10.151 9.00 1 0.799 5.83 0.549 
Primer Banco del Istmo 
(BANISTMO), Panama 39.28 40.078 11 3 3.567 6.46 1 0.799 1.51 0.606 
Kazakhstan                     
Alliance Bank, Kazakstan 37.60 38.370 13 2 5.749 8.34 2 0.747 2.90 1.111 
Bank Caspian, Kazakstan 13.51 13.787 14 2 8.701 10.08 2 0.747 4.81 0.663 
Bank CenterCredit, Kazakstan 0.46 0.467 13 1 2.069 7.40 2 0.747 0.84 0.004 
Nurbank, Kazakstan 9.17 9.355 15 2 33.367 28.85 2 0.747 22.05 2.063 
Temirbank, Kazakstan 2.69 2.741 16 2 33.367 28.85 2 0.747 22.05 0.605 
Ukraine                     
Bank Forum, Ukraine 9.87 10.073 16 2 33.367 28.85 2 0.806 21.99 2.215 
Bank Nadra, OJSC, Ukraine 11.77 12.008 16 2 33.367 28.85 2 0.806 21.99 2.641 
Ukrsotsbank, Ukraine 13.98 14.261 16 2 33.367 28.85 2 0.806 21.99 3.136 
Finance and Credit Bank 7.35 7.505 15 2 33.367 28.85 2 0.806 21.99 1.650 
JSC Vseukrainsky 
Aktsionerny Bank-VA Bank 6.44 6.567 16 2 33.367 28.85 2 0.806 21.99 1.444  
  WT/DS267/ARB/1 
Page 128 
Country/Obligor ECGs 
issued by 
country/ 
obligor in 
FY 2006 Transaction 
value 
secured by 
ECGs in FY 
2006 Obligor 
rating 
(average 
over all 
obligors for 
country) Maturity of 
the credit Cumulative 
default 
probability Benchmark 
interest rate Payments 
per year CCC risk-
based fee Subsidy rate 
S (Ohlin 
formula) Interest rate 
subsidy 
(IRS) 
 (mUSD) (mUSD) (numerical) (years) (%) (%)  (%) (%) (mUSD$) 
Mexico                     
Monex Financiera, S.A. de 
C.V. 2.94 3.000 12 3 4.309 6.74 1 0.637 2.16 0.065 
Russia                     
Absolut Bank, Russia 3.06 3.125 16 2 33.367 28.85 2 0.747 22.05 0.689 
B.I.N. Bank, Russia 25.67 26.194 16 2 33.367 28.85 2 0.747 22.05 5.776 
Far Eastern Bank, Russia 9.47 9.662 18 2 33.367 28.85 2 0.747 22.05 2.131 
International Bank of St. 
Petersburg, Russia 3.96 4.045 17 2 33.367 28.85 2 0.747 22.05 0.892 
International Industrial Bank 
(IIB), Russia 42.57 43.442 15 2 33.367 28.85 2 0.747 22.05 9.580 
NOMOS Bank, Russia 34.04 34.734 15 2 33.367 28.85 2 0.747 22.05 7.660 
MDM Bank, Russia 38.42 39.207 14 2 8.701 10.08 2 0.747 4.81 1.885 
Orgresbank, Russia 7.44 7.593 16 2 33.367 28.85 2 0.747 22.05 1.674 
Probusinessbank, Russia 1.84 1.876 16 2 33.367 28.85 2 0.747 22.05 0.414 
RosEvrobank, Russia 12.13 12.377 18 2 33.367 28.85 2 0.747 22.05 2.729 
UralSib Bank (formerly Ural 
Siberian Bank), Russia 6.07 6.191 15 2 33.367 28.85 2 0.747 22.05 1.365 
ZAO Raiffeisenbank 9.37 9.561 18 2 33.367 28.85 2 0.747 22.05 2.108 
Brazil                     
Banco BBM S.A., Brazil 26.07 26.606 17 3 43.498 27.23 1 0.799 29.18 7.763 
Banco BMC, Brazil 4.41 4.500 16 3 43.498 27.23 1 0.799 29.18 1.313 
Banco Bradesco, Brazil 2.88 2.940 13 3 10.151 9.00 1 0.799 5.83 0.171 
Banco do Estado de Sao Paulo 
(BANESPA), Brazil 5.11 5.210 17 3 43.498 27.23 1 0.799 29.18 1.520 
Banco Fibra, Brazil 11.93 12.170 14 3 14.36 10.76 1 0.799 8.64 1.051 
Banco Industrial E Comercial 
(BICBanco), Brazil 11.32 11.550 13 3 10.151 9.00 1 0.799 5.83 0.674 
Uniao de Bancos Brasileiros 
(Unibanco), Brazil 2.43 2.475 13 3 10.151 9.00 1 0.799 5.83 0.144  
   WT/DS267/ARB/1
 Page 129Country/Obligor ECGs 
issued by 
country/ 
obligor in 
FY 2006 Transaction 
value 
secured by 
ECGs in FY 
2006 Obligor 
rating 
(average 
over all 
obligors for 
country) Maturity of 
the credit Cumulative 
default 
probability Benchmark 
interest rate Payments 
per year CCC risk-
based fee Subsidy rate 
S (Ohlin 
formula) Interest rate 
subsidy 
(IRS) 
 (mUSD) (mUSD) (numerical) (years) (%) (%)  (%) (%) (mUSD$) 
Colombia                     
Banco Colpatria Red 
Multibanca, Colombia 9.78 9.977 13 3 10.151 9.00 1 0.688 5.94 0.593 
BanColombia, Colombia 15.11 15.414 12 3 4.309 6.74 1 0.688 2.11 0.325 
Peru                     
Banco Financiero del Peru, 
Peru 3.74 3.820 15 3 43.498 27.23 1 0.924 29.05 1.110 
Philippines                     
Allied Bank, Philippines 9.57 9.767 17 1 20.982 33.11 1 0.799 20.18 1.971 
Development Bank of the 
Philippines, Philippines 31.06 31.692 13 3 10.151 9.00 1 0.799 5.83 1.849 
Export and Industry Bank, 
Philippines 6.45 6.580 17 1 20.982 33.11 1 0.799 20.18 1.328 
Philippine Bank of 
Communications, Philippines 10.35 10.564 17 1 20.982 33.11 1 0.799 20.18 2.132 
Rizal Commercial Bank, 
Philippines 22.32 22.776 15 3 43.498 27.23 1 0.799 29.18 6.646 
United Coconut Planter Bank, 
Philippines 16.40 16.730 17 1 20.982 33.11 1 0.799 20.18 3.377 
South Korea                     
Hana Bank 1.91 1.953 8 1 0.166 5.35 2 0.637 0.00 0.000 
Kookmin Bank 11.50 11.737 7 1 0.037 5.22 2 0.637 0.00 0.000 
Korea Development Bank 14.10 14.388 7 3 0.358 5.31 1 0.637 0.00 0.000 
Korea Exchange Bank 4.15 4.230 9 2 0.466 5.43 2 0.637 0.00 0.000 
National Agricultural 
Cooperative Federation 1.54 1.571 7 1 0.037 5.22 2 0.637 0.00 0.000 
Shinhan Bank 30.53 31.148 8 2 0.449 5.42 2 0.637 0.00 0.000 
Woori Bank 21.48 21.919 9 2 0.466 5.43 2 0.637 0.00 0.000 
Romania                     
Credit Europe Bank 
(Romania) SA 1.82 1.859 14 3 14.36 10.76 2 0.799 7.71 0.143  
  WT/DS267/ARB/1 
Page 130 
Country/Obligor ECGs 
issued by 
country/ 
obligor in 
FY 2006 Transaction 
value 
secured by 
ECGs in FY 
2006 Obligor 
rating 
(average 
over all 
obligors for 
country) Maturity of 
the credit Cumulative 
default 
probability Benchmark 
interest rate Payments 
per year CCC risk-
based fee Subsidy rate 
S (Ohlin 
formula) Interest rate 
subsidy 
(IRS) 
 (mUSD) (mUSD) (numerical) (years) (%) (%)  (%) (%) (mUSD$) 
Turkey                     
Akbank 2.66 2.718 13 3 10.151 9.00 1 0.799 5.83 0.159 
Asya Katilim Bankasi AS 14.22 14.511 15 3 43.498 27.23 1 0.799 29.18 4.234 
Bank Pozitif Kredi ve 
Kalkinma Bankasi 3.43 3.499 17 3 43.498 27.23 1 0.799 29.18 1.021 
Denizbank, Turkey 3.61 3.681 13 3 10.151 9.00 1 0.799 5.83 0.215 
Fortis Bank A.S, Turkey 6.44 6.576 17 3 43.498 27.23 1 0.799 29.18 1.919 
Finansbank, Turkey 15.30 15.614 13 3 10.151 9.00 1 0.799 5.83 0.911 
Garanti Bankasi, Turkey 29.03 29.621 13 3 10.151 9.00 1 0.799 5.83 1.728 
GSD Yatrim Bankasi 2.28 2.327 17 3 43.498 27.23 1 0.799 29.18 0.679 
Halkbank 10.88 11.100 13 3 10.151 9.00 1 0.799 5.83 0.648 
HSBC Bank A. S., Subsidiary 1.47 1.505 12 2 2.297 6.41 1 0.799 0.90 0.014 
Is Bankasi, Turkey 11.71 11.951 13 3 10.151 9.00 1 0.799 5.83 0.697 
Sekerbank 3.37 3.439 16 3 43.498 27.23 1 0.799 29.18 1.004 
Tekfenbank 4.96 5.064 17 3 43.498 27.23 1 0.799 29.18 1.478 
Tekstilbank 8.57 8.747 15 3 43.498 27.23 1 0.799 29.18 2.552 
Turk Ekonomi Bankasi 10.31 10.518 13 3 10.151 9.00 1 0.799 5.83 0.614 
Vakiflar Bankasi 11.74 11.983 13 3 10.151 9.00 1 0.799 5.83 0.699 
Yapi Ve Kredi Bankasi, 
Turkey 10.29 10.500 15 3 43.498 27.23 1 0.799 29.18 3.064 
ING Bank A.S. 23.17 23.644 17 3 43.498 27.23 1 0.799 29.18 6.899 
Turklandbank 0.85 0.867 17 3 43.498 27.23 2 0.799 27.13 0.235 
Total 977.69 997.64               120.62 
  WT/DS267/ARB/1 
 Page 131 
 
 
  ANNEX 2 
 
 
Trade-distorting impact (displacement effect of uncreditworthy obligors) 
(Millions of dollars) 
1. in Brazil's domestic market $36.32
2. in non-Brazilian markets $44.52
Total $80.84
 
 Exports of GSM 102 products 
(Billions of dollars) 
 Year 2006 
Brazil 13.1
World 111.9
Share 11.7%
Sources : Exhibit Bra-815 and UN Comtrade. 
 
  
  WT/DS267/ARB/1 
Page 132 Full additionality by individual average obligor 
Country/Obligor Obligor rating ECGs issued by 
country/obligor in FY 2006 Transaction value secured by 
ECGs in FY 2006 Full additionality (applicable 
solely to credit groups "15" 
and worse) 
  (numerical) (mUSD) (mUSD) (in USD million) 
Jamaica         
Bank of Nova Scotia Jamaica Ltd., Jamaica  16 4.796 4.894 4.894 
Capital Credit Merchant Bank Ltd 16 4.900 5.000 5.000 
Trinidad & Tobago         
RBTT Bank Limited, T&T 10 28.572 29.155 0.000 
Costa Rica         
Banco BAC San Jose, Costa Rica 12 0.941 0.960 0.000 
Banco BCT, Costa Rica 13 3.831 3.909 0.000 
Banco Cuscatlan de Costa Rica, Costa Rica 13 2.940 3.000 0.000 
Banco HSBC, Costa Rica 13 1.317 1.344 0.000 
Banco Improsa S.A. 13 2.295 2.341 0.000 
El Salvador         
Banco Agricola, El Salvador 12 0.189 0.193 0.000 
Banco de America Central (BAC), El Salvador  13 5.127 5.232 0.000 
Banco Uno S.A., El Salvador 13 1.667 1.701 0.000 
Banco HSBC, El Salvador 12 10.753 10.973 0.000 
Guatemala         
Banco Agromercantil de Guatemala, Guatemala 14 2.813 2.871 0.000 
Banco de la Republica, Guatemala 14 1.610 1.643 0.000 
Banco G and T Continental, S.A., Guatemala 13 2.618 2.672 0.000 
Banco Industrial, S.A.,Guatemala 13 10.483 10.697 0.000 
Banco Reformador, Guatemala 14 2.000 2.041 0.000 
Banco SCI 14 0.450 0.459 0.000 
Panama         
BAC International Bank, Inc., Panama 10 22.499 22.959 0.000 
Banco Aliado, Panama 13 4.297 4.385 0.000 
Banco Cuscatlan de Panama (Formerly Banca 
Panamericano) 13 3.832 3.910 0.000 
Banco General, Panama 10 40.813 41.646 0.000 
Global Bank Corporation, Panama 13 10.376 10.588 0.000 
Multi Credit Bank, Inc., Panama 13 9.217 9.405 0.000 
Primer Banco del Istmo (BANISTMO), Panama 11 39.277 40.078 0.000  
   WT/DS267/ARB/1
 Page 133Country/Obligor Obligor rating ECGs issued by 
country/obligor in FY 2006 Transaction value secured by 
ECGs in FY 2006 Full additionality (applicable 
solely to credit groups "15" 
and worse) 
  (numerical) (mUSD) (mUSD) (in USD million) 
Kazakhstan         
Alliance Bank, Kazakstan 13 37.603 38.370 0.000 
Bank Caspian, Kazakstan 14 13.511 13.787 0.000 
Bank CenterCredit, Kazakstan 13 0.457 0.467 0.000 
Nurbank, Kazakstan 15 9.168 9.355 9.355 
Temirbank, Kazakstan 16 2.686 2.741 2.741 
Ukraine         
Bank Forum, Ukraine 16 9.872 10.073 10.073 
Bank Nadra, OJSC, Ukraine 16 11.767 12.008 12.008 
Ukrsotsbank, Ukraine 16 13.976 14.261 14.261 
Finance and Credit Bank 15 7.354 7.505 7.505 
JSC Vseukrainsky Aktsionerny Bank-VA Bank 16 6.435 6.567 6.567 
Mexico         
Monex Financiera, S.A. de C.V. 12 2.940 3.000 0.000 
Russia         
Absolut Bank, Russia 16 3.063 3.125 3.125 
B.I.N. Bank, Russia 16 25.670 26.194 26.194 
Far Eastern Bank, Russia 18 9.469 9.662 9.662 
International Bank of St. Petersburg, Russia 17 3.964 4.045 4.045 
International Industrial Bank (IIB), Russia 15 42.573 43.442 43.442 
NOMOS Bank, Russia 15 34.040 34.734 34.734 
MDM Bank, Russia 14 38.423 39.207 0.000 
Orgresbank, Russia 16 7.442 7.593 7.593 
Probusinessbank, Russia 16 1.839 1.876 1.876 
RosEvrobank, Russia 18 12.129 12.377 12.377 
UralSib Bank (formerly Ural Siberian Bank), Russia 15 6.068 6.191 6.191 
ZAO Raiffeisenbank 18 9.370 9.561 9.561  
  WT/DS267/ARB/1 
Page 134 
Country/Obligor Obligor rating ECGs issued by 
country/obligor in FY 2006 Transaction value secured by 
ECGs in FY 2006 Full additionality (applicable 
solely to credit groups "15" 
and worse) 
  (numerical) (mUSD) (mUSD) (in USD million) 
Brazil         
Banco BBM S.A., Brazil 17 26.074 26.606 26.606 
Banco BMC, Brazil 16 4.410 4.500 4.500 
Banco Bradesco, Brazil 13 2.881 2.940 0.000 
Banco do Estado de Sao Paulo (BANESPA), Brazil 17 5.105 5.210 5.210 
Banco Fibra, Brazil 14 11.927 12.170 0.000 
Banco Industrial E Comercial (BICBanco), Brazil 13 11.319 11.550 0.000 
Uniao de Bancos Brasileiros (Unibanco), Brazil 13 2.426 2.475 0.000 
Colombia         
Banco Colpatria Red Multibanca, Colombia 13 9.778 9.977 0.000 
BanColombia, Colombia 12 15.106 15.414 0.000 
Peru         
Banco Financiero del Peru, Peru 15 3.744 3.820 3.820 
Philippines         
Allied Bank, Philippines 17 9.571 9.767 9.767 
Development Bank of the Philippines, Philippines 13 31.058 31.692 0.000 
Export and Industry Bank, Philippines 17 6.449 6.580 6.580 
Philippine Bank of Communications, Philippines 17 10.353 10.564 10.564 
Rizal Commercial Bank, Philippines 15 22.321 22.776 22.776 
United Coconut Planter Bank, Philippines 17 16.395 16.730 16.730 
South Korea         
Hana Bank 8 1.914 1.953 0.000 
Kookmin Bank 7 11.502 11.737 0.000 
Korea Development Bank 7 14.101 14.388 0.000 
Korea Exchange Bank 9 4.146 4.230 0.000 
National Agricultural Cooperative Federation 7 1.539 1.571 0.000 
Shinhan Bank 8 30.525 31.148 0.000 
Woori Bank 9 21.481 21.919 0.000 
Romania         
Credit Europe Bank (Romania) SA 14 1.822 1.859 0.000  
   WT/DS267/ARB/1
 Page 135Country/Obligor Obligor rating ECGs issued by 
country/obligor in FY 2006 Transaction value secured by 
ECGs in FY 2006 Full additionality (applicable 
solely to credit groups "15" 
and worse) 
  (numerical) (mUSD) (mUSD) (in USD million) 
Turkey         
Akbank 13 2.664 2.718 0.000 
Asya Katilim Bankasi AS 15 14.221 14.511 14.511 
Bank Pozitif Kredi ve Kalkinma Bankasi 17 3.429 3.499 3.499 
Denizbank, Turkey 13 3.608 3.681 0.000 
Fortis Bank A.S, Turkey 17 6.445 6.576 6.576 
Finansbank, Turkey 13 15.302 15.614 0.000 
Garanti Bankasi, Turkey 13 29.029 29.621 0.000 
GSD Yatrim Bankasi 17 2.280 2.327 2.327 
Halkbank 13 10.878 11.100 0.000 
HSBC Bank A. S., Subsidiary 12 1.474 1.505 0.000 
Is Bankasi, Turkey 13 11.712 11.951 0.000 
Sekerbank 16 3.371 3.439 3.439 
Tekfenbank 17 4.963 5.064 5.064 
Tekstilbank 15 8.572 8.747 8.747 
Turk Ekonomi Bankasi 13 10.308 10.518 0.000 
Vakiflar Bankasi 13 11.743 11.983 0.000 
Yapi Ve Kredi Bankasi, Turkey 15 10.290 10.500 10.500 
ING Bank A.S. 17 23.171 23.644 23.644 
Turklandbank 17 0.850 0.867 0.867 
Total   977.692 997.645 416.933 
 WT/DS267/ARB/1 
Page 136 
 
 
  ANNEX 3  
 
 
Trade-distorting impact (displacement effect of creditworthy obligors) 
(Millions of dollars)  
1. in Brazil's domestic market $18.72
2. in non-Brazilian markets $22.57
Total $41.29
 
Exports of GSM 102 products 
(Billions of dollars) 
 Year 2006 
Brazil 13.1
World 111.9
Share 11.7%
Sources :  Exhibit Bra-815 and UN Comtrade. 
  
   WT/DS267/ARB/1
 Page 137Marginal additionality by individual average obligor 
Country/Obligor ECGs issued 
by 
country/oblig
or in FY 2006 Transaction 
value secured 
by ECGs in FY 
2006 Obligor 
rating 
(average over 
all obligors 
for country) Maturity 
of the 
credit Cumulative 
default 
probability Creditowrthy 
Obligor IRS is 
Positive din Dn tin Marginal 
Additionality 
 (mUSD) (mUSD) (numerical) (years) (%)       
Jamaica                       
Bank of Nova Scotia 
Jamaica Ltd., Jamaica  4.80 4.894 16 1 20.982 0 1         
Capital Credit Merchant 
Bank Ltd 4.90 5.000 16 3 43.498 0 1         
Trinidad & Tobago                       
RBTT Bank Limited, T&T 28.57 29.155 10 3 1.68 1 1 1.68 18.54 0.09 2.64 
Costa Rica                       
Banco BAC San Jose, Costa 
Rica 0.94 0.960 12 3 4.309 1 1 4.31 18.54 0.23 0.22 
Banco BCT, Costa Rica 3.83 3.909 13 3 10.151 1 1 10.15 18.54 0.55 2.14 
Banco Cuscatlan de Costa 
Rica, Costa Rica 2.94 3.000 13 3 10.151 1 1 10.15 18.54 0.55 1.64 
Banco HSBC, Costa Rica 1.32 1.344 13 3 10.151 1 1 10.15 18.54 0.55 0.74 
Banco Improsa S.A. 2.29 2.341 13 3 10.151 1 1 10.15 18.54 0.55 1.28 
El Salvador                       
Banco Agricola, El Salvador 0.19 0.193 12 3 4.309 1 1 4.31 18.54 0.23 0.04 
Banco de America Central 
(BAC), El Salvador  5.13 5.232 13 3 10.151 1 1 10.15 18.54 0.55 2.87 
Banco Uno S.A., El 
Salvador 1.67 1.701 13 3 10.151 1 1 10.15 18.54 0.55 0.93 
Banco HSBC, El Salvador 10.75 10.973 12 3 4.309 1 1 4.31 18.54 0.23 2.55 
Guatemala                       
Banco Agromercantil de 
Guatemala, Guatemala 2.81 2.871 14 1 3.223 1 1 3.22 5.46 0.59 1.70 
Banco de la Republica, 
Guatemala 1.61 1.643 14 3 14.36 1 1 14.36 18.54 0.77 1.27 
Banco G and T Continental, 
S.A., Guatemala 2.62 2.672 13 3 10.151 1 1 10.15 18.54 0.55 1.46 
Banco Industrial, 
S.A.,Guatemala 10.48 10.697 13 3 10.151 1 1 10.15 18.54 0.55 5.86 
Banco Reformador, 
Guatemala 2.00 2.041 14 3 14.36 1 1 14.36 18.54 0.77 1.58 
Banco SCI 0.45 0.459 14 1 3.223 1 1 3.22 5.46 0.59 0.27  
  WT/DS267/ARB/1 
Page 138 Country/Obligor ECGs issued 
by 
country/oblig
or in FY 2006 Transaction 
value secured 
by ECGs in FY 
2006 Obligor 
rating 
(average over 
all obligors 
for country) Maturity 
of the 
credit Cumulative 
default 
probability Creditowrthy 
Obligor IRS is 
Positive din Dn tin Marginal 
Additionality 
 (mUSD) (mUSD) (numerical) (years) (%)       
Panama                       
BAC International Bank, 
Inc., Panama 22.50 22.959 10 3 1.68 1 1 1.68 18.54 0.09 2.08 
Banco Aliado, Panama 4.30 4.385 13 3 10.151 1 1 10.15 18.54 0.55 2.40 
Banco Cuscatlan de Panama 
(Formerly Banca 
Panamericano) 3.83 3.910 13 3 10.151 1 1 10.15 18.54 0.55 2.14 
Banco General, Panama 40.81 41.646 10 3 1.68 1 1 1.68 18.54 0.09 3.77 
Global Bank Corporation, 
Panama 10.38 10.588 13 3 10.151 1 1 10.15 18.54 0.55 5.80 
Multi Credit Bank, Inc., 
Panama 9.22 9.405 13 3 10.151 1 1 10.15 18.54 0.55 5.15 
Primer Banco del Istmo 
(BANISTMO), Panama 39.28 40.078 11 3 3.567 1 1 3.57 18.54 0.19 7.71 
Kazakhstan                       
Alliance Bank, Kazakstan 37.60 38.370 13 2 5.749 1 1 5.75 12.51 0.46 17.63 
Bank Caspian, Kazakstan 13.51 13.787 14 2 8.701 1 1 8.70 12.51 0.70 9.59 
Bank CenterCredit, 
Kazakstan 0.46 0.467 13 1 2.069 1 1 2.07 5.46 0.38 0.18 
Nurbank, Kazakstan 9.17 9.355 15 2 33.367 0 1         
Temirbank, Kazakstan 2.69 2.741 16 2 33.367 0 1         
Ukraine                       
Bank Forum, Ukraine 9.87 10.073 16 2 33.367 0 1         
Bank Nadra, OJSC, Ukraine 11.77 12.008 16 2 33.367 0 1         
Ukrsotsbank, Ukraine 13.98 14.261 16 2 33.367 0 1         
Finance and Credit Bank 7.35 7.505 15 2 33.367 0 1         
JSC Vseukrainsky 
Aktsionerny Bank-VA Bank 6.44 6.567 16 2 33.367 0 1         
Mexico                       
Monex Financiera, S.A. de 
C.V. 2.94 3.000 12 3 4.309 1 1 4.31 18.54 0.23 0.70  
   WT/DS267/ARB/1
 Page 139Country/Obligor ECGs issued 
by 
country/oblig
or in FY 2006 Transaction 
value secured 
by ECGs in FY 
2006 Obligor 
rating 
(average over 
all obligors 
for country) Maturity 
of the 
credit Cumulative 
default 
probability Creditowrthy 
Obligor IRS is 
Positive din Dn tin Marginal 
Additionality 
 (mUSD) (mUSD) (numerical) (years) (%)       
Russia                       
Absolut Bank, Russia 3.06 3.125 16 2 33.367 0 1         
B.I.N. Bank, Russia 25.67 26.194 16 2 33.367 0 1         
Far Eastern Bank, Russia 9.47 9.662 18 2 33.367 0 1         
International Bank of 
St. Petersburg, Russia 3.96 4.045 17 2 33.367 0 1         
International Industrial Bank 
(IIB), Russia 42.57 43.442 15 2 33.367 0 1         
NOMOS Bank, Russia 34.04 34.734 15 2 33.367 0 1         
MDM Bank, Russia 38.42 39.207 14 2 8.701 1 1 8.70 12.51 0.70 27.27 
Orgresbank, Russia 7.44 7.593 16 2 33.367 0 1         
Probusinessbank, Russia 1.84 1.876 16 2 33.367 0 1         
RosEvrobank, Russia 12.13 12.377 18 2 33.367 0 1         
UralSib Bank (formerly Ural 
Siberian Bank), Russia 6.07 6.191 15 2 33.367 0 1         
ZAO Raiffeisenbank 9.37 9.561 18 2 33.367 0 1         
Brazil                       
Banco BBM S.A., Brazil 26.07 26.606 17 3 43.498 0 1         
Banco BMC, Brazil 4.41 4.500 16 3 43.498 0 1         
Banco Bradesco, Brazil 2.88 2.940 13 3 10.151 1 1 10.15 18.54 0.55 1.61 
Banco do Estado de Sao 
Paulo (BANESPA), Brazil 5.11 5.210 17 3 43.498 0 1         
Banco Fibra, Brazil 11.93 12.170 14 3 14.36 1 1 14.36 18.54 0.77 9.43 
Banco Industrial E 
Comercial (BICBanco), 
Brazil 11.32 11.550 13 3 10.151 1 1 10.15 18.54 0.55 6.33 
Uniao de Bancos Brasileiros 
(Unibanco), Brazil 2.43 2.475 13 3 10.151 1 1 10.15 18.54 0.55 1.36 
Colombia                       
Banco Colpatria Red 
Multibanca, Colombia 9.78 9.977 13 3 10.151 1 1 10.15 18.54 0.55 5.46 
BanColombia, Colombia 15.11 15.414 12 3 4.309 1 1 4.31 18.54 0.23 3.58 
Peru                       
Banco Financiero del Peru, 
Peru 3.74 3.820 15 3 43.498 0 1          
  WT/DS267/ARB/1 
Page 140 Country/Obligor ECGs issued 
by 
country/oblig
or in FY 2006 Transaction 
value secured 
by ECGs in FY 
2006 Obligor 
rating 
(average over 
all obligors 
for country) Maturity 
of the 
credit Cumulative 
default 
probability Creditowrthy 
Obligor IRS is 
Positive din Dn tin Marginal 
Additionality 
 (mUSD) (mUSD) (numerical) (years) (%)       
Philippines                       
Allied Bank, Philippines 9.57 9.767 17 1 20.982 0 1         
Development Bank of the 
Philippines, Philippines 31.06 31.692 13 3 10.151 1 1 10.15 18.54 0.55 17.36 
Export and Industry Bank, 
Philippines 6.45 6.580 17 1 20.982 0 1         
Philippine Bank of 
Communications, 
Philippines 10.35 10.564 17 1 20.982 0 1         
Rizal Commercial Bank, 
Philippines 22.32 22.776 15 3 43.498 0 1         
United Coconut Planter 
Bank, Philippines 16.40 16.730 17 1 20.982 0 1         
South Korea                       
Hana Bank 1.91 1.953 8 1 0.166 1 0         
Kookmin Bank 11.50 11.737 7 1 0.037 1 0         
Korea Development Bank 14.10 14.388 7 3 0.358 1 0         
Korea Exchange Bank 4.15 4.230 9 2 0.466 1 0         
National Agricultural 
Cooperative Federation 1.54 1.571 7 1 0.037 1 0         
Shinhan Bank 30.53 31.148 8 2 0.449 1 0         
Woori Bank 21.48 21.919 9 2 0.466 1 0         
Romania                       
Credit Europe Bank 
(Romania) SA 1.82 1.859 14 3 14.36 1 1 14.36 18.54 0.77 1.44  
   WT/DS267/ARB/1
 Page 141Country/Obligor ECGs issued 
by 
country/oblig
or in FY 2006 Transaction 
value secured 
by ECGs in FY 
2006 Obligor 
rating 
(average over 
all obligors 
for country) Maturity 
of the 
credit Cumulative 
default 
probability Creditowrthy 
Obligor IRS is 
Positive din Dn tin Marginal 
Additionality 
 (mUSD) (mUSD) (numerical) (years) (%)       
Turkey                       
Akbank 2.66 2.718 13 3 10.151 1 1 10.15 18.54 0.55 1.49 
Asya Katilim Bankasi AS 14.22 14.511 15 3 43.498 0 1         
Bank Pozitif Kredi ve 
Kalkinma Bankasi 3.43 3.499 17 3 43.498 0 1         
Denizbank, Turkey 3.61 3.681 13 3 10.151 1 1 10.15 18.54 0.55 2.02 
Fortis Bank A.S, Turkey 6.44 6.576 17 3 43.498 0 1         
Finansbank, Turkey 15.30 15.614 13 3 10.151 1 1 10.15 18.54 0.55 8.55 
Garanti Bankasi, Turkey 29.03 29.621 13 3 10.151 1 1 10.15 18.54 0.55 16.22 
GSD Yatrim Bankasi 2.28 2.327 17 3 43.498 0 1         
Halkbank 10.88 11.100 13 3 10.151 1 1 10.15 18.54 0.55 6.08 
HSBC Bank A. S., 
Subsidiary 1.47 1.505 12 2 2.297 1 1 2.30 12.51 0.18 0.28 
Is Bankasi, Turkey 11.71 11.951 13 3 10.151 1 1 10.15 18.54 0.55 6.55 
Sekerbank 3.37 3.439 16 3 43.498 0 1         
Tekfenbank 4.96 5.064 17 3 43.498 0 1         
Tekstilbank 8.57 8.747 15 3 43.498 0 1         
Turk Ekonomi Bankasi 10.31 10.518 13 3 10.151 1 1 10.15 18.54 0.55 5.76 
Vakiflar Bankasi 11.74 11.983 13 3 10.151 1 1 10.15 18.54 0.55 6.56 
Yapi Ve Kredi Bankasi, 
Turkey 10.29 10.500 15 3 43.498 0 1         
ING Bank A.S. 23.17 23.644 17 3 43.498 0 1         
Turklandbank 0.85 0.867 17 3 43.498 0 1         
Total 977.69 997.64                 211.69 
 WT/DS267/ARB/1 
Page 142 
 
 
  Cumulative Default probabilities (Moody's) 
Rating Cumulative Default Probabilities 
Letter Numerical 1-Year 2-Year 3-Year 
AAA 1 0.000 0.000 0.000
AA+ 2 0.000 0.000 0.000
AA 3 0.000 0.011 0.048
AA- 4 0.019 0.040 0.078
A+ 5 0.003 0.091 0.241
A 6 0.026 0.082 0.224
A- 7 0.037 0.175 0.358
BBB+ 8 0.166 0.449 0.794
BBB 9 0.161 0.466 0.883
BBB- 10 0.335 0.965 1.680
BB+ 11 0.753 2.006 3.567
BB 12 0.780 2.297 4.309
BB- 13 2.069 5.749 10.151
B+ 14 3.223 8.701 14.360
B 15 5.457 12.511 18.535
B- 16 10.460 19.782 28.532
CCC+ 17 20.982 33.367 43.498
CCC-C 18 20.982 33.367 43.498
Source :  Exhibit Bra-794 
  WT/DS267/ARB/1 
 Page 143 
 
 
  ANNEX 4 
 
FORMULA FOR CALCULATING ANNUAL COUNTERMEASURES 
  
1. This Annex explains the formula to be used  to calculate the amount of countermeasures that 
Brazil is authorized to take on an annual basis a nd describes the data required to apply it.  At the 
outset it should be made clear that the Arbitrat or could have chosen the methodology used in 
Annexes 1, 2 and 3 of this Decision.  This  methodology required calculating the price and 
displacement effects of the e xport credit guarantees.  However, given the complexity of the 
methodology and the likely need to periodically upd ate the information on which it was based (risk-
free interest rate, default probabilities, credit risk ratin gs of obligors, etc.), the Arbitrator was aware of 
the potential risk of disputes between the parties.  As a consequence, the Arbitrator has modified the 
methodology in a way that substantially reduces this risk.  While the current formula is a 
simplification, it hews to the principle that countermeasures should be  appropriate and not 
disproportionate by making the size of future countermeasures depend on the magnitude of GSM 102 
transactions and Brazil's share of world exports in GSM 102 products.    
2. The amount of countermeasures shall depe nd on the transaction value secured by GSM 102 
export credit guarantees obtained by Brazilian and non-Brazilian obligors, Brazil's share of world 
exports of GSM 102 products (corn products, cotton, feed grains, hides and skins, oilseeds, pig meat, 
poultry meat, protein feed, rice, and tallow) and a set of parameters.  This is expressed in the 
following equation:  
 (1) 
) )( ( ) (1NB
t tB
t t GSM share GSM CM β α + =+  
 
where: 
 
1+tCM is the amount of countermeasures in year t +1 that Brazil is authorized to apply; 
B
t GSM  is the transaction value secured by GSM 102 ex port credit guarantees in fiscal year t obtained 
by Brazilian obligors (adjusted for US export subsidy commitments); 
NB
t GSM  is the transaction value secured by GSM 102 export credit guarantees in fiscal year t 
obtained by non-Brazilian obligors (adjuste d for US export subsidy commitments); 
t share  is Brazil's share of world exports of GSM 102 products in calendar year t; 
α is the parameter that relates the transaction value secured by GSM 102 export credit guarantees 
obtained by Brazilian obligors to their trade-distorting impact on Brazil;  and 
β is the parameter that relates the transaction value secured by GSM 102 export credit guarantees 
obtained by non-Brazilian obligors to their trade-di storting impact on Braz il (apportioned to Brazil's 
share of world exports of GSM 102 products).   
 
3. The values of the parameters α and β are derived from data on GSM 102 transactions in 
FY 2006 and the calculated trade distorting impacts on Brazil of those guarantees.  They result in 
values of the parameters:  α = 1.033947 and β = 0.731148.1 
                                                      
1 The transaction value secured by GSM 102 export  credit guarantees obtained by Brazilian obligors 
was US$65.45 million while the trade-distorting impact on Brazil attributable to th e export credit guarantees 
was US$67.67 million.  This produces a value of α equal to 1.033947.  The transaction value secured by 
GSM 102 export credit guarantees obtained by non-Br azilian obligors was US$932.19 million, Brazil's world WT/DS267/ARB/1 
Page 144 
 
 
   
4. The transaction value secured by GSM 102 export credit guarantees is defined as the amount 
of GSM 102 transactions divided by the factor 0.98.2 
 
5. The United States shall provide the most recent fiscal year data on GSM 102 transactions.  
The data on GSM 102 transactions by commodity and by obligor shall be supplied in the exact format 
(and software) as Exhibit US-78. Should the United  States not be able to provide the most recent 
fiscal year data on GSM 102 transactions, Brazil shall use the data from the last available fiscal year. 
 
6. The formula shall be applied to scheduled pr oducts (pig meat, poultry meat and rice) only to 
the extent that the export subsidies provided to volu mes of exports of the products are in excess of US 
quantity or budgetary outlay reduction commitments.  Th is shall require a deduction to be made to the 
transaction value secured by GSM 102 export credit guara ntees issued for a particular fiscal year, so 
that only export subsidies that exceed US WTO commitments are included.  To determine the 
reduction, the United States' quantity reduction commi tment for pig meat, poultry meat and rice shall 
be multiplied by the US export prices of the thr ee scheduled commodities.  The United States shall 
provide the most recent data on US e xport prices of the scheduled products.3  Should the United 
States not be able to provide this inform ation, Brazil shall use US export unit values4 of the scheduled 
products based on data obtained from the UN Commodity Trade Statistics Database (Comtrade). 
 7. The trade data to be used to calculate Brazil's share of world exports of GSM 102 products 
shall be obtained from UN Comtrade.  Brazil sh all use the harmonised system codes of GSM 102 
products in Exhibit Bra-814 for this purpose.  Brazil shall ensure that the period covered by the trade 
data corresponds to the fiscal year of the GSM 102 da ta, i.e. if GSM 102 data of fiscal year 2008 is 
used, trade data of calendar year 2008 shall be employed.   
 
__________  
 
                                                                                                                                                                    
 
market share of GSM 102 products was 11.7 per cent, whil e the trade-distorting impact on Brazil attributable to 
the export credit guarantees was US$79.73 million.  This produces a value of βequal to = 0.731148. 
2 Under the GSM 102 programme, the transaction risk is divided 98:2 between the Commodity Credit 
Corporation and the exporter, i.e., 98 per cent of the tr ansaction is backed by the CCC via the export credit 
guarantees, while the exporter bears the risk on the remaining two per cent of the transaction.  Thus, the total 
value of US exports that could be secured by the GSM 102 transaction is greater by a factor of 1/(0.98). 
3 The period covered by the data on US export pr ices must correspond to the fiscal year of the 
GSM 102 data, i.e. if GSM 102 data of fiscal year 2008 is  used, data on US export prices for calendar year 2008 
shall be employed 
4 The US export unit value of a scheduled product i is defined as UV i = V i/Qi, where UV i is the US 
export unit value of scheduled product i, V i is the total dollar value of US exports of scheduled product i and Q i 
is the total volume of US exports of scheduled product i.  Brazil shall use the harmonised system codes of the 
scheduled products in Exhibit Bra-814 for the purpose of calculating the US export unit values.