WORLD TRADE  
ORGANIZATION  WT/DS267/AB/RW 
2 June 2008 
 (08-2554) 
 Original:   English 
  
 
     
 
    
 
    
 
UNITED STATES – SUBSIDIES ON UPLAND COTTON 
 
RECOURSE TO ARTICLE 21.5 OF THE DSU BY BRAZIL 
 
 
 
AB-2008-2 
   
 
     
 
  
Report of the Appellate Body  WT/DS267/AB/RW 
 Page i 
 
 
I. Introduction................................................................................................................... ..............1  
II. Arguments of the Participants and the Third Participants ..........................................................9  
A. Claims of Error by the United States – Appellant ......................................................... 9 
1. Scope of These Article 21.5 Proceedings .........................................................9  
(a) Export Credit Guarantees for Pig Meat and Poultry Meat...................9  
(b) Marketing Loan and Counter-cyclical Payments Made After 
21 September 2005 ............................................................................11  
2. GSM 102 Export Credit Guarantees Issued After 1 July 2005.......................13  
(a) The Panel's Quantitative Analysis .....................................................13  
(b) Comparison with OECD Minimum Premium Rates .........................14  
(c) Structure, Design, and Operation of the Revised GSM 102 Programme.........................................................................................15
 
(d) Article 11 of the DSU ........................................................................17  
3. Serious Prejudice ............................................................................................18  
(a) Market Insulation...............................................................................18  
(b) Divergence between United States Producers' Total Costs and Market Revenues ...............................................................................21
 
(c) Economic Simulation Model .............................................................22  
(d) Impact of the Elimination of Step 2 Payments ..................................22  
(e) Magnitude of Marketing Loan and Counter-cyclical Payments ........23  
(f) Substantial Proportionate Influence on the World Market for 
Upland Cotton....................................................................................23  
(g) Other Factors Impacting the World Market Price for Upland 
Cotton ................................................................................................24  
(h) Degree of Price Suppression..............................................................25  
(i) Article 11 of the DSU ........................................................................26  
B. Arguments of Brazil – Appellee ................................................................................... 27 
1. Scope of These Article 21.5 Proceedings .......................................................27  
(a) Export Credit Guarantees for Pig Meat and Poultry Meat.................27  
(b) Marketing Loan and Counter-cyclical Payments Made After 
21 September 2005 ............................................................................30  
2. GSM 102 Export Credit Guarantees Issued After 1 July 2005.......................31  
(a) The Panel's Quantitative Analysis .....................................................32  
(b) Comparison with OECD Minimum Premium Rates .........................34  
(c) Structure, Design, and Operation of the Revised GSM 102 Programme.........................................................................................34
 
(d) Article 11 of the DSU ........................................................................37  
3. Serious Prejudice ............................................................................................38  
(a) Market Insulation...............................................................................38  
(b) Divergence between United States Producers' Total Costs and Market Revenues ...............................................................................42
 
(c) Economic Simulation Model .............................................................44  
(d) Impact of the Elimination of Step 2 Payments ..................................45  
(e) Magnitude of Marketing Loan and Counter-cyclical Payments ........46  
(f) Substantial Proportionate Influence on the World Market for Upland Cotton....................................................................................47
 
(g) Other Factors Impacting the World Market Price for Upland Cotton ................................................................................................47
 
(h) Degree of Price Suppression..............................................................47  
(i) Article 11 of the DSU ........................................................................48  WT/DS267/AB/RW 
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C.
 Claims of Error by Brazil – Other Appellant............................................................... 50 
1. Scope of These Article 21.5 Proceedings:  The Revised GSM 102 
Programme......................................................................................................50  
2. Scope of These Article 21.5 Proceedings:  Marketing Loan and Counter-cyclical Payments Programmes ........................................................52
 
D. Arguments of the United States – Appellee.................................................................. 54 
1. Scope of These Article 21.5 Proceedings:  The Revised GSM 102 
Programme......................................................................................................54  
2. Scope of These Article 21.5 Proceedings:  Marketing Loan and Counter-cyclical Payments Programmes ........................................................57
 
E. Arguments of the Third Participants............................................................................ 59 
1. Argentina ........................................................................................................59  
2. Australia..........................................................................................................59  
3. Canada ............................................................................................................62  
4. Chad................................................................................................................64  
5. European Communities...................................................................................64  
6. Japan ...............................................................................................................66  
7. New Zealand...................................................................................................68  
III. Issues Raised in This Appeal ................................................................................................... .71 
IV. Scope of These Article 21.5 Proceedin gs:  Pig Meat and Poultry Meat ...................................72  
A. Original Proceedings................................................................................................... 73 
B. Measures Taken by the United States .......................................................................... 75 
C. Article 21.5 Proceedings.............................................................................................. 75 
D. Claims and Arguments on Appeal................................................................................ 77 
E. Whether Brazil's Claims Relating to Export Credit Guarantees for Pig Meat 
and Poultry Meat are within the Scope of These Article 21.5 Proceedings ................ 78 
F. Brazil's Other Appeal................................................................................................... 84 
V. Scope of These Article 21.5 Proceedings:  Marketing Loan and Counter-cyclical 
Payments Made After 21 September 2005 ...............................................................................85  
A. Original Proceedings................................................................................................... 85 
B. Measures Taken by the United States .......................................................................... 86 
C. Article 21.5 Proceedings.............................................................................................. 86 
D. Claims and Arguments on Appeal................................................................................ 88 
E. Whether Marketing Loan and Count er-cyclical Payments Made After 
21 September 2005 are Properly within the Scope of These Article 21.5 
Proceedings ................................................................................................................. 90 
F. Brazil's Other Appeal................................................................................................... 98  WT/DS267/AB/RW 
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VI. GSM 102 Export Credit Guarantees .........................................................................................99  
A. Original Proceedings................................................................................................. 100 
B. Measures Taken by the United States ........................................................................ 100 
C. Article 21.5 Proceedings............................................................................................ 101 
D. Claims and Arguments on Appeal.............................................................................. 106 
E. The Panel's Assessment of the Revised  GSM 102 Programme under Item (j) of 
the Illustrative List of Export Subsidies..................................................................... 108 
1. The Panel's Quantitative Analysis under Item (j) .........................................109  
2. Comparison with MPRs under the OECD Arrangement..............................118  
3. Structure, Design, and Operation of the Revised GSM 102 Programme......121  
F. Conclusion ................................................................................................................. 126 
VII. Serious Prejudice .............................................................................................................. ......126  
A. Original Proceedings................................................................................................. 127 
B. Measures Taken by the United States ........................................................................ 127 
C. Article 21.5 Proceedings............................................................................................ 128 
D. Claims and Arguments on Appeal.............................................................................. 133 
E. The Panel's Findings of "Present" Serious Prejudice under Articles 5(c) and 
6.3(c) of the SCM Agreement..................................................................................... 136 
1. Significant Price Suppression under Article 6.3(c) of the SCM 
Agreement .....................................................................................................136  
2. The United States' Claim that the Panel Failed to Determine the Degree 
of Price Suppression It Found to Be "Significant" .......................................140  
3. Causation and Non-attribution......................................................................143  
4. Other Allegations of Error Raised by the United States ...............................149  
(a) Standard of Review..........................................................................149  
(b) Market Insulation.............................................................................151  
(c) Costs of Production..........................................................................163  
(d) Economic Simulation Model ...........................................................168  
(e) Impact of the Elimination of Step 2 Payments ................................170  
(f) Magnitude of the Subsidies..............................................................173  
(g) Substantial Proportionate Influence on the World Market for 
Upland Cotton..................................................................................173  
F. Conclusion ................................................................................................................. 174 
VIII. Findings and Conclusions....................................................................................................... 175 
 
ANNEX I Notification of an Appeal by the United States  
ANNEX II Notification of an Other Appeal by Brazil  WT/DS267/AB/RW 
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TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Brazil – Aircraft  Appellate Body Report, Brazil – Export Financing Programme for Aircraft , 
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161 
Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres , 
WT/DS332/AB/R, adopted 17 December 2007 
Canada – Aircraft  (Article 21.5 – Brazil)
  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft – Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/AB/RW, 
adopted 4 August 2000, DSR 2000:IX, 4299 
Canada – Dairy  
(Article 21.5 – New Zealand and US)
  Appellate Body Report, Canada – Measures Affecting the Importation of Milk 
and the Exportation of Dairy Products – Recourse to Article 21.5 of the DSU by New Zealand and the United States , WT/DS103/AB/RW, WT/DS113/AB/RW, 
adopted 18 December 2001, DSR 2001:XIII, 6829 
Canada – Dairy  
(Article 21.5 – New Zealand 
and US II)  Appellate Body Report, Canada – Measures Affecting the Importation of Milk 
and the Exportation of Dairy Products – Second Recourse to Article 21.5 of the 
DSU by New Zealand and the United States , WT/DS103/AB/RW2, 
WT/DS113/AB/RW2, adopted 17 January 2003, DSR 2003:I, 213 
Canada – Periodicals  Appellate Body Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, 449 
Dominican Republic – Import 
and Sale of Cigarettes Appellate Body Report, Dominican Republic – Measures Affecting the 
Importation and Internal Sale of Cigarettes , WT/DS302/AB/R, adopted 19 May 
2005, DSR 2005:XV, 7367 
EC – Asbestos  Appellate Body Report, European Communities – Measures Affecting Asbestos 
and Asbestos-Containing Products , WT/DS135/AB/R, adopted 5 April 2001, 
DSR 2001:VII, 3243 
EC – Bed Linen  
(Article 21.5 – India)  Appellate Body Report, European Communities – Anti-Dumping Duties on 
Imports of Cotton-Type Bed Linen from I ndia – Recourse to Article 21.5 of the 
DSU  by India , WT/DS141/AB/RW, adopted 24 April 2003, DSR 2003:III, 965  
EC – Chicken Cuts Appellate Body Report, European  Communities – Customs Classification of 
Frozen Boneless Chicken Cuts , WT/DS269/AB/R, WT/DS286/AB/R, adopted 
27 September 2005, and Corr.1, DSR 2005:XIX, 9157 
EC – Hormones  Appellate Body Report, EC Measures Concerning Meat and Meat Products 
(Hormones) , WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, 
DSR 1998:I, 135 
EC – Poultry  Appellate Body Report, European Communities – Measures Affecting the 
Importation of Certain Poultry Products , WT/DS69/AB/R, adopted 23 July 1998, 
DSR 1998:V, 2031 
EC – Sardines  Appellate Body Report, European Communities – Trade Description of Sardines , 
WT/DS231/AB/R, adopted 23 October 2002, DSR 2002:VIII, 3359 
Japan – Agricultural Products II Appellate Body Report, Japan – Measures Affecting Agricultural Products , 
WT/DS76/AB/R, adopted 19 March 1999, DSR 1999:I, 277 
Japan – Apples  Appellate Body Report, Japan - Measures Affecting the Importation of Apples , 
WT/DS245/AB/R, adopted 10 December 2003, DSR 2003:IX, 4391  WT/DS267/AB/RW 
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Short Title Full Case Title and Citation 
Korea – Alcoholic Beverages  Appellate Body Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/AB/R, 
WT/DS84/AB/R, adopted 17 February 1999, DSR 1999:I, 3 
Korea – Commercial Vessels Panel Report, Korea – Measures Affecting Trade in Commercial Vessels , 
WT/DS273/R, adopted 11 April 2005, DSR 2005:VII, 2749 
Korea – Dairy  Appellate Body Report, Korea – Definitive Safeguard Measure on Imports  
of Certain Dairy Products , WT/DS98/AB/R, adopted 12 January 2000, 
DSR 2000:I, 3 
Mexico – Corn Syrup  
(Article 21.5 – US)  Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose 
Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the DSU  
by the United States , WT/DS132/AB/RW, adopted 21 November 2001, 
DSR 2001:XIII, 6675 
US – Carbon Steel  Appellate Body Report, United States – Countervailing Duties on Certain 
Corrosion-Resistant Carbon Steel Flat Products from Germany , 
WT/DS213/AB/R and Corr.1, adopted 19 December 2002, DSR 2002:IX, 3779 
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 
US – Lamb  Appellate Body Report, United States – Safeguard Measures on Imports of Fresh, 
Chilled or Frozen Lamb Meat from New Zealand and Australia , 
WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, DSR 2001:IX, 4051 
US – Oil Country Tubular 
Goods Sunset Reviews  
(Article 21.5 – Argentina) Appellate Body Report, United States – Sunset Reviews of Anti-Dumping 
Measures on Oil Country Tubular Goods fr om Argentina – Recourse to Article 
21.5 of the DSU by Argentina , WT/DS268/AB/RW, adopted 11 May 2007 
US – Section 211 
Appropriations Act Appellate Body Report, United States – Section 211 Omnibus Appropriations 
Act of 1998 , WT/DS176/AB/R, adopted 1 February 2002, DSR 2002:II, 589 
US – Shrimp Appellate Body Report, United States – Import Prohibition of Certain Shrimp and 
Shrimp Products , WT/DS58/AB/R, adopted 6 November 1998, DSR 1998:VII, 
2755 
US – Shrimp  
(Article 21.5 – Malaysia)  Appellate Body Report, United States – Import Prohibition of Certain Shrimp 
 and Shrimp Products – Recourse to Article 21.5 of the DSU by Malaysia , 
WT/DS58/AB/RW, adopted 21 November 2001, DSR 2001:XIII, 6481 
US – Softwood Lumber IV (Article 21.5 – Canada) Appellate Body Report, United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada – Recourse by Canada to 
Article 21.5 of the DSU , WT/DS257/AB/RW, adopted 20 December 2005, DSR 
2005:XXIII, 11357 
US – Softwood Lumber IV (Article 21.5 – Canada) Panel Report, United States – Final Countervailing Duty Determination with 
Respect to Certain Softwood Lumber from Canada – Recourse by Canada to 
Article 21.5 [of the DSU] , WT/DS257/RW, adopted 20 December 2005 , upheld 
by Appellate Body Report, WT/DS257/AB/RW, DSR 2005:XXIII, 11401 
US – Softwood Lumber VI (Article 21.5 – Canada) Appellate Body Report, United States – Investigation of the International Trade 
Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of the 
DSU by Canada , WT/DS277/AB/RW, adopted 9 May 2006, and Corr.1 
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, and 
Corr.1, adopted 21 March 2005, as modified by Appellate Body Report, 
WT/DS267/AB/R, DSR 2005:II-VI, 299 WT/DS267/AB/RW 
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Short Title Full Case Title and Citation 
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, circulated to WTO 
Members 18 December 2007  
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard Measures on 
Imports of Wheat Gluten from the European Communities , WT/DS166/AB/R, 
adopted 19 January 2001, DSR 2001:II, 717 
 
  WT/DS267/AB/RW 
 Page vii 
 
 
TABLE OF ABBREVIATIONS USED IN THIS REPORT 
 
Abbreviation  Definition  
CCC United States Commodity Credit Corporation 
DSB Dispute Settlement Body 
DSU Understanding on Rules and Procedures Governing the Settlement of 
Disputes 
ETI Act of 2000 United States FSC Repeal and Exterritorial Income Exclusion Act 
of 2000, Public Law No. 106-519 
Ex-Im Bank United States Export-Import Bank 
FAIR Act of 1996 United States Federal Ag ricultural Improvement and Reform Act 
of 1996, Public Law No. 104-127 
FAPRI Food and Agricultural Policy Research Institute of Iowa State 
University and the University of Missouri-Columbia 
FCRA United States Federal Credit Refo rm Act of 1990, enacted as part of 
the Omnibus Budget Reconciliati on Act of 1990, Public Law 
No. 101-508  
FSRI Act of 2002 United States Farm Security and Rural Investment Act of 2002, Public 
Law No. 107-171 
FY Fiscal year.  In the United States, the fiscal year runs from 1 October 
of the previous calendar year and e nds 30 September of the year with 
which it is numbered.  For example, FY 2008 began on 
1 October 2007 and will e nd on 30 September 2008. 
GATT 1994 General Agreement on Tariffs and Trade 1994 
GSM 102 General Sales Manager 102 
GSM 103 General Sales Manager 103 (Inte rmediate Credit Guarantee Program) 
Illustrative List Illustrative List of Export Subsidies, Annex I to the  SCM Agreement  
LCI Letter of Credit Insurance (an Export-Import Bank programme) 
MTI Medium-Term Export Credit Insurance (an Export-Import Bank 
programme) 
MPRs Minimum premium rates 
MY Marketing year.  The marketing year for cotton runs from 1 August to 
31 July of the following year.  For example, MY 2007 runs from 1 August 2007 until 31 July 2008. WT/DS267/AB/RW 
Page viii  
 
Abbreviation  Definition  
OECD Organisation for Economic Co-operation and Development 
OECD Arrangement OECD Arrangement on Officially Supported Export Credits 
Original Panel Report Panel Report, United States – Subsidies on Upland Cotton , 
WT/DS267/R, and Add. 1-Add.3, and Corr.1 
Panel Report Panel Report, United States – Subsidies on Upland Cotton – Recourse 
to Article 21.5 of the DSU by Brazil , WT/DS267/RW, 
18 December 2007 
SCGP Supplier Credit Guarantee Program 
SCM Agreement  Agreement on Subsidies and Countervailing Measures   
Step 2 payments User marketing (Step 2) payments  
USCBO United States Congressional Budget Office 
USCRS United States Congressional Research Service 
USDA United States Department of Agriculture 
Working Procedures Working Procedures for Appellate Review , WT/AB/WP/5, 
4 January 2005 
WTO World Trade Organization  WT/DS267/AB/RW 
 Page 1 
 
 
WORLD TRADE ORGANIZATION  
APPELLATE BODY 
 
 
 
United States – Subsidies on Upland Cotton  
– Recourse to Article 21.5 of the DSU by Brazil 
 United States, Appellant/Appellee  
Brazil, Other Appellant/Appellee  
 Argentina, Third Participant  
Australia, Third Participant  
Canada, Third Participant  
Chad, Third Participant  
China, Third Participant  
European Communities, Third Participant  
India, Third Participant  
Japan, Third Participant  
New Zealand, Third Participant  
Thailand, Third Participant  
  
 AB-2008-2   Present: 
 
 Baptista, Presiding Member  Hillman, Member  Unterhalter, Member  
 
 
 I. Introduction 
1. The United States and Brazil each appeals certain issues of law and legal interpretations 
developed in the Panel Report, United States – Subsidies on Upland Cotton – Recourse to Article 21.5 
of the DSU by Brazil  (the "Panel Report").
1  The Panel was established to consider a complaint by 
Brazil concerning the consistency with the  Agreement on Agriculture   and the  Agreement on 
Subsidies and Countervailing Measures  (the " SCM Agreement ") of measures taken by the United 
States to comply with the recommendations and rulin gs of the Dispute Settlement Body (the "DSB") 
in the original proceedings in US – Upland Cotton .2 
                                                      
1WT/DS267/RW, 18 December 2007. 
2The recommendations and rulings of the DSB resulted from the adoption on 21 March 2005, by the 
DSB, of the Appellate Body Report, WT/DS267/AB/R, and the Panel Report, WT/DS267/R, in US – Upland 
Cotton .  In this Report, we refer to the panel in these Article 21.5 proceedings as the "Panel", and to the panel 
that considered the original complaint brought by Brazil as the "original panel" and to its report as the "original 
panel report". WT/DS267/AB/RW 
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2. In the original proceedings, Brazil challenged various United States measures
3 that Brazil 
alleged constituted actionable subsidies w ithin the meaning of Part III of the SCM Agreement , 
prohibited subsidies within the meaning of Part II of the  SCM Agreement , export subsidies within the 
scope of the  Agreement on Agriculture , and/or subsidies actionable under Article XVI of the  General 
Agreement on Tariffs and Trade 1994 (the "GATT 1994") .  Brazil also challenged certain of these 
measures under Article III:4 of the GATT 1994.4  The United States argued that, by virtue of 
paragraphs (a) and (b) of Article 13 of the Agreement on Agriculture , some of the measures were 
domestic support measures that were ex empt from being challenged under the  SCM Agreement   and 
the GATT 1994.5   
3. The following conclusions of the original pane l are relevant for purposes of these proceedings 
pursuant to Article 21.5 of the  Understanding on Rules and Procedures Governing the Settlement of 
Disputes   (the "DSU").  First, the original panel found that export credit guarantees provided to 
unscheduled agricultural products (including upland cotton) and to one scheduled product (rice) under 
three export credit guarantee programmes—the Gene ral Sales Manager ("GSM") 102, the GSM 103, 
and the Supplier Credit Guarantee Program ("SCGP") —are export subsidies applied in a manner that 
resulted in circumvention of the United States' e xport subsidy commitments within the meaning of 
Article 10.1 of the  Agreement on Agriculture , and were therefore inconsistent with Article 8 of that 
Agreement.6  The original panel further found that, to the extent the export credit guarantees provided 
with respect to these products were not exempt from action under the SCM Agreement , "the 
GSM 102, GSM 103 and SCGP export credit guarantee programmes are provided by the United 
States government at premium rates which are inad equate to cover long-te rm operating costs and 
losses of the programmes within the meaning of item (j ) of the Illustrative List of Export Subsidies in 
Annex I of the  SCM Agreement , and therefore constitute  per se  export subsidies prohibited by 
Articles 3.1(a) and 3.2 of the  SCM Agreement ."7  However, with respect to export credit guarantees 
for pig meat and poultry meat, the original panel found that the United States  had established that 
export credit guarantees under the GSM 102, GSM 103,  and SCGP programmes had not been applied
                                                      
3Brazil made claims in respect of marketing loan programme payments, user marketing (Step 2) 
payments ("Step 2 payments"), production flexibility cont ract payments, market loss assistance payments, direct 
payments, counter-cyclical payments, crop insurance payments, cottonseed payments, export credit guarantees 
and the FSC Repeal and Extraterritori al Income Exclusion Act of 2000, Public Law No. 106-519 (the "ETI Act 
of 2000").  Brazil also made claims regarding legislation and regulations underlying certain of these 
programmes.  (See Appellate Body Report, US – Upland Cotton , footnote 2 to para. 1;  see also Original Panel 
Report, paras. 7.200-7.250) 
4See Appellate Body Report,  US – Upland Cotton , para. 1. 
5Ibid. 
6See Original Panel Report, para. 8.1(d)(i). 
7Ibid.  WT/DS267/AB/RW 
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in a manner that resulted in circumvention of th e United States' export subsidy commitments within 
the meaning of Article 10.1 and, therefore, we re not inconsistent with Article 8 of the  Agreement on 
Agriculture   and were exempt from action under the  SCM Agreement .8 
4. Secondly, as regards Brazil's claims of serious  prejudice, the original panel found that the 
effect of the mandatory price-contingent United States subsidy measures—marketing loan programme 
payments, user marketing (Step 2) payments ("Step 2 payments"), market loss assistance payments, 
and counter-cyclical payments—is significant price suppression in the same world market within the 
meaning of Article 6.3(c) of the  SCM Agreement , constituting serious prejudice to the interests of 
Brazil within the meaning of Article 5(c) of the  SCM Agreement .9 
5. In the light of its conclusions, the original panel recommended, pursuant to Article 19.1 of the 
DSU, that the United States bring the export cred it guarantees found to be inconsistent with its 
obligations under the  Agreement on Agriculture   into conformity with that Agreement.10  The original 
panel further recommended that, as required by Article 4.7 of the  SCM Agreement , the United States 
withdraw the export credit guarantees that were f ound to be prohibited subs idies without delay and 
specified that this would have to occur "at the latest  within six months of the date of adoption of the 
Panel report by the Dispute Settlement Body or 1 July 2005 (whichever is earlier)".11  Finally, as 
regards the price-contingent subsidies found to cause serious prejudice, the orig inal panel stated that, 
in accordance with Article 7.8 of the  SCM Agreement , the United States was "under an obligation to 
'take appropriate steps to remove the adverse effe cts or ... withdraw the subsidy'" upon adoption of the 
original panel report.12 
6. On appeal, the Appellate Body upheld the orig inal panel's finding "that the effect of the 
marketing loan program payments, Step 2 paymen ts, market loss assistance payments, and counter-
cyclical payments (the 'price-contingent subsidies' ) is significant price suppression within the meaning 
                                                      
8See Original Panel Report, para. 8.1(d)(ii). 
9See ibid., para. 8.1(g)(i).  The original panel also found that Section 1207(a) of the Farm Security and 
Rural Investment Act of 2002, Public Law No. 107-171 (the "FSRI Act of 2002"), providing for Step 2 payments to exporters of upland cotton constituted an export subsidy that was inconsistent with the United 
States' obligations under Articles 3.3 and 8 of the Agreement on Agriculture  and prohibited by Articles 3.1(a) 
and 3.2 of the  SCM Agreement .  In addition, the original panel concluded that Section 1207(a) of the FSRI Act 
of 2002 providing for Step 2 payments to domestic users of upland cotton constituted an import substitution 
subsidy prohibited by Articles 3.1(b) and 3.2 of the  SCM Agreement .  (See ibid., para. 8.1(e) and (f)) 
10See ibid., para. 8.3(a). 
11Ibid., para. 8.3(b). 
12Ibid., para. 8.3(d). WT/DS267/AB/RW 
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of Article 6.3(c) of the  SCM Agreement ".
13  The Appellate Body also upheld the original panel's 
finding that "the United States export credit guarantee programmes at issue—GSM 102, GSM 103 
and SCGP—constitute a  per se   export subsidy within the meaning of item (j) of the Illustrative List 
of Export Subsidies in Annex I of the  SCM Agreement "14, and the original panel's findings "that these 
export credit guarantee programs are export subsidies for purposes of Article 3.1(a) of the SCM 
Agreement   and are inconsistent with Articles 3.1(a) and 3.2 of that Agreement".15  The United States 
did not appeal the original panel's findings re lating to circumvention under Article 10.1 of the  
Agreement on Agriculture .  However, in response to Brazil's appeal, the Appellate Body reversed the 
original panel's finding that actual circumvention in respect of export credit guarantees for pig meat 
and poultry meat had not been est ablished.  Because there were insu fficient uncontested facts in the 
record to complete the legal analysis, the Appella te Body was unable to determine whether the United 
States' export credit guarantees for pig meat and pou ltry meat had been applied in a manner that 
resulted in circumvention of the United States' e xport subsidy commitments, contrary to Article 10.1 
of the  Agreement on Agriculture .16 
7. The original panel and Appellate Body reports  were adopted by the DSB on 21 March 2005.   
8. 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.17  The USDA also announced that the CCC 
would use a new fee structure for the GSM 102 and SCGP programmes.18  In October 2005, the CCC 
ceased issuing export credit guarantees under the SCGP.19  On 1 February 2006, United States 
Congress adopted legislation repealing the Step 2 pa yments programme for upland cotton effective as 
of 1 August 2006.20  Since the adoption of the original pane l and Appellate Body reports, the United 
States has continued to provide marketing loan and counter-cyclical payments to United States 
                                                      
13Appellate Body Report, US – Upland Cotton , para. 763(c)(i). 
14Ibid., para. 763(e)(iv) (quoting Original Panel Report, para. 7.869). 
15Ibid. 
16See ibid., para. 763(f)(i). 
17See 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 J une 2005 (Exhibit Bra-503 submitted by Brazil to the 
Panel)). 
18See Panel Report, para. 3.16.   
19See ibid. (referring to United States' first written submission to the Panel, para. 20, and "Summary of 
FY 2006 Export Credit Guarantee Programme Activity for GSM-102 as of close of business: 9/30/2006" 
(Exhibit Bra-513 submitted by Brazil to the Panel)).   
20See ibid., para. 3.7 (referring to Section 1103 of the Deficit Reduction Act of 2005, Public Law 
No. 109-171 (Exhibit Bra-435 subm itted by Brazil to the Panel)).  WT/DS267/AB/RW 
 Page 5 
 
 
producers of upland cotton, and the legislative and regulatory provisions governing these payments 
remain unchanged.21 
9. Brazil considered that the United States had faile d to bring its measures into conformity with 
the United States' obligations under the relevant provisions of the  Agreement on Agriculture   and the  
SCM Agreement   and requested that the matter be referred to a panel pursuant to Article 21.5 of the 
DSU.22  On 28 September 2006, the DSB established the Panel under Article 21.5.23  Before the Panel 
in these Article 21.5 proceedings, Brazil claimed th at the measures taken by the United States have 
failed to bring it into compliance with its obligations under the  Agreement on Agriculture   and the  
SCM Agreement . 
10. The Panel Report was circulated to Members of the World Trade Organization (the "WTO") 
on 18 December 2007.  The following rulings ma de by the Panel concerning the scope of the 
Article 21.5 proceedings are relevant to this appeal: 
In light of the foregoing consider ations, the Panel finds that the 
claims of Brazil relating to export credit guarantees for exports of pig meat and poultry meat are within the scope of this proceeding under 
Article 21.5 of the DSU.
24 (emphasis omitted) 
... 
The Panel finds that, although the original panel's finding of 
"present" serious prejudice did not  apply to legal provisions or 
subsidy programmes in addition to subsidies and subsidy measures, it 
is not necessary for the Panel to make a ruling on the preliminary 
objection of the United States because Brazil does not request the Panel to find that the marketing loan and counter-cyclical payment 
programmes are WTO-inconsistent as such.  The Panel also concludes that the original panel's finding of serious prejudice was based on an analysis that took into consideration the legal provisions 
or subsidy programmes pursuant to which the subsidies were 
provided.  The Panel considers th at it is appropriate in this 
proceeding to conduct a similar analysis  of subsidies in the context of 
the legal provisions or subsidy programmes pursuant to which the subsidies are granted.   
                                                     
 
21See Panel Report, paras. 3.9 and 3.12.  In addition to Step 2 payments, marketing loan payments, and 
counter-cyclical payments, the original panel's finding of serious prejudice covered market loss assistance 
payments.  According to the original pane l, market loss assistance payments were " ad hoc  emergency and 
supplementary assistance prov ided to producers" under "four separate pieces of legislation, one each for the 
years 1998 through 2001". (Original Panel Report, para. 7.216 (quoted in Panel Report, para. 3.10)) 
22Request for the Establishment of a Panel by Brazil, WT/DS267/30. 
23See Panel Report, para. 1.2. 
24Ibid., para. 9.27.  WT/DS267/AB/RW 
Page 6  
 
... For this reason, the Panel does not find it necessary to rule on the objection of the United States that since the marketing loan and counter-cyclical programmes are not "measures taken to comply" within the meaning of Article 21.5 of the DSU, Brazil's claims with respect to these programmes are not within the scope of this 
proceeding.
25 (emphasis omitted) 
... 
In light of these considerations, the Panel concludes that to the extent 
marketing loan payments and counte r-cyclical payments made by the 
United States after 21 September 2005 are provided under the same 
conditions and criteria as the marke ting loan payments and counter-
cyclical payments subject to the original panel's finding of "present" serious prejudice, they are subject to the obligation of the United 
States under Article 7.8 of the  SCM Agreement   to take appropriate 
steps to remove the adverse effects of the subsidy.  As a 
consequence, we also consider th at Brazil's claim that the United 
States has failed to comply with its  obligations under Article 7.8 with 
respect to these payments is properly before this Panel. ...
26 
11. The following findings of the Panel are relevant for this appeal: 
With respect to the measure taken by the United States to comply 
with the DSB recommendations and rulings relating to the original panel's finding of inconsistency with Articles 5 and 6 of the SCM Agreement:  
(a) The United States acts inconsistently with its obligations 
under Articles 5(c) and 6.3(c) of the  SCM Agreement   in that the 
effect of marketing loan and counter-cyclical payments provided to [United States] upland cotton producers pursuant to the FSRI Act of 2002 is significant price suppression within the meaning of Article 6.3(c) of the  SCM Agreement   in the world market for upland 
cotton constituting "present" serious prejudice to the interests of 
Brazil within the meaning of Article 5(c) of the  SCM Agreement .  
By acting inconsistently with Articles 5(c) and 6.3(c) of the  SCM Agreement   the United States has failed to comply with the 
DSB recommendations and rulings.  Specifically, the United States 
has failed to comply with its obligation under Article 7.8 of the  SCM 
Agreement   "to take appropriate steps to remove the adverse effects 
or ... withdraw the subsidy". 
... 
                                                     
 
25Panel Report, paras. 9.54 and 9.55.  
26Ibid., para. 9.81.  WT/DS267/AB/RW 
 Page 7 
 
 
With respect to the measure taken by the United States to comply 
with the DSB recommendations and rulings relating to the original panel's findings of inconsistency with Articles 10.1 and 8 of the 
Agreement on Agriculture and Articles 3.1(a) and 3.2 of the SCM Agreement:  
(c) 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 [United States] export subsidy commitments with respect to certain unscheduled products 
and certain scheduled products, a nd as a result acts 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 inconsistently with Articles 3.1(a) and 3.2 of the  SCM Agreement   by providing export subsidies to unscheduled 
products and by providing export s ubsidies 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 Articles 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".
27 (footnotes omitted) 
12. The Panel concluded that "to the extent that  the measures taken by the United States to 
comply with the recommendations and rulings adop ted by the DSB in the original proceeding are 
inconsistent with the obligations of the Un ited States under the covered agreements, these 
recommendations and rulings remain operative."28 
13. On 12 February 2008, the United States notifie d the DSB, pursuant to Article 16.4 of the 
DSU, of its intention to appeal certain issues of  law covered in the Pane l Report and certain legal 
interpretations developed by the Panel and filed a Notice of Appeal29, pursuant to Rule 20 of the 
Working Procedures for Appellate Review30 (the " Working Procedures ").  On 19 February 2008, the 
United States filed an appellant's submission.31  On 25 February 2008, Brazil notified the DSB, 
pursuant to Article 16.4 of the DSU, of its intenti on to appeal certain issues  of law covered in the 
Panel Report and certain legal inte rpretations developed by the Pa nel and filed a Notice of Other 
Appeal32, pursuant to Rule 23(1) and (2) of the Working Procedures .  On 27 February 2008,  Brazil 
                                                      
27Panel Report, para. 15.1.  
28Ibid., para. 15.2. 
29WT/DS267/33 (attached as Annex I to this Report). 
30WT/AB/WP/5, 4 January 2005. 
31Pursuant to Rule 21 of the Working Procedures . 
32WT/DS267/34 (attached as Annex II to this Report). WT/DS267/AB/RW 
Page 8  
 
filed an other appellant's submission.
33  On 12 March 2008, Chad notified the Appellate Body 
Secretariat of its intention to appear at the oral hearing as a third participant.34  On 13 March 2008, 
Brazil and the United States each filed an appellee's submission35, and Argentina, Australia, Canada, 
the European Communities, Japan, and New Zealan d each filed a third participant's submission.36  On 
the same day, China, India, and Thailand each notif ied the Appellate Body Secretariat of its intention 
to appear at the oral hearing as a third participant.37 
14. After consultation with the Appellate Body Secr etariat, Brazil and the United States agreed, in 
a joint letter dated 19 March 2008, that  it would not be possible for the Appellate Body to circulate its 
Report in this appeal within the 90-day time-limit re ferred to in Article 17.5 of the DSU.  Brazil and 
the United States agreed that add itional time was needed because of the complexity of the issues 
arising in the appeal and the difficulties encountered  by the Appellate Body in scheduling the oral 
hearing.  Brazil and the United States accordingly confirmed that they would deem the Appellate 
Body Report in these proceedings, issued no later than  2 June 2008, to be an Appellate Body Report 
circulated pursuant to Article 17.5 of the DSU.38 
15. The oral hearing in this appeal was held on 14-15 April 2008.  The participants and the third 
participants39 presented oral arguments and responded to questions posed by the Members of the 
Appellate Body Division hearing the appeal. 
                                                      
33Pursuant to Rule 23(3) of the Working Procedures . 
34Pursuant to Rule 24(2) of the Working Procedures . 
35Pursuant to Rules 22 and 23(4) of the Working Procedures .  After consultation with the participants, 
the Appellate Body Division hearing this appeal allocated additional time for filing the appellees' submissions 
and the third participants' submissions and notifications , pursuant to Rules 16, 22, 23, 24, and 26 of the  Working 
Procedures . 
36Pursuant to Rule 24(1) of the Working Procedures . 
37Pursuant to Rule 24(2) of the Working Procedures . 
38On 11 April 2008, the Appellate Body notified the Ch airman of the DSB that the expected date of 
circulation of its Report was 2 June 2008 (WT/DS267/35). 
39China, India, and Thailand did not ma ke a statement at the oral hearing.  WT/DS267/AB/RW 
 Page 9 
 
 
II. Arguments of the Participants  and the Third Participants 
A. Claims of Error by the United States – Appellant  
1. Scope of These Article 21.5 Proceedings  
(a) Export Credit Guarantees for Pig Meat and Poultry Meat 
16. The United States argues that the Panel erred in finding that Brazil's claims relating to export 
credit guarantees for pig meat and poultry meat are properly within the scope of the Article 21.5 proceedings. 
17. The United States maintains that, as the Pane l itself recognized, the application of the 
GSM 102 export credit guarantees to an individual pr oduct constitutes a measure.  The United States 
adds that, because neither the original panel nor the Appellate Body made findings that export credit 
guarantees with respect to pig meat and poultry meat  were inconsistent with the United States' WTO 
obligations, the DSB adopted no recommendations and rulings as to these measures.  Thus, there 
could be no "measures taken to comply" relating to  pig meat and poultry meat.  The United States 
submits that "[t]he Panel ... disregarded these facts, and considered claims that were beyond the scope 
of the compliance proceeding under Article 21.5."
40 
18. The United States further alleges that the Panel disregarded the requirements of Article 21.5 
by substituting them with a "particularly close rela tionship" test, erroneously relying on the Appellate 
Body Reports in US – Softwood Lumber IV (Article 21.5 – Canada)  and US – Oil Country Tubular 
Goods Sunset Reviews (Article 21.5 – Argentina) .  In the United States' view, the Appellate Body's 
reasoning in these reports is not applicable because  they addressed situations different from the one 
raised in these proceedings.  In US – Softwood Lumber IV (Article 21.5 – Canada) , the Appellate 
Body addressed the situation in which a separate m easure was issued at approximately the same time 
as the one that the responding party declared to be the measure taken to comply, and which was 
alleged to undo the compliance achieved by the declar ed measure taken to comp ly.  The United States 
submits, however, that "the question before  this  Panel was not whether a second measure had 
undone, superseded, or otherwise replaced co mpliance with DSB recommendations and rulings
                                                      
40United States' appellant's submission, para. 40. WT/DS267/AB/RW 
Page 10  
 
regarding export credit guarantees for pig meat and poultry".
41  As there were no such 
recommendations and rulings in this dispute, the qu estion before the panel a nd the Appellate Body in 
US – Softwood Lumber IV (Article 21.5 – Canada)  does not arise.  The dispute in US – Oil Country 
Tubular Goods Sunset Reviews (Article 21.5 – Argentina) concerned a revised administrative 
determination in an anti-dumping sunset review.  The United States asserts that a revision to export 
credit guarantee programmes cannot in any way be compared to a revision to an administrative 
determination, and export credit guarantees for pig meat and poultry meat ca nnot be considered as a 
"factual basis" for the "wholly separate export credit guarantees that were within the DSB's 
recommendations and rulings."42 
19. The United States submits that th e Appellate Body's findings in EC – Bed Linen 
(Article 21.5 – India)  are "highly instructive"43 for these Article 21.5 proceedings, because in both 
disputes there exist no DSB recommendations and rulings  that must be implemented with respect to 
the part of the measure that the complaining party alleged to be within the scope of the Article 21.5 
proceedings.  Moreover, the United States points out that, in EC – Bed Linen (Article 21.5 – India) , 
the Appellate Body acknowledged that Article 21.5 proceedings are not intended to provide 
complaining parties with a second chance to reassert cl aims that had been unsuccessful in the original 
proceedings.  To allow Brazil to reassert its claims relating to pig meat and poultry meat in these Article 21.5 proceedings would give Brazil such a "second chance"
44, which, in the United States' 
view, is not the purpose of Article 21.5. 
20. In addition, the United States argues that the Pa nel's finding raises serious systemic concerns, 
because it would create a disincentiv e for WTO Members to take action in response to a finding of 
WTO-inconsistency beyond the precise scope of th e DSB's recommendations and rulings.  According 
to the United States, the Panel's approach sends a signal to WTO Members to make the least possible 
changes to their measures, for purposes of implementa tion, so as to avoid having a measure that was 
not required to be changed pursuant to the DS B's recommendations and rulings subjected to 
Article 21.5 proceedings.  This approach, according to the United States, "would create an incentive 
for a Member to create a tangle of separate regim es to address the application of a measure in 
different situations simply to avoid ex posure to a dispute settlement challenge"45 under Article 21.5 of 
the DSU, even though a programme-wide change, as is the case with respect to the revised GSM 102 
                                                      
41United States' appellant's submission, para. 42. (original emphasis) 
42Ibid., para. 46. 
43Ibid., para. 47. 
44Ibid., para. 49 (referring to Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , paras. 74 
and 87). 
45Ibid., para. 54.  WT/DS267/AB/RW 
 Page 11 
 
 
programme, would have been preferable because it is easier to administer and improves the 
programme generally. 
21. Therefore, the United States requests the Appella te Body to reverse the Panel's finding that 
Brazil's claims relating to export credit guarantees fo r pig meat and poultry meat are within the scope 
of these Article 21.5 proceedings. 
(b) Marketing Loan and Counter-cyc lical Payments Made After 
21 September 2005 
22. The United States asserts that the Panel erred in concluding that Brazil's claims concerning 
marketing loan and counter-cyclical payments ma de after 21 September 2005 were properly within 
the scope of these Article 21.5 proceedings.46  
23. The United States submits that "the only measures subject to any finding of WTO-
inconsistency, and the DSB's recommendations an d rulings based on them, or any implementation 
obligations, were payments made under the Step 2, marketing loan and counter-cyclical payment 
program[s] in MY [("marketing year")] 1999-2002 (i.e., through July 31, 2003)."47  The United States 
adds that marketing loan and counter-cyclical payments made after 21 September 2005 "were not 
subject to the DSB's recommendations and rulings", "were not in any way [United States] measures 
taken to comply", and, therefore, "were outsi de the scope of the compliance proceeding under 
Article 21.5" of the DSU.48 
24. The United States contends that the Panel "f undamentally misunderstood both the obligation 
of the United States under Article 7.8 of the SCM Ag reement and the relations hip between Article 7.8 
of the SCM Agreement and Article 21.5 of the DSU."49  According to the United States, "the 
obligation under Article 7.8 extends only as far as the DSB's recommendations and rulings"50, which, 
in this case, "applied only to the Step 2, market loss assistance, marketing loan, and counter-cyclical 
payments made during MY 1999-2002, and did not c over either future payments, or the subsidy
                                                      
46See United States' appellant's submission, para. 56. 
47Ibid., para. 62. 
48Ibid. 
49Ibid., para. 63. 
50Ibid., para. 65. WT/DS267/AB/RW 
Page 12  
 
programs themselves."
51  The Panel, however, incorrectly understood Article 7.8 of the  SCM 
Agreement   as setting up an "ongoing obligation" with r espect to subsidies that were not within the 
scope of the DSB's recommendations and rulings, despite the fact that "nothing in Article 7.8 refers to 
such an ongoing, general obligation".52  Moreover, in the United States' view, "[t]he Panel's 
interpretation ignores the text of Article 21.5 and wo uld expand a compliance panel's jurisdiction into 
matters reserved for original proceedings."53  
25. The United States considers that the Panel impr operly relied on the Appellate Body Report in  
US – Softwood Lumber IV (Article 21.5 – Canada) .  The United States explains that, in that dispute, 
the Appellate Body "addressed the distinct issue of what measures could be considered to be part of 
the measures taken to comply."54  In the present dispute, marketing loan and counter-cyclical 
payments made after 21 September 2005 are not "m easures taken to comply", but are "original 
measures challenged by Brazil, and against which th e original panel declined to make findings."55  
Furthermore, the United States considers that the Pa nel's view that there is a "particularly close 
relationship" between payments made after 21 September 2005 and the recommendations and rulings 
of the DSB in the original proceedings is "wrong and irrelevant".56  For the United States, the fact that 
two separate payments resemble one another may establish similarity, but it does not establish a 
relationship between them, particularly not a relati onship that has any legal relevance for purposes of 
Article 21.5 of the DSU. 
26. The United States further submits that "[d]isa llowing Brazil's over-expansive claims in this 
proceeding would not mean that Members have no remedy to address the adverse effects of a 
subsidy."57  The United States asserts that "nothing prevents Members from challenging the present 
adverse effects of past or current payments;  the th reat of serious prejudice of past, current, or future 
payments;  or present adverse effects or threat of serious prejudice from payment programs 'as such'."
58  The obligations of a responding Member under Article 7.8 of the  SCM Agreement   depend 
on what the outcome is of those challenges.  In  the original proceedings, Brazil succeeded only with
                                                      
51United States' appellant's submission, para. 65 (referring to Original Panel Report, paras. 8.1(g)(i) 
and 8.3(d)). 
52Ibid., para. 66. 
53Ibid., para. 67. 
54Ibid., para. 69. 
55Ibid. 
56Ibid., para. 70 (referring to Panel Re port, para. 9.80). (footnote omitted) 
57Ibid., para. 72.   
58Ibid.  WT/DS267/AB/RW 
 Page 13 
 
 
respect to payments made in MY 1999-2002 and, consequently, the obligation in Article 7.8 applies 
only to those payments.  Brazil, however, has not argued that the United States failed to remove the 
adverse effects of marketing loan and counte r-cyclical payments made during MY 1999-2002. 
27. Therefore, the United States requests the Appella te Body to reverse the Panel's finding that 
marketing loan and counter-cyclical payments ma de after 21 September 2005 are properly within the 
scope of these Article 21.5 proceedings. 
2. GSM 102 Export Credit Guarantees Issued After 1 July 2005  
28. The United States challenges the Panel's findi ng that the revised GSM 102 export credit 
guarantee programme constitutes an export subsidy b ecause it is provided against premiums that are 
inadequate to cover its long-term operating co sts and losses under the terms of item (j) of the 
Illustrative List of Export Subsidies,  which is attached as Annex I to the SCM Agreement  (the 
"Illustrative List").  The United States advances th e following arguments in support of its appeal. 
(a) The Panel's Quantitative Analysis 
29. The United States contends that the Panel's quantitative analysis under item (j) of the 
Illustrative List fails because the Panel erroneously  found that Brazil presented data sufficient to 
support a  prima facie   case that GSM 102 export credit guarantees were provided at premiums 
inadequate to cover long-term operating costs an d losses.  According to the United States, in 
conducting its quantitative analysis, the Panel er roneously relied on initial budgetary estimates 
presented by Brazil and failed to take into account the "flaws inherent in the initial subsidy estimates" 
and the new budgetary re-estimat es submitted by the United States , which show "profitability".59   
30. The United States argues that the "new re-estim ate budgetary data, which came into existence 
after the original proceeding, indicated the profitability of the GSM 102 program, as well as the other two programs which have been eliminated (GSM 103, SCGP), even before subs tantial revisions were 
undertaken to comply with the DSB's recommendations and rulings."
60  The United States adds that 
two of the cohorts included in the re-estim ates data—1994 and 1995—had actually closed, and 
reflected  actual   experience with the programmes.61  In contrast, the initial estimates submitted by 
Brazil for GSM 102 export credit guarantees issued in  2006-2008 were calcula ted before any use of 
the programme was made.  Moreover, they were de rived using government-wide estimation rules that 
                                                      
59United States' appellant's submission, para. 84.   
60Ibid., para. 80 (referring to United States' first writte n submission to the Panel, paras. 83, 86-90, 
and 96;  and Panel Report, para. 14.78).  
61See ibid., para. 80. WT/DS267/AB/RW 
Page 14  
 
impose assumptions of default and recovery rates irr espective of the experience specific to the CCC's 
programmes, thereby resulting in "an exaggera ted projection of losses in the initial subsidy 
estimate."
62  The United States further asserts that th e initial estimates submitted by Brazil were 
limited to three fiscal years ("FY") only, and th at item (j) is concerned with whether premiums 
charged under an export credit guarantee programme are adequate to cover the long-term operating 
costs and losses of that programme.  By not accounting for the re-estimates data indicating long-term 
profitability, the United States asserts that the Panel "misapprehended and misapplied the item (j) 
standard in conducting its quantitative analysis."63   
31. Furthermore, the United States argues that the cash-basis accounting data submitted by Brazil 
was "separate and apart from the [United States'] budget accounting approach", and that the "credit 
guarantee liability"64 figure in the CCC's Financial Statements submitted by Brazil was merely a 
balance sheet entry and did not represent a "loss".65  Recalling the Panel's statement that the CCC's 
Financial Statements and the cash-basis accountin g data "at the very least raise questions"66 as to 
whether the re-estimates establish that the export credit guarantee programmes were not provided at a 
net cost, the United States claims that "[m]erely to  'raise questions' ... is not sufficient to satisfy a 
burden of putting forward a  prima facie   case."67  On this basis, the United States argues that the 
Panel committed a legal error in finding that th e initial estimates and other quantitative evidence 
submitted by Brazil were sufficient to meet its burden of proving that fees charged under the 
GSM 102 programme are inadequate to cover long-te rm operating costs and losses.  Accordingly, the 
United States claims that the Panel's conclusion in respect of the quantitative analysis for purposes of 
item (j) is erroneous as a matter of law. 
(b) Comparison with OECD Minimum Premium Rates 
32. The United States claims that the Pane l has "fundamentally misinterpreted"68 the requirements 
of item (j) of the Illustrative List by comparing GSM 102 fees to minimum premium rates ("MPRs") under the Organisation for Economic Co-operation and Development (the "OECD") Arrangement on 
Officially Supported Export Credits (the "OECD Ar rangement").  The United States argues that, even 
though the Panel recognized that MPRs under the OE CD Arrangement have no  legal status under 
item (j) and do not provide a benchmark for agri cultural export credit guarantees, it nevertheless 
                                                     
 
62United States' appellant's submission, para. 82.   
63Ibid., para. 83. 
64Ibid., para. 85. 
65Ibid., para. 86 (referring to Panel Report, para. 14.82). 
66Ibid., para. 87 (quoting Panel Report, para. 14.88). 
67Ibid. 
68Ibid., para. 89.  WT/DS267/AB/RW 
 Page 15 
 
 
"made determinations under item (j) based on a comparison of GSM 102 program fees to MPRs."69  
According to the United States, neither the OECD Arrangement nor the MPRs are referred to in 
item (j), and MPRs, promulgated by OECD member s, do not explain how the sufficiency of export 
credit guarantee premiums should be judged.  The Unite d States further argues that, in the light of the 
negotiations for internationally agreed disciplines to  govern the provision of export credit guarantees 
envisaged in Article 10.2 of the  Agreement on Agriculture , the Panel erred in permitting any 
application of MPRs, designed for industrial goods, to the GSM 102 programme, which is an 
agricultural export credit guarantee programme.  The United States emphasizes that, to this date, no 
international disciplines have been agreed under Article 10.2 of the  Agreement on Agriculture   
regarding export credit guarantee programmes for agri cultural products.  Despite the absence of such 
disciplines, the Panel "would now impose on agricu ltural export credit guarantees criteria applicable 
only to industrial goods."70  In the United States' view, such a result would render Article 10.2 "a 
nullity".71 
(c) Structure, Design, and Operation of the Revised GSM 102 
Programme 
33. The United States contends that, in making findings as to the structure, design, and operation 
of the revised GSM 102 programme, the Panel relied on an improper comparison between the rate of 
increase, with risk, of the revised GSM 102 fees and that of fees charged by the United States Export-Import Bank (the "Ex-Im Bank") for two of its insura nce programmes:  the Letter of Credit Insurance 
("LCI") and the Medium-Term Export Credit Insuran ce ("MTI").  The United States considers these 
two Ex-Im Bank programmes as "fundamentally dissimilar"
72 to the GSM 102 programme for several 
reasons, including the fact that the Ex-Im Bank progr ammes are subject to the MPRs and that the MTI 
is not available for agricultural goods.  Despite th ese differences, the Panel inappropriately took into 
account "'the significant difference between the rat es of increase for, on the one hand, GSM 102 fees 
and, on the other hand, the Ex-Im Bank's ... products ' to conclude that the GSM 102 program did not 
have a 'truly risk-based fee structure'."73 
34. The United States argues that the Panel's legal error in relying on a comparison with Ex-Im 
Bank programmes was compounded by its improper unde rstanding of scaling of fees as part of an 
item (j) analysis.  According to the United States,  "[i]tem (j) does not even impose a 'risk-based' 
                                                      
69United States' appellant's submission, para. 89.   
70Ibid., para. 99. (emphasis omitted) 
71Ibid. 
72Ibid., para. 103.  
73Ibid., para. 101 (quoting Panel Report, para. 14.128). WT/DS267/AB/RW 
Page 16  
 
condition, so the Panel erred in  imputing one in the first place and conducting a scaling analysis."
74  
The United States submits that, even  were a risk-based standard relevant, item (j) does not dictate any 
specific standards as to scaling, and scaling is only  relevant with respect to a comparison of those 
transactions that are  eligible   under the programme.  Thus, in the United States' view, a full 
examination of whether a programme is risk-based would also have to take into account those transactions that are wholly ineligible. 
35. The United States additionally challenges the Panel' s finding that the continued existence of a 
statutory one per cent fee cap under the GSM 102 programme prevented the adoption of risk-based fees.  The United States emphasizes that it "fundame ntally revised the GSM 102 program to comply 
with the recommendations and rulings of the DSB", including making "wholesale changes in the 
eligibility criteria for country risk" and the adoptio n of "substantially increased fees based on risk for 
all eligible countries".
75  The United States further notes that th e Panel itself was uncertain as to the 
effect of the 46 per cent average increase in fees ( 23 per cent trade-weighted) that resulted from these 
changes.  The United States maintains that nothing in item (j) precludes the imposition of a fee cap for 
an export credit guarantee programme "[a]s long as fees are structured in such a way as to cover long-
term operating costs and losses of a program".76   
36. The United States further submits that the Panel misinterpreted item (j) by taking into account 
other factors that are not part of a proper analysis under that provision.  According to the United States, the Panel erroneously relied on the fact  that the CCC has access to funds from the United 
States Treasury and that it benefits from the fu ll faith and credit of the United States Government, 
even though such considerations are irrelevant under item (j).  The United States argues that the 
Panel's interpretation "would render item (j) i nutile since a government export guarantee program 
would always be an export subsidy."
77  In addition, the United States contests the Panel's finding that, 
although the United States sets bank limits with re spect to each foreign bank obligor, this does not 
change the fact that foreign obligor risk is not reflected in GSM 102 fees.  The United States asserts 
that item (j) does not dictate  how  foreign obligor risk should be taken into account by the 
government extending the export credit guarantees, and that  this risk can be mitigated in several ways.  
The United States emphasizes that "[n]o WTO rule  governs how a government program shall be 
designed to ensure that its premia are adequa te to cover long-term operating costs and losses."78  
                                                      
74United States' appellant's submission, para. 104. 
75Ibid., para. 105 (referring to United States' first written submission to the Panel, para. 7). 
76Ibid., para. 106.    
77Ibid., para. 111. (emphasis and footnote omitted) 
78Ibid., para. 113.   WT/DS267/AB/RW 
 Page 17 
 
 
Therefore, the Panel erred in concluding that f ees were the only proper way to deal with foreign 
obligor risk. 
37. On this basis, the United States submits that the Panel's finding concerning GSM 102 export 
credit guarantees provided after 1 July 2005 "fails as a matter of law".79 
(d) Article 11 of the DSU 
38. The United States claims that the Panel acted in consistently with Article 11 of the DSU by 
failing to undertake an objective assessment of Brazil's claims concerning the revised GSM 102 
export credit guarantee programme.  First, the United States asserts that the Panel "disregarded the 
import of the budgetary re-estimates da ta submitted by the United States"80 when conducting the 
quantitative analysis under item (j).  Secondly, the United States claims that the Panel, in its "non-
quantitative analysis" of the GSM 102 programme, "dis torted the meaning of the evidence before it, 
and made unsubstantiated assump tions to support its findings."81  More specifically, the United States 
refers to the Panel's failure to recognize that MP Rs are irrelevant for ite m (j) and to the Panel's 
reliance on Brazil's comparison of GSM 102 and MPR fees to support the finding that the premiums 
under the GSM 102 programme were inadequate to cover that programme's long-term operating costs 
and losses.  The United States argues that the Pa nel "exacerbated its error by adopting Brazil's 
unsupported assertion that 'if anything, the MPRs w ould increase if agricultural products were made 
subject to it'"82, adding that "[t]hese conclusory observa tions were unsupported by evidence on the 
record".83  Finally, the United States contends that , despite the "obvious factual distinction"84 between 
the GSM 102 programme and the Ex-Im Bank's programmes, the Panel offered no support for its conclusion that this distinction "does not ... f undamentally undermine the value of the [scaling] 
comparison."
85 
39. For these reasons, the United States requests the A ppellate Body to reverse the Panel's finding 
that the United States failed to comply with the DSB's recommendations and rulings relating to the 
findings of inconsistency of the GSM 102 export credit guarantee programme with Articles 10.1 and 8 
of the  Agreement on Agriculture   and Articles 3.1(a) and 3.2 of the  SCM Agreement . 
                                                      
79United States' appellant's submission, para. 128. 
80Ibid., para. 117. 
81Ibid., para. 120. 
82Ibid., para. 122 (quoting Panel Report, para. 14.101). 
83Ibid., para. 122. 
84Ibid., para. 123. 
85Ibid. (quoting Panel Report, para. 14.125). WT/DS267/AB/RW 
Page 18  
 
3. Serious Prejudice
 
40. The United States appeals the Pane l's finding that the effect of marketing loan and counter-
cyclical payments provided to United States upland cotton producers pursuant to the Farm Security 
and Rural Investment Act of 200286 (the "FSRI Act of 2002") is significant price suppression in the 
world market for upland cotton within the meaning of Article 6.3(c) of the  SCM Agreement , 
constituting "present" serious prejudice to the interests of Brazil within the meaning of Article 5(c) of 
the  SCM Agreement .  The United States also submits that the Panel did not carry out an objective 
assessment of the matter before it as required by Article 11 of the DSU. 
(a) Market Insulation 
41. The United States submits that the Panel's findi ng that marketing loan and counter-cyclical 
payments caused "present" serious prejudice to Brazi l by significantly suppressing the world price of 
upland cotton rested in large part on the Panel's e rroneous conclusion that those payments "insulated" 
United States upland cotton producers from market signa ls to such an extent that the payments had 
significant effects on planting, production, exports, and, ultimately, price.87  The United States argues 
that the Panel erred in its analysis of how the st ructure, design, and operation of marketing loan 
payments and counter-cyclical payments allege dly insulated United States producers by relying 
excessively on the findings of the original panel.  In this respect, the United States notes that the 
Article 21.5 proceedings "pertained to marketing lo an payments and counter-cyclical payments made 
in MY 2006"88, while the original proceedings addressed pa yments made in a different time period.  
The United States further argues that, in examining "m arket insulation", the Panel "did not adequately 
take into account all factors relevant to producers' planting decisions."89  These factors "showed that 
in making these planting decisions, [United States] upland cotton farmers responded in ways that were 
consistent with market forces, even though they we re aware that they might receive marketing loan 
and counter-cyclical payments if actual prices were below trigger prices."90 
42. In particular, with respect to  marketing loan payments , the United States asserts that the 
Panel "failed to take into account the fact that [U nited States] producers looked to other factors, aside
                                                      
86Farm Security and Rural Investment Act of 2002, Public Law No. 107-171 (Exhibit Bra-29 submitted 
by Brazil to the original panel). 
87See United States' appellant's submission, para. 132. 
88Ibid., para. 136. (footnote omitted) 
89Ibid., para. 134. 
90Ibid., para. 137.  WT/DS267/AB/RW 
 Page 19 
 
 
from the expected price of upland cotton, and res ponded to them as the market would predict."91  The 
United States submits, as an example, that in MY 20 05 there was a "shift away from soybean acreage 
due to concerns about an outbreak of Asian soybean rust at the end of MY 2004"92, which, together 
with other factors, drove planting decisions in that  year.  Moreover, the United States argues that the 
Panel's finding of market insulation is inconsiste nt with a survey of upland cotton farmers "showing 
that [United States] producers intended to pull back on their upland cotton plantings in MY 2007 by 
approximately 14 percent in response to such factors as the relatively more attractive expected prices 
for corn and the poor performance of [United St ates] exports since August 2006 (at which time the 
Step 2 program was eliminated)."93  Finally, the United States argues that the Panel "made no 
evaluation of producers' expectati ons that 'actual harvest prices [would be] below the marketing loan 
rate' in MY 2006 or any other year examined."94 
43. As regards  counter-cyclical payments , the United States challenges the Panel's treatment of 
certain economic studies submitted by the parties.  First, the United States argues that the Panel 
"downplayed the studies' relevance, and then im properly relied on them to support its flawed 
conclusion that the structure, design, and operation of [United States] counter-cyclical payments had a 
revenue-insulating effect on [Unite d States] upland cotton producers,  that they led to increased 
acreage and production, and that the 'effect' of the payments was significant price suppression."95  The 
United States asserts that "a ll the research submitted by the United States indicated  minimal   effects 
of counter-cyclical payments on pl antings and production by [United States] producers, and could not 
reasonably lead to such findings by the Panel."96  Secondly, the United States argues that "the Panel 
did not even address the shortcomings of the research submitted by Brazil".97  The United States also 
challenges the Panel's treatment of an OECD study98, which, in its view, demonstrates that "much of 
the increase in wealth from farm payments accrues to non-operator landlords and can have no effect 
on production [because,] [w]here land is rented, some  amount of the value of decoupled payments is 
transferred from operators to the owners of base acres in the form of higher rents and sales values."99 
                                                      
91United States' appellant's submission, para. 140. (footnote omitted) 
92Ibid. 
93Ibid., para. 141. (footnote omitted) 
94Ibid., para. 142 (quoting Panel Report, para. 10.77). 
95Ibid., para. 144 (referring to Panel Report, paras. 10.95 and 10.104). (footnote omitted) 
96Ibid., para. 145. (original emphasis) 
97Ibid., para. 153. 
98OECD Paper, "A Review of Empirical Studies of the Acreage and Production Response to US 
Production Flexibility Contract Payments under the FAIR Act And Related Payments under Supplementary 
Legislation", AGR/CA/APM(2004)21/FINAL, 30 March 2005  (Exhibit US-32 submitted by the United States to 
the Panel). (This paper is sometimes referred to as the "Abler and Blandford study", for example, see Panel Report, para. 13.10.) 
99United States' appellant's submission, para. 149. (footnote omitted) WT/DS267/AB/RW 
Page 20  
 
44. The United States submits that the Panel's finding of market insulation also rests on the 
flawed conclusion that the "relationship between  upland cotton base acre holders and upland cotton 
production is significant in that it suggests that cotton counter-cyclical payments play a role in 
maintaining the level of acreage and production at  a higher level than would otherwise be the case."
100  
The United States explains that, in arriving at this  conclusion, the Panel "never actually tested the 
strength of the alleged relationship between payments  and plantings in order to conclude that the 
former was driving the latter."101  According to the United States, "the facts showed that the 
relationship between counter-cyclical payments and planting was weak—upland cotton farmers who 
also held cotton base acres were planting 40 percen t less upland cotton than they had in the period 
when their collective base acres were established".102  Moreover, "17 percent of plantings was on 
farms with no base acres or on farms planting more than their base acres."103 
45. In addition, the United States claims that "[t]he Panel made several findings that contradict its 
ultimate conclusion that marketing loan and count er-cyclical payments insulated [United States] 
producers of upland cotton from market prices."104  The United States observes that, in determining 
that United States producers were insulated from ma rket forces, the Panel overlooked its own findings 
that the United States' shares of world cotton produc tion and exports had remained relatively constant 
in MY 2002-2005105;  that in MY 2006 the expected market price of upland cotton was above the 
marketing loan rate106;  and that there was no "discernible te mporal coincidence" between suppressed 
world prices and the price-contingent United States subsidies.107 
46. Finally, the United States submits that the Pane l "failed to make any findings as to the degree 
of market insulation, or the degree of the effects related to that insulation".108  Instead, the Panel 
"erroneously assumed that the existence of  any  market-insulating effect, and  any  related production 
effect, due to [United States] marketing loan and counter-cyclical payments was sufficient to support 
a finding of significant price suppression."109  The United States asserts that the Panel's conclusion on 
market insulation "is inconsistent with the requireme nt that the degree of effects attributable to 
support payments be determined before there can  be a finding on significant price suppression."110 
                                                      
100United States' appellant's submission, para. 154 (quoting Panel Report, para. 10.102). 
101Ibid., para. 154. 
102Ibid., para. 156. 
103Ibid. 
104Ibid., para. 157. 
105See ibid., paras. 158 and 160. 
106See ibid., para. 161. 
107See ibid., paras. 162 and 163 (referring to Pane l Report, paras. 10.133 and 10.139). 
108Ibid., para. 164. 
109Ibid., para. 165. (original emphasis) 
110Ibid., para. 166.  WT/DS267/AB/RW 
 Page 21 
 
 
(b) Divergence between United States Producers' Total Costs and Market 
Revenues 
47. The United States argues that the Panel's finding that there was a significant gap between the 
total costs of production of United States upland cotton producers and their market revenue is 
undermined by the Panel's decision to  use total costs, instead of vari able costs, as a benchmark;  to 
include overhead costs not specific to upland cotton and non-cash opportunity costs in total costs;  
and, to discount "off-farm" income from cotton farmers' revenues.   
48. The United States argues that "the Panel failed to comprehend that variable costs should be 
used to properly assess the yearly planting/production e ffects, if any, attributable to marketing loan 
and counter-cyclical payments."111  The United States asserts that it had demonstrated that its cotton 
farmers covered their variable costs in the period MY 2002-2005, and that in almost all years they 
covered most, if not all, of their total costs.112  Moreover, the United States argues that adopting a total 
costs approach leads to the absurd result that "p roducers of every single major field crop except for 
soybeans would have lost money in MY 2005 and, ev en for soybeans, [United States] farmers would 
have eked out no more than $1/acre."113 
49. The United States submits that, in calculating to tal costs of production, the Panel improperly 
relied on USDA crop-specific data, and included "all the items under 'allocated overhead', which were 
either not specific to upland cotton ... or were not actual cash outlays".114  The United States also 
maintains that the Panel should not have cons idered non-cash opportunity costs corresponding to 
values attributed to unpaid labour a nd land that "are not necessarily costs that must be paid off in 
order for farmers to avoid having to shut down their business."115  Additionally, the United States 
argues that the Panel's legal error was compounded by its disregard of off-farm income—and income 
from other crops—that are an important part of cotto n farmers' revenue and "lower the probability of 
exit by providing farm operator households with another source of income."116  The United States 
contends that the Panel ignored new evidence that  the United States had submitted on the impact of 
off-farm income on farm exits, and that the Panel,  "while asserting that increasing off-farm revenue 
                                                      
111United States' appellant's submission, para. 178.  
112See ibid., para. 179. 
113Ibid., para. 175. 
114Ibid., para. 182. (footnote omitted) 
115Ibid., para. 186. 
116Ibid., para. 191 (quoting R.A. Hoppe and P. Korb, "Understanding US Farm Exits", USDA 
Economic Research Service, Economic Research Report No. 21 (June 2006) (Exhibit US-46 submitted by the 
United States to the Panel)). WT/DS267/AB/RW 
Page 22  
 
could signal that farmers were exiting farming, ... never examined whether [United States] cotton 
producers  actually were   exiting cotton farming."
117 
(c) Economic Simulation Model 
50. The United States argues that the Panel overlooked the fundamental flaws of Brazil's 
economic simulation model.  The United States further submits that the model, in any event, showed 
that the effect of United States subsidies on prices was minimal.  The United States adds that it was 
not sufficient for the Panel to find that the model showed "price suppression" to support a finding of "significant price suppression" within the meaning of Article 6.3(c) of the  SCM Agreement .  
According to the United States, in order to properly rely on the results of modelling for its conclusion, 
the Panel would have had to concl ude which model, or models, were appropriate;  determine the level 
of price suppression resulting under that model;  and find that such price suppression was of a significant degree.  The United States argues that th e Panel "never assessed the likely magnitude of 
the price effects of marketing loan and counte r-cyclical payments based on the economic models."
118 
(d) Impact of the Elimination of Step 2 Payments 
51. The United States argues that it demonstrated th at there was a signifi cant decline in United 
States production and exports of upland cotton in MY 2006 after the elimination of Step 2 payments.  
As a result, Brazil had the burden of proving that th e impact of the repeal of the Step 2 payments 
programme on United States production and exports was modest.  Therefore, the United States submits that the Panel erred in finding that the elim ination of this subsidy did not affect the price 
suppressing effects of the marketing loan and coun ter-cyclical payments in the world market for 
upland cotton. 
52. The United States also claims that the Panel misconstrued a nd overlooked the United States' 
evidence as to the indirect impact of the elimin ation of Step 2 payments, which resulted in the 
substantial decrease of marketing loan payments  and no significant increase in counter-cyclical 
payments.  The United States refers, in particular , to a study by the Food and Agricultural Policy 
Research Institute ("FAPRI"), which shows that th e elimination of the Step 2 payments programme 
results in an average increase of 0.4 cent/lb in  the adjusted world price of upland cotton in 
MY 2006-2010 and a decline of the same amount in the marketing loan payment.
119  In addition, the
                                                      
117United States' appellant's submission, para. 193. (original emphasis) 
118Ibid., para. 196. 
119See ibid., para. 202.  WT/DS267/AB/RW 
 Page 23 
 
 
United States asserts that the Panel overlooked im portant evidence demonstr ating that there was 
unlikely to be an increase in counter-cyclical pa yments in MY 2006 as a result of the elimination of 
the Step 2 payments programme.  The United Stat es explains that, when United States prices are 
below the marketing loan rate, the eliminati on of the Step 2 payments programme—and any 
consequent decline in farm prices—cannot have an y effect on the level of counter-cyclical payments 
because the payment remains fixed at the maximum level of 13.73 cents/lb.120 
53. Moreover, according to the United States, the Panel' s analysis of the impact of the elimination 
of Step 2 payments was flawed, because the Panel did not "determine how much of an effect remained after repeal of [the] Step 2 [programme] and how this compared to the original price suppression in 
order to determine whether the remaining effect , under the Panel's own view, was 'significant'."
121 
(e) Magnitude of Marketing Loan and Counter-cyclical Payments 
54. The United States challenges the Panel's finding that, "when considered in conjunction with 
other factors, the order of magnitude of the mark eting loan payments and counter-cyclical payments 
supports a finding of significant price suppression, even  when account is taken of the decline in the 
amount of marketing loan payments projected for MY 2006."122  According to the United States, this 
finding is premised on the Panel's earlier conclusion that the struct ure, design, and operation of the 
marketing loan and counter-cyclical  payments had an "important re venue-stabilizing effect" on United 
States farmers, and that the payments bridged "the gap between costs of production and market 
revenues of [United States] upland cotton producers."123  The United States considers that the Panel's 
findings on the structure, design, and operation of  the marketing loan and counter-cyclical payments, 
and on the payments' role in covering the alleged cost-revenue gap, are erroneous.  Consequently, it 
considers that the Panel's finding as to the magn itude of the marketing loan and counter-cyclical 
payments, which depends on those same fi ndings, also "fails as a matter of law".124 
(f) Substantial Proportionate Influence on the World Market for Upland 
Cotton 
55. The United States submits that the Panel erre d in finding that the United States exerts a 
"substantial proportionate influence"125 on the world market for upland cotton, because the Panel did 
not undertake an analysis of competitive conditions  in the upland cotton market.  According to the 
                                                      
120See United States' appellant's submission, para. 205. 
121Ibid., para. 209. 
122Panel Report, para. 10.111. (footnote omitted) 
123Ibid. 
124United States' appellant's submission, para. 217. 
125Panel Report, para. 10.58. WT/DS267/AB/RW 
Page 24  
 
United States, the Panel should have analyzed how United States upland cotton competed with cotton 
from other sources and how "other factors in the wo rld market, including the predominant role of 
China, have influenced world prices".
126  Moreover, the United States argues that the Panel 
overlooked its own finding that United States shares of  world production and expor ts have been stable 
in recent years. 
(g) Other Factors Impacting the World Market Price for Upland Cotton 
56. The United States submits that the Panel failed to  conduct a proper non-attribution analysis as 
required by Article 6.3(c) of the  SCM Agreement .  The United States argues that, while the Panel 
itself recognized that it had an obligation to conduc t a non-attribution analysis, it ultimately failed to 
do so.  In the United States' view, "[t]he very use of a but-for analysis ... requires the Panel not to attribute effects to [United States] payments that they are not having."
127 
57. The United States observes that, "[m]issing from the Panel's analysis was any discussion of 
just how other factors, including China, actually played a role in establishing the world price for 
upland cotton", and that "the Pa nel only acknowledged that China had a 'significant role', without 
examining how price changes could be attributed to that factor."128  The United States submits that it 
was not enough for the Panel to dismiss developmen ts concerning the role of China's demand and 
supply by noting that, "with a share of world exports of around 40 per cent, the United States is 
capable of exerting a substantial proportionate influence on the world market."129  The United States 
argues that the share of United States exports is by itself meaningless, and thus the Panel "should have 
placed that figure in the context of world market c onditions influencing price, including China's role 
as the largest producer, consumer, and importer of cotton."130  The United States observes that China's 
share of world imports rose from 1 per cent in MY 1998 to 44 per cent in MY 2005, and also points to 
market reports indicating that China's cotton trade played a role in preventing a significant price 
increase in 2005 and 2006.131 
                                                      
126United States' appellant's submission, para. 219. 
127Ibid., para. 213. 
128Ibid., para. 214 (quoting Panel Report, para. 10.243). 
129Ibid. 
130Ibid., para. 214. 
131See ibid., paras. 211 and 212 (referring to United St ates' first written submission to the Panel, 
paras. 314-317;  and International Cotton Advisory Comm ittee Report, "Cotton: Review of the World Situation" 
(May-June 2006) (Exhibit Bra-485 submitted by Brazil to the Panel), p. 7).  WT/DS267/AB/RW 
 Page 25 
 
 
(h) Degree of Price Suppression 
58. The United States contends that the Panel failed to determine "the  degree   of price 
suppression that it considered to be 'significant', as applied to the facts before it."132  The United States 
notes that Article 6.3(c) of the  SCM Agreement   does not make actionable just any price suppression, 
but instead expressly requires that the price suppres sion be "significant".  The United States asserts 
that, by relying on evidence that showed some pr ice effect, however minimal, to establish significant 
price suppression within the meaning of Article 6.3(c), the Panel "essentially writes the word 'significant' out of Article 6.3(c)."
133 
59. The United States points out that Article 6.3(c) of the  SCM Agreement  "does not define 
'significant' price suppression".134  It observes, however, that the ordinary meaning of "significant" is 
"important, notable; consequential", and argues that "[w]hat is clear is that a finding of significant 
price suppression must take into account the  degree   of price suppression that is deemed 'significant', 
and that the degree must be the equivalent  of 'important, notable; consequential'."135  According to the 
United States, in order to conduct a proper analysis under Article 6.3(c), the Panel was required to set 
out the price suppression, if any, as shown by the facts, and to explain how the degree of that 
suppression was significant, if at all.  The United Stat es adds that the Panel, "by merely repeating the 
term 'significantly', or 'significant', did nothing to satisfy this requirement."136 
60. The United States concludes by cautioning that, "[i]f left to stand, the Panel's failure to set out 
the degree of price suppression would have detrim ental consequences for the WTO dispute settlement 
system."137  This is because "Members would not know how  to take appropriate steps to avoid the 
alleged 'adverse effects' of price-contingent subs idies if it were impossible to discern the 'adverse
                                                      
132United States' appellant's submission, para. 221. (original emphasis) 
133Ibid., para. 224. 
134Ibid., para. 222. 
135Ibid. (quoting The New Shorter Oxford English Dictionary , 4th edn, L. Brown (ed.) (Clarendon 
Press, 1993), Vol. 2, p. 2860 (Exhibit US-51 submitted by  the United States to the Panel). (original emphasis) 
136United States' appellant's submission, para. 223. 
137Ibid., para. 225. WT/DS267/AB/RW 
Page 26  
 
effects' that rise to the level of WTO-inconsistency."
138  The United States adds that Members "would 
be left without guidance as to how to structure progr ams and payments so as to avoid significant price 
suppressing effects, and would be deterred from taking likely WTO-consistent actions when 
confronted with such uncertainty."139 
(i) Article 11 of the DSU 
61. The United States claims that the Panel acted inconsistently with Article 11 of the DSU by 
failing to carry out an objective assessment of whet her marketing loan and counter-cyclical payments 
made after 21 September 2005 caused significant price suppression in the world market for upland 
cotton. 
62. First, the United States asserts that the Panel,  in assessing the structure, design, and operation 
of marketing loan payments, disregarded the new evidence submitted by the United States and relied 
exclusively on findings from the original panel and the Appellate Body.140  The United States 
additionally argues that the Panel "wilfully distorte d and misrepresented the meaning of the economic 
studies that the United States submitted concerning the effects of counter-cyclical payments on 
production."141  Moreover, the United States submits that the Panel "failed to provide a reasoned and 
adequate explanation for its conclusions"142 regarding the structure, design, and operation of both 
marketing loan payments and counter-cyclical payments. 
63. Secondly, the United States contends that the Panel "deliberately distorted"143 the meaning 
and significance of the evidence on stable United States production and export shares and found that, 
despite the stable market shares,  marketing loan and counter-cycli cal payments still insulated United 
States producers from price signals "to such a degree as to have significant effects"144 on production 
and price.  The United States points out that stable  shares indicated that United States producers "were 
responding to world market signals in much the sa me way as foreign producers, and could not have 
been 'insulated' by [United States] marketing loan and counter-cyclical payments."145  The United 
States also argues that the Panel failed to provi de a reasoned and adequate explanation for its 
conclusions and failed to evalua te objectively this evidence. 
                                                      
138United States' appellant's submission, para. 225. 
139Ibid. 
140See ibid., para. 232. 
141Ibid., para. 234. (footnote omitted) 
142Ibid., paras. 233 and 235. 
143Ibid., para. 237. 
144Ibid. 
145Ibid., para. 236.  WT/DS267/AB/RW 
 Page 27 
 
 
64. Thirdly, the United States submits that the Pane l "misrepresented and distorted the results of 
the [United States'] econometric modeling exerci se to fit its own version of what the facts 
demonstrated", ignored the inherent flaws in Brazi l's model that the United States had demonstrated, 
and "disregarded that ... neither model could support a finding of significant price suppression".146 
65. Finally, the United States asserts that the Pa nel "superficially acknowledged that China had a 
'significant role', but ignored completely, and never took into account, the [United States'] evidence 
showing the price changes in the wo rld upland cotton market that could be attributed to that factor."147  
The United States also considers that the Panel fail ed to provide a reasoned and adequate explanation 
for its conclusions in the light of an alternative plau sible explanation.  The United States explains that 
it had submitted substantial evidence explaining th at China is one of the most important "other 
factors" influencing the world price of upland cotton .  This evidence showed th at China is the world's 
largest producer of upland cotton, the world's largest consumer of upland cotton, and the world's 
largest importer of upland cotton.  According to the United States, the evidence also demonstrated 
China's role in influencing world market prices, including the fact that downward pressure on cotton 
prices may have resulted from uncertainty over Ch ina's supply and demand evolution, as well as 
ad hoc changes to government policies.148 
B. Arguments of Brazil – Appellee 
1. Scope of These Article 21.5 Proceedings  
(a) Export Credit Guarantees for Pig Meat and Poultry Meat 
66. Brazil submits that the Panel correctly interp reted and applied Article 21.5 of the DSU and 
properly found that the export credit guarantees for pig meat and poultry meat had a "particularly 
close relationship" with, and were inextricably linke d to, the United States' declared measure taken to 
comply, that is, the revised GSM 102 programme.   
67. Brazil states that Appellate Body jurisprudence makes it clear that measures that are shown to 
have a "particularly close relationship" to the or iginal measure, the recommendations and rulings of 
the DSB, and a declared measure taken to comply (i f such a measure exists), fall within the scope of
                                                      
146United States' appellant's submission, para. 240. 
147Ibid., para. 243. 
148See ibid., paras. 242 and 243. WT/DS267/AB/RW 
Page 28  
 
proceedings under Article 21.5.
149  Brazil then provides several bas es that support its view that the 
export credit guarantees for pig meat and poultry meat are "inextricably linked" to the declared 
measure taken to comply.  According to Brazil, the measures found to be inconsistent in the original 
proceedings, and subject to the United States' im plementation obligations, included the old GSM 102 
programme, and "the United States adopted a single compliance measure—the amended GSM 102 
program —with a single set of terms and conditions that apply in identical fashion to all products 
eligible for support, including pig meat and poultry meat."150  Brazil adds that the manner by which 
the individual guarantees for pig meat and poultry meat are introduced establishes "a relationship of extreme dependence"
151 between those export credit guarantees and the revised GSM 102 programme, 
because the individual export credit guarantees are fa ctually and legally dependent on the programme.  
Brazil further submits that, because the individual export credit guarantees result from the application 
of the revised GSM 102 programme, "they provide  perfect evidence   of whether the amended 
GSM 102 program is consistent with the covered agreements" and thus "have a direct impact on 
whether the United States has fully complied with  its export subsidy commitments through the 
amended GSM 102 program."152   
68. Brazil asserts that, although none of the individual product-specific export credit guarantees 
are declared by the United States to be measures taken to comply, "the United States accepts that 
individual guarantees for unscheduled products  and rice are 'measures taken to comply'"153 subject to 
these Article 21.5 proceedings.  Thus, according to Brazil, the United States apparently accepts the 
"particularly close relationship" test used by th e Panel, because the export credit guarantees for pig 
meat and poultry meat, and for unscheduled products and rice, "have an identical relationship to the 
declared ... measure [taken to comply]."154   
69. Brazil disagrees with the United States' argument that export credit guarantees for pig meat 
and poultry meat are excluded from these proceed ings because the DSB's recommendations and 
rulings did not specify the export credit guarantees relating to these products.  Brazil argues that, 
contrary to the United States' assertion, a panel established pursuant to Article 21.5 of the DSU has
                                                      
149See Brazil's appellee's submission, para. 177 (referring to Appellate Body Report, US – Softwood 
Lumber IV (21.5 – Canada) , paras. 69-85). 
150Ibid., para. 186. (original emphasis; footnote omitted) 
151Ibid., para. 195. 
152Ibid., para. 198. (original emphasis) 
153Ibid., para. 201. 
154Ibid., para. 202;  see also ibid., para. 6.  WT/DS267/AB/RW 
 Page 29 
 
 
jurisdiction to examine any declared measure taken to  comply "in its totality" for its consistency with 
the covered agreements.  Brazil further submits that "measures that are not declared to be 'taken to 
comply' are also within the scope of Article 21.5 proceedings, if they are 'inextricably linked' and 
'closely connected' to the declared compliance measure".155   
70. In addition, Brazil maintains that the United St ates is wrong in relying on the Appellate Body 
Report in EC – Bed Linen (Article 21.5 – India) , and in suggesting that Brazil is trying to secure a 
second chance to pursue its claims on pig meat and poultry meat.  Brazil emphasizes that, in these 
Article 21.5 proceedings, it challenges new expor t credit guarantees issued under the revised 
GSM 102 programme, which are different from those at issue in the original proceedings and have not 
previously been challenged by Brazil. 
71. Finally, Brazil takes issue with the United States' argument that  the Panel's approach "creates 
'disincentives' for comprehensive reform, and 'tell[s]  Members to do the least possible changes to their 
measures'."156  Brazil considers that "nothing in the DSU compels a Member to reform its law in ways 
that are not required by the DSB's recommendations and rulings"157 and neither does WTO law 
establish any incentive—or disincentive—for Members to  take such action.  Instead, such reform is 
made at the sole discretion of the implementing Member, provided that, at a minimum, it complies 
with the DSB's recommendations and rulings.  Thus, in Brazil's view, "[i]f a Member  chooses   to 
undertake more comprehensive reform  as an integral and inseparable part of its 'measure taken to 
comply ', that measure is necessarily subject  to Article 21.5 'in its totality'."158 
72. Brazil therefore requests the Appellate Body to uphold the Panel's finding that Brazil's claims 
relating to export credit guarantees for pig meat a nd poultry meat are properly within the scope of 
these Article 21.5 proceedings. 
                                                      
155Brazil's appellee's submission, para. 205. 
156Ibid., para. 191 (quoting United States' appellant's submission, paras. 52 and 53).  
157Ibid., para. 192. 
158Ibid. (original emphasis) WT/DS267/AB/RW 
Page 30  
 
 
(b) Marketing Loan and Counter-cyc lical Payments Made After 
21 September 2005 
73. Brazil submits that the Panel correctly found th at Brazil's claims regarding marketing loan 
and counter-cyclical payments made after 21 Sept ember 2005 are properly within the scope of these 
Article 21.5 proceedings. 
74. Brazil makes two preliminary ob servations regarding the United States' arguments.  First, 
Brazil notes that Article 21.5 proceedings concern "n ew and different measure[s] that [were] not 
before the original panel".
159  Accordingly, Brazil rejects the Un ited States' argument that marketing 
loan and counter-cyclical payments made afte r 21 September 2005 cannot be included in these 
proceedings simply because they were not subj ect to the DSB's recommendations and rulings.160  
Secondly, Brazil observes that, although "the United States has not declared the existence of any 
'measure taken to comply'", this "does not preclude a compliance panel from finding that an 
undeclared measure falls within the scope of Article 21.5."161 
75. Brazil asserts that marketing loan and counter-cyclical payments made 
after 21 September 2005 are "substantively identical subsidies"162 to the payments made in MY 2002.  
Brazil explains that both sets of payments are ma de pursuant to the same subsidy programmes under 
the FSRI Act of 2002, and that the United States ha s not modified the terms on which the payments 
are made.  According to Brazil, both the old and ne w payments were made on the basis of exactly the 
same terms and conditions, to the same recipients, in respect of the same crop.  Thus, Brazil contends 
that "[t]he substantive connections between the payments are much closer than the connections 
between the measures at issue in US – Softwood Lumber IV (Article 21.5 – Canada )".163 
76. In addition, Brazil submits that a Member does not comply with its obligations under 
Article 7.8 of the  SCM Agreement   regarding one set of WTO-inconsistent payments by replacing 
them with another set of identical payments, if these new payments also cause adverse effects.  In 
Brazil's view, the Panel's reliance upon Article 7.8 di d not expand, but remained faithful to, the scope 
of Article 21.5 of the DSU. 
                                                      
159Brazil's appellee's submission, para. 227 (quoting Appellate Body Report, Canada – Aircraft 
(Article 21.5 – Brazil) , para. 41). 
160See ibid., para. 227. 
161Ibid., para. 228. 
162Ibid., para. 235. (emphasis omitted) 
163Ibid.  WT/DS267/AB/RW 
 Page 31 
 
 
77. Finally, Brazil argues that if subsequent marketi ng loan and counter-cyclical payments "are    
not  subject to these Article 21.5 proceedings, the gr ant of annually recurring subsidies becomes … 'a 
moving target that escape[s] from [the WTO subsidy] disciplines'."164  Brazil observes that, under the 
approach advocated by the United States, th e disciplines in Articles 5 and 6 of the  SCM Agreement   
regarding the "present" adverse effects of th e most obvious form of subsidies—annual cash 
payments—are reduced to a nullity.  Brazil rejects th e United States' contention that future payments 
could be the subject of Article 21.5 proceedings if there is a finding of  "threat" of serious prejudice, or 
if there is a finding against the programmes "as such " in the original proceedings.  Brazil points to 
several difficulties in relying on a "threat" of serious prejudice claim against future payments, including:  the fact that future payments cannot be  identified as "measures at issue" under Article 6.2 
of the DSU because, by definition, they do not exis t;  the "inherently uncertain" nature of such a 
claim, because it is based on the likely level of future payments under a programme and the likely 
future market conditions;  and, the need for the "thr eat" claim to cover payments far into the future to 
offer a viable remedy.  As for the possibility of challenging the subsidy programmes "as such", Brazil 
observes that the United States itself recognizes that an "as such" claim made in the abstract against a 
subsidy programme is "di fficult, if not impossible, to bring successfully".
165 
78. Accordingly, Brazil requests the Appellate Body  to uphold the Panel's finding that marketing 
loan and counter-cyclical payments made after 21 September 2005 are properly within the scope of 
these Article 21.5 proceedings. 
2. GSM 102 Export Credit Guarantees Issued After 1 July 2005  
79. Brazil requests the Appellate Body to uphold th e Panel's finding that the revised GSM 102 
export credit guarantee programme constitutes an export subsidy because it is provided against 
premiums which are inadequate to cover its long- term operating costs and losses under item (j) of the 
Illustrative List of Export Subsidies. 
80. Brazil submits that, in its analysis, the Panel relied on a broad range of evidence, made its 
findings on the basis of th e "totality of the evidence"166, and did not ascribe decisive meaning or 
weight to any single piece of evidence.  According to Brazil, such evidence included:  (i) the United 
States Government's own initial estimates showing a net cost to the government of operating the 
revised GSM 102 programme;  (ii) re -estimates data showing that, ev en when updated to account for
                                                      
164Brazil's appellee's submission, para. 243 (quoting Panel Report, US – Softwood Lumber IV 
(Article 21.5 – Canada) , para. 4.30). 
165Ibid., para. 251 (referring to United States' appellant's submission, paras. 73 and 135). 
166Ibid., para. 270 (quoting Panel Report, para. 14.133). WT/DS267/AB/RW 
Page 32  
 
actual results, a net cost is still projected in many fi scal years;  (iii) the Financial Statements of the 
CCC;  (iv) cash-accounting data;  (v) data showi ng that the revised GSM 102 fees remain far below 
the MPRs in the OECD Arrangement;  and (vi) various indications that the revised GSM 102 
programme is not structured, designed, or ope rated to cover its long-term costs and losses.
167 
(a) The Panel's Quantitative Analysis 
81. Brazil submits that the Panel did not err by relying on the initial budget estimates of the 
United States Government projecting losses for export credit guarantees issued under the revised 
GSM 102 programme in 2006-2008.  Brazil maintains th at the initial estimates, calculated pursuant to 
the Federal Credit Reform Act of 1990168 (the "FCRA"), were generate d using the net present value 
methodology that was expressly desi gned and adopted by the United States Government to accurately 
measure the costs of federal credit programmes.  According to Brazil, initial estimates are "critical 
tools for prudent fiscal management ... relied upo n by credit and banking regulators worldwide, 
irrespective of subsequent re-estimates."169  The fact that initial estimates are updated, or re-estimated, 
annually to account for actual cash flows and changed assumptions does not render these initial 
estimates unreliable.  Brazil emphasizes that the m odel used to calculate initial estimates "is based on 
the USDA's own 'loan performance experience'" , and that the USDA's self-assessment of the 
GSM 102 programme indicated that the credit mode l "currently provide[s] reliable estimates."170 
82. Brazil further submits that the Panel "neither 'failed to account for', nor 'ignored the import 
of'"171, the United States' evidence and argument regard ing alleged deficiencies in the initial estimate 
process.  According to Brazil, the Panel noted that the United States was re-asserting arguments 
rejected by the original panel, and saw no objective basis for revisiting the original panel's finding that 
the initial estimates were reliable indicators that  the export credit guarantee programmes constituted 
export subsidies within the meaning of item (j) of th e Illustrative List.  Brazil submits that, "in an 
abundance of caution"172, the Panel addressed the United States' arguments that the initial estimates 
were unreliable because they were inflated and were  calculated using government-wide, rather than 
CCC-specific, formulae, but found these arguments unconvincing.  The Panel "expressly took the 
                                                      
167See Brazil's appellee's submission, para. 266. 
168Federal Credit Reform Act of 1990, enacted as part of the Omnibus Budget Reconciliation Act 
of 1990, Public Law No. 101-508. 
169Brazil's appellee's submission, para. 310. 
170Ibid., para. 312 (quoting Panel Report, para. 14.77, in turn quoting USDA's Agricultural Export 
Credit Guarantee Programs Assessmen t, at <ExpectMore.gov> (Exhibit Br a-588 submitted by Brazil to the 
Panel), Section 3.CR2).  
171Ibid., para. 314 (quoting United States' appellant's submission, paras. 84 and 119). 
172Ibid., para. 316.  WT/DS267/AB/RW 
 Page 33 
 
 
[United States'] evidence into account, and adopted a plausible view on the basis of the evidence as a 
whole that supported its conclusion regarding the weight to be attached to initial estimates."173     
83. Brazil adds that the initial estimates for FY 2006- 2008 are "not only robust, but of particular 
importance in these Article 21.5 proceedings"174, because these proceedings concern a new fee 
structure for which, by definition, little past perfo rmance data exists.  Moreover, contrary to the 
United States' assertion, Brazil does not consider th at reliance on initial estimates for "only" three 
fiscal years undermines the "long-term" nature of the Panel's assessment175, because each estimate 
reflects the costs "over the lifetime of a cohort", which "typically exceeds ten years".176  
84. Brazil takes issue with the United States' asser tion that the Panel incorrectly allocated the 
burden of proof under item (j) of the Illustrative Li st when stating that certain data submitted by 
Brazil "at the very least raise questions" about  the probative value of the re-estimates data.177  Brazil 
submits that, because it was the United States that offe red the re-estimates data as rebuttal evidence to 
demonstrate an anticipated profit to the United States Government, the United States bore the burden of proof with respect to that evidence and the ar gument allegedly supported by it.  According to 
Brazil, the United States submitted the re-estimates data  to highlight two points:  that the three export 
credit guarantee programmes at issue in the original proceedings were in fact not provided at a net 
cost to the United States Government;  and that in itial estimates in general are not reliable indicators 
of the long-term net cost of the programmes.  Braz il argues that the Panel correctly concluded that the 
United States had not succeeded in proving either of these two points.  The first point had been 
"definitively disposed of in the original proceedings"
178, and, with respect to the second point, the 
USDA itself recently concluded that the FCRA initial estimate methodology "provide[d] reliable estimates".
179  The Panel also attached significance to the "credit guarantee liability" figure in the 
CCC's 2005-2006 Financial Statements, as well as  cash-basis accounting evidence submitted by 
Brazil.  Both sets of data indicated a net loss fo r the three export credit guarantee programmes subject 
to the original proceedings.  Weighing this eviden ce, the Panel concluded th at evidence provided by 
Brazil "at the very least raise[d] questions"180 regarding "whether the United States  had succeeded in 
meeting its burden of proving what it set out to prove with its re-estimates data."181 
                                                      
173Brazil's appellee's submission, para. 318. (footnotes omitted) 
174Ibid., para. 324. 
175Ibid., para. 326 (quoting United States' appellant's submission, para. 83). 
176Ibid., para. 327. (emphasis omitted) 
177See ibid., para. 331 (quoting Panel Report, para. 14.88). 
178Ibid., para. 342 (quoting Panel Report, para. 14.79). 
179Ibid., para. 338 (quoting Panel Report, para. 14.77). 
180Ibid., para. 348 (quoting Panel Report, para. 14.88). 
181Ibid. (original underlining) WT/DS267/AB/RW 
Page 34  
 
(b) Comparison with OECD Minimum Premium Rates 
85. Brazil requests the Appellate Body to dismi ss the United States' arguments concerning the 
Panel's reference to the magnitude of differen ce between the revised GSM 102 fees and OECD MPRs 
as relevant evidence under item (j) of the Illustrative Li st.  First, Brazil asserts that the Panel did not 
turn the comparison of the revised GSM 102 f ees with the OECD MPRs into a "dispositive"
182 test 
under item (j).  Instead, the Panel "expressly considered the comparison ... as  one piece of evidence  
among many   informing its assessment whether the revised  GSM 102 premiums are adequate to cover 
the long-term operating costs and losses of the program."183  Brazil adds that "[t]he United States sees 
the  absence   from item (j) of express license to consider evidence regarding the OECD MPRs as a  
bar  to a panel's consideration of that evidence."184  Brazil explains that, on the contrary, "the original 
panel and the Appellate Body interpreted the ab sence of any prohibition regarding the type of 
evidence to be considered in an item (j) assessment as an indication of  flexibility   that permits a panel 
to assess objectively any  evidence   considered relevant to its inquiry."185  Secondly, Brazil argues that 
the fact that item (j) does not refer to the OE CD Arrangement, whereas the second paragraph of 
item (k) of the Illustrative List does, similarly do es not preclude the Panel's approach to relying on 
OECD MPRs as relevant evidence.  Brazil emphasizes that the Appellate Body's decision in Brazil – 
Aircraft  also suggests that the OECD Arrangement offers  relevant, indicative evidence under item (j).   
86. As regards the United States' allegation that  the Panel rendered Article 10.2 of the  Agreement 
on Agriculture  a nullity by "impos[ing]" the MPRs as a "multilaterally agreed discipline"186, Brazil 
explains that the Panel expressly characterized th e comparison of the revised GSM 102 fees to OECD 
MPRs as an evidentiary matter and not as a legally binding benchmark.  Brazil highlights the Panel's 
statement that "it was the 'magnitude of the difference  between MPRs and GSM 102 fees'"187 that 
rendered the comparison evidence relevant for purposes of its assessment of the facts under item (j). 
(c) Structure, Design, and Operation of the Revised GSM 102 
Programme 
87. Brazil submits that the Panel correctly examined the structure, design, and operation of the 
revised GSM 102 programme, and requests the Appellate  Body to reject the United States' appeal in 
this regard.   
                                                      
182Brazil's appellee's submission, para. 375 (quoting United States' appellant's submission, para. 94). 
183Ibid., para. 376. (original emphasis;  footnote omitted) 
184Ibid., para. 379. (original emphasis) 
185Ibid. (original emphasis;  footnote omitted) 
186Ibid., para. 382 (quoting United States' appellant's submission, para. 99). 
187Ibid., para. 385 (quoting Panel Report, para. 14.97 (original underlining)).  WT/DS267/AB/RW 
 Page 35 
 
 
88. Brazil notes that, as one part of this analysis , the Panel looked at the fees charged for 
comparable programmes offered by the Ex-Im Bank, "considered 'the rate of increase  (or scaling ) of 
fees with increased risk', and found that 'the "scaling" of GSM 102 fees is greatly inferior'"188 to that 
for the Ex-Im Bank programmes.  Brazil further s ubmits that, when examining the comparison of fee 
scaling between the GSM 102 programme and the Ex -Im Bank programmes, the Panel "relied on the 
extent of the difference as an evidentiary indication  of the shortcomings"189 of the GSM 102 
programme.  Thus, contrary to the United States' a ssertion, the Panel did not impose or establish any 
specific affirmative standards that must be met, ex cept that fees must be adequate to cover the long-
term operating costs and losses of the programme.   
89. According to Brazil, the Panel's assessment of whether GSM 102 fees are "risk-based" is 
consistent with item (j) of the Illustrative List because, to the extent that fees do not adequately 
account for increased risks—such as longer tenors (duration of the guarantee), higher country risk, or 
higher borrower risk—those fees are not designed "t o cover the long-term operating costs and losses" 
of a programme.  Thus, Brazil argues that the Panel properly assessed whether the fees under the revised GSM 102 programme adequately respond to  the increased costs of all the risks faced in 
guaranteed transactions.   
90. Brazil also requests the Appellate Body to dismis s the United States' allegations that the Panel 
incorrectly considered the GSM 102 export credit gu arantees and the two Ex-Im Bank programmes to 
be comparable.  Brazil states that, apart from as serting that the Panel erred in accepting Brazil's 
proffered adjustments for the differences between  these programmes, the United States neither 
explains, nor substantiates, its  allegations.  Brazil observes that the United States submitted no 
evidence showing that the risks involved in a tran saction differ depending on the product involved.  
Secondly, Brazil explains that the United Stat es' argument that the GSM 102 programme and the 
Ex-Im Bank programmes "differ significantly in te rms of interest and principal cover" ignores 
adjustments offered by Brazil and considered by the Panel as "appropriate".
190  Thirdly, Brazil asserts 
that the Panel correctly found that the alleged difference between the GSM 102 programme and the 
Ex-Im Bank programmes with respect to r ecourse benefits for uninsured amounts " does not exist ".191 
91. Brazil recalls that the Panel considered the one per cent fee cap as one of the elements 
indicating insufficient scaling of fees under the revised programme.  According to Brazil, contrary to 
                                                      
188Brazil's appellee's submission, para. 431 (quoting Panel Report, para. 14.126 and footnote 757 
thereto). (underlining added by Brazil; footnote omitted) 
189Ibid., para. 433. (original emphasis) 
190Ibid., para. 452 (quoting  United States' appellant's submission, para. 103;  and Panel Report, 
para. 14.125, respectively). 
191Ibid., para. 453. (original emphasis) WT/DS267/AB/RW 
Page 36  
 
the United States' suggestion that the Panel "interpret ed item (j) to 'mandate[]' removal of fee caps to 
avoid an export subsidy finding"
192, the Panel did not interpret item (j) to include any such 
requirement.  Rather, the Panel "treated the one-percent fee cap as another element supporting its 
conclusion that the amended GSM 102 program is not structured, designe d and operated to ensure that 
fees cover long-term costs and losses."193  Brazil adds that, as the Panel correctly found, removing 
certain high-risk countries from eligibility under th e programme did not change the riskiness of the 
GSM 102 portfolio sufficiently to enable risk-based fees, despite the statutory one per cent fee cap.  
Brazil submits that, ultimately, the Panel found Braz il's argument and evidence more persuasive than 
the United States' argument and evidence, according great er weight to the former than the latter.  In 
Brazil's view, this is not a valid basis for concludi ng that the Panel committed a reversible legal error 
because, in applying the law to the facts, the Pane l adopted a view that was "more than 'plausible'".194   
92. Brazil further requests the Appellate Body to re ject the United States' challenge against the 
Panel's reliance on two additional factors in examin ing the structure, design, and operation of the 
revised GSM 102 programme, namely:  (i) the CCC's  unlimited access to United States Treasury 
funds;  and (ii) the fact that revised GSM 102 fees still fail to account for foreign obligor risk.  With 
respect to the first factor, Brazil maintains that "reco urse to [United States] Treasury funds is part and 
parcel of the ordinary course of business for the GSM 102 program" and, theref ore, is "a structural 
element ... on which the complianc e Panel was entitled to rely"195, as had the original panel.  Brazil 
asserts that, under United States law, the CCC export credit guarantee programmes "are exempted 
from the usual appropriations requirements"196, and that the CCC can "replenish its capital on an 
annual basis through an unlimited budgetary short-cut".197  According to Brazil, this indicates that the 
designers of the GSM 102 programme considered the likelihood of losses high enough to create an 
exceptional regime.  Brazil adds that, because no ch ange had occurred since the original proceedings 
with regard to this factor, the Panel acted consiste ntly with relevant Appellate Body jurisprudence in 
not departing from the original panel's reasoning and findings in this regard. 
93. With respect to the second factor, Brazil submit s that the Appellate Body should reject the 
United States' assertion that the Panel "erred in concludi ng that fees were the only proper way to deal 
with foreign obligor risk".198   Recalling the item (j) standard, Brazil considers that fees are not 
                                                      
192Brazil's appellee's submission, para. 467 (referring to United States' appellant's submission, 
paras. 106 and 109). 
193Ibid., para. 469. 
194Ibid., para. 473. 
195Ibid., para. 484. 
196Ibid., para. 486. 
197Ibid., para. 487. 
198Ibid., para. 494 (quoting United States' appellant's submission, para. 113).  WT/DS267/AB/RW 
 Page 37 
 
 
designed to adequately "cover" long-term costs a nd losses if those fees do not adequately account for 
the increased costs of increased risk , such as higher foreign obligor risk.  Brazil argues that the United 
States offered no evidence to support its assertion th at existing exposure limits to control foreign 
obligor risk are a sufficient alternative to setting fees commensurate to such risk.  Brazil further 
submits that the United States did not offer ev idence on the alleged CCC exposure limits for the 
GSM 102 programme.  In contrast, Brazil provided ev idence to the Panel in support of its argument 
that exposure limits and variable fees are used " in tandem "199 by commercial financial institutions to 
control for the costs associated w ith borrower risk.  In Brazil's vi ew, therefore, the United States 
"essentially argues that the compliance Panel's er ror lies in not accepting [the United States'] 
arguments regarding an '[a]lternative[]' way to  account for the costs of foreign obligor risk".200  Brazil 
reiterates that "there is no reversible error where a panel adopts 'a plausible view of the facts', 'even 
though it attributed to these factors a different weight  or meaning than did' a party to the dispute."201  
94. Brazil concludes that the United States has failed to substantiate a reversible error in any of 
the Panel's intermediate findings and in its ove rall finding that the revised GSM 102 programme 
constitutes an export subsidy. 
(d) Article 11 of the DSU 
95. Brazil submits that the United States has failed to demonstrate that the Panel did not conduct 
an objective assessment of the matter as required by Article 11 of the DSU.  More specifically, Brazil 
argues that the allegation that the Panel violated Article 11 in its assessment of the United States' 
evidence and argument regarding deficiencies in the initial estimate process is untenable, because the 
United States has not demonstrated that the Panel ex ceeded the bounds of its discretion as the trier of 
facts.  With regard to the United States' argument that the Panel violated Article 11 by failing to 
assess the evidence concerning the re- estimates, Brazil emphasizes that the Panel "did not uncritically 
follow the original panel's assessment concerning re-estimates, but objectively assessed the evidence 
before it."202  According to Brazil, the Panel was called upon to judge the relative weight and 
probative value of competing evidence, and the fact that the Panel attributed to competing evidence a 
different weight or meaning than the United States does not constitute reversible error under 
Article 11 of the DSU.   
                                                      
199Brazil's appellee's submission, para. 504 (referring to Panel Report, footnote 735 to para. 14.113, in 
turn referring to Brazil's second written submission to th e Panel, footnote 718 to para. 498). (original emphasis) 
200Ibid., para. 508 (quoting United States' appellant's submission, para. 113). 
201Ibid. (quoting Appellate Body Report, US – Upland Cotton , para. 445). 
202Ibid., para. 354. WT/DS267/AB/RW 
Page 38  
 
96. With respect to the United States' claim that th e Panel acted inconsistently with Article 11 by 
failing to recognize that the OECD MPRs are not re levant for an analysis under item (j) of the 
Illustrative List, Brazil submits that the Panel si mply disagreed with the United States' arguments 
regarding MPRs and, in so doing, acted consistently with Article 11 of the DSU.  Finally, with regard 
to the United States' assertion that the Panel violated Article 11 because it "offered no support"
203 for 
its conclusion that the GSM 102 programme and the Ex-Im Bank programmes are similar, Brazil 
reiterates that, beyond asserting the existence of differences between these programmes, the United 
States has not explained how the Panel erred in its  assessment of the evidence or demonstrated why 
the Panel exceeded the bounds of its discretion as the trier of facts. 
97. Brazil therefore requests the Appellate Body to uphold the Panel's findings under 
Articles 10.1 and 8 of the  Agreement on Agriculture , and Articles 3.1(a) and 3.2 of the  SCM 
Agreement , as well as its finding that the United States has failed to withdraw the subsidy without 
delay, and to reject the United States' claim under Article 11 of the DSU. 
3. Serious Prejudice  
98. Brazil requests the Appellate Body to reject the United States' appeal of the Panel's finding 
that the effect of marketing loan and counter-c yclical payments provided to United States upland 
cotton producers pursuant to the FSRI Act of 2002 is significant price suppression within the meaning 
of Article 6.3(c) of the  SCM Agreement , constituting "present" serious prejudice to the interests of 
Brazil within the meaning of Article 5(c) of the  SCM Agreement .  Brazil also requests the Appellate 
Body to reject the United States' claim that the Panel failed to make an objective assessment of the 
matter before it as required by Article 11 of the DSU.  Brazil asserts that, on the basis of the totality of 
the evidence, the Panel was well within the bounds  of its discretion—and fully supported by the 
evidence—when it found that marketing loan and counter-cyclical subsidies cause significant price 
suppression. 
(a) Market Insulation 
99. Brazil argues that the United States' appeal re lating to market insulation concerns factual 
aspects of the Panel's findings and that the United St ates effectively is asking the Appellate Body to 
"second-guess"204 the Panel's appreciation and weighing of th e evidence before it.  Brazil asserts that 
the Panel's findings "rest on a thorough and proper assess ment of the evidence", and that it "did not 
                                                      
203Brazil's appellee's submission, para. 456 (quoting United States' appellant's submission, para. 123). 
204Ibid., para. 540.  WT/DS267/AB/RW 
 Page 39 
 
 
exceed the bounds of its discretion in applying the law to the facts."205  Moreover, Brazil rejects the 
United States' contention that the Panel relied excessively on the findings of the panel and the 
Appellate Body in the original proceedings.  In stead, the Panel reviewed these findings and held, 
based on its own assessment of the updated evidence be fore it, that these findings remained accurate 
"under current factual conditions ".206  Brazil notes that an Article 21.5 proceeding "is part of a 
'continuum of events' and that a compliance panel can be  expected to refer and rely on the findings of 
the panel and the Appellate Body  in the original proceeding."207  Brazil further recalls the Appellate 
Body's statement that "doubts could arise about the objective nature of an Article 21.5 panel's 
assessment if, on a specific issue, that panel were to deviate from the reasoning in the original panel 
report in the absence of any change in the underlying evidence in the record."208 
100. Regarding  marketing loan payments , Brazil disagrees with the United States that the Panel 
focused exclusively on the United States' argument  that producers' planting decisions were not 
influenced by the possibility of marketing loan subs idies because expected prices were above the loan 
rate.  Brazil asserts that the Panel did assess the Unite d States' arguments that price expectations and 
other factors—rather than marketing loan subsidi es—explain the planting decisions of United States 
upland cotton producers.  Brazil also recalls that, in the original proceedings, the Appellate Body held 
that "[t]he way in which United States upland cotton farmers make decisions relating to the 
production of upland cotton, and the basis on which they  make such decisions, are factual matters that 
fall within the Panel's task of weighing and assessing the relevant evidence"209, and asks that the 
United States' appeal be rejected on the same grounds. 
101. Brazil asserts that the fact that  expected cash prices were above  the marketing loan rate in 
certain years does not mean that producers did not expect marketing loan payments at the time of 
planting.  In this respect, Brazil notes that the adju sted world price is "consistently much lower than 
the [United States] cash price", and that Un ited States upland cotton producers would expect 
marketing loan subsidies "even in situations where the expected  cash  price is above the loan rate".210  
Brazil argues that it demonstrated that the expected  adjusted world price for upland cotton was below 
the marketing loan rate in every year since MY  1999 and that the evidence indicates that "[United 
                                                      
205Brazil's appellee's submission, para. 541. 
206Ibid., para. 557 (quoting Panel Report, para. 10.104 (original emphasis)). 
207Ibid., para. 552 (quoting Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , 
para. 121). 
208Ibid., para. 555 (quoting Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada) , 
para. 103). 
209Appellate Body Report, US – Upland Cotton , para. 441. 
210Brazil's appellee's submission, para. 568. (original emphasis) WT/DS267/AB/RW 
Page 40  
 
States] upland cotton producers did expect mark eting loan subsidies in each of these years."
211  
Moreover, Brazil argues that uncertainty about the act ual level of the adjusted world price during the 
following marketing year, even if the expected adjusted world price is above the loan rate, 
demonstrates the significance for producers' plan ting decisions of the "revenue-stabilization"212 
provided by the marketing loan subsidy. 
102. Brazil submits that, in the light of these facts,  "the United States cannot establish, as it must, 
that the compliance Panel's finding of market insula tion from marketing loan subsidies has no basis in 
the evidence before it."213  Instead, according to Brazil, the Panel adopted a plausible view on the 
basis of the evidence as a whole that supported its conclusion.  Brazil adds that, "even if [United 
States] upland cotton producers had adapted their pl anting behavior in the direction that market 
signals would predict— i.e., assuming that the United States' read ing of the evidence were correct—
this would not undermine the compliance Panel's find ing that [United States] marketing loan subsidies 
'insulate'—or, in the words of the original pa nel, 'numb'—[United States] upland cotton producers 
from market price signals."214  Brazil observes that the ordinary meaning of the term "insulate" does 
not require that United States upland cotton producer s are shielded altogether from market signals.  
Brazil submits that the Panel's finding of market insulation would be consistent with evidence 
showing that United States upland cotton producers react somewhat to market price signals, "just not to the same extent they would ab sent the [United States] subsidy".
215  Thus, according to Brazil, " but 
for marketing loan and counter-cyclical payments , [United States] upland cotton producers would 
have reduced their planted acreage by significantly more than merely 14 percent"216 in MY 2007.  
Brazil also argues that the Panel did take into account producers' expectations in MY 2006 and 
concluded that they "had every reason to expect 'very significant' marketing loan payments when 
making their planting decisions."217 
103. Regarding  counter-cyclical payments , Brazil argues that the Panel did not improperly rely on 
the new studies in isolation to find that the effect of counter-cyclical subsidies is significant price 
suppression.  Brazil submits that the conclusion that the Panel drew from these studies "is not—as the United States argues—that counter-cyclical subsidies have significant production effects;  rather, it is 
that … these subsidies have the potential
 to cause production-increasing effects."218  Brazil points out 
                                                      
211Brazil's appellee's submission, para. 568. (emphasis omitted) 
212Ibid., para. 569. 
213Ibid., para. 575. 
214Ibid., para. 577 (quoting Original Panel Re port, para. 7.1308). (footnote omitted) 
215Ibid. 
216Ibid., para. 581. (original emphasis) 
217Ibid., para. 584. (footnote omitted) 
218Ibid., para. 596. (original emphasis;  footnotes omitted)  WT/DS267/AB/RW 
 Page 41 
 
 
that it is only in a subsequent step of the analysis  that the Panel satisfied itself that "these potential 
production effects in fact  exist with respect to [United States] upland cotton production"219 and that it 
did so based on supplementary evidence, including:  the fact that the vast majority of upland cotton 
producers receive counter-cyclical subsidies;  the ma gnitude of these counter-cyclical subsidies;  their 
importance as a share of upland cotton producers' re venue;  and, their role in covering a significant 
part of upland cotton producers' costs. 
104. Brazil rejects the argument by the United States that "it is not relevant that 95 percent of 
[United States] upland cotton production takes pl ace on farms holding upland cotton base", because 
"[t]his fact would simply be a reflection that  areas growing upland cotton in the past exhibit 
favourable weather and natural e ndowments to continue to do so."220  Brazil notes that this argument 
does not undermine the Panel's finding of market insulation and contradicts the United States' 
argument that upland cotton producers "actively c onsider planting alternative crops, including corn 
and soybeans."221  Brazil argues that the evidence shows that, throughout the history of the FSRI Act 
of 2002, roughly 95 per cent of United States upland cotton production has taken place on farms that hold upland cotton base acres and receive counter-cycli cal subsidies, which "means that 95 percent of 
[United States] upland cotton pro duction benefits from the revenue-s tabilizing structure, design and 
operation of this subsidy."
222  Brazil further contends that United States upland cotton producers opt to 
produce upland cotton, instead of corn and soybean s, because the availability of counter-cyclical 
subsidies reduces the risk of growing upland co tton, thereby favouring cotton production over 
alternative crops such as corn and soybeans. 
105. Finally, Brazil contends that, contrary to what the United States suggests, there are no 
inconsistencies between the Panel's finding of mark et insulation and certain other findings identified 
by the United States.  Brazil asserts that the Pane l's finding of market insulation is not undermined by 
the relatively stable United States shares of wo rld production and exports, because these market 
shares are determined by the interaction of numer ous factors and not only by producers' responses to 
market prices.  Neither is that finding undermined by the fact that expected prices were above the 
marketing loan rate in MY 2006, because United St ates upland cotton producers "expected to receive 
marketing loan subsidies in each of the mark eting years at issue, including in MY 2006."223  I n  
addition, Brazil argues that the alleged absence of  a "discernable temporal coincidence" between
                                                      
219Brazil's appellee's submission, para. 597 (referring to  Panel Report, paras. 10.99-10.102 and 10.104). 
(original emphasis) 
220Ibid., para. 599 (referring to United States' appellant's submission, paras. 154 and 155). 
221Ibid., para. 600 (referring to United States' appellant's submission, paras. 138-141). 
222Ibid., para. 601. 
223Ibid., para. 680. (footnote omitted) WT/DS267/AB/RW 
Page 42  
 
subsidy payments, increasing e xports, and suppressed prices does not undermine the Panel's finding 
of market insulation, because the Panel never found th at temporal coincidence was completely absent.  
Rather, having assessed the relationship between pri ces and United States subsidies, the Panel stated 
that it was "unable to detect  a similar 'strong discernible coincidence ' between the [United States] 
subsidies, the increase in [United States] cott on exports and the drop in world market prices"
224, and 
immediately concluded that subsidy payments result in a stabilization of United States cotton 
producers' revenues. 
106. Finally, Brazil states that the Panel was not  required to quantify precisely the price-
suppressing effects of the United States subsidies, "let alone quantify precisely any intermediate 
findings of market-insulating or production effects."225  Brazil adds that, although a quantitative 
assessment is not required, the Panel did undertak e a quantitative assessment of the degree to which 
marketing loan and counter-cyclical subsidies insulate United States upland cotton producers from 
market signals. 
(b) Divergence between United States Producers' Total Costs and Market 
Revenues 
107. Brazil submits that the Panel properly exercised its discretion in using total costs as a 
benchmark to assess the effects of the marketing loan and counter-cyclical subsidies on prices.  
According to Brazil, the Panel correctly examined total costs in assessing long-term developments in 
the upland cotton industry, appropriately following the analyses undertaken by both the panel and the 
Appellate Body in the original proceedings.  In Brazil's view, because both the original panel and the 
Appellate Body had relied on total costs to analyze the long-term effects of subsidies, there was no 
basis for the Panel to treat long-term costs any diffe rently from the way they had been treated in the 
original proceedings.  Furthermore, Brazil notes that  the Panel's decision to take into account total 
costs in its long-term assessment rema ined "well within [its] discretion"226 and was supported, not 
only by the economic literature in general, but, more  specifically, by a study from the United States 
Congressional Research Service (the "USCRS").227 
108. Brazil observes that the Panel also engaged in  a detailed analysis of the effects of the 
subsidies on short-term annual planting decisions in  the context of its assessment of the structure, 
                                                      
224Brazil's appellee's submission, para. 687 (quoting Panel Report, para. 10.135). (emphasis added by 
Brazil) 
225Ibid., para. 617. (footnote omitted) 
226Ibid., para. 722. 
227Ibid., para. 724 (referring to Congressional Research  Service Report for Congress by R. Schnepf and 
J. Womach, "Potential Challenges to US Farm Subsidies in the WTO" (25 October 2006) (Exhibit Bra-577 
submitted by Brazil to the Panel)).  WT/DS267/AB/RW 
 Page 43 
 
 
design, and operation of the marketing loan and counte r-cyclical subsidies.  In this analysis, the Panel 
considered "evidence presented by both the Unite d States and Brazil regarding annual data assessing  
variable   costs."228  Brazil argues that, had the Panel "focused  exclusively on the short-term effects of 
the [United States] subsidy regime (measu red by expected returns against annual  variable   costs)—as 
the United States asserts it should have—the ev idence would unambiguously have shown that 
marketing loan and counter-cyclical payments di stort the economic decision-making of the average 
[United States] upland cotton producer."229  Brazil submits that an analysis of expected market 
revenues and annual variable costs of growing upla nd cotton, soybeans, or corn shows that, "[o]nly 
when expected marketing loan and counter-cyclical  subsidies are taken into account … does growing 
upland cotton become a viable decision co mpared to growing corn and soybeans."230 
109. Brazil also contests the United States' allegati on that the Panel erred by ignoring off-farm 
income in its total cost-revenue analysis.  Brazil refe rs to the findings of the original panel, recalled by 
the Panel, that the references to "subsidized product"  and "like product" in Article 6.3(c) of the  SCM 
Agreement   circumscribe the examination to the upland cotton industry and that "the very fact that the 
United States relies on such cross-subsidization as a possible source of revenue would tend to support 
the proposition that upland cotton pro ducers would have lost money over the longer term if they were 
involved in upland cotton production alone."231  Moreover, according to Brazil, the Panel "carefully 
considered the evidence submitted by the United States"  and appropriately concluded that it "did not 
support the [United States'] assertion that  off-farm income negated th e significant production effects 
of the marketing loan and counter-cyclical subsidies ."232  Brazil submits that the Panel's finding was 
well within its discretion as the trier of facts and did not amount to a legal error.  On the contrary, in Brazil's view, there is a solid evidentiary, economic, and logical foundation for the Panel's conclusion that off-farm income "did not negate the signifi cant production effects of the marketing loan and 
counter-cyclical subsidies."
233 
110. Additionally, Brazil rejects the United States' argu ment that the total cost  analysis should be 
limited to total cash costs and should exclude oppor tunity costs.  According to Brazil, the Panel 
                                                      
228Brazil's appellee's submission, para. 731 (referring to Panel Report, paras. 10.185-10.195). (original 
emphasis) 
229Ibid., para. 741. (original emphasis) 
230Ibid., para. 737 (referring to Brazil's oral statement at the Panel meeting, paras. 60-78;  Analysis of 
Planting Decisions Based on Expected Returns (Exhibit Br a-634 submitted by Brazil to the Panel);  Brazil's 
comments on the United States' oral st atement at the Panel meeting, para s. 13-27;  Analysis of Planting 
Decisions Based on Expected Returns and Cash Costs (Exhibit Bra-665 submitted by Brazil to the Panel);  and 
Expected Costs and Returns Using Variable Costs (Exhibit Bra-667 submitted by Brazil to the Panel)). 
231Ibid., para. 745 (quoting Original Panel Report, footnote 1470 to para. 7.1354). 
232Ibid., para. 749. (original emphasis; footnote omitted) 
233Ibid., para. 753. WT/DS267/AB/RW 
Page 44  
 
correctly understood that disregarding opportunity costs is contrary to "basic economic principles".
234  
Brazil notes that, in arriving at this conclusion,  the Panel "relied on USDA economists who also 
rejected the notion that opportunity costs should be excluded from total costs".235  Brazil also points 
out that the Appellate Body, in Canada – Dairy (Article 21.5 – New Zealand and US II) , "has already 
clarified that non-cash 'opportunity' costs are part of cost of production".236 
111. Finally, in response to the United States' ch allenge to the Panel's use of USDA cost and 
market return data, Brazil submits that these data are authentic, accurate, contemporaneous evidence, 
and have the same credibility as the data used in the original proceed ings.  Brazil further observes that 
the USCRS's analysis, which was before the Panel, confirms the accuracy of both the USDA's data on 
cost and market return and the Panel's reliance upon it.   Brazil considers that, like the original panel 
and the Appellate Body before it, the Panel did not abuse its discretion in using such USDA data to 
assess the significant long-term gap between total co sts of production and market revenue.  Therefore, 
Brazil asserts that the mere fact that the Panel did not agree with the United States' view of the 
evidence does not amount to legal error under Articles 5(c) and 6.3(c) of the  SCM Agreement . 
(c) Economic Simulation Model 
112. Brazil disagrees with the United States' allegati on that the parties' econometric modelling was 
insufficient to support the Panel's finding of signif icant price suppression.  Brazil submits that the 
Panel never concluded that the ec onometric modelling of the parties was "'sufficient', in and of 
itself"237, to support a finding of significant price suppression.  On the contrary, the econometric 
modelling was "just one of many facts that [the Pa nel] considered in its evaluation of whether the
                                                      
234Brazil's appellee's submission, para. 755 (quoting Panel Report, para. 10.170). 
235Ibid., para. 756. 
236Ibid., para. 758 (referring to Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand 
and US II) , paras. 102-104). 
237Ibid., para. 830.  WT/DS267/AB/RW 
 Page 45 
 
 
subsidies cause significant price suppression."238  Brazil contends that, because the United States 
presents no legal or factual basis that would ha ve required the Panel to exclude the economic 
simulation model from its overall analysis of the evidence, the United States' appeal must be 
dismissed.  Brazil adds that, "even though the co mpliance Panel was not in a position to 'judge the 
claims of the parties about the exact magnitude ' of the price suppression demonstrated by the 
economic model, it did identify the range of possib ilities, with Brazil demonstrating a change of up 
to 8.9 percent (MY 2002-2005) or 6.05 percent (MY 2006-2008), and the United States alleging a 
change as low as 1.41 percent (MY 2002-2005) or approximately 1 percent (MY 2006-2008)."239  
Brazil emphasizes that "even if the Panel had determ ined that the number at the lowest end of the 
spectrum advanced by the United States ( i.e., approximately 1 percent) we re correct, which it did not, 
this would have still been high en ough to constitute significant price suppression, in light of other 
considerations regarding 'significance'."240 
(d) Impact of the Elimination of Step 2 Payments 
113. Brazil asserts that the Panel properly found that the withdrawal of the Step 2 payments does 
not eliminate the significant price suppression caused by the marketing loan and counter-cyclical subsidies.  Brazil notes that the United States a ppears to understand that the Panel's duty was to 
"(i) identify the level of price suppression caused by  the original basket of three subsidies in one 
reference period, (ii) identify the level of pri ce suppression caused by th e Step 2 subsidy alone, 
and (iii) determine whether the remaining pri ce suppression caused by the marketing loan and 
counter-cyclical subsidies continues to be significant in a different period."
241  However, according to 
Brazil, "nothing in Part III of the  SCM Agreement   or Article 21.5 of the DSU mandates [this] 
circuitous approach".242  Furthermore, if the United States believe d that "the withdrawal of the Step 2 
subsidy  necessarily   means that the two remaining subsidies  cannot   cause adverse effects, it bore the 
burden of proving this fact."243  Brazil asserts that the United States failed to meet its burden, 
particularly because Brazil demonstrated that the remaining subsidies do, in fact, continue to cause 
adverse effects, despite the withdrawal of the Step 2 subsidy. 
114. Brazil submits that the United States' argumen t that the Panel was required to determine 
whether, and to what extent, the withdrawal of the Step 2 payments caused the decline in United 
                                                      
238Brazil's appellee's submission, para. 830. 
239Ibid., para. 842 (referring to Panel Report, paras. 10.201, 10.202, and 10.221). (emphasis added by 
Brazil) 
240Ibid., para. 842 (referring to Brazil's first writ ten submission to the Panel, para. 190). 
241Ibid., para. 868 (referring to United States' appellant's submission, para. 209). 
242Ibid., para. 869. 
243Ibid., para. 872. (original emphasis) WT/DS267/AB/RW 
Page 46  
 
States exports in MY 2006 is not relevant to the Pa nel's assessment of Brazil's claim.  This is because 
the Panel was only required to assess—and did assess—whether United States production and 
exports, as well as the United States' world market share of production and exports, in MY 2006 were 
sufficiently large to support a finding that the United States exerted a substantial proportionate 
influence on world market prices.  
115. Brazil asserts that the Panel properly assessed the effects of the withdrawal of Step 2 
payments on the magnitudes of the marketing loan and counter-cyclical payments.  Brazil notes that, 
in assessing the effects of the withdrawal of Step  2 payments, the Panel relied on budget documents 
prepared by the USDA and on an assessment by the United States Congressional Budget Office (the "USCBO"), and correctly concluded that the withdrawal of Step 2 payments "will  reduce   marketing 
loan subsidies by $17 million over ten years, but  increase   counter-cyclical subsidies by $484 million 
over the same period."
244  Thus, Brazil contends that the Panel adopted a plausible view of the facts 
when finding "relatively modest changes" in subs idy amounts and that "these changes run counter to 
one another."245  In Brazil's view, although the United Stat es might prefer for the Panel to have 
weighed differently the evidence regarding market ing loan and counter-cyclical payments following 
the withdrawal of Step 2 payments, it has failed to  explain how the Panel erred in making the findings 
it made. 
(e) Magnitude of Marketing Loan and Counter-cyclical Payments 
116. Brazil submits that the Panel properly found th at the magnitude of the marketing loan and 
counter-cyclical subsidies was a relevant factor in its assessment, and that this factor, in conjunction 
with others, supported its finding of significant price suppression.  Brazil notes that the United States' 
appeal appears to be entirely contingent on it prevailing on its appeal of the Panel's findings 
regarding:  "(i) the revenue-stabilizing and market -insulating role of marketing loan and counter-
cyclical subsidies;  and (ii) their importance to cover [United States] upland cotton producers' 
cost[s]."246  However, the magnitude of the subsidy is " one important element that must be considered 
in a holistic analysis."247  In Brazil's view, "the magnitude of a subsidy cannot be ignored or 
disregarded, as the United States wishes the Appellate Body to do, even if one of the panel's findings 
on another, potentially relate d, factor were in error— quod non ."248  
                                                      
244Brazil's appellee's submission, para. 95. (original emphasis) 
245Ibid., para. 892 (quoting Panel Report, para. 10.239). 
246Ibid., para. 784. 
247Ibid., para. 787. (emphasis omitted) 
248Ibid., para. 788.  WT/DS267/AB/RW 
 Page 47 
 
 
(f) Substantial Proportionate Influence on the World Market for Upland 
Cotton 
117. Brazil argues that the Panel properly found that  the "substantial proportionate influence" 
exercised by the United States on the world market for upland cotton supports its finding of significant price suppression in that market.  Brazi l notes that United States world market shares of 
upland cotton production and exports since MY 1999 ar e artificially high and reflect the production- 
and export-enhancing effects of the subsidies at issue.   Brazil contends that, "[b]ut for these subsidies, 
the [United States] market shares would be much smaller."
249  Additionally, Brazil rejects the United 
States' argument that the relative size of the sh ares of production and expor ts alone cannot support a 
finding of significant price suppression in the world market for upland cotton.  In Brazil's view, this 
argument misrepresents the Panel's finding, because th e Panel analyzed this factor "in light of the 
totality of the evidence before [it]".250   
(g) Other Factors Impacting the World Market Price for Upland Cotton 
118. Brazil requests the Appellate Body to dismiss th e United States' claim that the Panel failed to 
conduct a non-attribution analysis regarding other f actors impacting the world market price for upland 
cotton, in particular, the role of China.  Br azil asserts that the Panel's analysis included a 
comprehensive evaluation of Chin a's role in the world market. 
119. Brazil submits that the Panel properly examined the effects of United States subsidies through 
a "'unitary' counterfactual approach"251, examining a wide variety of factors, including the role played 
by China in the world market.  More specifically, Brazil contends that the Panel carefully examined 
the evidence and arguments from both sides regard ing China's role, and appropriately held that 
"China's role in the market does  not  preclude the United States from exerting a 'substantial 
proportionate influence' on the world market, nor does it preclude [United States] subsidies from having significant price suppressing effects."
252  According to Brazil, the Panel's findings were 
properly reasoned, as required by Article 12.7 of the DSU, and had a strong evidentiary basis. 
(h) Degree of Price Suppression 
120. Brazil rejects the United States' claim that the Panel erred, as a matter of law, in failing to 
explain the degree of price suppression that it consid ered to be significant.  Brazil observes that,
                                                      
249Brazil's appellee's submission, para. 796. 
250Ibid., para. 797 (quoting Panel Report, para. 10.58). 
251Ibid., para. 917 (referring to Panel Report, para. 10.46). 
252Ibid., para. 940 (referring to Panel Report, para. 10.244). (original emphasis) WT/DS267/AB/RW 
Page 48  
 
unlike Article 15.2 of the  SCM Agreement , which explicitly requires consideration of whether 
subsidized imports suppress or depress prices "to a significant degree", "Article 6.3(c) does not refer 
to the 'degree of' anything, but simply uses the phrase 'significant price suppression'."
253  Brazil argues 
that Article 6.3(c) does not require a panel to " quantify precisely what degree of price suppression 
would be 'significant'".254  Brazil also notes that the Panel properly followed the same approach 
adopted by the original panel and approved by th e Appellate Body, and endorsed the original panel's 
finding that, "in the case of a widely traded commodi ty like upland cotton, 'a relatively small decrease 
or suppression of prices could be significant'"255, given the narrow profit margins, the high degree of 
price sensitivity for sales of a homogenous product, and the sheer size of the market. 
121. Furthermore, Brazil submits that the Panel pr operly based its "significance" finding on the 
"collective effects" of the subsidies, examin ing "the totality of the quantitative and qualitative 
evidence before it"256, such as, the United States' share of  production and exports;  the structure, 
design, and operation of the United States subsidies;   their magnitude;  producers' planting decisions, 
costs of production, and the share of subsidies in th eir total revenues;  and overall price trends in the 
world market for upland cotton.  According to Braz il, the Panel's findings on the various individual 
factors provide an ample evidentiary basis for its ultimate conclusion that the extent of the price 
suppression it found was "significant".257 
(i) Article 11 of the DSU 
122. Brazil asserts that the Panel did not exceed the bounds of its discretion as the trier of facts 
under Article 11 of the DSU in finding that the effect of marketing loan and counter-cyclical 
payments provided to United States upland cotton producers is significant price suppression and thus
                                                      
253Brazil's appellee's submission, para. 812. 
254Ibid., para. 823. 
255Ibid., para. 820 (quoting Panel Report, para. 10.50, in turn quoting Original Panel Report, 
para. 7.1330). 
256Ibid., para. 808. 
257Ibid.  WT/DS267/AB/RW 
 Page 49 
 
 
fully complied with its duties under Article 11 of th e DSU.  Brazil also rejects the United States' 
allegation that the Panel disregar ded and distorted evidence submitted by the United States in relation 
to both marketing loan payments and counter-cyclical  payments.  In Brazil's view, the United States 
has not established that the Panel "exceeded the bounds  of its discretion, as the trier of fact, in 
assessing the evidence before it"258 and "[t]he fact that the Panel accorded the evidence a weight or 
meaning different than did the United Stat es is not grounds for reversible error."259  Brazil furthermore 
rejects the United States' argument that the Panel vi olated Article 11 of the DSU because it did not 
expressly address in its analysis arguments made by the United States, and notes that "Article 11 does 
not require a panel to address each and every argument made by the parties."260 
123. In particular, Brazil asserts that the Panel "adopted a 'plausible'—indeed, likely the only 
plausible—view of the facts, fully supported by the evidence before it, when it found that very large 
price-contingent marketing loan and counter-cyclical subsidies insu late [United States] upland cotton 
producers from market price signals."261  Brazil contends that the Panel did not exceed the bounds of 
its discretion in finding market insulation, even in th e light of the relatively stable United States shares 
of world production and exports.  Brazil additionally argues that the Panel did not exceed the bounds 
of its discretion with respect to the appreciation of  the "substantial proportionate influence" exercised 
by the United States in the world market of upland cotton.   
124. As regards the econometric model, Brazil states that the United States has not identified errors 
in the Panel's assessment that woul d have precluded reliance on it as part of the evidentiary basis for 
the significant price suppression finding.  Brazil further asserts that the Panel did not "ignore", 
"distort", or "misrepresent" the United States' ar guments and evidence relating to the economic model, 
but instead carefully considered and rejected them.262  In Brazil's view, "[t]he essence of the United 
States' appeal is that, because th e Panel disagreed with the United States, it must have exceeded the 
bounds of its discretion and conducted a non-objective analysis."263  However, the mere fact that the 
Panel did not agree with the United States, and atta ched different weight to  the evidence than the 
United States, does not mean that the evidence cannot  support the Panel's conclusions and that the 
Panel exceeded the bounds of its discretion as the trier of facts. 
                                                      
258Brazil's appellee's submission, para. 640. 
259Ibid., para. 650. (footnote omitted) 
260Ibid., para. 135 (referring to Appellate Body Report, US – Upland Cotton , para. 446;  Appellate 
Body Report, Dominican Republic – Import and Sale of Cigarettes , para. 125;  Appellate Body Report, EC – 
Poultry , paras. 135 and 143;  and Appellate Body Report, Japan – Agricultural Products II , footnote 39 to 
para. 91). 
261Ibid., para. 627 (referring to Appellate Body Report, Brazil – Retreaded Tyres , para. 206). 
262See ibid., paras. 844-853. 
263Ibid., para. 853. WT/DS267/AB/RW 
Page 50  
 
125. Brazil asserts that the Panel properly weighed all the evidence and arguments before it with 
respect to "other factors" that could be affecting prices, such as China's influence on the world market 
price of upland cotton.  Brazil explains that the Pa nel "understood that China is a significant player in 
the world market;  but it concluded that the Unite d States—as the world's second largest producer and 
largest exporter—nonetheless continues to exert su bstantial influence in the market place."
264  In 
Brazil's view, the evidence before the Panel am ply supports this conclusion, which "constitutes a 
more-than-'plausible' view of the facts".265 
126. Brazil argues that the arguments submitted by  the United States concerning the reasoning of 
the Panel do not relate to Article 11 of the DSU but, rather, should have been raised under 
Article 12.7 of the DSU.  As the United States made no claim of error under Article 12.7 of the DSU, for that reason alone, these arguments should be dism issed.  In any event, Brazil notes that the Panel 
did provide a basic rationale for its findings, in accordance with Article 12.7 of the DSU. 
C. Claims of Error by Brazil – Other Appellant 
1. Scope of These Article 21.5 Proceedings:  The Revised GSM 102 
Programme  
127. Brazil appeals the Panel's finding that the revised GSM 102 programme is not the measure 
that was the subject of Brazil's claim.266  Brazil's appeal is conditional on the Appellate Body 
reversing the Panel's finding that Brazil's claims  pertaining to pig meat and poultry meat were 
properly within the scope of these Article 21.5 proceedings. 
128. Brazil maintains that the revised  GSM 102 programme itself was the declared measure taken 
to comply and that this was identified in Brazil' s request for the establishment of an Article 21.5 
panel.  Brazil observes that the revised GSM 102 pr ogramme "applies, without distinction, to all 
eligible products falling within its scope".267  Brazil argues that, "[c]onsistent with the declaration by 
the United States"268, Brazil challenged the revised GSM 102 programme as a measure at issue 
throughout the Article 21.5 proceedings.  Brazil not es that it additionally identified as "measures at 
issue" individual export credit guarantees issued under the revised GSM 102 programme, including 
those provided in connection with exports of pig meat and poultry meat. 
                                                      
264Brazil's appellee's submission, para. 941. 
265Ibid. 
266See ibid., para. 175 (referring to Panel Report, para. 9.25). 
267Ibid., para. 178. 
268Ibid., para. 179.  WT/DS267/AB/RW 
 Page 51 
 
 
129. Brazil states that it sees no basis on which the Pa nel could disagree that the measure that is 
the subject of Brazil's claims is the revised GSM 102 programme itself.  According to Brazil, "[a] 
panel is bound to examine the measure ... identified by the complainant in its panel request, which 
forms the panel's terms of reference."269  Brazil further submits that the Panel's finding is "puzzling"270 
because the Panel examined the revised GSM 102 pr ogramme under item (j) of the Illustrative List 
but refused to examine the same measure under Article 10.1 of the  Agreement on Agriculture .  
130. In Brazil's view, the Panel "appears to have c onsidered that Brazil could not identify, as the 
measure at issue, the GSM 102 program as a whole because Brazil's claims concerning the circumvention of export subsidy commitments were product-specific."
271  Brazil argues that this 
approach "is flawed because it confuses the sh arp distinction between measures and claims".272  Brazil 
asserts that, although it made a claim under Article 10.1 of the  Agreement on Agriculture , the fact 
that the United States' obligation under that pr ovision applies on a product-specific basis does not 
mean that the measure at issue must also be product-specific.   
131. Brazil recalls the Appellate Body's finding in EC – Chicken Cuts  that "the identification of the 
products at issue must flow from the specific meas ures identified in the panel request", and argues 
that the Panel did the reverse by "re-defin[ing] the scope of the measures"273 according to the product-
specific character of the obligations.  Brazil adds that  the Panel, by "unilaterally chang[ing] its terms 
of reference"274 and excluding the declared measure take n to comply from these proceedings, also 
failed to make an objective assessment of the matter as required by Article 11 of the DSU.  Brazil 
therefore requests the Appellate Body to reverse th e Panel's finding and to find, instead, that the 
revised GSM 102 export credit guarantee programme itsel f was a "measure at issue" before the Panel. 
132. In the event that the Appellate Body reverses  the Panel's finding, Brazil further requests the 
Appellate Body to complete the analysis and to fi nd that the revised GSM 102 programme is applied 
in a manner that circumvents the United States' expor t subsidy commitments with respect to pig meat 
and poultry meat, contrary to Articles 10.1 and 8 of the  Agreement on Agriculture .  Brazil explains 
that it makes this request because, "should the Appe llate Body accept the United States' appeal against 
the compliance Panel's finding that [export credit guarantees] for pig meat and poultry meat were 
properly before the Panel, this would deprive the Panel's  substantive   finding of its  jurisdictional   
                                                      
269Brazil's other appellant's submission, para. 180. 
270Ibid., para. 181. 
271Ibid., para. 182. 
272Ibid., para. 184. 
273Ibid., para. 186 (referring to Appellate Body Report, EC – Chicken Cuts , para. 165).  
274Ibid., para. 190. WT/DS267/AB/RW 
Page 52  
 
basis"
275, and the dispute between the parties with respect to export credit guarantees for pig meat and 
poultry meat would remain unresolved.   
133. Brazil submits that the measures challenged and the claims made by Brazil relating to export 
credit guarantees for pig meat and poultry meat are pr operly within the jurisdiction of the Panel and 
the Appellate Body.  Brazil recalls that, as it has demonstrated, the revised GSM 102 programme is 
the measure taken to comply, and, thus, Brazil claims  that it is entitled to challenge this new measure 
"in its totality" without any limitation on the claims.276  More specifically, Brazil argues that it is 
entitled to challenge the revised  GSM 102 programme "under any provision  of the covered 
agreements" and "with respect to  any product   falling within the scope of that 'new' measure".277   
134. Moreover, according to Brazil, there are sufficien t factual and legal findings by the Panel to 
enable the Appellate Body to complete the analysis .  Brazil refers to the following two findings of the 
Panel, and notes that the second finding is not appealed by the United States:  (i) the revised GSM 102 
programme "constitutes an 'export subsidy' under item (j) of the Illustrative List"278;  and (ii) the 
quantity of exports of pig meat and poultry meat  "having benefited from GSM 102 export credit 
guarantees exceeds the [United States' export subsidy] commitments"279 by 57 and 14 times, 
respectively.  Brazil maintains that, in any event, under Article 10.3 of the  Agreement on Agriculture , 
"the  United  States   bears the burden of proving" that its exports of pig meat and poultry meat "in 
excess of its quantity-based reduction commitment levels do not benefit from export subsidies".280  
Brazil notes that the United States has made no argumen ts in this regard.  On this basis, Brazil 
requests the Appellate Body to complete the anal ysis and to find that the revised GSM 102 export 
credit guarantee programme is applied in a manner that  results in circumvention of the United States' 
export subsidy commitments with respect to pig meat and poultry meat, contrary to Articles 10.1 
and 8 of the  Agreement on Agriculture , and Articles 3.1(a) and 3.2 of the  SCM Agreement . 
2. Scope of These Article 21.5 Proceedings:  Marketing Loan and Counter-
cyclical Payments Programmes  
135. Brazil claims that the Panel erred in assessing its terms of reference under Article 21.5 of the 
DSU and concluding that the original panel's "p resent" serious prejudice findings and conclusions 
                                                      
275Brazil's other appellant's subm ission, para. 193. (original emphasis; footnote omitted) 
276See ibid., para. 195 (referring to Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia) , 
paras. 87 and 90;  Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – 
Argentina) , para. 146;  and Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil) , paras. 40 and 41). 
277Ibid., para. 195. (original emphasis) 
278Ibid., para. 197 (quoting Panel Report, para. 14.133). 
279Ibid., para. 198 (quoting Panel Report, para. 14.148). 
280Ibid., para. 200. (original emphasis)  WT/DS267/AB/RW 
 Page 53 
 
 
covered exclusively subsidy payments, and did not ex tend to subsidy programmes.  Brazil's appeal is 
conditional on the Appellate B ody reversing the Panel's finding that payments made 
after 21 September 2005 under the marketing loan and counter-cyclical payments programmes are 
measures taken to comply that are properly with in the scope of these Article 21.5 proceedings.  
136. Brazil cautions about using the labels "as such " and "as applied" to describe the measures at 
issue in the context of a claim of adverse effects under Article 5 of the  SCM Agreement .  Brazil 
explains that Article 5 allows a complaining Memb er to demonstrate that the "use" of a subsidy 
programme causes "adverse effects".  According to Brazil, "if a panel does examine  payments as part 
of the evidence   of the 'use' of a program that does not prevent the program itself from being a 
measure that causes adverse effects."281  Brazil adds that, "[a]lthough th is may not be a 'classic' 'as 
such' challenge to a program in WTO dispute settlement, it is a  type of challenge against subsidy 
programs that is envisaged by Article 5 of the  SCM Agreement ."282 
137. Brazil does not agree with the Panel that the or iginal panel's reference to "mandatory price-
contingent United States subsidy measures" "inevitably"283 excludes subsidy programmes from the 
scope of the original panel's findings.  For Brazil, "it is possible, at the least, that the original panel's 
reference to 'mandatory price-c ontingent ... subsidy measures' includes the four subsidy programs"284, 
and the ambiguity in the formulation "call[s] for furt her elucidation in light of  'the factual and legal 
background' provided by the remainder of the original panel report."285  Brazil proceeds to review the 
terms of reference of the original panel and the orig inal panel report, and points to several elements 
that it considers support its view that "the orig inal panel's finding regarding 'mandatory price-
contingent United States subsidy measures' must be  understood to include the subsidy programs, as 
set forth in the 'legislative and regulatory provis ions providing for payment' of the subsidies."286   In 
particular, Brazil refers to:  (i) the original pane l request, which established the original panel's terms 
of reference287;  (ii) the original panel's statement of the measures before it288;  (iii) the original panel's 
reasoning regarding those measures, which includes an  examination of their "structure", "design", and 
                                                      
281Brazil's other appellant's submission, para. 62. (original emphasis) 
282Ibid. 
283Ibid., para. 68 (referring to Panel Report, para 9.46, in turn quoting Original Panel Report, 
para. 8.1(g)(i)). 
284Ibid., para. 69. 
285Ibid., para. 70 (quoting Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada) , 
para. 69). 
286Ibid., para. 122. 
287See ibid., para. 75. 
288See ibid., para. 78 (referring to Original Panel Report, para. 7.1107). WT/DS267/AB/RW 
Page 54  
 
"operation"
289;  and (iv) the original panel's reasons fo r exercising judicial economy with respect to 
Brazil's claims of "threat" of serious prejudice.290 
138. Brazil also claims that the Panel's finding that the original panel's conclusions and the DSB's 
recommendations and rulings related to only the su bsidy payments, and not the subsidy programmes, 
constitutes a violation of the duty to make an "obj ective assessment of the matter" under Article 11 of 
the DSU.  Brazil argues that the Panel "failed to c onsider the original panel's own description of the 
'measures at issue'" and "failed to examine the origin al panel's terms of reference, as set forth in the 
original panel request."291  Brazil asserts that "[a] compliance panel cannot objectively assess the 
scope of the original panel's findings if it ignores both the original panel's own statements of the measures at issue, and its terms of reference."
292 
139. In the event that its conditional appeal is accep ted, Brazil requests the Appellate Body to find 
that marketing loan and counter-cyclical paym ents made after 21 Se ptember 2005 constitute 
"measures taken to comply" with the DSB's recomme ndations and rulings in the original proceedings, 
because of the close connection to the marketing lo an and counter-cyclical payments programmes that 
are subject to those recommendations and rulings.  Alternatively, Brazil requests the Appellate Body 
to find that, through the continued use of the marketing loan and counter-cyclical payments 
programmes, the United States causes serious prejudice to Brazil's interests. 
D. Arguments of the United States – Appellee 
1. Scope of These Article 21.5 Proceedings:  The Revised GSM 102 
Programme  
140. The United States submits that, because the re vised GSM 102 programme is not a "measure 
taken to comply" with the DSB's recommendations and rulings, the Appellate  Body should reject 
Brazil's conditional appeal against the Panel's finding that the GSM 102 programme was not the 
measure subject to Brazil's claims. 
141. The United States recalls that the original panel made findings with respect to specific export 
credit guarantees for individual products, rather th an the GSM 102 programme itself.  The United 
States refers to the original panel's conclusion that , "in respect of exports of upland cotton and other 
                                                      
289See Brazil's other appellant's submission, paras. 93-194 (referring to Original Panel Report, 
paras. 7.1191-7.1194, 7.1291-7.1296, 7.1305, 7.1332, and 7.1477). 
290See ibid., para. 106 (referring to Original Panel Report, paras. 7.1498-7.1503). 
291Ibid., para. 128. 
292Ibid.  WT/DS267/AB/RW 
 Page 55 
 
 
unscheduled agricultural products ... and in respect of ... rice"293, the United States export credit 
guarantees were export subsidies applied in a manner resulting in circumvention of its export subsidy 
commitments.  The United States argues that, "[a]s is clear from the language"294 of this conclusion, 
the original panel considered specific export cr edit guarantees for individual products to constitute 
export subsidies, and the DSB's recommendations and rulings applied to only those export credit 
guarantees specifically mentioned in this conclusion. 
142. The United States submits that, in these Article 21.5 proceedings, Brazil did not assert that the 
GSM 102 programme itself circumvents the United St ates' export subsidy commitments but, rather, 
challenged the GSM 102 programme "as applied" with respect to certain products, including pig meat 
and poultry meat.  The United States contends that  Brazil nevertheless "attempts to bring the entire 
GSM 102 program before the compliance Panel by ca sting the program as the 'declared' [United 
States] implementation measure".295  The United States maintains that "the statements made by the 
United States when the GSM 102 program was change d do not amount to any such 'declaration' that 
the GSM 102 program was a measure taken to comply".296  Furthermore, these statements do not 
"amount to any acknowledgement about the scope of the DSB recommendations and rulings and the 
scope of the changes"297 to the GSM 102 programme. 
143. The United States asserts that, although it ma de changes with respect to export credit 
guarantees generally, including for pig meat and poultry meat, "it did so as a matter of administrative convenience and not 'to comply'"
298 with the DSB's recommendations and rulings.  By casting the 
revised GSM 102 programme itself as the measure ta ken to comply, Brazil's approach suggests that 
"Members should refrain from efficient manageme nt or good public policy because otherwise they 
risk an expedited compliance proceeding with no re asonable period of time to  respond to any adverse 
findings."299   
144. Furthermore, the United States argues that Braz il mistakenly relies on the Appellate Body's 
finding in US – Shrimp (Article 21.5 – Malaysia)  to support its position that a new measure can be 
challenged in its totality in Artic le 21.5 proceedings.  Noting that the "new measure" referred to in
                                                      
293United States' appellee's submission, para. 77 (quoting Original Panel Report, para. 8.1(d)(i)). 
294Ibid., para. 78. 
295Ibid., para. 80. 
296Ibid. 
297Ibid. 
298Ibid., para. 86. 
299Ibid. WT/DS267/AB/RW 
Page 56  
 
US – Shrimp (Article 21.5 – Malaysia)  was the "measure taken to comply", the United States 
reiterates that the measure taken to comply in th ese Article 21.5 proceedings encompasses changes to 
GSM 102 export credit guarantees for unscheduled produc ts and one scheduled product, rice, rather 
than the revised GSM 102 programme in its totality .  In addition, the United States submits that 
Brazil's reliance on the Appellate Body's finding in Canada – Aircraft (Article 21.5 – Brazil) is also 
misplaced because, in that dispute, Canada was re quired to withdraw the subsidy with respect to " all 
[Technology Partnerships Canada] assistance to  the Canadian regional aircraft industry".
300  In 
contrast, in these proceedings, the "measure take n to comply" encompasses only the changes made 
with respect to a "subset"301 of GSM 102 export credit guarantees with respect to which the United 
States was required to implement the DSB's recommendations and rulings. 
145. The United States also contests Brazil's claim that the Panel acted inconsistently with 
Article 11 of the DSU by "unilate rally chang[ing] its terms of re ference" and "excluding measures 
specifically identified"302 by Brazil.  According to the United States, the Panel did not exclude 
measures listed by Brazil but, rather, addressed Brazil's claims relating to specific GSM 102 export credit guarantees for individual products.  The United States argues that, because the revised 
GSM 102 programme was not the subject of Brazil's claims, the Panel "committed no error by failing 
to address non-existent claims as to that alleged measure".
303  In any event, the Panel was entitled to 
limit its review to those claims which must be addressed  in order to resolve the matter at issue in this 
dispute.304  Thus, because the Panel was able to resolve the dispute by reviewing Brazil's claims as to 
specific GSM 102 export credit guarantees for indi vidual products, the Panel was not required to 
consider Brazil's other claims "concerning a di fferent measure", namely, the revised GSM 102 
programme in its totality.305 
146. Finally, the United States contests Brazil's claim that "there are more than sufficient factual 
and legal findings by the compliance Panel to enable  the Appellate Body to complete its legal analysis
                                                      
300United States' appellee's submission, para. 88 (quoting Appellate Body Report, Canada – Aircraft 
(Article 21.5 – Brazil) , para. 2). (emphasis added by the United States) 
301Ibid., para. 88. 
302Ibid., para. 83 (quoting Brazil's other appellant's submission, para. 190). 
303Ibid., para. 83. 
304See ibid., para. 84 (quoting Appellate Body Report, EC – Poultry , para. 135). 
305Ibid., para. 84.  WT/DS267/AB/RW 
 Page 57 
 
 
and find that the amended GSM 102 program results in circumvention"306 of the United States' export 
subsidy commitments with respect to pig meat an d poultry meat.  The United States submits that it 
has demonstrated that the Panel erred as a matte r of law in finding that the GSM 102 programme 
constitutes an export subsidy under item (j) of the Illu strative List, and that this finding of the Panel 
should be reversed. 
147. On this basis, the United States requests the A ppellate Body to find that the revised GSM 102 
export credit guarantee programme is not a "measure taken to comply", to reject Brazil's conditional 
appeal, and to deny Brazil's request to complete the analysis with respect to GSM 102 export credit 
guarantees for pig meat and poultry meat. 
2. Scope of These Article 21.5 Proceedings:  Marketing Loan and Counter-
cyclical Payments Programmes  
148. The United States considers that the Panel corr ectly concluded that the "original panel's 
findings and recommendations with respect to 'pr esent' serious prejudice were limited to payments 
under the marketing loan and counter-cyclical programs, and did not encompass the programs 
themselves."307  Accordingly, the United States request s the Appellate Body to reject Brazil's 
conditional appeal regarding marketing loan and counter-cyclical payments programmes. 
149. The United States asserts that Brazil is "ask[ing] the Appellate Body to revisit the proceedings 
before the original panel to ascertain whether th e compliance Panel correctly interpreted the findings 
of the original panel."308  Thus, "Brazil would have the A ppellate Body reexamine in full the 
proceedings of the original panel regarding the measures at issue and the claims made."309  The United 
States does not see a "need to revisit and reexamine the original panel proceedings in this way" 
because "the critical element is the findings of the or iginal panel, as adopted by the DSB, as these set 
the scope of the compliance proceeding under Article 21.5 of the DSU."310 
150. The United States submits that Brazil did not make a claim of "present" serious prejudice with 
respect to the marketing loan and counter-cycli cal payments programmes and, consequently, the 
original panel "could not make"311 findings with respect to the pr ogrammes themselves.  Moreover, 
the United States rejects Brazil's reliance on the "measu res at issue" listed in Brazil's request for the 
                                                      
306United States' appellee's submission, para. 89 (quoting Brazil's other appellant's submission, 
para. 196). 
307Ibid., para. 20. 
308Ibid., para. 14. 
309Ibid. 
310Ibid., para. 15. 
311Ibid., para. 27. WT/DS267/AB/RW 
Page 58  
 
establishment of the panel.  The United States adds that  "the issue here is the scope of the [original] 
panel's findings on the  claims   Brazil presented"
312, and not the "measures" listed in Brazil's original 
panel request.  According to the United States, Br azil's claim before the original panel "did not 
include a claim of 'present' serious prejudice with  respect to marketing loan and counter-cyclical 
programs as such."313  Thus, the United States asserts, the "o riginal panel's findings ... paralleled the 
claims made by Brazil, showing that the orig inal panel well understood the issues before it."314 
151. The United States additionally argues that the "f act that the original panel analyzed the 
'structure, design, and operation of subsidies' was perfectly consistent with the claims before it 
regarding  payments   under the marketing loan and c ounter-cyclical payment programs".315  T h e  
United States explains that, "[c]ontrary to Brazil's position, even a 'simple' payment can be analyzed 
in terms of 'structure,'  'design,' and 'operation'."316 
152. The United States also takes issue with Brazil's reliance on the statement made by the original 
panel when explaining the basis for its exercise of  judicial economy on Brazil's claims of "threat" of 
serious prejudice, that "the United States would make changes in its statutory and regulatory 
framework as a result of its finding on 'present' serious prejudice".317  For the United States, this point 
"actually confirms that Brazil is in error".318  In the United States' view, if the "measures taken to 
comply" with the recommendations and rulings of th e DSB stretch to include the marketing loan and 
counter-cyclical payments programmes, "then the or iginal panel would have had no need to discuss 
claims concerning threat of serious prejudice with respect to future payments—the original panel 
would have already found that the programs 'as such' caused serious prejudice and that finding 
(erroneous as it necessarily must be) would have th en had implications for any payments under the 
programs."319 
153. Finally, the United States disagrees with Brazi l's claim that the Panel failed to make an 
objective assessment of the matter as required by Article 11 of the DSU.  The United States asserts 
that the Panel "undertook a detailed legal analysis of the original panel's report" and the Panel's 
conclusion "correctly interprets the original panel's findings".320 
                                                      
312United States' appellee's submission, para. 30. (original emphasis) 
313Ibid., para. 31. 
314Ibid., para. 32. 
315Ibid., para. 49. (original emphasis) 
316Ibid., para. 48. 
317Ibid., para. 55 (referring to Panel Report, para. 7.1501). 
318Ibid., para. 56. 
319Ibid. (footnote omitted) 
320Ibid., para. 59.  WT/DS267/AB/RW 
 Page 59 
 
 
154. Therefore, the United States requests the Appellate  Body to uphold the Panel's finding that the 
original panel's findings, and the DSB's recommenda tions and rulings, include only marketing loan 
and counter-cyclical payments made in MY 1999 -2002.  Should the Appellate Body reverse the 
Panel's finding, the United States requests the Appellate Body:  (i) to deny Brazil's request to find that 
marketing loan and counter-cyclical payments ma de after 21 September 2005 are measures taken to 
comply with the DSB's recommendations and rulings;  and (ii) to deny Brazil's request to find that the 
United States, through continued use of the marketing loan and counter-cyclical payments 
programmes, causes serious prejudice to Brazil's interests. 
E. Arguments of the Third Participants 
1. Argentina  
155. Argentina agrees with the Panel's finding that marketing loan payments and counter-cyclical 
payments made after 21 September 2005 are pr operly within the scope of these Article 21.5 
proceedings.  Argentina disagrees, however, with the reasoning that the Panel used to arrive at this 
conclusion.  According to Argentina, looking at "the original Panel's approach, reasoning, findings 
and recommendations"321, it is clear that the marketing loan and counter-cyclical payments 
programmes—and not only the pa yments made pursuant to those programmes—were measures 
subject to the original panel's findings.  Hence, Argentina considers that the marketing loan and 
counter-cyclical payments programmes are within the scope of these Article 21.5 proceedings and, 
consequently, the payments made pursuant to those programmes after 21 September 2005 are also 
within their scope.322 
2. Australia  
156. Australia disagrees with the United States th at export credit guarantees issued under the 
revised GSM 102 programme with respect to pig meat  and poultry meat are outside the scope of these 
Article 21.5 proceedings.  Australia maintains that  such export credit guarantees "have a 'particularly
                                                      
321Argentina's third participant's submission, para. 15. 
322Ibid. WT/DS267/AB/RW 
Page 60  
 
close relationship' to the measure taken to comply with the recommendations and rulings"
323 of the 
DSB, which, Australia contends, is the revised GSM 102 programme.  Australia further argues that, 
even if the Appellate Body finds that the measur es taken to comply are the GSM 102 export credit 
guarantees for those products subject to the DSB's recommendations and rulings (namely, unscheduled products and rice), the export cr edit guarantees issued under the revised GSM 102 
programme for pig meat and poultry meat would still have a "particularly close relationship" to the 
measures taken to comply.  According to Aust ralia, this is because "the amended GSM 102 
programme applies, without distinction, to all eligible products fa lling within its scope."
324 
157. Australia takes issue with the United States' argument that allowing Brazil's claims 
concerning the export credit guarantees for pig meat and poultry meat in these Article 21.5 proceedings would give Brazil a "second chance"
325 to make such claims.  Australia emphasizes that 
there has been no final resolution to the dispute between the parties in respect of export credit 
guarantees for pig meat and poultry meat, nor is th e Appellate Body's inability to complete the 
analysis in the original proceed ings a basis for excluding Brazil's claims from these Article 21.5 
proceedings.  Australia adds that, in any event, Br azil's claims in these Article 21.5 proceedings relate 
to a new measure that was taken to comply  with the DSB's recommendations and rulings. 
158. Australia submits that the marketing loan and counter-cyclical payments made after 
21 September 2005 were properly considered by the Pa nel to be within the scope of these Article 21.5 
proceedings.  Australia disagrees with the United States' assertion that the DSB recommendations and 
rulings applied only to payments made in MY 199 9-2002, and did not cover either future payments, 
or the subsidy programmes themselves.  On the cont rary, Australia contends that, by continuing to 
make payments of a subsidy on the same legal basi s and under the same conditions and criteria as the 
subsidy found to have caused ser ious prejudice in the original proceedings, the United States has 
failed to fulfil the requirements of Article 7.8 of the  SCM Agreement .  According to Australia, 
acceptance of the approach advocated by the United Stat es would lead to "a situation in which taking  
no action   to remove the adverse effects or to withdr aw the subsidy would be sufficient to fulfil the 
obligations imposed by Article 7.8".326  In Australia's view, Article  7.8 imposes a positive obligation 
on the subsidizing Member and "[i]t is clear that lack of action to remove the adverse effects or 
                                                      
323Australia's third participant's submission, para. 7. 
324Ibid., para. 8. 
325Ibid., para. 9 (quoting United States' appellant's submission, para. 49). 
326Ibid., para. 16. (original emphasis)  WT/DS267/AB/RW 
 Page 61 
 
 
withdraw the subsidy does not and could not satis fy the subsidizing Member's obligations under 
Article 7.8".327   
159. Australia explains that, under the approach a dvocated by the United States, a complaining 
Member that was successful in the original proceed ings would have to bring a new subsidies claim 
"with respect to each set of subsidies paid subseq uently to those originally found to have caused 
adverse effects."328  Australia cautions that this approach  raises fundamental systemic concerns 
relating to the nature of dispute settlement pro ceedings, as it would lead to a complaining Member 
becoming involved in a permanent litigation loop of annual challenges concurrent with the expiry of 
each marketing year.  Such an outcome would defeat the object and purpose of Article 21.5 proceedings, and would also be contrary to Artic les 3 and 21.1 of the DSU, which recognize that 
prompt compliance with the rulings and recommendati ons of the DSB is essential for the effective 
functioning of the WTO and the effective resolution of disputes. 
160. Australia additionally asserts that the Panel did not err in concluding that the United States 
acted inconsistently with its obligations under Articles 5(c) and 6.3(c) of the  SCM Agreement , in that 
the effect of marketing loan and counter-cyclical  payments provided to United States upland cotton 
producers after 21 September 2005 was significant price suppression constituting present serious 
prejudice to the interests of Brazil.  Australia ar gues that the Panel was entitled to take into account 
the findings in the original proceedings a nd that, "rather than placing excessive reliance"
329 on those 
findings, the Panel examined the facts and evid ence, including the new and updated economic 
evidence that was submitted by both parties to the dispute, before reaching its conclusions concerning 
the continuing market-insulating effects of the marketing loan and counter-cyclical payments.  
Australia further submits that the "Panel's findings with respect to market insulation, taken together 
with the Panel's findings on each of the [additional]  factors identified by the Panel, supported its 
ultimate finding of significant price suppression."330 
161. Australia also disagrees with th e United States' contention that the Panel acted inconsistently 
with Article 11 of the DSU by failing to carry out an objective assessment of the evidence before it in 
assessing Brazil's claim of serious prejudice.  In Australia's view, many of the United States' submissions amount to arguments that the Panel faile d to accord to the eviden ce the weight that the
                                                     
 
327Australia's third participant's submission, para. 16. 
328Ibid., para. 17. 
329Ibid., para. 26. 
330Ibid., para. 27. WT/DS267/AB/RW 
Page 62  
 
United States believes should have been accorded to it.
331  These allegations of error, Australia 
contends, do not amount to a failure to comply with  Article 11, which requires an "egregious error 
that calls into question the good faith of the panel".332  According to Australia, the United States has 
not demonstrated that the Panel exceeded the bou nds of its discretion in its appreciation of the 
evidence, and therefore the Appellate Body should not interfere with the findings of the Panel.  
Australia submits that, on the contrary, the manne r in which the Panel analyzed the facts and 
evidence—including the new and updated economic ev idence—and the way in which it took account 
of the panel and Appellate Body findings in th e original proceedings was appropriate in the 
circumstances of this case. 
3. Canada  
162. Canada disagrees with the United States' argum ent that export credit guarantees for pig meat 
and poultry meat fall outside the scope of these Ar ticle 21.5 proceedings because they are separate 
measures not subject to the DSB's recommendations and rulings.  Canada submits that the United 
States revised the GSM 102 programme in order to comply with the DSB's recommendations and 
rulings in the original proceedings, and the GSM 102 export credit guarantees for pig meat and 
poultry meat are not separate measures but are " part of  the measure taken to comply".333  This is 
demonstrated by the fact that, when the United States revised the GSM 102 programme, it did not 
exclude export credit guarantees for pig meat and pou ltry meat from the modification.  Canada further 
submits that, even if the export credit guarantees for pig meat and poultry meat were to be considered 
as separate measures, they are closely related to the declared measure taken to comply.  This is 
because the United States did not treat the GSM 102 export credit guarantees for pig meat and poultry 
meat differently, but rather modified the en tire GSM 102 programme, without distinction as to 
product coverage. 
163. Canada also considers that marketing loan payments and counter-cyclical payments made 
after 21 September 2005 fall within of the scope of  these Article 21.5 proceedings.  According to 
Canada, the position advocated by the United States "is a direct challenge to the effectiveness of
                                                      
331See Australia's third participant's submission, para. 31. 
332Ibid. (quoting Appellate Body Report, EC – Hormones , para. 133). 
333Canada's third participant's submission, para. 30. (original emphasis)  WT/DS267/AB/RW 
 Page 63 
 
 
compliance proceedings in serious prejudice cases."334  Canada explains that, under the United States' 
approach, a finding that subsidy payments are cau sing serious prejudice would have no consequences 
and require no change in behavi our by the subsidizing Member.  This is because a "Member whose 
subsidy payments are found to cause serious prejudice would be considered to have brought itself into 
conformity with its obligations where it did nothing affirmative to withdraw th e subsidy or remove the 
adverse effects for payments made during the period  in question, even where it continued to make 
identical subsidy payments prospectively".335 
164. Canada emphasizes that, pursuant to Article 7.8 of the  SCM Agreement , the United States 
was required to withdraw the subsidy at issue or take  appropriate steps to remove the adverse effects.  
In Canada's view, the United States "seeks to divorce"336 Article 7.8 of the  SCM Agreement  from 
Article 21.5 of the DSU, and from the object and pur pose of the DSU more generally, and to interpret 
Article 7.8 "to insulate its ongoing  subsidy payments from challenge."337  Canada contends that the 
United States' position would lead to an "absurd result"338 where a finding that subsidy payments are 
causing serious prejudice would have no consequen ces and require no change of behaviour by the 
subsidizing Member.  The United States' position, Canada argues, ignores that the scope of an 
Article 21.5 proceeding mandates "scrutiny of the overall effect of the measures taken to comply"339 
in their full context, which, in this case, necessarily includes the con tinued existence of payments of 
the sort that the DSB found to be causing serious prejudice.  Thus, "[t]he only logical interpretation" of Article 7.8 of the  SCM Agreement  is that "a Member does not take appropriate steps to remove the 
adverse effects of a subsidy if it c ontinues to provide payments under  the same conditions and 
criteria as the original subsidy  in a manner that causes adverse effects."
340   
165. Canada adds that it is not entirely clear that  the DSB recommendations and rulings apply to 
the "'combined effects' of a 'basket of measures'"341 as the United States alleges.  Even if they did, the 
United States' positive obligation under Article 7.8 of the  SCM Agreement  to take appropriate steps 
to remove the adverse effects refers to the paym ents made under the four different programmes that 
were part of the "basket of measures" examined by the original panel.  Thus, even if the United States 
has eliminated one of the payment programmes, in order to assess whether the United States has 
                                                      
334Canada's third participant's submission, para. 17. 
335Ibid. 
336Ibid., para. 15. 
337Ibid. 
338Ibid., para. 17. 
339Ibid., para. 18. 
340Ibid., para. 21 (quoting Panel Report, para. 9.79). (emphasis added by Canada) 
341Ibid., para. 22 (referring to United States' appellant's submission, paras. 1 and 68). WT/DS267/AB/RW 
Page 64  
 
fulfilled its obligations under Article  7.8, the Panel must necessarily  consider the payments under the 
"remaining programmes in the 'basket of measures'."
342 
166. Canada submits that it takes no position on the meri ts of the United States' allegation that the 
Panel failed to make an objective assessment of the f acts before it, in violation of Article 11 of the 
DSU, in assessing Brazil's claims concerning both GSM 102 export credit guarantees and marketing 
loan and counter-cyclical payments.  Canada not es, however, that the United States makes precisely 
the sort of allegations that the Appellate Body h as described as "very serious" and "going to the very 
core of the integrity of the WTO dispute settlement process itself".343  Moreover, Canada recalls the 
Appellate Body's findings that "[it] will not interfere lightly with the Panel's discretion 'as the trier of 
facts'"344, and that a panel is "not required to accord to factual evidence of the parties the same 
meaning and weight as do the parties".345  Thus, Canada maintains that, in order to prevail on its claim 
that the Panel failed to make an objective assessment  of the facts, "the United States must establish 
not only that the Panel erred in its appreciation of the facts, but that its errors  were so egregious as to 
violate fundamental fairness or to call into question the Panel's good faith."346 
4. Chad  
167. At the oral hearing, Chad made a statemen t underscoring the importance of cotton for its 
economy and for the economies of other West African countries.  Chad also drew attention to the 
negative effects that United States subsidies have on Chad's cotton producers.  Chad requests the 
Appellate Body to uphold the Panel's findings, in order to ensure that WTO rules and disciplines 
apply fully to the cotton sector resulting in  a more equitable and market-based system. 
5. European Communities  
168. The European Communities submits that the Un ited States accepts that the revised GSM 102 
programme, as it relates to unscheduled products and one scheduled product (rice), was within the 
jurisdiction of the Panel.  The European  Communities argues that there is a "close nexus "347 between 
this part of the revised GSM 102 programme and the part of the same programme that relates to pig 
meat and poultry meat.  According to the European Communities, this is confirmed by the fact that
                                                      
342Canada's third participant's submission, para. 22. 
343Ibid., para. 35 (quoting Appellate Body Report, EC – Poultry , para. 133). 
344Ibid., para. 36 (quoting Appellate Body Report, US – Upland Cotton , para. 399). 
345Ibid., para. 37 (quoting Appellate Body Report, Japan – Apples , para. 221). 
346Ibid., para. 39. 
347European Communities' third participant's submission, para. 19. (original emphasis)  WT/DS267/AB/RW 
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the United States revised the GSM 102 programme in its entirety.  Consequently, the European 
Communities contends, the Panel did not err when it concluded that Brazil's cl aims relating to export 
credit guarantees for pig meat and poultry meat are within the scope of these proceedings.  The 
European Communities nevertheless disagrees with Brazil insofar as it may be suggesting that the 
question of what is a "measure at issue" in an original panel proceeding is, "in all cases, entirely   
within the hands of the complaining Member."348 
169. At the oral hearing, the Europ ean Communities explained that th e issue of whether the revised 
GSM 102 programme, in its entirety, constitutes the me asure taken to comply in this proceeding could 
be analyzed from both an objective and a subjectiv e perspective.  According to the European 
Communities, the subjective perspective points to wards the conclusion that the revised GSM 102 
programme is the measure taken to comply, because the statement the United States made at the time 
of the amendment almost amounts to an admissi on that the United States considered the revised 
programme was the measure taken to comply.  Th e European Communities submits that the emphasis 
placed by Brazil on the subjective perspective is fair .  With respect to the objective perspective, the 
European Communities maintains that the degr ee of connectedness between the revised GSM 102 
programme and the export credit guarantees issued  thereunder confirms the proposition that the 
revised GSM 102 programme should be examined in  its totality and is within the scope of these 
proceedings. 
170. The European Communities disagre es with the United States' assertion that marketing loan 
and counter-cyclical payments made after 21 Se ptember 2005 are outside of the scope of these 
Article 21.5 proceedings.  In the European Co mmunities' view, if pa yments under a subsidy 
programme have been found to cause adverse effects, the defending Me mber is obliged to withdraw 
the subsidy or remove the adverse effects.  If the defending Member continues to make payments 
under such a programme, those further payments clea rly fall within the jurisdiction of a compliance 
panel. 
171. In its third participant's submission, the Europ ean Communities also raises an issue related to 
the Panel's composition.  The Eur opean Communities submits that the Panel erred in finding that it 
was not within its authority to make a ruling with respect to the propriety of its own composition on 
the basis that the issue had not been raised by eith er of the parties to the dispute and concerns the 
application by the WTO Director-General of the DSU provisions on panel composition.  According to the European Communities, such an interpretation is incorrect because the matter concerns the 
                                                     
 
348European Communities' third participant's submission, para. 20. (original emphasis) WT/DS267/AB/RW 
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"correct legal interpretation  of Articles 21.5 and 8.3 of the DSU"
349 and, therefore, falls within the 
scope of the WTO dispute settlement system, as defi ned in Article 1 of the DSU.  Additionally, the 
Panel was obliged to make findings in relation to th is matter "notwithstanding the fact that it [was] 
raised by the European Communities as a third part y", given the Appellate Body's statement that 
panels have to address certain issues of a fundamental  nature, such as their jurisdiction or authority to 
decide on a matter, even if the parties remain silent on those issues.350 
172. The European Communities asserts that, once a pa rty to the dispute has agreed to waive the 
rule in Article 8.3 of the DSU precluding a citizen from a party or third party from serving on the panel, the DSU contains no provision permitting such  agreement to be withdrawn when the matter is 
referred back to the panel pursuant to Article 21. 5 of the DSU.  Since the United States accepted an 
Australian citizen to serve as a panelist in the original proceedings, th e European Communities 
understands that it could not withdr aw its agreement in the implementation stage without giving any 
new reasons other than citizenship.  The European  Communities emphasizes that, once the citizenship 
of a panelist has been put aside as a non-issue, a nd once the panelist has engaged in the dispute, the 
panelist must be protected, throughout the ensu ing proceedings, from inappropriate or capricious 
pressure from either party.  This is consistent w ith Article 8.6 of the DSU, which provides that the 
parties shall not oppose panelists ot her than for "'compelling' reasons".
351 
173. The European Communities requests the Appellate  Body to reverse the Panel's findings on 
this issue and to find, instead, that the Panel ha d the authority and the obligation to consider the 
propriety of its own composition.  Furthermore,  the European Communities requests the Appellate 
Body to find that the composition of the Panel in this case was inconsistent with Articles 21.5 and 8.3 
of the DSU.  The European Comm unities, however, does not request the Appellate Body to make any 
further consequential reversal s, modifications, or findings. 
6. Japan  
174. Japan submits that it takes no position on the meri ts of the United States' contention that 
Brazil's claims relating to export credit guarantees for pig meat and poultry meat are outside the scope
                                                      
349European Communities' third participant's submission, para. 12. (original emphasis) 
350Ibid., para. 14 (referring to Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , 
para. 36). 
351Ibid., paras. 7 and 8.  WT/DS267/AB/RW 
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of these Article 21.5 proceedings.  Japan neverthel ess recalls certain findings by the Appellate Body 
which, in Japan's view, should be taken into account when determining whether Brazil's claims 
relating to pig meat and poultry m eat are within the scope of these Article 21.5 proceedings.  More 
specifically, Japan refers to the Appellate Body's  finding that a "measure taken to comply" may 
include a measure that has a "particularly close relationship" with the DSB's recommendations and 
rulings and a declared measure taken to comply.352  Furthermore, Japan asserts that the question 
whether a "close relationship" exists must be examined on a case-by-case basis depending on 
pertinent facts, including "the timing, nature and e ffects of the various measures" and "the factual and 
legal background against which a declared 'measure taken to comply' is adopted."353   
175. Japan submits that the absence of DSB recomme ndations and rulings with respect to export 
credit guarantees for pig meat and poultry meat w as not due to the fact that such export credit 
guarantees were found to be WTO-consistent in the orig inal proceedings.  As a result, the situation in 
these Article 21.5 proceedings is distinct from that in US – Shrimp (Article 21.5 – Malaysia)  and EC – 
Bed Linen (Article 21.5 – India) .  Japan recalls that, in those disputes, the Appellate Body rejected 
certain claims in the Article 21.5 proceedings concerning "measures ... found to be  WTO-consistent   
in the original proceeding[s]".354  Moreover, Japan maintains that the lack of DSB recommendations 
and rulings regarding export credit guarantees for pig meat and poultry meat "does not necessarily 
lead to a conclusion that all claims relati ng to [these guarantees under the revised GSM 102 
programme] are outside the scope of this panel proceeding."355  Finally, Japan submits that, although 
it agrees with the United States that measures  which undo the compliance achieved by a declared 
"measure taken to comply" may fall within the scope of Article 21.5 proceedings, it considers that the 
class of measures falling within the scope of Article 21.5 proceedings is broader than what is proposed by the United States.  According to Jap an, such measures may include those formally 
separate from a declared measure taken to comp ly and, thus, could include the export credit 
guarantees for pig meat and poultry me at in these Article 21.5 proceedings. 
176. Japan considers that the Panel Report does not cl early indicate why the Panel considered that 
marketing loan and counter-cyclical  payments made after 21 Septem ber 2005 are within the scope of 
these Article 21.5 proceedings.  Japan requests the A ppellate Body to clarify the scope of the DSB 
recommendations and rulings stemming from the orig inal proceedings.  According to Japan, if the
                                                     
 
352See Japan's third participant's submission, para. 7 (quoting Appellate Body Report, US – Softwood 
Lumber IV (Article 21.5 – Canada) , para. 77). 
353Ibid. 
354Ibid., para. 10 (referring to Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia) , para. 97;  
and Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , paras. 90-100). (emphasis added by Japan) 
355Ibid., para. 10. WT/DS267/AB/RW 
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removal of the adverse effects caused by payments  made after 21 September 2005 is required by the 
DSB recommendations and rulings, then such paymen ts were properly before the Panel and there is 
no need to resort to the "close relationship" test developed in US – Softwood Lumber IV 
(Article 21.5 – Canada) .  However, if the removal of the adver se effects caused by such payments is 
considered to be outside the DSB recommendations  and rulings, then Japan requests the Appellate 
Body to focus its analysis on:  (i) whether the obligation under Article 7.8 of the  SCM Agreement   
creates a "close relationship" between the paym ents made after 21 September 2005 and the DSB 
recommendations and rulings—that is, the removal of  the adverse effects caused by payments during 
MY 1999-2002;  and (ii) whether the existence of su ch a "close relationship" is affected by the fact 
that Brazil explicitly stated during the original panel proceedings that it was not challenging the 
marketing loan and counter-cyclical payments progra mmes "as such" and, thus, the original panel did 
not make any finding with respect to the programmes  per se . 
7. New Zealand
 
177. New Zealand submits that the Panel was correct in finding that payments made 
after 21 September 2005 pursuant to the marketing loan and counter-cyclical payments programmes 
are within the scope of these Article 21.5 proceedings .  In New Zealand's view, such payments "are 
provided under the same conditions and criteria as the marketing loan and counter-cyclical payments 
subject to the original panel's finding of serious prejudice", and are therefore subject to the United 
States' obligation under Article 7.8 of the  SCM Agreement  to "take appropriate steps to remove the 
adverse effects" of the subsidy.356  New Zealand argues that, "[b]y continuing to  use  mandatory 
price-contingent subsidies on the 'same legal basis an d subject to the same conditions and criteria' and 
with the same price suppressing effect"357, the United States has not complied with the obligation in 
Article 7.8 to take "appropriate steps to re move the adverse effects" and with the DSB's 
recommendations and rulings.358  Moreover, New Zealand states that the Panel correctly concluded 
that "there exists a 'particularly close relations hip' between the subsidy that [the United States] 
continues to provide and the recommendations and rulings of the DSB in the original proceeding."359  
New Zealand explains that the United States c ontinues to use the same regulatory and legal 
framework examined in the original proceedings to  provide mandatory and price-contingent subsidies 
to its cotton producers. 
                                                      
356New Zealand's third participant's submission, para. 1.2. 
357Ibid., para. 1.3 (quoting Panel Report, para. 9.79). (original emphasis) 
358Ibid., para. 3.5. (original emphasis) 
359Ibid., para. 3.8 (quoting Panel Report, para. 9.80).  WT/DS267/AB/RW 
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178. New Zealand further asserts that the United St ates' arguments amount to an assertion that it 
can comply with the DSB's recommendations and rulings "by changing nothing"360, and continuing to 
provide the same mandatory price-contingent subsidies that were found to be causing price 
suppression in the original proceedings.  As New Zealand sees it, the "United States' interpretation 
twists the linkage between the adverse effects provisions of the  SCM Agreement   and the compliance 
provisions of the DSU into a kind of Mobius  strip—a never-ending cycle of challenge and 
'implementation'."361  This, in New Zealand's view, "robs Article 7.8 of the  SCM Agreement   of any 
utility"362 and renders pointless Article 21.5 compliance proceedings as they relate to claims of 
adverse effects.  New Zealand also expresses concer n that denying an effective remedy in cases of 
harmful amber box subsidies would significantly undermine both  SCM Agreement  subsidy 
disciplines and the integrity of the WTO dispute settlement system as a whole. 
179. New Zealand asserts that the Panel correctly found  that the effect of the marketing loan and 
counter-cyclical payments is significant price suppression.  New Zealand disagrees with the United States' contention that the Panel placed excessive re liance on the findings made in the original 
proceedings.  According to New Zealand, given the significant factual similarities between the 
original proceedings and the current Article 21.5 pr oceedings, "it was entirely appropriate to consider 
the original panel and Appellate Body re ports and draw on them as appropriate."
363  New Zealand 
further argues that, in appealing the Panel's treat ment of the economic studies, "the United States 
continues to blur the line between counte r-cyclical payments and decoupled payments."364  According 
to New Zealand, counter-cyclical payments, by co ntrast to decoupled payments, are "clearly and 
explicitly linked to prices" and "are clearly not green box measures and hence are presumptively trade 
distorting".365   
180. New Zealand also disagrees with the United Stat es' allegation that, in determining whether 
there was "market insulation", the Panel ignored  its own finding that United States production and 
exports fluctuated in the same manner as those of  other producers such that United States shares of 
world cotton production and exports remained stable.  New Zealand considers that the "Panel spent 
considerable time examining"366 this point and "correctly concluded that the stability of the United 
States' share of world production and exports do es not prove the absence of market insulation."367  In 
                                                      
360New Zealand's third participant's submission, para. 3.9. 
361Ibid., para. 3.9. 
362Ibid. 
363Ibid., paras. 1.6 and 4.6. 
364Ibid., para. 4.7. 
365Ibid., para. 4.8. 
366Ibid., para. 4.11. 
367Ibid. WT/DS267/AB/RW 
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New Zealand's view, "the critical question is not whether the United States production and exports 
increased in line with other world production and exports, but rather, what would have happened to 
the United States production and exports  but for  the guaranteed minimum prices."
368  New Zealand 
understands that, "but for" the existence of marketing loan and counter-cyclical payments 
programmes, United States farmers, like cotton farmer s in the rest of the world, would experience no 
such insulation. 
181. New Zealand agrees with the Panel's finding of a significant gap between United States 
upland cotton farmers' total costs of production and market revenues.  It also disagrees with the 
United States' contention that the Panel should have used variable costs instead of total costs of 
production in its comparison.  According to Ne w Zealand, the purpose of comparing costs of 
production with revenues is to determine whether ma rketing loan and counter-cyclical payments are 
playing an important role in affecting the economi c viability of United States upland cotton farming.  
New Zealand explains that, "if United States cotton producers are not covering total costs  of 
production in the long term, they will exit the cotton farming, unless their cotton revenues are 'supplemented' in order to 'finance' this gap."
369 
182. New Zealand further submits that the United States' claim about the significance of the 
removal of the Step 2 payments programme "is undermined by a comparison of the amounts paid under the various programmes."
370  In New Zealand's view, it is the marketing loan and counter-
cyclical payments that underpin producers' price ex pectations and, therefore, their planting decisions, 
not Step 2 payments.  Moreover, New Zealand cont ests the United States' argument that the Panel 
should have considered the effect on prices of China's cotton production and consumption.  New 
Zealand asserts that, even if it were true that Chin a's cotton trade is impac ting upon the world market 
price of cotton, the Panel's findings of price s uppression stands independently of any other global 
factors that might also be suppressing world market prices.  New Zealand additionally asserts that the 
Panel showed full cognizance of the fact that price suppression must be "significant" in order to cause 
serious prejudice within the meaning of Article 6.3(c) of the  SCM Agreement .   
183. Turning to the United States' claim under Article  11 of the DSU, New Zealand contends that 
the United States simply repeats "the arguments it ma de in appealing the 'legal conclusions' of the 
compliance Panel".371  For the reasons already stated, New Ze aland does not consider that the Panel 
erred in making its finding of serious prejudice under the  SCM Agreement , let alone that it made 
                                                      
368New Zealand's third participant's submission, para. 4.11. (original emphasis) 
369Ibid., para. 4.18. 
370Ibid., para. 4.22. 
371Ibid., para. 4.31.  WT/DS267/AB/RW 
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"egregious" errors rising to a level that calls into  question the objectivity of the Panel's assessment.372  
Thus, for these same reasons, New Zealand submits that the Appellate Body should reject the United 
States' appeal under Article 11 of the DSU. 
184. As regards Brazil's conditional appeal, New Zealand agrees with Brazil that the Panel 
incorrectly found that the original panel's findings do not cover the marketing loan and counter-cyclical payments programmes.  New Zealand asserts that, "[i]n the circumstances of this case, it is 
not possible to divorce the payments from the pr ogrammes under which they are made", because the 
"mandatory price contingent nature of the subsidi es derives from the conditions and criteria set out in 
the marketing loan and counter-cyclical payment progra mmes, and this is central to the analysis of the 
effects of the actual payments made".
373  New Zealand considers that "the original panel's finding of 
serious prejudice, which explicitly refers to 'the mandatory price-contingent' subsidy measures, is 
consistent with this interpretation".374  New Zealand also finds support for its position in the original 
panel's statement that "the United States is  obliged   to take action concerning its present  statutory 
and regulatory framework   as a result of our 'present' serious prejudice finding".375  Moreover, New 
Zealand does not consider that "the 'as such'/'as applied' lexicon is ... helpful in the present case" 
because, in accordance with Article 5 of the  SCM Agreement , "[i]t is the  use  of the subsidy 
programmes in this case that result[s] in the adverse effects".376 
III. Issues Raised in This Appeal 
185. The following issues are raised in th e appeal filed by the United States: 
(a) whether the Panel erred in finding that Br azil's claims relating to export credit 
guarantees for pig meat and poultry meat were properly within the scope of the 
Article 21.5 proceedings; 
(b) whether the Panel erred in finding that Brazil's claims against marketing loan and 
counter-cyclical payments made by the United States after 21 September 2005 were 
properly within the scope of the Article 21.5 proceedings; 
(c) whether the Panel erred in finding that export credit guarantees issued under the 
revised GSM 102 programme after 1 July 2 005 constitute export  subsidies because 
                                                      
372New Zealand's third participant's submission, para. 4.31 (referring to United States' appellant's 
submission, para. 230). 
373Ibid., para. 3.13. 
374Ibid., para. 3.14. 
375Ibid. (quoting Original Panel Report, para. 7.1501). (emphasis added by New Zealand) 
376Ibid., para. 3.15. (original emphasis) WT/DS267/AB/RW 
Page 72  
 
they are provided at premium rates whic h are inadequate to cover the long-term 
operating costs and losses of the programme, within the meaning of item (j) of the 
Illustrative List of Export Subsidies annexed to the  SCM Agreement ;   
(d) whether the Panel failed to make an objective assessment of the matter under 
Article 11 of the DSU in its assessment of the revised GSM 102 programme pursuant 
to item (j) of the Illustrative List; 
(e) whether the Panel erred in finding that  the effect of marketing loan and 
counter-cyclical payments provided to  United States upland cotton producers 
pursuant to the FSRI Act of 2002 is signifi cant price suppression, within the meaning 
of Article 6.3(c) of the  SCM Agreement , in the world market for upland cotton, 
constituting "present" serious prejudice to the interests of Brazil, within the meaning 
of Article 5(c) of the  SCM Agreement ; and 
(f) whether the Panel failed to make an objective assessment of the matter under 
Article 11 of the DSU in its assessment of Brazil's claim that the effect of marketing loan and counter-cyclical payments is significant price suppression. 
186. The following issues are raised in the other appeal filed by Brazil: 
(a) in the event that the Appellate Body reve rses the Panel's finding that Brazil's claims 
pertaining to export credit guarantees provi ded to pig meat and poultry meat were 
properly within the scope of the Article 21. 5 proceedings, whether the Panel erred or 
failed to make an objective assessment of th e matter, under Article 11 of the DSU, in 
finding that the measure that is the subject of Brazil's claims is not the revised GSM 102 programme itself;  and, 
(b) in the event that the Appellate Body reve rses the Panel's finding that Brazil's claims 
against marketing loan and counter-cyclical  payments made after 21 September 2005 
were properly within the scope of the Ar ticle 21.5 proceedings, whether the Panel 
erred or failed to make an objective assessme nt of the matter, under Article 11 of the 
DSU, in finding that the original panel' s conclusions and recommendations addressed 
only the payments made under the programm es, and not the programmes themselves.  
IV. Scope of These Article 21.5 Proceedings:  Pig Meat and Poultry Meat 
187. We begin with the United States' appeal of the Panel's finding that Brazil's claims relating to 
export credit guarantees for pig meat and poultry meat are within the scope of these Article 21.5  WT/DS267/AB/RW 
 Page 73 
 
 
proceedings.  Before examining the issues raised on appeal, we briefly set out, in Section A, the 
relevant findings in the original proceedings.  In  Section B, we describe the measures taken by the 
United States subsequent to the DSB's recommendati ons and rulings in the original proceedings.  
Section C summarizes the Panel's findings in these Article 21.5 proceedings.  Section D provides an overview of the claims and arguments raised on appeal  by the participants.  In Section E, we examine 
the United States' claim regarding the scope of these Article 21.5 proceedings. 
188. Brazil conditionally appeals the Panel's rejection of Brazil's argument that the measure that 
was the subject of Brazil's claims is the revi sed General Sales Manage r ("GSM") 102 programme 
itself.  Brazil's appeal is premised upon a reversal of  the Panel's finding that Brazil's claims pertaining 
to export credit guarantees for pig meat and poultry meat are properly within the scope of these Article 21.5 proceedings.  We address Brazil's other appeal in Section F. 
A. Original Proceedings 
189. In the original proceedings, Brazil challenged three United States agricultural export credit 
guarantee programmes—the GSM 102, the GSM 103,  and the Supplier Credit Guarantee Program 
("SCGP")—under Articles 10.1 and 8 of the  Agreement on Agriculture   and Articles 3.1(a) and 3.2 of 
the  SCM Agreement .
377  All three programmes were used to guarantee the repayment of credit made 
available to finance commercial export sal es of United States agricultural commodities.378  T h e  
original panel first determined whether the e xport credit guarantees constitu ted an export subsidy 
within the meaning of Articles 10.1 and 8 of the Agreement on Agriculture .  For this purpose, the 
original panel sought contextual guidance from the SCM Agreement  and, in particular, relied on 
item (j) of the Illustrative List of Export Subsid ies (the "Illustrative List") annexed to that 
Agreement.379   
190. Having determined that the export credit guara ntee programmes were export subsidies, the 
original panel proceeded to examine these programmes under Article 10.1 of the Agreement on 
Agriculture .  Article 10.1 requires export subsidies not to  be applied in a manner that results in 
circumvention of a WTO Member's export subsidy co mmitments.  The original panel found that the 
                                                      
377See Original Panel Report, para. 7.762.   
378See Panel Report, para. 3.13.  In general, an ex port credit guarantee is a commitment to cover losses 
that an exporter would suffer should there be a default on the repayment of the credit granted to the foreign 
importer to finance the purchase of the exported product.  A detailed description of the three programmes is 
provided in paragraphs 7.242-7.244 of the original panel report, which are reproduced in paragraph 3.14 of the Panel Report. 
379See Original Panel Report, para. 7.763.  Pursuant to item (j) of the Illustrative List, the original panel 
examined whether the United States export credit guarantee programmes were provided at premium rates which 
were inadequate to cover the long-term opera ting costs and losses of the programmes. (See ibid., 
paras. 7.787-7.869) WT/DS267/AB/RW 
Page 74  
 
United States had granted export subsidies with respect to upland cotton and other unscheduled 
products.
380  As regards scheduled products, the original  panel recalled that Brazil "initially alleged"381 
that the United States provided export subsidies to  thirteen scheduled ag ricultural commodities in 
excess of its quantitative reduction commitments.  The original panel noted the United States' 
submission that it was in compliance with its quan titative reduction commitments in respect of ten of 
those products, and that this "would also be true for poultry meat"382 in fiscal year ("FY") 2002;  pig 
meat was not mentioned by the United States.  The original panel concluded that "[i]t has not been 
established ... that ... actual circumve ntion has resulted in respect of the twelve other United States 
scheduled commodities"383, including pig meat and poultry meat.   
191. On appeal in the original proceedings, Brazil cl aimed that the original panel erred by failing 
to find that the United States applied its export cr edit guarantee programmes in a manner that led to 
actual circumvention of its export subsidy commitmen ts with respect to pig meat and poultry meat 
in 2001.384  In examining Brazil's claim, the Appellate Body noted that, although the original panel 
recognized that Brazil's claims of circumvention ex tended to pig meat and poultry meat, the original 
panel did not mention pig meat in its analysis and used the phrase "would also be true" for poultry 
meat, hence suggesting uncertainty as to the actua l circumvention with respect to poultry meat.  
Consequently, the Appellate Body reversed the orig inal panel's conclusion that circumvention had not 
been established in respect of pig meat and poultry meat.385  Nevertheless, because there were 
insufficient uncontested facts on the record, the Ap pellate Body was unable to complete the analysis 
and determine whether the United States' export cred it guarantees had been applied in a manner that 
                                                      
 380Original Panel Report, para. 7.875.      
381Original Panel Report, para. 7.878.  Article 10.3 of the  Agreement on Agriculture   provides a special 
rule for proof of export subsidies that applies in certa in disputes under Articles 3, 8, 9, and 10 of that 
Agreement.   The special rule in Article 10.3 applies to scheduled products. (See Appellate Body Report, US – 
Upland Cotton , para. 652)  In Canada – Dairy (Article 21.5 – New Zealand and US II) , the Appellate Body 
explained that the burden of proof under Article 10.3 operates as follows: 
[W]here a Member exports an agricultu ral product in quantities that exceed 
its quantity commitment level, that Me mber will be treated as if it has 
granted WTO- inconsistent   export subsidies, for the excess quantities, 
unless the Member presents adequate ev idence to "establish" the contrary.  
This reversal of the usual rules obliges the responding Member to bear the 
consequences of any doubts co ncerning the evidence of export 
subsidization. 
(Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 74 (original emphasis)) 
382Ibid., para. 7.879. 
383Ibid., para. 7.881.   
384See Appellate Body Report, US – Upland Cotton , para. 681. 
385Ibid., para. 694.  WT/DS267/AB/RW 
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resulted in actual circumvention of the United St ates' export subsidy commitments for pig meat and 
poultry meat.386 
B. Measures Taken by the United States 
192. Following the adoption of the pane l and Appellate Body reports in the original proceedings, 
the United States made several changes to its expo rt credit guarantee programmes.  On 30 June 2005, 
the United States Department of Agriculture (t he "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.387  Subsequently, in October 2005, the CCC ceased 
issuing export credit guarantees under the SCGP.388  The GSM 102 programme remained operational, 
but the USDA announced, on 30 June 2005, that the CCC would use a new fee structure for the GSM 102 programme.
389  Under the new fee structure, fees were increased and now vary according to 
country risk, length of repayment term (tenor), and repayment frequency (annual or semi-annual).390  
Countries are classified in eight risk categories (0 -7), and exports to coun tries in the riskiest 
category (7) are classified as ineligible to receive export credit guarantees.391   
C. Article 21.5 Proceedings 
193. Before the Panel, Brazil claimed that the measur es taken to comply by the United States with 
regard to the GSM 102 export credit guarantee progra mme are inconsistent with Articles 10.1 and 8 of 
the  Agreement on Agriculture   and Articles 3.1(a) and 3.2 of the  SCM Agreement .392  The United 
States requested the Panel to make a preliminar y ruling that Brazil's claims relating to GSM 102 
                                                      
386See Appellate Body Report, US – Upland Cotton , paras. 693 and 694.  
387See Panel Report, para. 3.16 (referring to Exhib its Bra-502 and Bra-503 s ubmitted by Brazil to the 
Panel, supra , footnote 17). 
388See ibid. (referring to United States' first written subm ission to the Panel, para. 20;  and Exhibit 
Bra-513 submitted by Brazil to the Panel, supra , footnote 19).   
389See ibid., para. 3.16.  The new fee structure was al so applicable to the SCGP until the USDA 
announced that it would no longer accept  application under that programme. 
390Ibid. (referring to "USDA changes its fees to risk-based method for the GSM-102 and Supplier 
Credit Guarantee programs", USDA FAS Online News Release of 30 June 2005 (Exhibit Bra-504 submitted by 
Brazil to the Panel);  as well as Exhibit Bra-502 submitted by Brazil to the Panel, supra , footnote 17;  
"GSM-102 Guarantee Fee Rate Sche dule", USDA FAS Online (Exhibit Bra-505 submitted by Brazil to the 
Panel);  and "SCGP Guarantee Fee Rate Schedule", USDA  FAS Online (Exhibit Bra-506 submitted by Brazil to 
the Panel)).  
391See ibid., para. 3.16.  The Panel noted that "[a] number of countries that were previously eligible 
were reclassified into this ineligible risk category." ( Ibid., footnote 39 to para. 3.16 (referring to United States' 
first written submission to the Panel, footnote 15;  an d Country Risk Category (for the GSM-102 and Supplier 
Credit Guarantee Program) updated on 1 July 2005, US DA FAS Online (Exhibit US-2  submitted by the United 
States to the Panel)) 
392See ibid., para. 4.2. WT/DS267/AB/RW 
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export credit guarantees for pig meat and poultry m eat were outside the scope of the Article 21.5 
proceedings.
393   
194. The Panel described the i ssue before it as follows: 
[W]hether in this proceeding under Article 21.5 of the DSU Brazil 
may present claims relating to export credit guarantees for pig meat and poultry meat considering that:  (i ) Brazil presented such claims in 
the original proceeding;  (ii) the or iginal panel rejected these claims;  
(iii) the Appellate Body reversed the original panel's rejection of 
these claims, but found itself unable to complete the analysis;  such that (iv) the original proceeding did not result in a finding of WTO-inconsistency in respect of export credit guarantees for pig meat and 
poultry meat.
394 
195. Turning to the measure at issue, the Panel f ound that the export credit guarantees in respect of 
pig meat and poultry meat are measures in themselves.   According to the Panel, "that the [revised] 
programme applies to all products in the same manne r does not alter the fact that the application of 
the programme to an individual product constitutes a 'measure'."395  The Panel then recalled the 
Appellate Body's finding in US – Softwood Lumber IV (Article 21.5 – Canada)  that "[s]ome measures 
with a particularly close relationship to the d eclared 'measure taken to comply', and to the 
recommendations and rulings of the DSB"396, may also be subject to review by a panel established 
under Article 21.5 of the DSU.  The Panel consid ered that the GSM 102 export credit guarantees for 
pig meat and poultry meat had a "particularly clos e relationship to the declared measure taken to 
comply and to the recommendations and rulings of the DSB".397   The Panel based its finding on the 
following elements:  (i) the revised GSM 102 progr amme applied in the same manner to all products 
covered by the programme;  (ii) most of the legal and factual issues raised by Brazil's claims relating to export credit guarantees pertain to the revised GS M 102 programme in general, without distinction 
between individual products to which the programme applies;  and (iii) the United States argued that 
the Panel should examine Brazil's claim solely unde r the standard contained in item (j) of the 
Illustrative List, a standard that required the Pa nel to analyze the GSM 102 programme as a whole, 
rather than in relation to particular products.
398 
                                                      
393See Panel Report, para. 9.7. 
394Ibid., para. 9.21. 
395Ibid., para. 9.25. 
396Ibid., para. 9.24 (quoting Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada) , 
para. 77). 
397Ibid., para. 9.25.   
398See ibid.  WT/DS267/AB/RW 
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196. The Panel then observed that there was no pre- existing jurisprudence regarding the precise 
question of whether a WTO Member may assert a claim in an Article 21.5 proceeding in respect of 
which the Appellate Body had found itself unable to complete the analysis in the original 
proceeding.399  Nonetheless, the Panel fou nd it "significant" that, in US – Oil Country Tubular Goods 
Sunset Reviews (Article 21.5 – Argentina) , the Appellate Body held that a claim relating to an aspect 
of the measure with respect to which the panel in  the original proceeding had exercised judicial 
economy was properly within the scope of review under Article 21.5 of the DSU.400  This, according 
to the Panel, "demonstrates that a claim relating to  a measure that has a sufficiently close nexus with 
the measure taken to comply or with the DSB reco mmendations and rulings in the original proceeding 
can be within the scope of Article 21.5 [proceed ings]", even though that measure "has not been the 
subject of DSB recommendations and ru lings in the original proceeding."401  Based on these 
considerations, the Panel concluded that "the clai ms of Brazil relating to export credit guarantees for 
exports of pig meat and poultry meat are within the scope of this proceeding under Article 21.5 of the 
DSU."402   
D. Claims and Arguments on Appeal 
197. On appeal, the United States submits that GSM 102 export credit guarantees for pig meat and 
poultry meat are individual measures and are not subj ect to the DSB's recommendations and rulings in 
the original proceedings.  Therefore, the United States argues, there "logically"403 could be no 
disagreement regarding the existence of "measures taken to comply" or their consistency with the 
covered agreements with respect to export credit guarantees for pig meat and poultry meat.  The 
United States maintains that the Panel's finding, which rested on a perceived "particularly close 
relationship" between the GSM 102 export credit gua rantees for pig meat and poultry meat, on the 
one hand, and the declared measure taken to comp ly with the DSB's recommendations and rulings, on 
the other hand, is not supported by the text of Article 21.5.404 
198. Brazil submits that the Panel properly found that  the export credit guarantees for pig meat and 
poultry meat have a "particularly close relationshi p" with, and are "inextricably link[ed]" to, the 
                                                      
399See Panel Report, para. 9.26. 
400Ibid. (referring to Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews 
(Article 21.5 – Argentina) , para. 152). 
401Ibid., para. 9.26. 
402Ibid., para. 9.27.  Having found that these claims were within the scope of its mandate, the Panel 
proceeded to find that the United States has applied export subsidies in the form of GSM 102 export credit guarantees in a manner which has resulted in the circumvention of the United States' export subsidy reduction 
commitments for poultry meat and pig meat in the period from 1 October 2005 to 30 September 2006, and for 
poultry meat in the period from 1 July to 30 September 2005. (See ibid., para. 14.149) 
403United States' appellant's submission, para. 36. 
404See ibid., para. 43. WT/DS267/AB/RW 
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United States' "declared compliance measure",  that is, the revised GSM 102 programme.
405  Brazil 
argues that this "particularly close relationship"  arises because the export credit guarantees for pig 
meat and poultry meat are factually and legally dependent on the GSM 102 programme.406 
E. Whether Brazil's Claims Relating to Expor t Credit Guarantees for Pig Meat and 
Poultry Meat are within the Scope of These Article 21.5 Proceedings 
199. The issue on appeal is whether Brazil's claims  regarding export credit guarantees issued under 
the revised GSM 102 programme for pig meat and poultry meat are within the scope of these 
Article 21.5 proceedings. 
200. Article 21.5 of the DSU provides, in relevant part: 
Where there is disagreement as to th e existence or consistency with a 
covered agreement of measures  taken to comply with the 
recommendations and rulings such disputes shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel.  The panel shall circulate its report within 90 days after the date of referral of the matter to it. 
201. As in original dispute settlement proceedings, th e "matter" in proceedings brought pursuant to 
Article 21.5 of the DSU consists of two elements:  the specific measures at issue and the legal basis of 
the complaint (that is, the claims).
407  Thus, in order to determine whether Brazil's claims relating to 
the revised GSM 102 programme concerning pig meat and poultry meat are properly within the scope 
of these Article 21.5 proceedings, we must first iden tify the "measure taken to comply" by the United 
States.  We must then determine whether there are any limitations on the claims that may be raised by 
Brazil with respect to that measur e in these Article 21.5 proceedings. 
202. The Appellate Body has stated that "the phrase 'measures taken to comply' refers to measures 
which have been, or which should be, adopted by  a Member to bring about compliance with the 
recommendations and rulings of the DSB."408  It has further explained that "determining the scope of 
'measures taken to comply' in any given case must  ... involve examination of the recommendations 
and rulings contained in the original report(s) adopted by the DSB."409  While the DSB's 
recommendations and rulings are a relevant startin g point for identifying the "measures taken to 
comply" in an Article 21.5 proceeding, they are no t dispositive as to the scope of such measures.  
Where alternative means of implementation are available, a WTO Member enjoys some discretion in 
                                                      
405Brazil's appellee's submission, paras. 213 and 232. 
406See ibid., paras. 194-199. 
407See Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 78. 
408Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 36. 
409Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada) , para. 68.  WT/DS267/AB/RW 
 Page 79 
 
 
deciding what measures to take to comply with  the DSB's recommendations and rulings.  A WTO 
Member may choose to take measures that are broader than strictly required to comply with the DSB's 
recommendations and rulings.  The identification of th e "measure taken to comply" is determined by 
reference to what a Member has actually done, and no t to what a Member might have done, to ensure 
compliance with the DSB's recommendations and ruli ngs.  Therefore, when the measures actually 
"taken" by the implementing Member are broader than the DSB's recommendations and rulings, we 
do not see why the scope of the DSB's recommenda tions and rulings should necessarily limit the 
scope of the "measures taken to comply" fo r purposes of the Article 21.5 proceedings.   
203. As we noted earlier410, the original panel found that Brazil had not established that export 
credit guarantees for pig meat and poultry meat result ed in circumvention of the United States' export 
subsidy commitments.  The Appellate  Body reversed this finding, but was unable to complete the 
analysis of Brazil's claims.  Thus, although Brazil' s claims were extensively argued, there were no 
findings of consistency or incons istency specifically addressed to the export credit guarantees for pig 
meat and poultry meat that were part of the DS B's recommendations and rulings in the original 
proceedings.  Following the adoption of the DSB' s recommendations and rulings, the United States 
revised the fee structure of the GSM 102 programme.  The changes to the fee structure were taken in 
relation to the GSM 102 programme in its totality.  The new fee structure applies to export credit 
guarantees provided to all eligible commodities unde r the revised GSM 102 programme;   individual 
guarantees are issued under the same terms a nd conditions and no distinction is made on a 
commodity-specific basis.  In the Panel's view, "t hat the [revised GSM 102] programme applies to all 
products in the same manner does not alter the fact  that the application of the programme to an 
individual product constitutes a 'measure'."411  The Panel's finding does not take due account of the 
programme-wide nature of the changes made by the United States.  The changes made to the 
GSM 102 programme apply equally to all eligible commodities and the terms and conditions of the 
programme are the same for guarantees issued  with respect to all eligible commodities.412  Treating 
the revised GSM 102 programme in an integrated ma nner is consistent with the Appellate Body's 
statement in US – Shrimp (Article 21.5 – Malaysia)  that "the task of a panel in a matter referred to it 
by the DSB for an Article 21.5 proceeding is to  consider that new measure in its totality."413   
                                                      
410See supra , para. 190. 
411Panel Report, para. 9.25. 
412If one were to follow the Panel's approach to the extreme, every individual export credit guarantee 
issued under the revised GSM 102 programme would be a distinct "measure". 
413Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia) , para. 87. WT/DS267/AB/RW 
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204. This conclusion is also supported by the Unite d States' own description of its implementation 
efforts.
414  In these Article 21.5 proceedings, the United States rejected the description of the revised 
GSM 102 programme as the "measure taken to comp ly".  Yet, statements made by United States 
Government agencies when the changes to the GSM 102 programme were adopted indicate the 
opposite.  For instance, a USDA press release expl ains that the changes to the GSM 102 programme 
were made "to comply with a recent World Trade Organization (WTO) cotton decision in a dispute 
with Brazil."415  Similarly, in the answers to the "Frequently Asked Questions" published on its 
website, the USDA indicates that the changes made  to the GSM 102 (as well as to the GSM 103 and 
the SCGP) programme were taken in response to a key finding in the recent WTO dispute with Brazil 
related to this programme.416  The United States maintains that th ese are merely press statements and 
have no legal relevance.417  We agree that these statements, on their own, are not dispositive.  The 
statements, however, indicate that the United States itself considered that the revisions made to the 
GSM 102 programme were adopted with the objective of complying with the DSB's recommendations and rulings in the original dispute.   
205. We recall that, after finding that GSM 102 e xport credit guarantees for pig meat and poultry 
meat were distinct measures in themselves, the Panel went on to find that these measures have a 
"particularly close relationship to the declared me asure taken to comply and to the recommendations 
and rulings of the DSB"
418 and, consequently, were properly w ithin the scope of the Article 21.5 
proceedings.419  The Panel referred to the Appellate Body's findings in US – Softwood Lumber IV 
(Article 21.5 – Canada)  that "[s]ome measures with a particular ly close relationship to the declared 
'measure taken to comply', and to the recommend ations and rulings of the DSB, may also be 
susceptible to review by a panel acting under Article 21.5."420  In our view, the Appellate Body's 
reasoning in US – Softwood Lumber IV (Article 21.5 – Canada)  addressed a different situation.  In 
that case, two distinct measures were taken under tw o separate legal provisions:  (i) a determination 
under Section 129, which is the United States' lega l framework for issuing new determinations to 
comply with recommendations and rulings of the DSB;  and (ii) an administrative review
                                                      
414The Appellate Body has stated that a "Member's designation of a measure as one taken 'to comply', 
or not, is relevant" but not "conclusive" to determining what constitutes such a measure. (Appellate Body 
Report, US – Softwood Lumber IV (Article 21.5 – Canada) , para. 73) 
415See Exhibit Bra-502 submitted by Brazil to the Pane l, footnote 17 (as referred to in Panel Report, 
footnote 38 to para. 3.16).   
416See "Frequently Asked Questions: Risk-Based  Fees", USDA FAS Online (Exhibit Bra-501 
submitted by Brazil to the Panel). 
417United States' response to questi oning at the oral hearing. 
418Panel Report, para. 9.25. 
419See ibid., para. 9.26. 
420Ibid., para. 9.24 (quoting Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada) , 
para. 77).   WT/DS267/AB/RW 
 Page 81 
 
 
determination, which was required to be issued in the ordinary course of the application of the United 
States' countervailing duty laws.  Because the administ rative review determination had the effect of 
undermining compliance with the DSB's recommenda tions and rulings, and because both measures 
concerned the same analysis of subsidies for so ftwood lumber production, the Appellate Body found 
that the administrative review determination was so "inextricably linked" and "clearly connected"421 to 
the Section 129 determination as to fall within th e scope of the Article 21. 5 panel's mandate.  The 
Appellate Body's reasoning in US – Softwood Lumber IV (Article 21.5 – Canada)  is not applicable in 
this dispute.  The dispute in US – Softwood Lumber IV (Article 21.5 – Canada)  concerned the 
identification of closely connected measures so as to avoid circumvention.  In this case, we must 
determine whether a single programme may be permissibly atomized.  
206. The United States contends that there are systemic problems if the identification of the 
"measure taken to comply" goes beyond the recomme ndations and rulings of the DSB.  The United 
States raises two related objections.  First, the United States argues that it would give WTO Members 
an incentive to make the least possible cha nges to their measures in response to DSB 
recommendations and rulings.422  Secondly, the United States submits that it would "create a tangle of 
separate regimes to address the application of a m easure in different situations simply to avoid 
exposure to a dispute settlement challenge"423 pursuant to Article 21.5 of the DSU.  The Appellate 
Body has stated that, where alte rnative means of achieving complia nce are possible, the choice of 
means "belongs, in principle, to the implementing Member".424  Because it is for the implementing 
Member to choose among alternative means of im plementation, WTO dispute settlement cannot be 
said to provide incentives or disincentives for a WTO Member to take broader or narrower action as 
part of its implementation efforts.  In other word s, the WTO dispute settlement system is neutral in 
terms of the breadth of the actions to be adopted  by the implementing Member, provided the changes 
are sufficient to bring that Member into complia nce with its WTO obligations.           
207. The United States also refers to the fact that  Article 21.5 proceedings are "on an expedited 
basis with no reasonable period of time [for the responding Member] to co me into compliance".425  
Following the original proceedings, the United States was given a "reasonable period of time" to implement the DSB's recommendations and rulings.  The United States could have excluded pig meat 
and poultry meat from the revised GSM 102 progra mme.  However, the United States revised the 
                                                     
 
421Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada) , paras. 81 (referring to 
Panel Report, US – Softwood Lumber IV (Article 21.5 – Canada) , para. 4.41) and 90. 
422United States' appellant's submission, para. 53. 
423Ibid., para. 54. 
424Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina) , 
para. 184. 
425United States' appellant's submission, para. 52. WT/DS267/AB/RW 
Page 82  
 
GSM 102 fee structure on a programme-wide basis, th ereby changing the terms and conditions for all 
guarantees issued under the programme, including e xport credit guarantees for pig meat and poultry 
meat.  Under these circumstances, we do not cons ider that the unavailab ility of a new "reasonable 
period of time" gives rise to the "systemic concerns " alleged by the United States.  Moreover, it is a 
characteristic of Article 21.5 proceedings that no reasonable period of time for implementation is 
available if the new measure taken to comply with  the DSB's recommendations and rulings is found to 
be WTO-inconsistent.  
208. Having said that, we must now determine whether there is any limitation on the scope of the 
claims that can be raised by Brazil in these Article 21.5 proceedings.     
209. The United States draws our attention to EC – Bed Linen (Article 21.5 – India) , where the 
Appellate Body found that India could not reassert in  the Article 21.5 proceedings a claim that it had 
asserted in the original proceedings.  The United Stat es considers it "highly instructive" that in both 
EC – Bed Linen (Article 21.5 – India)  and in the present dispute there are no DSB recommendations 
and rulings that must be implemented with respect to the part of the measu re that the complaining 
party alleged to be within the scope of the Article 21.5 proceedings.
426  According to the United 
States, "[t]o allow Brazil's claims here would essentia lly give Brazil another chance, this time before 
the compliance panel, to argue against GSM 102 guaran tees with respect to exports of pig meat and 
poultry meat."427 
210.  We agree with the United States that the scope of  claims that may be raised in an Article 21.5 
proceeding is not unbounded.  As the Appellate Body found in EC – Bed Linen (Article 21.5 – India) , 
a complainant who had failed to make out a  prima facie   case in the original proceedings regarding an 
element of the measure that remained unchanged sin ce the original proceedings may not re-litigate the 
same claim with respect to the unchanged element of the measure in the Article 21.5 proceedings.428  
Similarly, a complainant may not reassert the same claim against an unchanged aspect of the measure 
that had been found to be WTO-consistent  in the original proceedings.429  Because adopted panel and 
Appellate Body reports must be accepted by the parties to a dispute430, allowing a party in an 
Article 21.5 proceeding to re-argue a claim that has been decided in adopted reports would indeed
                                                      
426See United States' appellant's submission, para. 47. 
427Ibid., para. 49. 
428See Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 93. 
429See Appellate Body Report, US – Shrimp (Article 21.5 – Malaysia) , para. 96. 
430Ibid., para. 97;  and Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 93.  WT/DS267/AB/RW 
 Page 83 
 
 
provide an unfair "second chance" to that party.  The situation before us is different.  Brazil's claims 
against export credit guarantees provided under the original GSM 102 programme to pig meat and 
poultry meat were not resolved on the merits in the original proceedings, because the Appellate Body 
was unable to complete the analysis as a result of there being insufficient factual findings or 
undisputed facts on the record.431  Thus, allowing Brazil's claims in this case would not raise the due 
process concerns identified by the United States.  Br azil is not unfairly getting a "second chance" to 
make a case that it failed to make out in the origin al proceedings such that the finality of the DSB's 
recommendations and rulings would be compromised.  There is an additional distinction between the 
facts before the Appellate Body in EC – Bed Linen (Article 21.5 – India) and the facts before us in 
this case.  In EC – Bed Linen (Article 21.5 – India) , India challenged an unchanged aspect of the 
European Communities' measure.432  In the present case, the revised GSM 102 programme is a new 
measure.    
211. We do not suggest that Brazil could raise just any  claim in these Article 21.5 proceedings, 
without limitation, against the revised GSM 102 programme.  A complaining Member ordinarily 
would not be allowed to raise claims in an Article  21.5 proceeding that it could have pursued in the 
original proceedings, but did not.  Brazil has referred to Canada – Aircraft (Ar ticle 21.5 – Brazil)  as 
support for the proposition that, because the "me asure taken to comply" is a new measure, a 
complaining Member may raise new claims against that measure in the Article 21.5 proceedings.433  
The Appellate Body's statement in Canada – Aircraft (Article 21.5 – Brazil)  refers to the situation in 
which the responding Member is seeking to circum vent its compliance obligations by replacing the 
WTO-inconsistent measure with a new measure that is also WTO-inconsistent, albeit with a provision 
not at issue in the original proceedings.  Th is is not the situation in this dispute. 
212. Finally, we note that "the aim of Article 21.5 of the DSU is to promote the prompt 
compliance with DSB recommendations and rulings and the consistency of  'measures taken to 
comply' with the covered agreements by ma king it unnecessary for a complainant to begin new 
proceedings and by making efficient use of the or iginal panelists and thei r relevant experience."434  
Moreover, having an Article 21.5 panel examine Brazil's claims against export credit guarantees
                                                      
431See Appellate Body Report, US – Upland Cotton , paras. 693 and 694. 
432Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 89. 
433In Canada – Aircraft (Article 21.5 – Brazil) , the Appellate Body stated that, in order to "examine 
fully the 'consistency with a covered agr eement of the measures taken to comply ', as required by Article 21.5 of 
the DSU", a panel acting under Article 21.5 of the DSU sh ould not be "restricted to examining the new measure 
from the perspective of the claims, arguments and factua l circumstances that related to the original measure". 
(Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 41) 
434Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina) , 
para. 151. WT/DS267/AB/RW 
Page 84  
 
provided under the revised GSM 102 programme to upl and cotton and certain other products, while a 
new panel examines Brazil's claims against export credit guarantees provided under the same 
programme to pig meat and poultry meat, would not be the most efficient use of WTO dispute 
settlement procedures.
435   
213. In sum, we are of the view that the revised GSM 102 programme is "a measure taken to 
comply" within the meaning of Article 21.5 of the DSU.  In addition, we find that Brazil is not 
precluded from asserting its claims in relation to export credit guarantees issued under the revised 
GSM 102 programme for pig meat and poultry meat.  Accordingly, we  uphold   the Panel's finding, in 
paragraph 9.27 of the Panel Report, that Brazil's claims relating to export credit guarantees for pig 
meat and poultry meat are properly within th e scope of these Article 21.5 proceedings.   
F. Brazil's Other Appeal 
214. Brazil appeals the Panel's finding that the revised GSM 102 programme itself was not the 
measure that was the subject of Brazil's claims.436  However, this appeal is conditional on the 
Appellate Body reversing the Panel's finding that Br azil's claims pertaining to export credit guarantees 
provided to pig meat and poultry meat are properly w ithin the scope of these Article 21.5 proceedings.  
Should this condition be fulfilled, Brazil requests th e Appellate Body to comp lete the analysis and 
find that the revised GSM 102 programme itself is a pplied in a manner that results in circumvention 
of the United States' export subsidy commitments with respect to pig meat and poultry meat.437 
215. The United States submits that , because the revised GSM 102 programme is not a measure 
taken to comply with the DSB's recommendations and rulings, the Appellate Body should reject 
Brazil's conditional appeal.438 
216. We have upheld the Panel's conclusion that Brazi l's claims pertaining to pig meat and poultry 
meat are properly within the scope of these Arti cle 21.5 proceedings.  Accordingly, the condition 
upon which Brazil's other appeal is predicated has not been met, making it unnecessary for us to address it further. 
                                                     
 
435See Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – 
Argentina) , para. 151. 
436See Brazil's other appellant's submission, para. 165 (referring to Panel Report, para. 9.25). 
437See ibid., paras. 192-201. 
438See United States' appellee's submission, paras. 64, 74, and 75.  WT/DS267/AB/RW 
 Page 85 
 
 
V. Scope of These Article 21.5 Proceedings:  Marketing Loan and Counter-cyclical 
Payments Made After 21 September 2005 
217. We turn next to the United States' appeal of the Panel's finding that marketing loan and 
counter-cyclical  payments   made after 21 September 2005 are properly within the scope of these 
Article 21.5 proceedings.   
218. We begin, in Section A, with a summary of th e findings made in the original proceedings.  
Section B describes the measures taken by the United States following the adoption of the DSB recommendations and rulings in the original proceed ings.  A summary of the Article 21.5 proceedings 
is then provided in Section C.  Section D provides an overview of the arguments raised on appeal by 
the participants and the third participants.  In S ection E, we analyze whether the Panel properly found 
that marketing loan and counter-cyclical payments  made after 21 September 2005 are within the 
scope of these Article 21.5 proceedings. 
219. Brazil conditionally appeals the Panel's finding that the original panel's conclusions and 
recommendations addressed only the payments  made under the marketing loan and counter-cyclical 
payments programmes, and not the programmes  themselves.  Brazil's appeal is conditional upon our 
reversal of the Panel's finding that marketing loan and counter-cyclical payments  made 
after 21 September 2005 are within the scope of these Article 21.5 proceedings.  We address Brazil's conditional appeal in Section F. 
A. Original Proceedings 
220. After reviewing the evidence submitted by Brazil in support of its claim of serious prejudice, 
the original panel found that "the effect of the ma ndatory, price contingent United States subsidies at 
issue—that is, marketing loan programme payments , user marketing (Step 2) payments and [market 
loss assistance] payments and [counter-cyclical] payments—is significant price suppression in the same world market for upland cotton in the peri od MY [("marketing year")] 1999-2002 within the 
meaning of Articles 6.3(c) and 5(c) of the SCM Agreement ."
439  In the "Conclusions and 
Recommendations" section of its report,  the original panel concluded: 
(g) concerning serious prejudice to the interests of Brazil:  
(i) the effect of the mandatory price-contingent  
United States subsidy measures—marketing loan 
programme payments, user marketing (Step 2) payments, [market loss assistance] payments and [counter-cyclical] payments—is significant price 
                                                     
 
439Original Panel Report, para. 7.1416. WT/DS267/AB/RW 
Page 86  
 
suppression in the same world market within the meaning of Article 6.3(c) of the  SCM Agreement  
constituting serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the  SCM 
Agreement [.]
440 
221. In the light of its conclusion, the original pane l recalled the obligation set out in Article 7.8 of 
the  SCM Agreement  and observed that, "upon adoption of this report, the United States is under an 
obligation to 'take appropriate steps to remove the adverse effects or ... withdraw the subsidy'."441  The 
Appellate Body upheld the original panel's finding of serious prejudice under Article 6.3(c) of the  
SCM Agreement .442 
B. Measures Taken by the United States 
222. The United States Congress enacted legislation443 on 1 February 2006 repealing the user 
marketing (Step 2) payments ("Step 2 payments") programme, which was one of the price-contingent 
subsidy measures covered by the origin al panel's finding of serious prejudice.444  The Panel noted that 
"[i]t is not in dispute that the United States pres ently provides marketing loan and counter-cyclical 
payments on the same legal basis and subject to th e same conditions and criteria as the marketing loan 
payments and counter-cyclical payments that were subject to the panel's finding of 'present' serious 
prejudice".445 
C. Article 21.5 Proceedings 
223. Before the Panel, the United States submitted that  "the subsidies subject to the obligation in 
Article 7.8 of the SCM Agreement  to 'take appropriate steps to remove the adverse effects or ... 
withdraw the subsidy' were the subsidies provi ded during MY 1999-2002 which the original panel 
had found to cause 'present' serious prejudice in MY 1999-2002."446  Thus, the United States argued 
that marketing loan and counter-cyclical paymen ts made after 21 September 2005 "are not properly 
                                                      
440Original Panel Report, para. 8.1. 
441Ibid., para. 8.3(d). 
442See Appellate Body Report, US – Upland Cotton , para. 763(c)(i). 
443Section 1103 of the Deficit Reduction Act of 2005, Public Law No. 109-171;  see also Panel Report, 
para. 3.7. 
444The Step 2 payments programme was repealed effective as of 1 August 2006.  In addition to Step 2 
payments, marketing loan payments, and counter-cyclical payments, the original panel's finding of serious 
prejudice covered market loss assistance payments.  Ac cording to the original panel, market loss assistance 
payments were "ad hoc emergency and supplementary assi stance provided to producers" under "four separate 
pieces of legislation, one each for the years 1998 through 2001".  (Original Panel Report, para. 7.216 (quoted in 
Panel Report, para. 3.10)) 
445Panel Report, para. 9.79;  see also ibid., paras. 3.9 and 3.12. 
446Ibid., para. 9.73. (footnote omitted)  WT/DS267/AB/RW 
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within the scope of these Article 21.5 proceedings".447  Brazil responded that "even if in this dispute 
the original panel had made findings limited to payments made in MY 1999-2002, the obligation of 
the United States under Article 7.8 would not be lim ited to the removal of the adverse effects of 
payments made in that period."448  Brazil explained that, "if a panel makes a finding of 'present' 
adverse effects, such a finding applies beyond the hist orical period considered by the panel and ... the 
Member whose subsidies cause such adverse effects is  therefore obligated under Article 7.8 to take 
appropriate steps to fully withdraw the present, ongoing and future effects of the subsidies."449 
224. At the outset of its analysis, the Panel observe d that, "[s]ince the original panel made a 
finding of present serious prejudice in respect of subsidies provided during MY 1999-2002, the question arises whether the obligation to take appropriate steps to remove the adverse effects only applies to payments of subsidies made in those years."
450  The Panel next interpreted the requirement 
in Article 7.8 of the  SCM Agreement   to "take appropriate steps to remove the adverse effects" of the 
subsidy: 
In our view, the remedy under Article 7.8 must be viewed in its 
relationship to the obligation in Article 5 not to cause through the use of any subsidy referred to in Articles 1.1 and 1.2 of the SCM 
Agreement   adverse effects to the interests of other Members.  It must 
serve to restore conformity with the Member's obligation to avoid 
causing adverse effects through the use of any subsidy.  As a consequence, a Member does not take appropriate steps to remove adverse effects of a subsidy if it continues to provide payments under the same conditions and criteria as the original subsidy in a manner that causes adverse effects.
451 
225. The Panel rejected the "interpretation advocated  by the United States, whereby the obligation 
under Article 7.8 of the  SCM Agreement   is limited to the removal of the adverse effects caused by 
subsidies granted in a particular period of time".452  As the Panel saw it, the United States' 
interpretation "implies that it would not be possible to review in an Article 21.5 proceeding whether a 
Member causes adverse effects by continuing to gr ant subsidies under the same conditions and criteria 
                                                      
447Panel Report, para. 9.73. (footnotes omitted)  Article 7.9 of the  SCM Agreement   provides that, "[i]n 
the event the Member has not taken appropriate steps to remove the adverse effects of the subsidy or withdraw 
the subsidy within six months from the date when the DSB adopts the panel report or the Appellate Body report, 
and in the absence of agreement on compensation, the DSB shall grant authorization to the complaining Member to take countermeasures".  The panel and Appe llate Body reports in the original proceedings were 
adopted on 21 March 2005.  Thus, as Brazil explains, th e six-month period referred to in Article 7.9 expired 
on 21 September 2005. (See Brazil's first written submission to the Panel, paras. 41 and 42) 
448Panel Report, para. 9.74. 
449Ibid. (footnote omitted) 
450Ibid., para. 9.78. 
451Ibid., para. 9.79. 
452Ibid. WT/DS267/AB/RW 
Page 88  
 
as the subsidies found to have caused adverse effects."
453  According to the Panel, "[s]uch an 
interpretation fails to take into account the relati onship between Article 7.8 and Article 5 of the  SCM 
Agreement   and thus fails to interpret Ar ticle 7.8 in its proper context."454 
226. Having interpreted Article 7.8 of the SCM Agreement , the Panel turned to the Appellate 
Body's jurisprudence concerning measures that may be challenged in Article  21.5 proceedings.  The 
Panel observed that the Appellate Body has held th at "measures taken to comply", within the meaning 
of Article 21.5 of the DSU, include "measures with a particularly close relationship to the declared 
'measure taken to comply', and to the recommendations and rulings of the DSB."455  The Panel further 
reasoned that, "where payments of a subsidy ha ve been found to cause serious prejudice and the 
Member in question continues to provide the same  subsidy under the same conditions and criteria, 
there exists 'a particularly close relationship' between the subsidy that the Member continues to 
provide and the recommendations and rulings of the DSB in the original proceeding."456 
227. The Panel concluded: 
[T]o the extent marketing loan payments and counter-cyclical 
payments made by the United States after 21 September 2005 are provided under the same conditions and criteria as the marketing loan payments and counter-cyclical payments subject to the original 
panel's finding of "present" serious prejudice, they are subject to the 
obligation of the United States under Article 7.8 of the SCM 
Agreement   to take appropriate steps to remove the adverse effects of 
the subsidy.  As a consequence, we  also consider that Brazil's claim 
that the United States has failed to comply with its obligations under 
Article 7.8 with respect to these payments is properly before this 
Panel.  In our view this claim pertains to a disagreement between the 
parties as to the "existence or consistency with a covered agreement of measures taken to comply" with  the recommendations and rulings 
of the DSB.
457 
D. Claims and Arguments on Appeal 
228. On appeal, the United States claims that the Pa nel erred in finding that marketing loan and 
counter-cyclical payments made after 21 Septembe r 2005 are properly within the scope of these 
Article 21.5 proceedings.  According to the United States, the only measures subject to the DSB's 
recommendations and rulings concerning present se rious prejudice "were payments made under the 
                                                      
453Panel Report, para. 9.79. 
454Ibid. 
455Ibid., para. 9.80 (referring to Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – 
Canada ), para. 77). 
456Ibid., para. 9.80. 
457Ibid., para. 9.81.  WT/DS267/AB/RW 
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Step 2, marketing loan and counter-cyclical payment programs in MY 1999-2002 (i.e., 
through July 31, 2003)."458  Therefore, the United States assert s, the "marketing loan and counter-
cyclical payments made after September 21, 2005  were not subject to the DSB's recommendations 
and rulings" and "the payments ma de after September 21, 2005 were not in any way [United States] 
measures taken to comply with other r ecommendations and rulings of the DSB."459   
229. In the United States' view, the Panel's err oneous finding resulted from its fundamental 
misunderstanding of both the obligation of the United States under Article 7.8 of the  SCM Agreement   
and the relationship between Article 7.8 of the  SCM Agreement   and Article 21.5 of the DSU.460  The 
United States emphasizes that "the obligation un der Article 7.8 extends only as far as the DSB's 
recommendations and rulings", and that, "[i]n this dispute, the DSB's recommendations and rulings 
applied only to the Step 2, ma rket loss assistance, marketing loan, and counter-cyclical payments 
made during MY 1999-2002, and did not cover either future paym ents, or the subsidy programs 
themselves."461  The United States further submits that "[ d]isallowing Brazil's over-expansive claims 
in this proceeding would not mean that Members ha ve no remedy to address the adverse effects of a 
subsidy."462  It explains that a WTO Member may challenge:  (i) the present adverse effects of past or 
current payments;  (ii) the threat of serious prejudice of past, current, or future payments;  or (iii) the 
programmes "as such".463  The obligations of the responding Member under Article 7.8 of the SCM 
Agreement   would depend on the outcome of those challenges.   
230. Brazil submits that the Panel correctly in terpreted and applied Article 7.8 of the SCM 
Agreement   and Article 21.5 of the DSU in finding that marketing loan and counter-cyclical payments 
made after 21 September 2005 are properly within the scope of these Article 21.5 proceedings.464  
Brazil argues that the United States "fails to  recognize that … Article 21.5 concerns ' new and different 
measure[s] that [were] not before the original panel ' and that are, therefore,  not  the same measures 
found to be WTO-inconsistent in the original proceedings."465  Consequently, in Brazil's view, the 
United States is wrong to suggest that the new ma rketing loan and counter-cyclical payments cannot 
                                                      
458United States' appellant's submission, para. 62. 
459Ibid. 
460See ibid., para. 63.  
461Ibid., para. 65 (referring to Original Panel Report, paras. 8.1(g)(i) and 8.3(d)). 
462Ibid., para. 72.   
463See ibid. 
464Brazil's appellee's submission, heading III.B.4, p. 60. 
465Ibid., para. 227 (quoting Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 41). 
(emphasis added by Brazil) WT/DS267/AB/RW 
Page 90  
 
be included in these proceedings just because they  were not subject to the DSB's recommendations 
and rulings.
466 
231.  According to Brazil, the Panel properly found that a particularly close relationship exists 
between the old and the new marke ting loan and counter-cyclical paym ents, such that the latter are 
subject to these Article 21.5 proceedings.467  Brazil submits that the United States' actions in this case 
involve replacing the old marketing loan and coun ter-cyclical payments, and their effects, with a 
stream of new payments in increased amounts that are substantively identical, made to the same 
recipients, for the same crops, and on the same te rms and conditions.  Given the substantive nature, 
timing, and effects of the new payments at issue— which were the first replacement measures adopted 
after the end of the implementation period—the Pane l correctly concluded that the new payments are 
"measures taken to comply".468  Finally, Brazil cautions about the consequences of accepting the 
United States' position, which would mean that the grant of annually recurring subsidies becomes "a 
moving target that escape[s] from [the WTO subsidy] disciplines'."469 
232. Argentina470, Australia471, Canada472, the European Communities473, and New Zealand474 
assert that the Panel did not err in finding that ma rketing loan and counter-cyclical payments made 
after 21 September 2005 are properly within the scope of these Article 21.5 proceedings.475 
E. Whether Marketing Loan and Counter-cyclical Payments Made After 
21 September 2005 are Properly within the Scope of These Article 21.5 Proceedings 
233. Brazil and the United States disagree on whether the original panel's findings extend to the 
marketing loan and counter-cyclical payments  programmes , or are limited to the  payments   made 
under the programmes.  The Panel in these Article  21.5 proceedings concluded that the original 
panel's findings were addressed to the  payments , and not to the  programmes   themselves.  Brazil 
conditionally appeals this finding, but requests that we address its claim only if we reverse the Panel's 
                                                      
466Brazil's appellee's submission, para. 227. 
467Ibid., para. 232.   
468Ibid., para. 256. 
469Ibid., para. 243 (quoting Panel Report, US – Softwood Lumber IV (Article 21.5 – Canada) , 
para. 4.30). 
470Argentina's third participant's submission, para. 6.  Argentina's argument, however, focuses on the 
Panel's finding concerning the marketing loan and counter-cyclical payments programmes.   
471Australia's third participant's submission, para. 19. 
472Canada's third participant's submission, para. 23. 
473European Communities' third participant's submission, para. 25. 
474New Zealand's third participant's submission, para. 3.10. 
475Japan requests that the Appellate Body "clarify the scope of the DSB's recommendations and 
rulings" when applying the "particularly close relationship" test to marketing loan and counter-cyclical 
payments made after 21 September 2005. (Japan's third participant's submission, para. 12)  WT/DS267/AB/RW 
 Page 91 
 
 
finding on the admissibility of Brazil's claim ag ainst marketing loan and counter-cyclical  payments   
made after 21 September 2005.476   
234. We have some difficulty accepting the notion th at a subsidy programme and the payments 
provided under that programme can be assessed sepa rately.  While the payments may cause adverse 
effects, the amount of the payments, beneficiaries,  and the terms and conditions of eligibility will be 
provided in the subsidy programme or legislation authorizing those payments.  However, because 
Brazil has made it clear that its appeal is cond itional upon our reversal of the Panel's findings 
concerning the payments, we begin our analysis by considering the United States' claim that the Panel 
erred in finding that marketing loan and counter-cyclical  payments   made after 21 September 2005 
are properly within the scope of these Article 21.5 proceedings. 
235. In cases like this one, involving a determination th at subsidies have resulted in adverse effects 
to the interests of another WTO Member, Article 7.8 of the  SCM Agreement   provides that "the 
Member  granting   or  maintaining " the subsidy "shall take appropria te steps to remove the adverse 
effects or shall withdraw the subsidy".477  Article 7.8 is one of the "special or additional rules and 
procedures on dispute settlement cont ained in the covered agreements"478 that are identified in 
Article 1.2 and Appendix 2 of the DSU, which prev ail over the general DSU rules and procedures to 
the extent that there is a difference between them.  As we see it, Article 7.8 specifies the actions that 
the respondent Member must take when a subsidy gr anted or maintained by that Member is found to 
have resulted in adverse effects to the interests of  another Member.  This means that, in order to 
determine whether there is compliance with the DSB's recommendations and rulings in a case 
involving such actionable subsidies, a panel would have to assess whether the Member concerned has 
taken one of the actions for eseen in Article 7.8 of the  SCM Agreement .  We agree, therefore, with the 
Panel that we must also take into account Article 7.8 of the  SCM Agreement   in order to determine 
the proper scope of these Article 21.5 proceedings.479 
236. Pursuant to Article 7.8, the implementing Member  has two options to come into compliance.  
The implementing Member:  (i) shall take appropriate steps to remove the adverse effects;  or (ii) shall withdraw the subsidy.  The use of the terms "shall take" and "shall w ithdraw" indicate that 
                                                     
 
476Brazil's other appellant's submission, para. 204. 
477(emphasis added)  Article 7.8 of the  SCM Agreement   reads in full: 
Where a panel report or an Appellate Bo dy report is adopted in which it is 
determined that any subsidy has resulted in adverse effects to the interests of another Member within the meaning of  Article 5, the Member granting or 
maintaining such subsidy shall take appropriate steps to remove the adverse 
effects or shall with draw the subsidy. 
478Article 1.2 of the DSU. 
479See Panel Report, paras. 9.79-9.81. WT/DS267/AB/RW 
Page 92  
 
compliance with Article 7.8 of the   SCM Agreement  will usually involve some action by the 
respondent Member.  This affirma tive action would be directed at effecting the withdrawal of the 
subsidy or the removal of its adverse effects.  A Member would normally not be able to abstain from 
taking any action on the assumption that the subsidy w ill expire or that the adverse effects of the 
subsidy will dissipate on their own.
480 
237. The question then becomes:  With respect to which subsidies must the implementing Member 
take such action?  Such action would certainly be expected with respect to subsidies granted in the 
past and which may have formed the basis of a pa nel's determination of present serious prejudice and 
adverse effects.481  However, we do not see the obligation in Article 7.8 as being limited to subsidies 
granted in the past.  Article 7.8 expressly refers to a Member "granting or maintaining such subsidy".  
The verb "maintain" suggests, to us, that the oblig ation set forth in Article 7.8 is of a continuous 
nature, extending beyond subsidies granted in the p ast.  This means that, in the case of recurring 
annual payments, the obligation in Article 7.8 w ould extend to payments "maintained" by the 
respondent Member beyond the time period examined by the panel for purposes of determining the existence of serious prejudice, as long as those payments continue to have adverse effects.
482  
Otherwise, the adverse effects of subsequent payments would simply replace the adverse effects that 
the implementing Member was under an obligation to remove.  Such a reading of Article 7.8 would 
not give meaning and effect to th e term "maintain", which is distin ct from the term "grant", and has 
also been included in that Article.  Indeed, it would render the term "maintain" redundant.  In 
addition, it would fail to give meaning and effect to the obligation to "take appropriate steps to 
remove the adverse effects" in Article 7.8, and to  the requirement under Article 21.5 to "comply" with 
the DSB's recommendations and rulings, including th e requirement to take the remedial action 
foreseen in Article 7.8 as a consequence of a finding of adverse effects.   
238. Our interpretation of Article 7.8 is consistent w ith the context provided by Article 4.7 of the  
SCM Agreement , which applies in cases involving prohibited subsidies.  In US – FSC (Article 21.5 – 
EC II) , the Appellate Body stated that, "if, in an Article 21.5 proceeding, a panel finds that the 
measure taken to comply with the Article 4.7 r ecommendation made in the original proceedings does 
                                                      
480See Australia's third participant's submission, para. 16. 
481As noted below, the use of a historical reference or investigation period will usually be necessary 
when examining a claim of serious prejudice. (See infra , para. 243) 
482As we see it, the period MY 1999-2002 was merely the historical reference period examined by the 
original panel.  As an evidentiary matter, that period determined the data set that the original panel would examine. (See Original Panel Report, paras. 7.1198 and 7.1199)  Although the original panel referred to the 
period MY 1999-2002 in the conclusion that it reached at the en d of its analysis of significant price suppression 
(ibid., para. 7.1416), it made no reference to any time period in the "Conclusions and Recommendations" 
section of its report, nor in its discussion of the United States' obligations under Article 7.8 of the  SCM 
Agreement . (Ibid., paras. 8.1(g)(i) and 8.3(d))  WT/DS267/AB/RW 
 Page 93 
 
 
not achieve  full  withdrawal of the prohibited subsidy—either because it leaves the entirety or part of 
the original prohibited subsidy in place, or becau se it replaces that subsidy with another subsidy 
prohibited under the  SCM Agreement —the implementing Member continues to be under the 
obligation to achieve full w ithdrawal of the subsidy".483  Similarly, a Member would not comply with 
the obligation in Article 7.8 to withdraw the subsi dy if it leaves an actionable subsidy in place, either 
entirely or partially, or replaces that subsidy with  another actionable subsidy.  We recognize that, 
unlike Article 4.7, Article 7.8 gives Members th e option of removing the adverse effects as an 
alternative to withdrawing the subsidy.  The availa bility of this option is arguably a consequence of 
the fact that actionable subsidies are not prohibited  per se ;  rather, they are actionable to the extent 
they cause adverse effects.  Nevert heless, the option of removing the adverse effects cannot be read as 
allowing a Member to continue to cause adverse effe cts by maintaining the subsidies that were found 
to have resulted in adverse effects.  As observed ear lier, if the contrary proposition were accepted, the 
adverse effects of subsequent subsidies, especially  in the case of recurrent subsidies, would simply 
replace the adverse effects that the implementing Member was required to remove, making the obligation in Article 7.8 to "take appropriate step s to remove the adverse effects" meaningless.   
239. Our interpretation of Article 7.8 is also c onsistent with the approach taken under the SCM 
Agreement  with respect to countervailing duty measures.   A determination that the existence of a 
subsidy causes material injury provides a basis for the prospective application of countervailing duty 
measures.  Thus, even though the basis for a countervailing duty determination is the injury 
determined to exist in the past, th e remedial measures are prospective. 
240. The United States submits that "the obligation under Article 7.8 extends only as far as the 
DSB's recommendations and rulings"
484, and asserts that Article 7.8 cannot modify "the terms of 
reference or the scope of compliance pr oceedings under Article 21.5 of the DSU".485  We believe the 
United States misinterprets the relevance of Ar ticle 7.8 for interpreting the scope of DSB 
recommendations and rulings in cases where subsidies are found to cause adverse effects.  Article 7.8 
informs the meaning and scope of the DSB's recomm endations and rulings arising from the original 
proceedings.  In our view, Article 7.8 specifies the ac tions that the United States had to take in order 
to comply with the DSB's recommendations and rulings.486  To the extent a WTO Member fails to 
                                                      
483Appellate Body Report, US – FSC (Article 21.5 – EC II) , para. 84 (referring to subsidies provided 
under the Foreign Sales Corporation ("FSC") Act of 1984 and the FSC Repeal and Exterritorial Income 
Exclusion ("ETI") Act of 2000, and not fully withdrawn by the Jobs Creation Act of 2004). 
484United States' appellant's submission, para. 65. 
485Ibid., para. 66. 
486See New Zealand's third participant's submission, para. 3.3.  New Zealand explains that this result 
does not "amount to 'somehow modifying Article 21.5 of the DSU' as the United States claims" but rather "is 
simply the result of effective treaty interpretation".  ( Ibid., para. 3.4) WT/DS267/AB/RW 
Page 94  
 
comply with the requirement in Article 7.8 that it ta ke steps to remove the adverse effects or withdraw 
the subsidy, because it maintains the subsidy, it can not be said to have achieved full compliance with 
these DSB recommendations and rulings.  
241. Brazil and several of the third participants have cautioned that accepting the United States' 
approach would deny effective relief to WTO Memb ers who successfully demonstrate that subsidies 
provided by another Member have  resulted in adverse effects.
487  The United States, however, rejects 
the notion that its interpretation would " undermine the effectiveness of Article 7.8"488 of the SCM 
Agreement .  It asserts that "[d]isallowing Brazil's over-expansive claims in this proceeding would not 
mean that Members have no remedy to address the adverse effects of a subsidy" because "[n]othing 
prevents Members from challenging the present adver se effects of past or current payments;  the 
threat of serious prejudice of past, current, or futu re payments;  or present adverse effects or threat of 
serious prejudice from payment programs 'as such.'"489 
242. We examine, first, the United States' argu ment that Brazil could have challenged the 
programmes "as such".  As we indicated above490, we have difficulty accepting the notion that 
payments under a subsidy programme  can be assessed separately from the programmes or legislation 
pursuant to which those payments are made.491  This is because the terms and conditions, 
beneficiaries, amounts, and other aspects of a paym ent will be set in the programme or authorizing 
legislation, especially in the case of annually recurring payments.  The difficulty of divorcing the payments from the programmes, in this case, is evident in the Panel's approach to this issue.  Despite 
finding that only the payments we re properly within the scope of the Article 21.5 proceedings, the 
Panel nevertheless considered that it could not  exclude completely from its assessment the 
programmes under which the payments were provided.
492 
243. Moreover, even if a complainant brings an " as such" challenge to a subsidy programme, it is 
difficult to see how a panel would assess whether th e subsidy has resulted in adverse effects without 
reviewing the payments actually made under that programme during a past reference period.  The
                                                      
487See infra , footnote 499. 
488United States' appellant's submission, para. 71 (quoting Panel Report, para. 9.80). 
489Ibid., para. 72. 
490See supra , para. 234. 
491The European Communities and New Zealand expr essed similar views at the oral hearing. 
492See Panel Report, para 9.54.  Because "the original  panel's finding of serious prejudice was based on 
an analysis that took into consideration the legal pr ovisions or subsidy programmes pursuant to which the 
subsidies were provided", the Panel "c onsider[ed] that it is appropriate in this proceeding to conduct a similar 
analysis of subsidies in the context of the legal provisions or subsidy programmes pursuant to which the 
subsidies are granted." ( Ibid.)  WT/DS267/AB/RW 
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United States acknowledges that "serious prejudice, by  its nature, is fact-sp ecific and depends on the 
situation in the market, a situation that may be cons tantly changing such that the terms and conditions 
for a subsidy that causes serious prejudice during one time period are not causing serious prejudice for 
another time period."493  Thus, we find it difficult to conceive how an analysis of whether a 
programme "as such" resulted in adverse effects w ould differ from an analysis of whether payments 
under a programme have resulted in such effects.494 
244. Secondly, the United States asserts that paym ents made after 21 September 2005 would have 
been covered by the DSB's recommendations and ru lings if Brazil had succeeded in its threat of 
serious prejudice claim in the original proceedings.  The United States notes, in this regard, that the 
original panel "declined to make any finding of 'thr eat' of serious prejudice with respect to payments 
allegedly 'mandated' to be made in MY 2003-2007;  and ... declined to  make any find[ing] of 'threat' 
of serious prejudice with respect to the Step 2, marketing loan, and counter-cyclical payment 
programs themselves (which would have implicated  all  payments under the programs)."495  
However, a claim of serious prejudice may relate to a different situation than a claim of threat  of 
serious prejudice.  A claim of  present  serious prejudice relates to the existence of prejudice in the 
past, and present, and that may continue in  the future.  By contrast, a claim of  threat   of serious 
prejudice relates to prejudice that does not yet exist, bu t is imminent such that it will materialize in the 
near future.  Therefore, a threat of serious pr ejudice claim does not necessarily capture and provide a 
remedy with respect to the same scenar io as a claim of present serious prejudice.496  A distinction 
between injury and threat of injury also exists in  the context of countervailing duty measures.  Once a
                                                      
493United States' appellant's submission, para. 73. 
494We do not believe that only DSB recommendations and rulings of "as such" WTO-inconsistency 
create implementation obligations with prospective effect.  DSB recommendations and rulings involving findings of "as applied" WTO-inconsistency also give ri se to prospective implementation obligations as of the 
adoption of the panel and Appellate Body reports.  Indeed, remedies in WTO law are generally understood to be 
prospective in nature. 
495United States' appellant's submission, para. 60. (original emphasis;  footnote omitted) 
496See ibid.  The original panel declined to make a findin g on Brazil's threat of serious prejudice claim 
partly because it considered that: 
[b]ecause the Panel's "present" serious prejudice findings include findings of 
inconsistency that deal with the FSRI Act of 2002 and subsidies granted 
thereunder in MY 2002, the United States is obliged to take action 
concerning its present statutory and regulatory framework as a result of our 
"present" serious prejudice finding .  We recall that, pursuant to Article 7.8 of 
the SCM Agreement , the United States is under an obligation to "take 
appropriate steps to remove the adverse effects or ... withdraw the subsidy". 
(Original Panel Report, para. 7.1501 (emphasis added; footnote omitted)) WT/DS267/AB/RW 
Page 96  
 
determination of present material injury is ma de, a Member may impose countervailing duties on 
future imports without any obligation to de monstrate a threat of material injury. 
245. Thus, the approach advocated by the United St ates would have serious implications for a 
complaining Member's ability to obtain relief agains t adverse effects of actionable subsidies.  Under 
such an approach, a complaining Member that has demonstrated that subsidies provided by another 
Member have resulted in adverse effects would obtai n relief only with respect to any lingering effects 
of the subsidies provided during the period examined by the panel.
497  As Australia notes498, such 
panel findings would essentially be declaratory in  nature, because there would be no impact on 
subsidies granted or maintained after the panel made its finding.  The complaining Member would 
have to initiate another dispute to obtain relief w ith respect to payments made after the period 
examined by the panel, even if t hose subsidies are recurring payments or otherwise of the same nature 
as those found to have resulted in adverse effects.  Even if the complaining Member were to succeed 
in its claims a second time, the subsidizing Member  could provide further subsidies after the second 
panel's ruling, and the complaining Member would have  to initiate yet another dispute, and this cycle 
could continue.  As Brazil and several of the thir d participants have warned, the inability of a 
complaining Member to obtain relief against subsidi es that result in adverse effects to its interests 
would seriously undermine the disciplines contained in Articles 5 and 6 of the  SCM Agreement .499   
246. The approach advocated by the United States would not only compromise the effectiveness of 
the provisions on actionable subsidies in the  SCM Agreement , it is also difficult to reconcile with the 
objectives of the DSU.  According to Article 3.3, one of the objectives of the DSU is "the prompt 
settlement of situations in which a Member consid ers that any benefits accruing to it directly or 
indirectly under the covered agreements are being impaired by measures take n by another Member".  
Article 21.1 further provides that "[p]rompt complia nce with recommendations or rulings of the DSB 
is essential in order to ensure effective resolutio n of disputes to the benefit of all Members".  
                                                      
497This assumes that it is even possible to remove the effects of a subsidy that has already been granted. 
498Australia's responses to questi oning at the oral hearing. 
499See Brazil's appellee's submission, para. 245.  Aust ralia asserts that the ap proach advocated by the 
United States "would lead to a complaining Member becoming involved in a permanent litigation loop of annual challenges concurrent with the expiry of each marketi ng year", thereby "defeat[ing] the object and purpose of 
Article 21.5 proceedings, and would al so be contrary to Articles 3 and 21 .1 of the DSU, which recognize that 
prompt compliance with the recommendations and rulings of the DSB is essential to the effective functioning of the WTO and the effective resolution of disputes." (Austra lia's third participant's submission, para. 17 (footnote 
omitted))  Canada describes the United States' position as "a direct challenge to the effectiveness of compliance 
proceedings in serious prejudice cas es". (Canada's third participant's submission, para. 17)  New Zealand 
submits that "[t]he United States' interpretation twists th e linkage between the adverse effects provisions of the  
SCM Agreement  and the compliance provisions of the DSU into  a ... never-ending cycle of challenge and 
'implementation'", and adds that "[s]uch an interpretation robs Article 7.8 of the  SCM Agreement   of any utility 
and renders pointless Article 21.5 compliance proceedings as  they relate to adverse effects claims of this 
nature". (New Zealand's third participant's submission, para. 3.9)  WT/DS267/AB/RW 
 Page 97 
 
 
Requiring a WTO Member to initiate new proceedings  to challenge the same type of recurrent 
subsidies that were found to result in adverse effe cts, simply because the subsidies were provided 
subsequent to the original proceedings, does not promote "prompt settlement" nor "prompt 
compliance".  Moreover, the issue before us is one of admissibility.  Even if the claim is allowed to 
proceed in an Article 21.5 proceeding, the compla ining Member would still  have to establish the 
existence of adverse effects that allege dly result from the subsidies at issue. 
247. It is undisputed that the only action the United States had taken to comply with the DSB's 
recommendations and rulings concerning serious pr ejudice, and thereby with its obligations under 
Article 7.8 of the  SCM Agreement , was the repeal of the Step 2 payments programme effective as 
of 1 August 2006.500  The United States has not contested that it continues to provide marketing loan 
and counter-cyclical payments to United States produ cers of upland cotton and that "the legislative 
and regulatory provisions governing these ... payments have not been changed".501  Thus, the question 
that remained before the Panel was whether the United States had ta ken "appropriate steps to remove 
the adverse effects" of the subsidies found to have r esulted in adverse effects to the interests of Brazil.  
In order to respond to that question, it was proper for the Panel to examine the marketing loan and 
counter-cyclical payments made by the United States  after the expiration of the implementation period 
on 21 September 2005.    
248. Accordingly, we agree with the Panel that, "to the extent marketing loan payments and 
counter-cyclical payments made by the United St ates after 21 September 2005 are provided under the 
same conditions and criteria as the marketing loan pa yments and counter-cyclical payments subject to 
the original panel's finding of 'present' serious pr ejudice, they are subject to the obligation of the 
United States under Article 7.8 of the  SCM Agreement   to take appropriate steps to remove the 
adverse effects of the subsidy".502  We further agree that, as a consequence, Brazil's claim that the 
United States failed to comply with its obligations  under Article 7.8 with respect to those payments 
was properly within the scope of the Article 21. 5 proceedings, because the "claim pertains to a 
disagreement between the parties as to the 'existen ce or consistency with a covered agreement of 
measures taken to comply' with the r ecommendations and rulings of the DSB."503  More precisely, the 
claim relates to whether the measure taken by th e United States achieves full compliance with the 
                                                      
500See Panel Report, para. 3.7. 
501Ibid., paras. 3.9 and 3.12.  See also ibid., para. 9.79, noting that "[i]t is not in dispute that the United 
States presently provides marketing loan and counter-cyclical payments on the same legal basis and subject to 
the same conditions and criteria as the marketing loan payments and counter-cyclical payments that were subject 
to the panel's finding of 'present' serious prejudice". 
502Ibid., para. 9.81. 
503Ibid. WT/DS267/AB/RW 
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DSB's recommendations and rulings as informed by the obligation of the United States under 
Article 7.8 of the  SCM Agreement . 
249. For these reasons, we  uphold   the Panel's finding, in paragraph 9.81 of the Panel Report, that 
Brazil's claims against marketing loan and counte r-cyclical payments made by the United States 
after 21 September 2005 are properly within the scope of these Article 21.5 proceedings. 
F. Brazil's Other Appeal 
250. In its other appeal, Brazil claims that the Pane l erred in concluding that the original panel's 
findings did not cover the marketing loan  payment and counter-cyclical payments programmes .
504  
According to Brazil, the Panel's finding constitutes a le gal error or, alternatively, a failure to make an 
objective assessment of the matter under Article 11 of the DSU.505  Brazil's appeal is conditional on 
the Appellate Body reversing the Panel's finding that payments made af ter 21 September 2005, under 
the marketing loan payments and counter-cyclical  payments programmes, are measures taken to 
comply that are properly within the scope of these Article 21.5 proceedings.506  
251. In the event that its conditional appeal is accep ted, Brazil requests the Appellate Body to find 
that marketing loan and counter-cyclical payments  made after 21 September 2005 constitute measures 
taken to comply with the DSB's recommendations a nd rulings in the original proceedings because of 
the close connection to the marketing loan and count er-cyclical payments programmes that are subject 
to those recommendations and rulings.  Alternatively,  Brazil requests the Appellate Body to find that, 
through the continued use of the marketing loan  and counter-cyclical payments programmes, the 
United States causes serious prejudice to Brazil's interests.507 
252. The United States asserts that the "original pane l's findings and recommendations with respect 
to 'present' serious prejudice were limited to pa yments under the marketing loan and counter-cyclical 
programs, and did not encompass the programs themselves".508  It explains that the original panel 
                                                      
504See Brazil's other appellant's submission, para. 46 (referring to Panel Report, para. 9.54). 
 505Brazil submits that, "[i]n mischaracterizing the sc ope of the original panel's findings, and of the 
DSB's recommendations and rulings, the Panel failed to make an 'objective assessment of the matter before it'." 
(Brazil's other appellant's submission, paras. 127)  In pa rticular, Brazil alleges that the Panel failed to consider 
the original panel's description of the "measures at issu e" and failed to examine the original panel's terms of 
reference, as set forth in the original panel request.  Brazil adds, however, that "the Appellate Body need not 
address this claim under Article 11 of the DSU if it find s that the compliance Panel erred under Article 21.5 of 
the DSU in examining its terms of reference pursuant to the DSB's recommendations and rulings regarding the subsidy programs".  ( Ibid., para. 130)  
506See ibid., para. 204. 
507Ibid., para. 205. 
508United States' appellee's submission, para. 20 (referring to Original Panel Report, paras. 7.1416 
and 8.1(g)(i)).  WT/DS267/AB/RW 
 Page 99 
 
 
"conducted its analysis consistent with Brazil's clai ms, which, ... did not include a claim of 'present' 
serious prejudice regarding the marketing lo an and counter-cyclical payment programs 
themselves".509  In addition, the United States argues that  Brazil has failed to demonstrate that the 
Panel failed to discharge its duties under Article 11 of the DSU by "disregarding or misconstruing"510 
the findings of the original panel, or the partie s' arguments concerning those findings.  Thus, the 
United States requests the Appellate Body to uphold the Panel's finding that "the original panel's 
findings, and the DSB's recommendations and ruli ngs, include only marketing loan and counter-
cyclical payments made in MY 1999-2002".511 
253. Argentina and New Zealand support Brazil's conditional appeal.512  By contrast, the European 
Communities considers that the original panel's fi ndings related to the marketing loan and counter-
cyclical payments and not to the programmes authorizing those payments.513 
254. We have upheld the Panel's finding that mark eting loan and counter-cyclical payments made 
after 21 September 2005 are properly within the scope of these Article 21.5 proceedings and, 
therefore, the condition on which Brazil's other a ppeal is predicated has not been fulfilled.  
Consequently, we do not need to address Brazil's other appeal. 
VI. GSM 102 Export Credit Guarantees 
255. We turn now to the United States' appeal of the Panel's conclusion that export credit 
guarantees issued after 31 July 2005 under the revised GSM 102 programme constitute export 
subsidies because they are provided at premiums  which are inadequate to cover the long-term 
operating costs and losses of the programme, within th e meaning of item (j) of the Illustrative List.  
We begin our analysis by providing a summary of the relevant aspects of the original proceedings in 
Section A and a description of the measures taken by the United States to comply with the DSB's 
recommendations and rulings in Section B.  This is  followed by summaries of the Panel's findings in 
these Article 21.5 proceedings in Section C and of the claims and arguments raised on appeal in 
Section D.  We then analyze in Section E the specifi c issues raised in the United States' appeal against 
the Panel's assessment of the revised GSM 102 progr amme under item (j) of the Illustrative List.  
Finally, in Section F, we set out our conclusions. 
                                                      
509United States' appellee's submission, para. 24. 
510Ibid., para. 59. 
511Ibid., para. 90 (referring to Panel Report, para. 9.49). 
512See Argentina's third participant's submission, pa ra. 17;  and New Zealand's third participant's 
submission, para. 3.11. 
 513See European Communities' third participant's submission, para. 26.  WT/DS267/AB/RW 
Page 100  
 
A. Original Proceedings 
256. As described above
514, Brazil challenged three export credit guarantee programmes in the 
original proceedings:  the GSM 102, the GSM 103, and the SCGP.  The GSM 102 programme 
guarantees the repayment of credit made available to  finance export sales of agricultural commodities 
on credit terms between 90 days and 3 years.  To obtain the guarantee, the exporter had to pay a fee calculated on the basis of guaranteed value, according to a schedule of rates applicable to different 
credit terms and repayment intervals.  The fee is  capped by law at one per cent of the guaranteed 
value.
515  The GSM 103 programme operated in a similar fashion to the GSM 102 programme, 
although the GSM 103 programme guaranteed export cred its with longer terms (between three and ten 
years) and the fees under GSM 103 were not capped by law.516  Finally, the SCGP guaranteed credits 
provided by the exporter to the purchaser for a term not exceeding 180 days.517  Like the GSM 102, 
fees for the SCGP are capped by law at one per cent of the dollar amount guaranteed.518 
257. The original panel and the Appellate Body foun d that export credit guarantees provided under 
the GSM 102, GSM 103, and SCGP programmes to un scheduled products (including upland cotton) 
and one scheduled product (rice) constituted export s ubsidies applied in a manner that resulted in 
circumvention of the United States' export subsid y commitments, and were thereby inconsistent with 
Articles 10.1 and 8 of the  Agreement of Agriculture .519  To the extent that these subsidies did not 
fully conform to the Agreement on Agriculture , these export credit guarantees were also found to be 
prohibited export subsidies within the meaning of Articles 3.1(a) and 3.2 of the  SCM Agreement .520  
B. Measures Taken by the United States  
258. Following the adoption of the original pa nel and Appellate Body reports, the USDA 
announced that, as of 1 July 2005, it would no longer accept applications under the GSM 103 programme and would apply a new fee structure to  the GSM 102 and SCGP programmes.  Under the 
new fee structure, fees were increased and differe nt fees are applicable depending on country risk, 
repayment term, and repayment frequency.
521  More specifically, countries are classified into eight
                                                      
514See supra , para. 189. 
515Panel Report, para. 3.14.   
516Ibid. 
517Ibid. 
518Original Panel Report, para. 7.244. 
519Ibid., para. 8.1(d)(i). 
520Appellate Body Report, US – Upland Cotton , para. 763(e)(iv).  
521Fees were increased by 46 per cent on average (23 per cent on a weighted-average basis). (Panel 
Report, para. 14.119)  WT/DS267/AB/RW 
 Page 101 
 
 
risk categories, according to the extent of the ri sk.  Credit guarantees for exports to countries in a 
higher risk category are subject to higher fees, and e xports to countries in the highest risk category are 
not eligible for credit guarantees.  However, the one per cent statutory fee cap was maintained.  
Subsequently, in October 2005, the United States  announced that it would no longer issue export 
credit guarantees under the SCGP.522 
C. Article 21.5 Proceedings 
259. In the Article 21.5 proceedings, Brazil claimed that "GSM 102 export credit guarantees 
provided to exports of unscheduled  products and exports of three scheduled products—rice, pig meat 
and poultry meat—since the end of the implementation period, i.e. 1 July 2005" resulted in 
circumvention of the United States' export subsidy commitments, contrary to Articles 10.1 and 8 of 
the  Agreement of Agriculture , and are consequently also prohib ited export subsidies contrary to 
Article 3.1(a) and 3.2 of the   SCM Agreement .523   
260. The Panel observed that it would first dete rmine whether GSM 102 export credit guarantees 
constitute "export subsidies" within the meaning of Article 10.1 of the Agreement on Agriculture .  
The Panel noted that, because "the  Agreement on Agriculture   does not contain a comprehensive 
definition" of the term "export subsidy", it would refer to the SCM Agreement  for contextual 
guidance.524  In particular, the Panel said it would de termine whether GSM 102 guarantees are "export 
subsidies" by applying the standard set out in item (j) of the Illustrative List.525  In order to determine 
whether export credit guarantees under the GSM 102 programme were provided at "premium rates 
that are inadequate to cover its  long term operating costs and losse s", the Panel conducted a "two-step 
analysis".526  It first reviewed evidence of a "quantitative nature submitted by the parties" and then it 
examined "evidence pertaining to elements of th e 'structure, design and operation' of the GSM 102 
programme submitted by Brazil".527 
                                                      
522Panel Report, para. 3.16. 
523Ibid., para. 14.40. (footnote omitted) 
524Ibid., para. 14.48. 
525Ibid., para. 14.52.   In addition to claiming that the export credit guarantees did not meet the 
benchmark in item (j) of the Illustrative List, Brazil claime d that the export credit guarantees meet the definition 
of an export subsidy under the terms of Articles 1.1 and 3.1(a) of the  SCM Agreement , (that is, that they are 
"financial contributions" that confer a "benefit" and are contingent upon export performance).  Brazil described 
these two lines of inquiry as separate claims and asked the Panel to resolve the latter one first.  The Panel, 
however, rejected Brazil's request because it considered th e two lines of inquiry as alternative arguments, rather 
than separate claims.  It went on to state that it would only address Brazil's argument based on the definition of an export subsidy in Articles 1.1 and 3. 1(a) if it did not resolve the matter under item (j) of the Illustrative List.  
Because the Panel made a finding under item (j), it foun d it unnecessary to address Brazil's other argument.  
(Ibid., paras. 14.49-14.53 and para. 14.135) 
526Ibid., para. 14.64. 
527Ibid. WT/DS267/AB/RW 
Page 102  
 
261. As regards the evidence of a "quantitative natu re", the Panel noted that the United States 
budgets for 2007 and 2008 continued to project a loss in connection with GSM 102 export credit 
guarantees issued between 2006 and 2008.
528  The Panel agreed with the original panel that 
"consistently positive initial subsidy estimates pr ovide an indication by the [United States] 
government that it expects the export credit guara ntee programmes ... to be run at a net cost".529    The 
Panel considered it "highly significant that the [Unite d States] Government continues to project, at the 
time of their issuance, that new GSM 102 guarant ees issued under the revised programme will be 
provided at a net cost."530    The Panel rejected the United Stat es' arguments that the initial estimates 
were unreliable because they were established before any use is made of the programme and were calculated on the basis of government-wide estimati on rules without regard to CCC's actual default 
experience.  According to the Panel, these initial estimates were subsequently re-adjusted in the 
United States budgets of the two years subsequent  to the fiscal year in which the initial estimate 
appears
531, and in no case had such an adjustment turn ed a positive subsidy estimate into a negative 
one.532  The Panel additionally noted a USDA statement that the credit models used to calculate the 
subsidy estimate "currently  provide reliable estimates"533, and concluded that the CCC's estimation 
method is relied upon by the United States' government  itself to assess the long-term net costs of its 
export credit guarantee programmes. 
262. The Panel also considered new budget da ta submitted by the United States concerning 
cumulative subsequent re-estimates of the initial su bsidy estimates on a cohort-specific basis for the 
                                                      
528Panel Report, para. 14.69. 
529Ibid., para. 14.71 (referring to Orig inal Panel Report, para. 7.843). 
530Ibid., para. 14.71. 
531Ibid., para. 14.76.  As the Panel noted, "[e]ach annual budget provides long-term subsidy estimates 
for three cohorts of export credit guarant ees:  the cohort of guarantees to be i ssued in the fiscal year that has not 
yet begun (for instance, in the 2008 budget, the 2008 cohort ), the cohort of guarantees issued in the fiscal year 
that has partly elapsed at the time th e budget is released (in the 2008 budget, the 2007 cohort), and the cohort of 
guarantees issued in the fiscal year that has most r ecently ended (in the 2008 b udget, the 2006 cohort)." ( Ibid., 
footnote 681 to para. 14.76)  In addition, the estimates are subject to further re-estimates over the lifetime of a 
cohort. (See infra , footnote 534) 
532Ibid., para. 14.76 (referring to Exhibit Bra-617 submitted by Brazil to the Panel and Exhibit US-8 
submitted by the United States to the Panel).  The Panel explained: 
We need not quantify such a cost.  Therefore, the fact that the initial subsidy estimate may be overstated does not, in our view, mean that it is not a reliable 
predictor of a net cost to the [United States] Government. 
(Ibid., para. 14.76) 
533Ibid., para. 14.77 (referring to Exhibit Bra- 588 submitted by Brazil to the Panel, supra , 
footnote 170).  WT/DS267/AB/RW 
 Page 103 
 
 
period 1992-2006.534  A cohort is comprised of all guarantees issued in a given year.535  The United 
States submitted a table showing an anticipated profit of US$926 million for the 1992-2002 cohorts 
(which are the cohorts examined by the origin al panel) and of US$403 million for the 1992-2006 
cohorts.  The Panel was not convinced that the re- estimates data established that all positive initial 
estimates would eventually turn in to negative ones.  The Panel noted , in particular, that the United 
States Government continued to project, for th e new cohorts issued under the revised GSM 102 
after 1 July 2005, that the guarantees woul d be provided at a long-term net cost.536  Moreover, it 
observed that the re-estimates data ("except those related to the 1994 and 1995 cohorts, which have 
closed") were still  estimates , albeit revised, and they did not est ablish that the programmes were not 
provided at a net cost to the government.537  In addition, the Panel reviewed cash accounting evidence 
submitted by Brazil and relevant figures reported in th e CCC's Financial Statements, both of which, in 
the Panel's view, pointed to the programmes bein g provided at a net cost to the United States 
Government.538 
263. The Panel concluded: 
[N]otwithstanding the reestimates data submitted by the United States, 
we find it highly significant that the [United States] Government continues, at the time of their issu ance, to project that new GSM 102 
export credit guarantees will, in the long-term, be provided at a net cost to the Government.  In light of this, we consider that the initial 
subsidy estimates provide a str ong indication that GSM 102 export 
credit guarantees are provided against premia which are inadequate to 
cover the long-term operating costs and losses of the GSM 102 programme.
539 
264. The Panel next examined a comparison submitte d by Brazil of the prem iums charged under 
the revised GSM 102 programme and the minimum premium rates (the "MPRs") provided in the Organisation for Economic Co-opera tion and Development (the "OEC D") Arrangement on Officially 
Supported Export Credits (the "OECD Arrangement") .  The Panel observed that the MPRs do not 
                                                     
 
534Pursuant to the Federal Credit Reform Act of 1990 (the "FCRA") ( supra , footnote 168), initial 
subsidy estimates in annual bu dgets are subject to re-estimations until a cohort is closed.  The CCC is required 
to re-estimate the subsidy cost throughout the life of each cohort to account for differences between the original 
assumptions of cash flow and actual cash flow or revised assumptions about future cash flow. (Panel Report, 
paras. 14.78 and 14.79;  Original Panel Report, footnote 1003 to para. 7.843)  Only the 1994 and 1995 cohorts have closed. (Panel Report, para. 14.81)  According to the United States, this re-estimate process "project[ed] 
cashflows to and from the government over the life of the cohort". (United States' response to Question 111 
posed by the Panel, Panel Report, p. D-430, para. 240) 
535Panel Report, para. 14.57. 
536Ibid., para. 14.80. 
537Ibid., para. 14.81. 
538Ibid., paras. 14.81-14.87. 
539Ibid., para. 14.89. WT/DS267/AB/RW 
Page 104  
 
provide a legally binding benchm ark for determining whether a programme constitutes an export 
subsidy within the scope of item (j).
540  Nevertheless, the Panel opined that the MPRs are relevant 
"from an evidentiary point of view".541  In the light of the magnitude of the difference between the 
MPRs and the fees under the revised GSM 102 pr ogramme (the MPRs are on average 106 per cent 
above GSM 102 fees), the Panel considered that "the MPRs may provide an indication, on an 
informed basis, of the fact that GSM 102 fees are set  at a level which is insufficient to cover the long 
term operating costs and losses."542     
265. Turning to the structure, design, and operation of the revised GSM 102 programme, the Panel 
recalled the original panel's finding that the CCC ha s access to funds from the United States Treasury 
and benefits from the full faith and credit of the Un ited States Government.  According to the Panel, 
"this is still the case" with respect to the revised GSM 102 programme.543  Furthermore, the Panel 
recalled the original panel's finding that the fees ch arged by the CCC were not "risk based" either with 
respect to country risk or the cr edit-worthiness of the borrower in an  individual transaction.  With 
regard to borrowers' credit-worthiness, the Pane l found that the GSM 102 fees were not risk-based 
insofar as they did not take into account the risk of default that is  specific to an individual foreign 
obligor.544  With regard to country risk, the Panel conc luded that the non-repeal of the one per cent fee 
cap was an indication that the fees charged for GSM 102 export credit guarantees were still not "risk-based".
545 
266. The Panel found that this conclusion was confirmed by the evidence presented by Brazil with 
respect to the insufficient "scaling"  (namely, the rate of increase) of GSM 102 fees in relation to the 
risks that the programme does take into considerati on—country risk and length of tenor.  As the Panel 
explained, Brazil's evidence showed significant di fferences between the rates of increase, based on 
country risk, of GSM 102 fees and the fees charged by the United States Export-Import Bank (the "Ex-Im Bank") for two of its programmes:  the Letter of Credit Insurance (the "LCI") and the 
Medium-Term Export Credit Insurance (the "MTI").
546  In the Panel's view, the fact that the financial 
products being compared are not identical did not fundamentally undermine the evidentiary relevance 
                                                      
540Panel Report, para. 14.94. 
541Ibid., para. 14.95.  The Panel added that the MPRs "may be regarded as representing an assessment, 
developed by and agreed upon by the export credit experts of the Participants to the Arrangement, of the premia 
levels that are necessary to ensure  that export credit guarantee programmes cover their long-term operating costs 
and losses". ( Ibid., para. 14.96) 
542Ibid., para. 14.97. 
543Ibid., para. 14.110. 
544Ibid., para. 14.115. 
545Ibid., para. 14.120. 
546Ibid., para. 14.125.  WT/DS267/AB/RW 
 Page 105 
 
 
of the comparison of the scaling of their fees.547  The Panel found, therefore, that the significant 
difference between the scaling of fees suggested that the one per cent statutory fee cap on GSM 102 
fees prevented the adoption of a truly risk-based fee structure by the CCC.548   
267. On the basis of its examination of the structure, design, and operation of the GSM 102 
programme, the Panel concluded: 
In light of these considerations – the CCC's access to funds from the 
[United States] Treasury, which f acilitates the functioning of the 
programme, the fact that GSM 102 fees do not vary with foreign obligor risk, the fact that the one per cent fee cap has not been 
repealed and in our view prevents the adoption of risk-based fees 
(notably due to the insufficient "scaling" of GSM 102 fees) – we 
conclude that the GSM 102 programme  is not designed to cover its 
long term operating costs and losses.
549 
268. In concluding its analysis u nder item (j), the Panel stated: 
We find that Brazil has met its burden of proof in this respect and that 
it has established that the GSM 102 export credit guarantee programme constitutes an "export subsidy" because it is provided against premiums which are inad equate to cover its long term 
operating costs and losses under the terms of item (j) of the Illustrative 
List.
550   
The Panel emphasized that it reached this conclusi on "on the basis of the totality of the evidence 
submitted by Brazil in this respect".551 
269. The Panel further found that, by applying th e GSM 102 export credit guarantees in a manner 
that resulted in circumvention of its export subs idy commitments regarding three scheduled products 
(rice, pig meat, and poultry meat) and unscheduled products (including upland cotton) supported by 
the guarantees, the United States acted inconsistently with Articles 10.1 and 8 of the Agreement on 
Agriculture .552  To the extent that the GSM 102 export credit guarantees did not conform to the 
provisions of the  Agreement on Agriculture , the Panel found that the United States also "acted 
inconsistently with Articles 3.1(a) and 3.2 of the  SCM Agreement  by providing export subsidies to 
unscheduled products and by providing export subs idies to scheduled products in excess of its 
commitments under the Agreement on Agriculture ".553  Consequently, the Panel concluded that the 
                                                      
547Panel Report, para. 14.126. 
548Ibid., para. 14.128. 
549Ibid., para. 14.131. 
550Ibid., para. 14.133. 
551Ibid. 
552Ibid., paras. 14.140 and 14.149. 
553Ibid., paras. 14.150 and 14.156. WT/DS267/AB/RW 
Page 106  
 
United States had failed to comply with the DSB' s recommendations to bring its measures into 
conformity with the Agreement on Agriculture , and had failed  to comply with the DSB's 
recommendation, pursuant to Article 4.7 of the  SCM Agreement , to withdraw the prohibited 
subsidies.
554 
D. Claims and Arguments on Appeal 
270. The United States challenges on appeal several aspects of what it describes as the Panel's 
application of item (j) to the facts of the case.  Fi rst, the United States submits that, in conducting its 
quantitative analysis, the Panel erroneously relie d on initial budgetary estimates presented by Brazil 
even though Brazil accounted for neither the "flaws inherent in the initial subsidy estimates", such as 
government-wide default and recovery rates, nor th e new re-estimates submitted by the United States 
that show "profitability".555  Secondly, the United States alleges that the Panel inappropriately made a 
comparison of GSM 102 fees to MPRs under the OECD Arrangement despite recognizing that the 
latter do not have any legal status as a benchmark for examining agricultural export credit guarantees 
pursuant to item (j).556  Thirdly, the United States argues th at the Panel erred in comparing the 
"scaling" of the fees under the revised GSM 102 programme with fees under the "fundamentally 
dissimilar" programmes of the United States Ex-Im Bank.557  Fourthly, the United States maintains 
that the Panel erred in finding that the continued existence of the one per cent fee cap prevented the 
imposition of risk-based fees.558  Finally, the United States asserts that the Panel "fundamentally 
misinterpreted" item (j) in relying on certain factors not foreseen by that provis ion, including the fact 
that the CCC has unlimited access to  United States Government funds and that the GSM 102 fees do 
not reflect foreign obligor risk.559 
271. The United States also argues that the Panel failed to make "an objective assessment of the 
matter", as required by Article 11 of the DSU, with  respect to Brazil's claim that the GSM 102 export 
credit guarantees constituted export subsidies.  According to the United States, the Panel:  
(i) disregarded the import of the budgetary re -estimates data submitted by the United States;560  and 
(ii) distorted the meaning of the evidence on reco rd when relying on "flawed" comparisons between 
GSM fees and MPRs561, and a comparison of the "scaling" of fees under the GSM 102 programme 
                                                      
554Panel Report, paras. 14.150 and 14.157. 
555United States' appellant's submission, para. 84.   
556Ibid., para. 89. 
557Ibid., para. 103. 
558Ibid., para. 109.  
559Ibid., para. 110. 
560Ibid., para. 117. 
561Ibid., para. 121.   WT/DS267/AB/RW 
 Page 107 
 
 
and the Ex-Im Bank's export credit insurance progra mmes, despite "the obvious factual distinctions" 
between these programmes.562 
272. Brazil responds that the Panel properly relied on the initial estimates in the United States 
budget data in reviewing the revised GSM 102 progr amme pursuant to item (j), because the evidence 
in the record "provides a more than plausible basis for concluding that the initial estimates are 
significant indicators that new GSM 102 guarantees issued under the revised programme will be 
provided at a cost."563  Moreover, Brazil maintains that the Panel did not ignore the evidence 
submitted by the United States relating to re-estimates , and that it was within the bounds of the Panel's 
discretion to have attributed to the evidence a different weight or meaning than did the United States.
564  Brazil further submits that the Panel did not consider the comparison of the new GSM 102 
fees to the OECD MPRs as "dispositive" and that, in  any event, consideration of the comparison is 
consistent with the Panel's discretion as the trier of facts.565  Furthermore, Brazil maintains that the 
Panel properly assessed whether revised GSM 102 fees adequately respond to the increased costs of 
risk—including country risk and tenor length—by  comparing the scaling of fees under the revised 
GSM 102 programme and the Ex-Im Bank's programmes.  In so doing, the Panel did not "dictate ... 
specific standards as to scaling" but relied on the extent of the differ ence as an evidentiary indication 
of the shortcomings of the GSM 102 programme.566  Brazil additionally argues that the Panel properly 
treated the one per cent fee cap as another element supporting its conclusion that the revised GSM 102 
programme is not structured, designed, and operate d to ensure that fees cover long-term costs and 
losses, without according "presumptiv e weight to such evidence".567  Finally, Brazil argues that the 
Panel was entitled to rely on the fact th at the CCC has access to government funds568, and submits that 
the Panel's consideration of the revised GSM 102 programme's failure  to account for foreign obligor 
risk represents a proper interpretation of item (j), because the fact that the new GSM 102 fees failed to 
account for costs associated with increased foreign obligor risk "is not cured by diversifying the 
riskiness of its portfolio through exposure limits".569  On this basis, Brazil concludes that the United 
States failed to substantiate error in any of the Panel's intermediate findings, much less error in its 
                                                      
562United States' appellant's submission, para. 123. 
563Brazil's appellee's submission, para. 306.   
564Ibid., para. 362.  
565Ibid., paras. 376 and 391. 
566Ibid., para. 433. 
567Ibid., paras. 469 and 470. 
568Ibid., para. 484. 
569Ibid., para. 506. WT/DS267/AB/RW 
Page 108  
 
overall finding that the revised GSM 102 programme  constitutes an export subsidy which was based 
on the totality of a broad range of evidence.
570 
273. With respect to the United States' claim under Ar ticle 11 of the DSU, Brazil submits that the 
United States' allegation that the Panel should no t have attached the weight it did to Brazil's 
arguments and evidence is insufficient to demons trate that the Panel did not make an objective 
assessment of the matter.571 
E. The Panel's Assessment of the Revised GSM 102 Programme under Item (j) of the 
Illustrative List of Export Subsidies 
274. Before turning to the specific i ssues raised in the United States ' appeal, we consider it useful 
to recall certain general observations made by the Appellate Body concerning the interpretation of 
item (j) of the Illustrative List of Export Subsidies, referred to in Article 3.1 of the SCM Agreement .   
275. Article 3.1 of the  SCM Agreement  provides, in relevant part: 
Except as provided in the Agreem ent on Agriculture, the following 
subsidies, within the meaning of Article 1, shall be prohibited: 
(a) subsidies contingent, in law or in fact, whether solely or as one 
 of several other conditions, upon export performance, including 
 those illustrated in Annex I5; (footnote omitted) 
 __________ 
5Measures refe rred to in Annex I as not constituting export subsidies 
shall not be prohibited under this or any other provision of this 
Agreement.  
 
276. Item (j) of the Illustrative List reads: 
The provision by governments (or special institutions controlled by 
governments) of export credit guarantee or insurance programmes, of insurance or guarantee programmes ag ainst increases in the cost of 
exported products or of exchange risk programmes, at premium rates 
which are inadequate to cover the long-term operating costs and 
losses of the programmes. 
277. The Appellate Body has explained that "the me asure of value under item (j) is the overall cost 
to the government, as the service provider, of providing the service."
572  It has described the test set 
out in item (j) as "essentially financial, as it requires a panel to look at the financial performance of an 
export credit guarantee program, that is, its revenu es from premiums and its long-term operating costs 
                                                      
570Brazil's appellee's submission, para. 510. 
571Ibid., paras. 459 and 510. 
572Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US I) , para. 93.   WT/DS267/AB/RW 
 Page 109 
 
 
and losses".573  According to the Appellate Body, "the fo cus of item (j) is on the inadequacy of the 
premiums".574  This focus implies that "what is require d is a finding on whether the premiums are 
insufficient and thus whether the specific export credit guarantee program at issue constitutes an 
export subsidy".575  Item (j) does not require "a finding of the precise difference between premiums 
and long-term operating costs and losses".576  Nor does item (j) require a panel "to choose one 
particular basis for the calculation" of the adequacy of the premiums.577 
278. Thus, to the extent relevant data is available,  an analysis under item (j) will primarily involve 
a quantitative evaluation of the financial performance of a programme.  Such an analysis will focus on 
the difference, if any, between the revenues deri ved from the premiums charged under the programme 
and its long-term operating costs and losses.  An analysis under item (j) may examine both 
retrospective data relating to a programme's hist orical performance and projections of its future 
performance.  Evidence concerning a programme's stru cture, design, and operation may be relevant in 
situations where financial data is  not available.  It may also serve as a supplementary means for 
assessing the adequacy of premiums where relevant da ta are available.  We note that the Panel was 
presented with various financial data relating to the performance of the revised GSM 102 programme.  
Thus, as a general matter, we consider  it appropriate for the Panel to have first examined the evidence 
of a quantitative nature submitted by the parties be fore evaluating evidence concerning the structure, 
design, and operation of the programme as additional elements for appraisal.   
1. The Panel's Quantitative Analysis under Item (j)  
279. The Panel reviewed four pieces of evidence in its quantitative analysis under item (j).  The 
Panel began by examining evidence submitted by Br azil regarding the initial subsidy estimates 
reported in the 2007 and 2008 United States budgets.  Observing that these estimates projected losses 
for the 2006, 2007, and 2008 cohorts, the Panel stated that "[i]t is in our view highly significant that 
the [United States] Government continues to project, at the time of their issuance, that new GSM 102 
guarantees issued under the revised progra mme will be provided at a net cost."578  The United States 
submitted subsidy re-estimates data, which conc erned the period 1992-2006, and which became 
available after the original proceedings, to dem onstrate that its export credit guarantee programmes 
were not provided at a net cost to the United St ates Government "even before it took measures to 
                                                      
573Appellate Body Report, US – Upland Cotton , para. 667. 
574Ibid., para. 666. (footnote omitted) 
575Ibid. 
576Ibid. 
577Ibid., para. 665.  
578Panel Report, para. 14.71. WT/DS267/AB/RW 
Page 110  
 
comply with the DSB recommendations."
579  The Panel reviewed the re-estimates data, but did not 
consider that they established that the revi sed GSM 102 programme did not operate at a loss.580  In 
reaching this conclusion, the Panel examined tw o additional pieces of quantitative evidence submitted 
by Brazil, namely:  (i) the CCC's consolidated Fi nancial Statements for FY  2005 and FY 2006, which 
report a "credit guarantee liability" of US$220 m illion in relation to the CCC's GSM 102, GSM 103, 
and SCGP export credit guarantee programmes581;  and (ii) cash-basis accounting data compiled by 
Brazil concerning the cumulative receipts and disbursements under the GSM 102, GSM 103, and 
SCGP programmes between 1992 and 2005, wh ich shows a net loss of over US$689 million.582 
280. On appeal, the United States claims that the Pa nel "improperly failed to take into account ... 
the undisputed evidence of profit" reflected in the subsidy re-estimates data, which became available 
after the original proceedings and which were "in marked contrast to the analogous figures considered 
by the original panel".583  The United States further claims that the Panel failed to conduct an 
objective assessment of the matter, as required by Article 11 of the DSU, because it "disregarded the import of the budgetary re-estimates da ta submitted by the United States."
584   
281. As background, we note that the initial estimates  submitted by Brazil were made pursuant to 
the Federal Credit Reform Act of 1990585 (the "FCRA"), which is intended to "measure more 
accurately the costs of Federal credit programs" a nd applies to United States federal credit agencies 
such as the CCC.586  Accordingly, the CCC is required to make annual subsidy estimates of the cost 
(in net present value terms) associated with th e export credit guarantees issued in a given year 
(referred to as a "cohort").587  These initial subsidy estimates are subsequently re-adjusted in the 
budgets prepared for the two years following the budget year in which the initial estimate appears.588  
The FCRA further requires that the initial estimate (as adjusted in the third budget year since the 
issuance of the guarantees) be subject to annual re-e stimates over the lifetime of the cohort, that is, 
until all guarantees in a cohort are closed.589  These re-estimates "'take into account all factors that 
may have affected the estimate of each component of  the cash flows, including prepayments, defaults, 
                                                      
579Panel Report, para. 14.78. 
580Ibid., para. 14.89. 
581Ibid., para. 14.81. 
582Ibid., para. 14.84.  Brazil constructed the cash-basis accounting calculations using data from the 
United States Budgets for FY 1993-2006. ( Ibid., footnote 701 to para. 14.85)   
583United States' appellant's submission, para. 77. 
584Ibid., para. 117. 
585Federal Credit Reform Act of 1990, enacted as part of the Omnibus Budget Reconciliation Act 
of 1990, Public Law No. 101-508. 
586Panel Report, footnote 668 to para. 14.69. 
587Ibid. 
588Ibid., para. 14.76.  See also supra , footnote 531.   
589Ibid., para. 14.78.  WT/DS267/AB/RW 
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delinquencies, and recoveries', to the extent that those factors have changed since the initial estimate 
was made".590  Consequently, re-estimates are "revisions of the subsidy cost estimate of a cohort ... 
based on information about the actual performance a nd or estimated changes in future cash flows of 
the cohort".591  Re-estimates are tracked in Table 8 of the Federal Credit Supplement accompanying 
the budget.592 
282. The re-estimates data submitted by the United States in these Article 21.5 proceedings cover 
the period 1992-2006.  The data for the period 1992-2005 relate to  export credit guarantees issued 
under the GSM 102, GSM 103, and SCGP programmes, wh ile the data for 2006 relate to export credit 
guarantees issued under the revised GSM 102 programme .  The re-estimates data record a downward 
trend in the costs associated w ith the three export credit programmes during the period 1992-2006.  
As the Panel noted, the table shows an aggregat e overall anticipated profit of US$926 million for the 
1992-2002 cohorts (the cohorts examined by the orig inal panel) and US$403 million anticipated profit 
for the 1992-2006 cohorts.593 
283.   The United States asserts that the retros pective data, showing profitability over 15 years 
under the three export credit guarantee programmes exam ined by the original panel, is "compelling" 
evidence as to what one should anticipate under the revised GSM 102 programme, particularly 
because two programmes have ceased to be operational,  and the revision to the fee structure of the 
remaining GSM 102 programme has resulted in higher fees.594  Consequently, this "new information 
undermined the initial subsidy estimates submitted by Br azil, which the Panel relied on to find that the 
premia under the GSM 102 program we re inadequate to cover the pr ogram's long-term operating costs 
and losses".595 
284. Thus, the re-estimates data were a central piece of evidence that the United States adduced in 
the Panel proceedings as part of its defence agains t Brazil's claims under item (j).  In addressing this 
evidence, the Panel began by recalling that, in the original proceedings, the United States also 
submitted cumulative re-estimates data for the th ree export credit guarantee programmes at issue in
                                                      
590Original Panel Report, para. 7.843 (quoting Section 185.3(x) of Executive Office of the President, 
Office of Management and Budget, June 2002: Circular No. A-11, Part 5: Federal Credit Programs , p. 185-12 
(Exhibit Bra-116 submitted by Brazil to the original panel)).  See also Panel Report, footnote 686 to para. 14.78. 
591Original Panel Report, footnote 1005 to para. 7.843. 
592Panel Report, footnote 681 to para. 14.76. 
593Ibid., para. 14.79. 
594United States' responses to ques tioning at the oral hearing. 
595United States' appellant's submission, para. 119. WT/DS267/AB/RW 
Page 112  
 
those proceedings.  The Panel recognized that, unlike in the original proceedings, the re-estimates data 
submitted by the United States in these Article 21.5 proceedings showed an overall profit.  
Nevertheless, the Panel stated, in  paragraph 14.80 of its Report: 
The original panel was not persuaded that cohort reestimates, over time, 
would necessarily not give rise to a net cost to the United States Government.  Similarly, we are not convinced that the re-estimates data 
submitted by the United States establishes that all positive subsidy 
estimates—and in particular, those for cohorts 2006-2008—will eventually turn into negative ones.
596   
285. In the US – Softwood Lumber VI (Article 21.5 – Canada) , the Appellate Body noted that 
"doubts could arise about the objective nature of an Article 21.5 panel's assessment if, on a specific 
issue, that panel were to deviate from the reasoning in the original panel report in the absence of any 
change in the underlying evidence in the record".597  There has been, however, a change in the 
evidence from the original proceed ings to these Article 21.5 proceedings.  The re-estimates data 
submitted by the United States in these Article 21.5 proceedings are not the same as those submitted 
in the original proceedings.  The data submitted in the original proceedings covered the period 
1992-2002 and showed an overall net cost to the United States Government of $230 million598 for the 
entire period.  The original panel recognized the re levance of this figure because it "reveals that over 
the long term the United States government anticipates that it may not break even with its export credit guarantee programmes".
599  The data submitted in these Article 21.5 proceedings cover the 
period 1992-2006 and, as the Panel itself recognized, the data now projects overall profits for the 
same programmes over a longer period of time.  Mo reover, the original panel noted that, for the 1994 
cohort, "a cohort that [was] on the verge of closing"600, the re-estimates data still showed a net cost.  
The re-estimates data submitted in these Article 21.5 proceedings indicate that the 1994 cohort has 
closed and was profitable.601  The same occurs with the 1995 cohort. 602 
286. Thus, whereas the original panel "was not pers uaded that cohort reestimates, over time, would 
necessarily not give rise to a net cost", the re-estim ates data before the Panel project overall profits for
                                                      
596Panel Report, para. 14.80. (footnote omitted) 
597Appellate Body, US – Softwood Lumber VI (Article 21.5 – Canada) , para. 103. 
598Original Panel Report, para. 7.852.   
599Ibid., para. 7.854. 
600Ibid., para. 7.853 and footnote 1028 thereto. 
601Panel Report, para. 14.81;  United States' respon se to Question 111 posed by the Panel, Panel 
Report, p. D-440, paras. 277 and 278. 
602Ibid.  WT/DS267/AB/RW 
 Page 113 
 
 
the period 1992-2006, and the two cohorts that have already closed show actual profits.  Accordingly, 
the original panel's reasoning, as quoted by the Panel in paragraph 14.80 of its Report, was not 
applicable given that the fact ual circumstances have changed. 
287. The Panel reasoned that, "because [the re-estimates] are revised estimates , they do not 
establish that the programmes were provided at no net cost to the United States Government".603  We 
focus upon the Panel's reasoning because it is this reasoning that gives rise to serious concern.  
Neither the initial estimates, nor th e re-estimates, are a final and definitive account of the financial 
performance of the programmes concerned.  Rather, they are both projections  (except for the two 
closed cohorts) and are hence subj ect to uncertainty.  The Panel c onsidered that this uncertainty 
provided a basis for marginalizing the re-estimates da ta.  At the same time, the Panel considered the 
initial estimates of central importance despite the fa ct that they suffered fro m the same uncertainty 
given that they too are estimates.  If anything, the re-estimates might be expected to be more reliable 
because they reflect the historical performance of the programme.  They also include two closed 
cohorts (1994 and 1995) for which th e data is final.  Moreover, th e re-estimates data cover a longer 
period of time and thus provide a basis for a long-term assessment, the very question at issue under 
item (j). 
288. After considering the re-estimates data, the Pa nel went on to examine two additional pieces of 
quantitative evidence submitted by Brazil.  In particul ar, the Panel noted that the CCC's consolidated 
Financial Statements for FY 2005 an d FY 2006 report a "credit guarantee liability" of US$220 million 
in relation to the CCC's GSM 102, GSM 103, and SCGP export credit guarantee programmes.604  The 
Panel recalled the original panel's finding that the credit guarantee liability figure is "another 
indicator, used and relied upon by the United St ates government, to assess the estimated long-term 
cost" to the government of export credit guarantees.605  Following the same line of reasoning, the 
Panel relied on the definitions from the CCC's Fina ncial Statements and observed that the credit 
guarantee liability figure represents "the  estimated  net cash outflow (loss) of the guarantees on net 
present value basis" and "records a liability and an  expense to the extent ... CCC will be unable to 
recover claim payments".606  According to the Panel, theref ore, the "credit guarantee liability"
                                                      
603Panel Report, para. 14.81. (original emphasis) 
604Ibid. 
605Ibid. (quoting Original Panel Report, para. 7.855).  We note that the United States submitted before 
the Panel that the original panel's explanation in paragraph 7.855 of its report, specifically quoted by the Panel, "is an accurate and proper definition of  liability". (United States' response to Question 107 posed by the Panel, 
Panel Report, p. D-438, para. 271) 
606Panel Report, para. 14.82 and footnote 693 thereto (referring to Audit Report, Commodity Credit 
Corporation, Consolidated Financial Statements – Fiscal Years 2006 and 2005 (November 2006) (Exhibit 
Bra-585 submitted by Brazil to the Panel), p. 11 of Notes to the Financial Statements). (emphasis added) WT/DS267/AB/RW 
Page 114  
 
reported in the CCC's Financial Statements indicates that, "with respect to guarantees that were 
outstanding as of 30 September 2006, the [United States] Government estimat es future disbursements 
of US$220 million".
607  The Panel noted that the credit guara ntee liability figure also represented an  
estimated  loss by the United States Government.608  The Panel did not provide any reasoning, 
however, as to why it was appropriate to place strong reliance on this evidence, which is an estimated 
figure, while not relying on the re-estim ates data "because they are estimates".   
289. The final category of quantitative evidence re viewed by the Panel was the cash basis 
accounting data submitted by Brazil.  This data concerned cumulative receipts and disbursements under the GSM 102, GSM 103, and SCGP programmes between 1992 and 2005, and shows a net loss 
of over US$689 million.
609  As the Panel noted, however, th is cash basis accounting data "only 
capture[] receipts and disbursement s to date" and "do[] not ... record projected  receipts and 
disbursements, including (as the United States indicates) projected recoveries under rescheduled 
amounts".610  By this observation, the Panel appeared  to recognize the major difference between 
Brazil's cash basis accounting data and the re-estimat es data, in that the former record actual receipts 
and disbursements to date, whereas the latter project future costs on a net present value basis.  Given 
that the Panel itself recognized the different nature  of these data, we find it somewhat puzzling that 
the Panel referred to the cash basi s accounting data as one of the fact ors affecting the reliability of the 
re-estimates.611 
290. After reviewing these four categories of quantitative evidence, the Panel stated: 
In conclusion, notwithstanding the reestimates data submitted by the 
United States, we find it highly significant that the [United States] 
Government continues, at the time of their issuance, to project that new GSM 102 export credit guarantees will, in the long-term, be provided at a net cost to the Government.  In light of this, we consider that the initial subsidy estimates provide a strong indication that GSM 102 export credit 
guarantees are provided against premia which are inadequate to cover the 
long-term operating costs and losses of the GSM 102 programme.
612 
291. Thus, the Panel dismissed the import of the re- estimates data as estimates, yet concluded that 
the initial estimates provided a "strong indication" th at the GSM 102 programme is expected to run at 
                                                      
607Panel Report, para. 14.83. 
608Ibid. 
609Ibid., para. 14.84.  The source of the data is the United States Budgets for FYs 1993-2006.  ( Ibid., 
footnote 701 to para. 14.85)  On appeal, except for sta ting that the cash basis accounting data are "separate and 
apart from the [United States] budget  accounting approach", the United States does not provide other arguments 
against the Panel's review of this data. (United States' appellant's submission, para. 85) 
610Panel Report, para. 14.87. (original emphasis) 
611Ibid., para. 14.88. 
612Ibid., para. 14.89.  WT/DS267/AB/RW 
 Page 115 
 
 
a net cost.  However, all the quantitative evidence examined by the Panel, except for the cash basis 
accounting data submitted by Brazil, are estimates, or projections, of future fi nancial performance.  
There is no rationale offered by the Panel as to why it marginalized the re-estimates data while, at the 
same time, accepting the initial estimat es as "provid[ing] a strong indication"613 that the GSM 102 
programme is expected to run at a net cost. 
292. The Panel's treatment of the competing evid ence submitted by the parties is therefore 
internally inconsistent.  The initial estimates, the re-estimates, and the CCC's Financial Statements are 
all routinely produced by the United States Governme nt, yet obvious discrepancies exist among them.  
For example, both the re-estimates data and the cred it guarantee liability figure relate to the financial 
performance of the CCC's export credit guarantee programmes up to 2006, but the former project 
profits, whereas the latter projects losses.  The Panel did not reconcile these discrepancies.  If this was 
not possible, the Panel should have provided a reasoned explanation as to why it preferred one 
category of quantitative evidence over the other.  Instead, the Panel dismissed the import of the 
re-estimates, which were the central piece of evid ence relied on by the United States, on the basis of 
reasoning that, in our view, is internally incohe rent, and compounded the matter by relying on 
evidence that suffered from the same limitation as th e re-estimates.  The Panel's treatment of the 
evidence submitted by the parti es lacked even-handedness. 
293. Brazil underscores that, as the trier of facts, the Panel was entitled to determine the probative 
value and relative weight of the re-estimates data submitted by the United States.614  According to 
Brazil, the fact that "the compliance Panel attribut ed to the competing evidence a different weight or 
meaning than did the United States does not constitute  reversible legal error in the application of 
item (j) to the facts." 615  We agree that the Appellate Body has consistently held that it would not 
interfere lightly with a panel's exercise of its authority as the trier of facts.616  The Appellate Body has 
explained that, under Article 11 of the DSU, "a pa nel is charged with the mandate to determine the 
facts of the case and to arrive at factual findings.  In carrying out this mandate, a panel has the duty to 
                                                      
613Panel Report, para. 14.89. 
614Brazil's appellee's submission, para. 362. 
615Ibid. (footnote omitted) 
616See, for example, Appellate Body Report, EC – Asbestos , para. 161;  Appellate Body Report, EC – 
Hormones , para. 132;  Appellate Body Report, EC – Sardines , para. 299;  Appellate Body Report, Japan – 
Apples , para. 222;  Appellate Body Report, Korea – Dairy , para. 137;  and Appellate Body Report, US – Wheat 
Gluten , para. 151. WT/DS267/AB/RW 
Page 116  
 
examine and consider all the evidence before it"
617, and may not "disregard" evidence or "appl[y] a 
double standard of proof".618   
294. Our concern with the Panel's treatment of the re-estimates, however, is not directed towards 
its weighing of the evidence.  Rather, there is a lack of explanation and coherent reasoning by the 
Panel that led it to marginalize the re-estimates.  The Panel was presented w ith a class of quantitative 
evidence that is based on estimates, including the initial estimates, the re-e stimates, and the CCC's 
Financial Statements, but effectively disregarded the re-estimates data submitted by the United States.  
The error is amplified by the fact that the Pa nel unquestioningly accepted the initial estimates and 
CCC Financial Statements submitted by Brazil, although they too are based on estimates.  The Panel's 
internally incoherent treatment of the same class of quantitative evidence thus  vitiates the conclusion 
it drew based on the financial data submitted by the parties.  
295. In sum, we find that, by dismissing the import of the re-estimates data submitted by the 
United States on the basis of internally inconsiste nt reasoning, the Panel did not make "an objective 
assessment of the matter before it, including an  objective assessment of the facts of the case", under 
Article 11 of the DSU.  Consequently, the Panel erre d in its intermediate conclusion that "the initial 
subsidy estimates provide a st rong indication that GSM 102 expor t credit guarantees are provided 
against premia which are inade quate to cover the long-term ope rating costs and losses of the 
GSM 102 programme."619 
296. Having reversed the Panel's intermediate fi nding, we turn to examine whether we can 
complete the analysis and make our own assessment of the quantitative evidence on the record.  In the 
past, the Appellate Body has completed the legal anal ysis when there was a su fficient factual basis in 
the panel record to enable it to do so.620   
297. The United States and Brazil disagree on the significance of the initial estimates and 
re-estimates data on record.  According to the United States, the re-estimates data are "highly 
probative" because they "demonstrated that the export credit guarantee programs in the aggregate—
                                                      
617Appellate Body Report, Korea – Dairy , para. 137. 
618Appellate Body Report, Korea – Alcoholic Beverages , para. 164.  In cases concerning a panel's 
examination of determinations by domestic investigating authorities, the Appellate Body has also held that a panel must assess "whether the explanations provided  by the authority are 'reas oned and adequate' ... and 
[assess] the coherence of its reasoning." (Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – 
Canada) , para. 97)  In cases where a panel operates as the initial trier of facts, such as this one, it would 
similarly be expected to provid e reasoned and adequate explanations and coherent reasoning. 
619Panel Report, para. 14.89. 
620See, for example, Ap pellate Body Report, Canada – Periodicals , p. 24, DSR 1997:I, 449, at 469;  
Appellate Body Report, Australia – Salmon , para 118;  Appellate Body Report, US – Shrimp , para. 124;  and 
Appellate Body Report, US – Section 211 Appropriations Act , para. 352.  WT/DS267/AB/RW 
 Page 117 
 
 
even before the adoption of the new fee structure for the GSM 102 program and the elimination of the 
longer-term GSM 103 export credit guarantee program and the riskier SCGP—charged premium rates 
more than adequate to cover long-term ope rating costs and losses of the three programs".621  B y  
contrast, Brazil argues that historical data regard ing the export credit guarantee programmes, such as 
the re-estimates, have serious limitations because they merely reflect one possible outcome (in this case, profits), whereas the initial estimates reflect an evaluation of all possible outcomes regarding the 
programmes' financial performance.
622   
298. The Panel itself recognized that it is "factually correct" that "the initial estimates are 
established before any use is made of the programme and ... are based on the  projected use   of the 
programme".623  The Panel also noted that the initial est imates are "subsequently re-adjusted in the 
United States Budget two years after the budget year in which the initial estimates appears"624 and, 
"[i]n subsequent years, re-estimates are tracked  in Table 8 of the Federal Credit Supplement 
accompanying the budget".625  These re-estimates show a consiste nt downward trend in the estimated 
costs of the export credit guarantee programmes, thus  calling into question the reliability of the initial 
estimates for purposes of evaluating the programme's "long-term operating costs and losses".   
299. Although the measure subject to these proceed ings is the GSM 102 programme, as revised 
since July 2005, the re-estimates data cannot be  dismissed simply because the data concern the 
financial performance of the three programmes examined  in the original proceedings.  As noted by the 
Panel, "GSM 102 export credit guarantees made up 93 per cent of the CCC guarantees portfolio".626  
Under the revised fee structure, fees for GSM 102 e xport credit guarantees were  increased by 23 per 
cent (on a weighted-average basis).627  It is not unreasonable to assume that the increase of fees 
resulting from the revision of the GSM 102 programme would accentuate the downward trend shown in the re-estimates data for the 15-year period.  Thus,  we consider that the re-estimates data, which 
show better-than-expected historical performance, are an important indicator of the revised GSM 102 
programme's likely future performance. 
                                                     
 
621United States' appellant's submission, paras. 117-119. 
622Brazil's response to questioni ng at the oral hearing. 
623Panel Report, para. 14.76. (original emphasis) 
624Ibid.  The Panel stated that "[i]n no case has such an adjustment turned a positive subsidy estimate 
into a negative one". ( Ibid.)  The Panel, in stating such, referred to Exhibit Bra-617, supra , footnote 532, which 
contains the initial estimates as they first appeared in United States budgets and as re-adjusted in the two 
subsequent United States budgets.  Howe ver, these "re-adjustments" in the th ird year are not final, as the Panel 
itself noted, but continue to be re-estimated in subsequent years and recorded in Table 8 of the Federal Credit 
Supplement accompanying the budget. ( Ibid., para. 14.76 and footnote 681 thereto) 
625Ibid., footnote 681 to para. 14.76. 
626Ibid., para. 14.118. 
627Ibid., para. 14.119. WT/DS267/AB/RW 
Page 118  
 
300. We recall that Brazil also submitted to the Pa nel the CCC's audited Financial Statements, 
which are another indicator of the performance of  the CCC's export credit guarantee programmes up 
to 2006.  Both the re-estimates data submitted by the United States and the audited Financial 
Statements of the CCC were routinely produced by  the United States Government, and neither were 
produced specifically for this dispute.  In these circ umstances, both are relevant for the appraisal of 
the long-term financial performance of the revised  GSM 102 programme.  While the re-estimates data 
project overall profits of US$403 million under the CCC's export credit guarantee programmes for the 
period 1992-2006
628, the CCC's Financial Statements estima te a credit guarantee liability of US$220 
million with respect to post-1991 guarantees that were outstanding as of 30 September 2006.629  
Although, at the oral hearing, we tried to explor e possible ways of reconciling these two figures, we 
did not get a clear explanation from either  party as to how this could be done.  
301. Thus, the quantitative eviden ce submitted by Brazil and the United States support two 
plausible conclusions that one could draw rega rding the profitability of the revised GSM 102 
programme:  (i) the CCC's Financial Statements indicate that the programme is making losses;  and (ii) the re-estimates data indicate that the progr amme is making profits.  Therefore, the critical 
quantitative data before the Panel give rise to conf licting conclusions.  The data also give rise to 
similar probabilities that point to opposite conclusion s as to the binary outcome in item (j), that is, 
whether a programme is making a loss or not.  We r ecall, however, that the Panel also examined other 
evidence adduced by Brazil, "which further convince[d]"
 630 the Panel that the premiums under the 
revised GSM 102 programme are inadequate to cover its long-term operating costs and losses, within 
the meaning of item (j).  This evidence incl udes a comparison between fees under the revised 
GSM 102 programme and the OECD MPRs, and various elements relating to the structure, design, 
and operation of the programme.  We now turn to examine the United States' arguments regarding the 
Panel's consideration of this evidence in order to  determine whether the ev idence as assessed by the 
Panel makes one of the two probable outcomes th at emerge from the quantitative evidence more 
likely than not. 
2. Comparison with MPRs under the OECD Arrangement  
302. The United States submits that the Panel "fundame ntally misinterpreted" the requirements of 
item (j) in "[making] determinations" under that provision based on a comparison of GSM 102 programme fees with MPRs under the OECD Arrangement.
631  According to the United States, 
                                                      
628Panel Report, para. 14.79. 
629Ibid., para. 14.83. 
630Ibid., para. 14.90. 
631United States' appellant's submission, para. 89.  WT/DS267/AB/RW 
 Page 119 
 
 
"[d]espite its recognition of the inapplicability of  the OECD Arrangement and MPRs", the Panel 
"compared OECD MPRs to fees charged under th e GSM 102 program, and found that comparison 
dispositive for purposes of the item (j) analysis."632  The United States adds that the Panel acted 
inconsistently with Article 11 of the DSU by "disregard[ing] the irre levancy of the [OECD 
Arrangement] MPRs" for purposes of the analysis under item (j).633   
303. In our view, the United States exaggerates th e importance the Panel attached to the fee 
comparison of GSM 102 fees with the MPRs in its overall analysis under item (j).  After reviewing 
the budgetary evidence described above, the Panel tu rned to review the evidence relating to MPRs 
submitted by Brazil.  At the outset, the Panel made clear that it did not consider the MPRs to be 
directly applicable in determining whether an export credit guarantee programme falls within the 
scope of item (j).634  The Panel emphasized that item (j) makes no reference to the OECD 
Arrangement and that the MPRs do not provide a legally bindi ng benchmark for purposes of an 
analysis under item (j).  As the Panel explained: 
While the MPRs were developed at least in part to ensure that 
Participants would comply with item (j), item (j) itself does not refer to the OECD Arrangement or to an y other international agreement or 
benchmark in determining whether the premia are inadequate to 
cover the long term operating costs and losses of export credit 
guarantee programmes and other programmes covered by item (j) of the Illustrative List.  As the United States points out, this contrasts with the second paragraph of item (k) of the Illustrative List, where such a reference is made.  In con sequence, there is in our view no 
basis to treat the OECD MPRs as providing a legally binding 
benchmark to determine whet her an export credit guarantee 
programme falls within the scope of item (j) of the Illustrative List.
635 
(footnote omitted) 
304. The Panel further noted that the OECD Arrange ment does not cover exports of agricultural 
commodities and applies only to government support for credit terms of two years or more. 636  Thus, 
the Panel did not consider that the OECD MPRs constituted a valid benchmar k under item (j).     
305. Although the Panel recognized that MPRs have no le gal status in the context of an analysis 
under item (j), it did consider them relevant " from an evidentiary point of view ".637  In particular, what 
the Panel found relevant was the  magnitude   of the difference between the MPRs and the GSM 102 
                                                      
632United States' appellant's submission, para. 94. 
633Ibid., para. 121. 
634Panel Report, para. 14.94. 
635Ibid.  
636Ibid. (footnote omitted) 
637Ibid., para. 14.95. (emphasis added) WT/DS267/AB/RW 
Page 120  
 
fees.  Based on the comparison submitted by Brazil, the Panel observed that, "[o]n average, the MPRS 
are 106 per cent above GSM 102 fees".
638  The magnitude of the differ ence in the fees is repeatedly 
emphasized by the Panel in its reasoning.  The Panel explained that, "in this particular case, because 
of the magnitude of the difference  between the MPRs and GSM 102 fees, the MPRs may provide an 
indication, on an informed basis, of the fact that  GSM 102 fees are set at a level which is insufficient 
to cover the long term operating costs and losses of the programme."639  The Panel emphasized that it 
took into account the comparison of MPRs and GSM 102 fees "because of the importance of the 
difference between them".640  The Panel immediately cautioned that it was "not suggest[ing] that  
any  difference in this respect could be relie d upon as an indication that an export guarantee 
programme meets the criteria of item (j) of the Illustrative List".641 
306. Therefore, contrary to the United States' assertions, the Panel did not make a definitive 
determination under item (j) on the basis of the comparison between MPRs and GSM 102 fees, nor 
did the Panel find "that comparison dispositive for purposes of the item (j) analysis".642  
Consequently, we see no basis in the Panel's analys is for the United States' argument that the Panel 
misinterpreted the requirements in item (j) by imposing a legal benchmark not specified therein. 
307. In addition, the United States argues that the Pane l acted inconsistently with Article 11 of the 
DSU by making "conclusory observations ... unsupported by evidence" that "the MPRs would increase if agricultural products were made subject  to it", because industrial products "offer a better 
security".
643  We recall the Panel's emphasis on the "ma gnitude of the difference between MPRs and 
GSM 102 fees" when it found that the MPRs "may pr ovide an indication" that the GSM 102 fees are 
inadequate to cover long-te rm operating costs and losses.644  Noting that MPRs are on average 106 per 
cent above GSM 102 fees, the Panel stated that "t here is ... no reason why the MPRs should be 
lowered were agricultural products to fall under its product coverage."645  It is within this context that 
the Panel agreed with Brazil's submission that, "i f anything, the MPRs woul d increase if agricultural 
products were made subject to it".646  Thus, even if these observations, taken in isolation, were to be 
unsupported by specific evidence, they do not under mine the Panel's overall conclusion that the 
significant difference in fees provides an additional evidentiary basis for its analysis under item (j). 
                                                      
638Panel Report, para. 14.98. (footnote omitted) 
639Ibid., para. 14.97. (original underlining) 
640Ibid. 
641Ibid. (original emphasis) 
642United States' appellant's submission, para. 94. 
643Ibid., para. 122 (quoting Panel Report, para. 14.101). 
644Ibid., paras. 14.97 and 14.98. 
645Ibid., para. 14.101. 
646Ibid.  WT/DS267/AB/RW 
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3. Structure, Design, and Operation of the Revised GSM 102 Programme  
308. We turn next to examine the United States' ar guments concerning the elements relied on by 
the Panel in analyzing the structure, design, and operation of the revised GSM 102 programme.  These 
elements are:  (i) the one per cent statutory fee cap  applicable under the GSM 102 programme;  (ii) a 
comparison of the "scaling" of fees under the GSM 102 programme and the two credit insurance 
programmes of the Export-Import Bank;  (iii) the fact  that foreign obligor risk is not reflected in 
revised GSM 102 fees;  and (iv) the CCC's access to government funds.   
309. The United States maintains that the Panel "erred as a matter of law in relying on the one per 
cent fee cap as proof that the revised  GSM 102 program was not risk-based".647  According to the 
United States, nothing in item (j) says that, just because a programme has a fee cap, it cannot satisfy 
the test that premium rates cover long-term operati ng costs and losses.  We do not consider that the 
Panel made such a conclusion.  Rather, the Panel focused its analysis on the " effects of the remaining 
presence of the one per cent fee cap"648—namely, how the fee cap affect s the adequacy of the fees in 
relation to risks—and did not find that a fee cap, in itself, necessarily prevents a programme from covering its long-term operating costs and losses, as th e United States' argument seems to suggest.   
310. The United States further claims that the Panel erred in relying on the comparison of "scaling" 
of fees under the revised GSM 102 programme an d the Ex-Im Bank programmes for its analysis 
under item (j).
649  We recall that Brazil submitted a comparison of the rate of increase, corresponding 
to increased risk (by country risk category and le ngth of tenor), of fees charged by the GSM 102 
programme with the rate of increase of fees unde r two programmes of the Ex-Im Bank—the LCI and 
the MTI.  The Panel reviewed this comparison and concluded that the "significant difference between 
the rates of increase" for GSM 102 fees and for the LCI and the MTI suggests that "the [one] per cent 
fee cap ... does indeed prevent the adoption of  a truly risk-based fee structure by the CCC."650 
311. The United States submits that the Ex-Im Bank programmes are "fundamentally dissimilar" to 
the GSM 102 programme.651  According to the United States, "[i] n addition to the fact that [LCI and 
MTI] are subject to MPRs, and that MTI is not av ailable for agricultural goods, [LCI and MTI] differ 
significantly in terms of interest and principal cove r, as well as the availability of recourse to a third 
party for uninsured amounts."652  Despite these dissimilarities, the United States argues, the Panel 
                                                      
647United States' appellant's submission, para. 109.  
648Panel Report, para. 14.121. (emphasis added) 
649United States' appellant's submission, para. 101. 
650Panel Report, para. 14.128. 
651United States' appellant's submission, para. 103.   
652Ibid. WT/DS267/AB/RW 
Page 122  
 
"acceded to Brazil's proffered adjustments to ta ke into account these differences and force a scaling 
comparison".
653   
312. We note that, rather than "forcing a comparison" despite the dissimilarities between the 
programmes, the Panel specifically addressed the di ssimilarities by reviewing various adjustments 
made in the evidence submitted by Brazil to re nder the LCI and the MTI more analogous to the 
GSM 102 programme, and considered them to be "appropriate".654  Furthermore, the Panel did not 
focus on the differences between the amount of fees charged under the GSM 102 programme and 
under the Ex-Im Bank programmes.  Rather, the compar isons were intended to show that, due to the 
limitation placed by the one per cent fee cap, th e revised GSM 102 fees increase much slower, in 
response to the increased risk, than the rate of  increase of the fees charged under the Ex-Im Bank 
programmes.  We therefore do not consider that it w as improper for the Panel to  conclude that "[t]he 
fact that the financial products being compared ar e not identical" did not fundamentally undermine the 
evidentiary value of the comparisons rega rding scaling of fees under the programmes.655 
313. In addition, the United States contests the releva nce of scaling to an analysis under item (j), 
arguing that "[i]tem (j) does not even impose a 'r isk-based' condition", and that the only condition 
under item (j) is whether the premiums under an ex port credit guarantee programme are adequate to 
cover its long-term operating costs and losses.656  We agree that the analysis of risk is not expressly 
required by the text of item (j) in assessing the ad equacy of premiums of an export credit guarantee 
programme.  However, an export cr edit guarantee programme exposed to risk of default is more likely 
to incur costs and losses if its design and structure do not adequately safeguard against such risk.  
Therefore, we consider that risk is a relevant factor in the assessment of a programme's structure, 
design, and operation under item (j).657 
314. The United States argues that, "[e]ven were a ri sk based standard relevant, item (j) does not 
indicate any specific standards as to scaling."658  We concur that item (j) does not impose a standard 
as to scaling.  The Panel did not impose such a st andard.  Rather, the Panel reviewed the scaling
                                                      
653United States' appellant's submission, para. 103. 
654Panel Report, para. 14.125. 
655Ibid., para. 14.126. 
656United States' appellant's submission, para. 104. 
657We note that the original panel, in a finding not subject to appeal, stated that, "where a programme 
does not provide for premium rates that are fully reflective of  the risks of a particular transaction, this might be 
one indicator that the programme was set up in such a way that its long-term operating costs and losses have to 
be borne, in total or in part, by the government." (O riginal Panel Report, para. 7.805 (quoted in Panel Report, 
para. 14.108)) 
658United States' appellant's submission, para. 104.  WT/DS267/AB/RW 
 Page 123 
 
 
comparison with the Ex-Im Bank programmes to apprai se the effect of the one per cent fee cap under 
the revised GSM 102 programme.  The Panel noted  that the scaling comparisons "convincingly 
demonstrated that the GSM 102 fees only minimall y respond to increased country risk and increased 
risk in the form of longer tenors", as compared to the LCI and the MTI fees.659  In particular, the Panel 
found that, "while the fees for lowest country risk categories are relatively similar between GSM 102 and the LCI and MTI, there is a sharp difference between the fees charged by the Ex-Im Bank and the 
CCC for the highest risk categories."
660   
315. We note that the United States itself acknowledges that "[s]caling is ... relevant with respect 
to a comparison of those transactions that are eligible under the program."661  The United States 
nevertheless contends that "[a] full examination of  whether a program is risk-based would also take 
into account those transactions that are wholly inelig ible [and for which] the current fee is effectively 
infinite".662  The comparisons provided by Brazil were ma de between individual eligible countries in 
the corresponding risk categories of the revised GSM 102 programme and the Ex-Im Bank programmes.
663  In our view, the fact that a number of countries are ranked as "ineligible" under the 
revised GSM 102 programme does not affect the validity  of the fee comparisons insofar as the eligible 
countries are concerned.     
316. The United States further maintains that the Pane l acted inconsistently with Article 11 of the 
DSU by accepting Brazil's evidence regarding "scaling" of fees under the GSM 102 and the Ex-Im Bank programmes.  According to the United States, d espite the "obvious factual distinction" regarding 
the product coverage under the Ex-Im Bank MTI a nd the GSM 102 programme, the Panel concluded 
that the distinction does not fundamentally undermine the value of the comparison but offered "no support for this conclusion".
664  We recall that the Panel found that  the differences regarding product 
coverage did not undermine the value of the co mparison, because the relevant comparison being 
conducted was between the rates of increase of  the fees, rather than the fees themselves.665  Moreover, 
                                                      
659Panel Report, para. 14.127. 
660Ibid., para. 14.127.  In making this observation, th e Panel referred to certain graphs submitted by 
Brazil showing that Ex-Im Bank fees rise more sharply than GSM 102 fees in response to increased risks 
involved in a transaction. ( Ibid., footnote 758 to para. 14.127)  The Panel further noted that, for a tenor of 36 
months, the GSM 102 fee and the MTI fee for a country fa lling within risk category 2 are, respectively, 0.637 
per cent and 1.060 per cent.  For a country falling with in risk category 6, however, the GSM 102 fee is 1 per 
cent, whereas the MTI fee is increased to 4.325 per cent. ( Ibid., footnote 759 to para. 14.127)   
661United States' appellant's submission, para. 104. 
662Ibid. 
663See, for example, Exhibits Bra-693 and Bra-694 subm itted by Brazil to the Panel (as referred to in 
Panel Report, para. 14.125 and footnote 755 thereto). 
664United States' appellant's submission, para. 123. 
665Panel Report, para. 14.126. WT/DS267/AB/RW 
Page 124  
 
the Panel examined the adjustments made by Braz il which, in the Panel's view, made the Ex-Im 
Bank's programmes more comparable to the GSM 102 programme.   
317. According to the United States, the Panel fa iled to conduct an objective assessment of the 
matter, as required by Article 11 of DSU, when it stated, "[without] any basi s in the evidence", that 
the 100 per cent increase in fees under the revised  GSM 102 programme between the lowest and 
highest risk category "suggests that f ees insufficiently take account of" risk.
666  The United States' 
argument does not take full account of the context in  which the Panel's statem ent is made.  The Panel 
made the observation that fees insufficiently take account of risk  after   reviewing the evidence 
showing that the rate of increase of the f ees charged under the Ex-Im Bank programmes is 
significantly higher than 100 per cent.667  The Panel noted, in particular, that, "while the fees for the 
lowest country risk categories are relatively sim ilar between GSM 102 and the LCI and MTI, there is 
a sharp difference between the fees charged by the Ex-Im Bank and the CCC for the highest risk 
categories."668  When seen in the context in which it w as made, the Panel's statement does have a 
basis. 
318. The United States contests two other factors relied on by the Panel as "not germane to an 
analysis under item (j)."669  First, the United States argues that the Panel erroneously concluded that 
"the fact that the United States sets bank limits w ith respect to each foreign bank obligor does not ... 
alter the fact that foreign obligor risk is not reflected in GSM 102 fees."670  The United States argues 
that nothing in item (j) specifies how a government programme shall be designed to ensure the 
adequacy of premiums, and managing foreign obli gor risk is one important way to ensure this 
adequacy.  Therefore, according to the United States , the Panel erred in concluding that "fees were the 
only proper way to deal with foreign obligor risk."671  This, however, is not what the Panel concluded.  
Rather, the Panel highlighted "the fact that fore ign obligor risk is not reflected in GSM 102 fees"672, 
and noted Brazil's argument that "prudent fiscal  management compels commercial banks to take 
                                                      
666United States' appellant's submission, para. 124 (quoting Panel Report, para. 14.129). 
667See, for example, Brazil's first written submission to the Panel, para. 400, Figure 32 (referred to in 
Panel Report, para. 14.127 and footnote 758 thereto).  This figure contains tables showing that fees under the 
Ex-Im Bank programmes increase by much more than 100 per cent between the lowest and highest country risk 
categories.   
668Panel Report, para. 14.127 and footnote 759 theret o (referring to the resp ective fees under the GSM 
102 programme and under the LCI and the MTI for individual countries in risk categories 0 to 6 (Exhibit 
Bra-536 submitted by Brazil to the Panel)).  We note that, in an apparent clerical error in footnote 759, the Panel referred to Exhibit Bra-548, which does not contain the evidence the Panel described in this footnote. 
669United States' appellant's submission, para. 110. 
670Panel Report, para. 14.115. 
671United States' appellant's submission, para. 113. 
672Panel Report, para. 14.115.  WT/DS267/AB/RW 
 Page 125 
 
 
varying borrower risk into account  not only   via exposure limits,  but also   through fees".673  Thus, the 
Panel recognized the relevance of exposure limits , but found that setting exposure limits alone was 
insufficient to account for foreign obligor risk, when  such risk was not adequately taken into account 
in the determination of fees for the transactions within the exposure limits. 
319. In addition, the United States submits that the Panel mistakenly relied on the fact that the 
CCC has access to funds from the United States Treasu ry and that it benefits from the full faith and 
credit of the United States government, even though  "[s]uch considerations  ... are irrelevant under 
item (j)".674  The United States maintains that, according to the Panel's "overly-broad approach, a 
government-backed export credit ... program could ne ver satisfy the item (j) test because ... the 
unlimited access to government funds discourages the design of a programme that meets long-term operating costs and losses".
675  We share the view that access to  government funds, alone, is not a 
significant factor for purposes of determining profit ability under item (j).  The Panel, however, did not 
seem to place much emphasis on this factor.  Rather , the Panel recalled that this was a factor taken 
into account by the original panel and confirmed that the CCC still has the sa me access to government 
funds.676   
320. In sum, we are not persuaded that the Panel erred in finding that "the GSM 102 programme is 
not designed to cover its long term operating costs and losses."677   
321. At the outset of its analysis, the Panel stated that it would "first conduct [its] analysis as if 
Brazil bore the burden of proof with respect to both the quantitative and the subsidization elements of 
its claims, i.e. as if Article 10.3 [of the  Agreement on Agriculture ] did not apply".678  We have found 
that the Panel failed to make an objective assessment of the matter, as required under Article 11 of the 
DSU, in its assessment of the quantita tive evidence submitted by the parties.679  We have explained, 
furthermore, that the two critical pieces of evidence, the re-estimates data and the CCC Financial Statements, tend to show that, in the long run, th e revised GSM 102 programme may be either profit-
making or loss-making.  Also, we stated our view that the analysis under item (j) should proceed 
primarily on the basis of quantitative evidence, where such evidence is available.  We have 
recognized, however, that evidence relating to  the structure, design, and operation has a 
supplementary role to play in an assessment conducte d under item (j).  The Panel, in this case, relied 
                                                     
 
673Panel Report, para. 14.113. (emphasis added;  footnote omitted) 
674United States' appellant's submission, para. 111. 
675Ibid. 
676Panel Report, para. 14.110. 
677Ibid., para. 14.131. 
678Ibid., para. 14.47. 
679See supra , para. 295. WT/DS267/AB/RW 
Page 126  
 
on several elements relating to the structure, design, and operation of the revised GSM 102 
programme, and we have not found flaws in the Pa nel's analysis of this evidence.  The Panel 
recognized that these elements are not in and of th emselves dispositive.  Nonetheless, according to the 
Panel, the evidence on the structure, design, and operation supports the proposition that the revised 
GSM 102 programme operates at a loss.  We recall th at we have found that the quantitative data give 
rise to opposite conclusions with similar probabilities as to the binary outcome in item (j).  The 
Panel's finding on the structure, design, and operation, in the light of the two plausible outcomes with 
similar probabilities that emerge from the quantitati ve evidence, provides a sufficient evidentiary 
basis for the conclusion that it is more likely th an not that the revised GSM 102 programme operates 
at a loss.  Therefore, we consider that Brazil has succeeded in establishing that the revised GSM 102 
programme is provided at premiums that are inad equate to cover its long-term operating costs and 
losses. 
F. Conclusion 
322. For these reasons, we consider that the Panel did not err in finding that "the GSM 102 export 
credit guarantee programme constitutes an export s ubsidy because it is provided against premiums 
which are inadequate to cover its long-term opera ting costs and losses under the terms of item (j) of 
the Illustrative List".
680  
323. Accordingly, we  uphold   the Panel's findings that GSM 102 export credit guarantees issued 
after 1 July 2005 are export subsidies within the meaning of Article 3.1(a) of the  SCM Agreement   
and Article 10.1 of the  Agreement on Agriculture .681  Therefore, the Panel's findings in 
paragraphs 14.140, 14.149, 14.150, 14.1 56, 14.157, and 15.1(c) also stand. 
VII. Serious Prejudice 
324. We turn finally to the United St ates' appeal of the Panel's finding that the effect of marketing 
loan and counter-cyclical payments provided to United States upland cotto n producers is significant 
price suppression in the world market for upland cotton, constituting "present" serious prejudice to the interests of Brazil, within the meaning of Articles 5(c) and 6.3 of the  SCM Agreement .  Section A 
summarizes the findings made in the original proceedings, and Section B describes the measures 
taken by the United States to comply with the DSB's recommendations and rulings.  The Article 21.5 
proceedings are summarized in Section C.  Secti on D provides an overview of the arguments raised 
on appeal by the participants and third participants.  In Section E, we discuss the Panel's findings of 
                                                     
 
680Panel Report, para. 14.133. 
681Ibid., para. 14.134.  WT/DS267/AB/RW 
 Page 127 
 
 
"present" serious prejudice under Articles 5(c) and 6.3 of the  SCM Agreement .  Finally, in Section F, 
we set out our conclusions. 
A. Original Proceedings 
325. In the original proceedings, Brazil challe nged several United States domestic support 
measures under Articles 5 and 6 of the  SCM Agreement .  Brazil argued that these measures were not 
exempt from being challenged as actionable subsidi es under paragraphs (a) and (b) of Article 13 of 
the  Agreement on Agriculture , and that they caused serious prejudi ce to its interests, within the 
meaning of Article 5(c) of the  SCM Agreement , because their effect was to significantly suppress the 
price of upland cotton, within the meaning of Article 6.3(c) of the  SCM Agreement .682 
326. Having found that the United States domestic  support measures were not exempt from 
challenge under Article 13 of the  Agreement on Agriculture , the original panel found that the effect 
of the mandatory price-contingent United States s ubsidy measures—marketing loan payments, Step 2 
payments, market loss assistance payments, and counter-cyclical payments—was significant price 
suppression in the same world market within the meaning of Article 6.3(c) of the  SCM Agreement , 
constituting serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the  SCM 
Agreement .683  The Appellate Body upheld the original panel's findings.684  
327. In accordance with Article 7.8 of the SCM Agreement , which specifies the remedies 
applicable in cases where subsidies have been determ ined to result in adverse effects, the original 
panel stated that, upon adoption of the panel repor t, "the United States [was] under an obligation to 
'take appropriate steps to remove the adve rse effects or ... withdraw the subsidy'."685 
B. Measures Taken by the United States 
328. On 1 February 2006, United States Congress enact ed legislation amending the Farm Security 
and Rural Investment Act of 2002686 (the "FSRI Act of 2002") by repealing the Step 2 payments 
programme, which was one of the price-contingent subsidy measures covered by the original panel's 
                                                      
682Original Panel Report, para. 3.1(vi). 
683Ibid., paras. 7.1416 and 8.1(g)(i). 
684Appellate Body Report, US – Upland Cotton , para. 496. 
685Original Panel Report, para. 8.3(d). 
686Farm Security and Rural Investment Act of 2002, Public Law No. 107-171;  see Original Panel 
Report, para. 7.201. WT/DS267/AB/RW 
Page 128  
 
finding of serious prejudice.
687  The Step 2 payments programme was repealed effective as 
of 1 August 2006.688  The Panel noted that it is undisputed that the United States continues to provide 
marketing loan and counter-cyclical payments to United States producers of upland cotton, and that 
the legislative and regulatory provisions govern ing these payments have not been changed.689 
C. Article 21.5 Proceedings 
329. On 18 August 2006, Brazil requested the establishm ent of a panel pursuant to Article 21.5 of 
the DSU, because it considered that the United States had failed to implement the recommendations 
and rulings of the DSB stemming from the original dispute.690  Brazil claimed that the repeal of the 
Step 2 payments programme is insufficient to brin g the United States into compliance with the DSB's 
recommendations and rulings.691  In particular, Brazil claimed that payments made under the 
marketing loan and counter-cyclical payments pr ogrammes continued to cause "present" serious 
                                                      
687In addition to Step 2 payments, marketing loan payments, and counter-cyclical payments, the 
original panel's finding of serious prejudice covered market loss assistance payments.  According to the original 
panel, market loss assistance payments were "ad ho c emergency and supplementary assistance provided to 
producers" under "four separate pieces  of legislation, one each for the years 1998 through 2001". (Original 
Panel Report, para. 7.216 (quoted in Panel Report, para. 3.10)) 
688Section 1103 of the Deficit Reduction Act of 2005, Public Law No. 109-171;  see also Panel Report, 
para. 3.7. 
689Panel Report, paras. 3.9 and 3.12. 
690Request for the Establishment of a Panel by Brazil, WT/DS267/30. 
 691Brazil also claimed before the Panel that the United States had taken no actions to comply with the 
DSB's recommendations and rulings during the period between 22 September 2005 and 31 July 2006—that is, 
between the expiration of the six-month time period set out in Article 7.9 of the  SCM Agreement  and the 
effective date on which the Step 2 payments programme was repealed.  The Panel di sagreed with Brazil that 
Article 21.5 of the DSU contemplated a finding on the existence of or consistency with a covered agreement of 
a measure taken to comply at the end of the six-month period set out in Article 7.9 of the  SCM Agreement , in 
addition to a finding on the existence of a measure taken to comply as of the date of the establishment of an 
Article 21.5 panel.  Therefore, the Panel found that it was not appropriate to make a finding on Brazil's claim 
that the United States had failed to take any measures to  remove the adverse effects or to withdraw the three 
price-contingent upland cotton subsidy programmes between 22 September 2005 and 31 July 2006. (Panel 
Report, paras. 9.70 and 9.71)  This finding of the Panel was not appealed by Brazil.  WT/DS267/AB/RW 
 Page 129 
 
 
prejudice to the interests of Brazil in the form of significant price suppression in the world market for 
upland cotton according to Article 6.3(c) of the  SCM Agreement .692 
330. At the outset of its analysis, the Panel said it would adopt a "unitary" approach to determine 
whether the effect of the marketing loan and counter-cyclical payments was significant price 
suppression within the meaning of Article 6.3(c) of the SCM Agreement .  Therefore, it did "not 
separate the question of the existence of signifi cant price suppression from the issue of the causal 
relationship between significant price suppression and the subsidies at issue."693  Moreover, relying on 
the Panel Report in Korea – Commercial Vessels , the Panel said it would adopt a "but for" approach 
to analyze whether the effect of the subsidies is significant price suppression.694  Thus, in order to 
determine whether the effect of marketing loan  and counter-cyclical payments to upland cotton 
producers was significant price suppression within  the meaning of Article 6.3(c) of the SCM 
Agreement , the Panel considered it necessary to determin e whether, "but for" these subsidies, the 
world market price for upland cotton would have increased significantly, or would have increased by 
significantly more than was in fact the case.695  
331. Having set out the approach it would follow, the Panel turned to the assessment of the
                                                      
692Brazil also made a claim of thr eat of serious prejudice under Articles 5(c) and 6.3(c) of the SCM 
Agreement .  Having found "present" serious prejudice under Articles 5(c) and 6.3(c) of the  SCM Agreement , the 
Panel considered it unnecessary to make additiona l findings with respect to Brazil's claim of  threat   of serious 
prejudice. (Panel Report, para. 11.4)  This finding of the Panel was not appealed by Brazil. 
In addition to its price suppression claims  under Articles 5(c) and 6.3(c) of the  SCM Agreement , Brazil 
alleged under Articles 5(c) and 6.3(d) that the effect of the marketing loan and counter-cyclical payments in 
MY 2005 was an increase in the United St ates' share of the world market for upland cotton.  Brazil argued that 
the United States' share of the world ma rket for upland cotton in MY 2005 in creased as compared to the average 
United States world market share duri ng MY 2002-2004.  In analyzing the United States' world market share, 
the Panel relied on world production data (rather than on world export data). ( Ibid., para. 10.264)  The Panel 
found that the evidence submitted did not support Brazil' s argument that there was an  increase in the United 
States' world market share of  upland cotton as compared to the average United States world market share during 
the previous three years. Thus, the Panel concluded that Brazil had not made a  prima facie   case. ( Ibid., 
para. 10.268)   This finding of the Panel was not appealed by Brazil. 
693Panel Report, para. 10.46.  
694See ibid., para. 10.48 (referring to Panel Report, Korea – Commercial Vessels , paras. 7.537 
and 7.612).  
695See ibid., para. 10.49.  In addition, the Panel agreed with the original panel that the term 
"significant" in Article 6.3(c) of the  SCM Agreement   relates to "the degree of the price suppression or 
depression in the context of the prices that have been aff ected" and that "the 'significance' of any degree of price 
suppression may vary from case to case, depe nding on the factual circumstances".  ( Ibid. (referring to Original 
Panel Report, paras. 7.1328 and 7.1329))  The Panel also quoted the following statement of the original panel: 
... for a basic and widely traded commodity, such as upland cotton, a 
relatively small decrease or suppressi on of prices could be significant 
because, for example, profit margins may ordinarily be  narrow, product 
homogeneity means that sales are price se nsitive or because of the sheer size 
of the market in terms of the amount of revenue involved in large volumes traded on the markets experi encing the price suppression. 
(Ibid., para. 10.50 (quoting Original Panel Report, para. 7.1330)) WT/DS267/AB/RW 
Page 130  
 
evidence submitted by Brazil in support of its claim.  The Panel considered a number of factors, taken 
collectively, to determine whether the effect of marketing loan and counter-cyclical payments to 
United States upland cotton producers was significant price suppression in the world market for 
upland cotton. 
332. First, the Panel reviewed data on the United States' share of world upland cotton production 
and world upland cotton exports, and concluded that the United States exerts a substantial 
proportionate influence on the world market for upland cotton.
696  The Panel then examined the 
structure, design, and operation of the mark eting loan and counter-cyclical payments.697  The Panel 
found that marketing loan and counter-cyclical pa yments affected the level of United States upland 
cotton acreage and production as a result of their mandatory and price-contingent nature, and their revenue-stabilizing effect.
698 
333. The next factor examined by the Panel was th e alleged "large magnitude" of the marketing 
loan and counter-cyclical payments.699  The Panel recalled that, al though the Appellate Body had 
found in the original proceedings that a precise quantification of the amount of a subsidy was not 
required in an analysis under Article 6.3(c) of the  SCM Agreement , it had also held that the 
magnitude of a subsidy and its relationship to prices were factors relevant to an analysis of whether 
the effect of a subsidy is significant price suppression.700  Having reviewed the data on the record, the 
Panel found that the order of magnitude of the mark eting loan and counter-cyclical subsidies was such 
that, in conjunction with other factors, this element supported a finding that significant price 
suppression was the effect of the marketing loan and counter-cyclical payments.701 
334. The Panel also examined Brazil's claim that there was a "link between high levels of [United 
States] subsidies and high levels of [United States] planted acreage, production and exports".702  The 
Panel noted that the fact that the United States' sh are of world cotton produc tion and exports remained 
relatively constant during the period MY 2002-20 05 suggested that United States cotton producers 
                                                      
696See Panel Report, paras. 10.52-10.58.  Over the period MY 2002-2005, th e average United States' 
share of world upland cotton production and exports was 19.7 per cent and 40.5 per cent, respectively. For 
MY 2006, the projected United States' share of world upland cotton production and exports was 18.6 per cent and 36.3 per cent, respectively. (See ibid., paras. 10.56 and 10.57) 
697See ibid., paras. 10.59-10.105. 
698See ibid., para. 10.104.  The Panel emphasized that it considered this factor in conjunction with other 
factors, such as:  (i) the fact that  the adjusted world price in most r ecent years had been below the marketing 
loan rate;  (ii) the magnitude of the marketing loan an d counter-cyclical payments;  (iii) the importance of these 
subsidies as a share of the revenues of United States upland cotton producers;  and (iv) the role of these subsidies in covering a significant part of the costs of production of these producers. 
699See ibid., paras. 10.106-10.111. 
 700See ibid., para. 10.109 (referring to Appellate Body Report, US – Upland Cotton , para. 461). 
701See ibid., para. 10.111. 
702Ibid., paras. 10.112-10.127.  WT/DS267/AB/RW 
 Page 131 
 
 
had increased production and exports in the sa me proportion as had foreign cotton producers.703  
However, according to the Panel, the United Stat es' stable share of world cotton production and 
exports did not mean an absence of insulation of United States producers from market price signals, 
but that the degree of price insulation that the or iginal panel had found had become weaker, possibly 
because prices were not as depressed as during th e period examined by the original panel.704 
335. Next, the Panel examined Brazil's assertion that there was a "discernible temporal 
coincidence"705 of suppressed world market prices and large marketing loan and counter-cyclical 
payments.  The Panel observed that, while the Un ited States' share of world production and exports 
remained stable in MY 2002-2006, world upland cotton prices did not sharply decline over the same period, as they had done in MY 1998-2001.  Inst ead, in MY 2002-2006, world upland cotton prices 
went through "intermittent peaks and troughs"
706, rising strongly from MY 2002 to MY 2003, 
declining sharply in MY 2004, and climbing again in MY 2005 and MY 2006.  The Panel explained 
that, the fact that recent years ha d not witnessed the sharp decline in the world market price for upland 
cotton that occurred during the period considered by the original panel, does not necessarily mean that 
there is currently no price suppression within the meaning of Article 6.3(c) of the  SCM Agreement .707   
336. The Panel then turned to Brazil's argument that  there was a gap between long-term costs of 
production and market revenues of United States upland cotton producers.708  In comparing market 
revenues and costs of production, the Panel consider ed it essential to look at medium- to long-term 
developments in the United States upland cotton sector .  As a consequence, the Panel compared the 
market revenue with total costs of production (which included both variable and fixed costs).709  The 
Panel found that there was a significant gap between  the total costs of production of United States 
upland cotton producers and their market revenue, suggesting that the subs idies at issue are an 
important factor affecting the economic vi ability of United States upland cotton farming.710 
337. The next factor examined by the Panel was the impact of the elimination of Step 2 
payments.711  The Panel considered that, given that l ess than one year had passed since the Step 2 
                                                      
703See Panel Report, para. 10.127. 
704Ibid. 
705Ibid., para. 10.128. 
706Ibid., para. 10.141. 
707See ibid., para. 10.146. 
708See ibid., para. 10.147. 
709The Panel also found that:  (i) certain items such as land, unpaid labour, and capital recovery costs 
should be counted as fixed costs (Panel Report, para. 10.166);  (ii) non-cash opportunity costs should be counted 
as part of total costs (para. 10.170);  and (iii) off-farm income did not play a significant role in sustaining the 
economic viability of United States upland cotton farmers (para. 10.184). 
710Panel Report, para. 10.196. 
711Ibid., paras. 10.223-10.239. WT/DS267/AB/RW 
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payments programme was terminated, and that the am ount of Step 2 payments was much smaller than 
the amount of marketing loan and counter-cyclical payments, it was not possible "to determine with 
any … precision or confidence just how much of the projected decline in [United States] exports of 
upland cotton [was] due to the elimination of the Step 2 payments."
712  The Panel further considered 
that the evidence on the effect of the elimination of Step 2 payments on the amounts of marketing loan and counter-cyclical payments suggested that "the indirect impacts on [United States] production 
and exports are likely to be small, given the rela tively modest changes projected in the amounts of 
marketing loan and counter-cyclical payments, and the fact that these changes run counter to one 
another."
713 
338. The Panel also considered economic simulati ons conducted by the parties, estimating the 
impact of the United States subsidies on world prices for upland cotton.714  The Panel noted that there 
was disagreement between the parties on the adequacy  of the model chosen and on the appropriate 
parameter values (demand and supply elasticity and coupling factor), which led to divergent results as 
to the magnitude of the impact of United States subsidies on the world price.  Although the United States did not present its own model and criticized Brazil's model, it ran a simulation using Brazil's 
model with the parameters it deemed to be appropr iate.  For MY 2005, Brazil's simulation estimated 
that removal of marketing loan and counter-cycli cal payments would have increased the world price 
of cotton by 9.3 per cent to 10.7 per cent, while the simulation conducted by the United States showed 
an increase of between 1.41 per cent and 2. 26 per cent over the period MY 2002-2005.
715  The Panel 
found that all the simulations conducted by the parties pointed in the direction that marketing loan and 
counter-cyclical payments led to an increase in United States production and exports of cotton that then led to the suppression of world prices.
716 
339. Finally, in considering other factors which might also have an impact on the world market 
price for upland cotton, the Panel recalled that it had adopted a "but for" approach to the question of 
whether the effect of United States marketing loan  and counter-cyclical payments to upland cotton 
producers was significant price suppression within the meaning of Article 6.3(c) of the SCM 
Agreement .717  The Panel observed that, because it had fo llowed this approach, it was not necessary to 
undertake a comprehensive analysis of other fact ors affecting the world market price for upland
                                                      
712Panel Report, para. 10.231. 
713Ibid., para. 10.239. 
714See ibid., paras. 10.197-10.222. 
715Ibid., paras. 10.201 and 10.202. 
716Ibid., para. 10.222. 
717See ibid., paras. 10.240-10.243.  WT/DS267/AB/RW 
 Page 133 
 
 
cotton.  Rather, the question before the Panel wa s whether the evidence supported the conclusion that, 
in the absence of the United States marketing loan and counter-cyclical subsidies, "the world market 
price would increase significantly".718  The Panel considered that, while China may have played a 
significant role in the market for upland cotton, this did not diminish the significance of the impact of 
United States subsidies on the world price for upl and cotton resulting from their effect on the United 
States' supply to the world market.  The Panel noted that developments concerning the role of China's 
demand and supply did not change the fact that, with a share of world exports of around 40 per cent, 
the United States was capable of exerting a substan tial proportionate influence on the world market.719 
340. On the basis of its evaluation of these factors,  the Panel found that the United States acted 
inconsistently with Articles  5(c) and 6.3(c) of the  SCM Agreement , in that the effect of marketing 
loan and counter-cyclical payments was significan t price suppression in the world market for upland 
cotton, within the meaning of Article 6.3(c), constitu ting "present" serious prejudice to the interests of 
Brazil, within the meaning of Article 5(c).720  The Panel concluded that the United States had failed to 
comply with the recommendations and rulings of th e DSB because it had failed "to take appropriate 
steps to remove the adverse effects or ... withdraw the subsidy"721, as required under Article 7.8 of the 
SCM Agreement .722 
D. Claims and Arguments on Appeal 
341. The United States claims that the Panel erred in finding that the effect of marketing loan and 
counter-cyclical payments provided to United St ates upland cotton producers pursuant to the FSRI 
Act of 2002 is significant price suppression  in the world market for upland cotton, within the meaning 
of Article 6.3(c) of the SCM Agreement , constituting "present" serious prejudice to the interests of 
Brazil, within the meaning of Article 5(c) of the  SCM Agreement . 
342. In particular, the United States argues that th e Panel erred in:  (i) finding that the United 
States marketing loan and counter-cyclical paymen ts insulated United States upland cotton producers 
from market signals723;  (ii) finding that there was a gap between market revenues and the production 
costs of United States upland cotton producers724;  (iii) its assessment of the economic simulations 
conducted by the parties725;  (iv) its evaluation of the impact of the elimination of Step 2 payments on 
                                                      
718Panel Report, para. 10.243. 
719See ibid., para. 10.243. 
720Ibid., para. 10.256. 
721Ibid., para. 15.1(a). 
722Ibid., para. 10.257. 
723See United States' appellant's submission, para. 133. 
724See ibid., para. 165. 
725See ibid., para. 196. WT/DS267/AB/RW 
Page 134  
 
United States upland cotton production and exports and on marketing loan and counter-cyclical 
payments
726;  (v) its consideration of the alleged larg e magnitude of marketing loan and counter-
cyclical payments727;  (vi) finding that the United States exer ted a substantial pro portionate influence 
on the world market for upland cotton728;  (vii) failing to conduct a prope r non-attribution analysis as 
required by Article 6.3(c) of the  SCM Agreement   in respect of other factors, particularly China's role 
in the world upland cotton market729;  and (viii) failing to determine the degree of price suppression it 
considered to be significant within the meaning of Article 6.3(c) of the SCM Agreement . 730 
343. The United States also claims that the Panel fa iled to make an objective assessment of the 
matter before it as required by Article 11 of the DS U, because it deliberately disregarded, and refused 
to consider, evidence submitted by the United States;   wilfully distorted and misrepresented this 
evidence;  and failed to provide a reasoned and adequa te explanation of its conclusions in the light of 
other plausible alternative explanations.731 
344. Brazil responds that the Panel did not err in finding that the effect of marketing loan and 
counter-cyclical payments provided to United St ates upland cotton producers is significant price 
suppression, constituting "present" serious prejudice to the interests of Brazil, within the meaning of 
Articles 5(c) and 6.3(c) of the  SCM Agreement .   
345. More specifically, Brazil argues that the Panel:  (i) did not exceed the bounds of its discretion 
in finding that marketing loan and counter-cycli cal subsidies insulate United States upland cotton 
producers from market price signals by stabilizing their revenue732;  (ii) properly exercised its 
discretion in relying on total costs of production and market revenue data generated by the USDA 
when finding that there was a gap between market revenues and production costs of United States 
upland cotton producers733;  (iii) did not err in relying on the economic simulations as support for its 
finding of significant price suppression734;  (iv) did not err in finding that the withdrawal of the Step 2 
payments does not eliminate the significant pri ce-suppressing effects of the marketing loan and 
counter-cyclical subsidies735;  (v) properly found that the large magnitude of marketing loan and 
counter-cyclical subsidies supports its finding of significant price suppression736;  (vi) properly found 
                                                      
726See United States' appellant's submission, para. 197. 
727See ibid., para. 217. 
728See ibid., paras. 218 and 219. 
729See ibid., para. 214. 
730See ibid., para. 221. 
731See ibid., paras. 227-243. 
732See Brazil's appellee's submission, para. 624. 
733See ibid., paras. 707-777. 
734See ibid., paras. 838-843. 
735See ibid., para. 900. 
736See ibid., para. 790.  WT/DS267/AB/RW 
 Page 135 
 
 
that the substantial proportionate influence exercised by the United States on the world market for 
upland cotton supports its finding of significant price suppression in that market737;  (vii) properly 
assessed the role of other factors, including the role  of China in the world market for upland cotton738; 
and (viii) properly found that the price suppression caused by the subsidies is of a "significant"739 
degree, based on a comprehensive consideration of both qualitative and quantitative factors. 
346. Brazil submits that the Panel did not exceed the bounds of its discretion as the trier of facts 
under Article 11 of the DSU in finding that the effect of marketing loan and counter-cyclical 
payments provided to United States upland cotton producers is significant price suppression.740  Brazil 
also asserts that certain arguments of the United St ates that are directed at the sufficiency of the 
Panel's reasoning do not properly belong under Article  11 of the DSU, but should have been raised 
under Article 12.7 of the DSU.741  Brazil argues that the United States made no claim of error under 
Article 12.7 of the DSU and that, for this reason alone, these arguments should be dismissed.742  In 
any event, Brazil notes that the Panel did provide a basic rationale for its findings.743 
347. Australia, Canada, and New Zealand address the Panel's finding of serious prejudice in their 
third participant's submissions.  Australia submits that , in finding that the eff ect of marketing loan and 
counter-cyclical payments provided to United St ates upland cotton producers is significant price 
suppression, the Panel acted within its discretion in the appreciation of the evidence and made 
appropriate use of the findings in the original proceedings.744  As regards the United States' claims 
under Article 11 of the DSU, Australia asserts that  the conduct of the Panel in assessing the evidence 
presented to it was not such as to give rise to "the deliberate disregard of, or refusal to consider, the 
evidence submitted to a panel" nor to "the willful di stortion or misrepresentation" of that evidence so 
as to amount to an "egregious error that ca lls into question the good faith of a panel".745  Canada 
addresses the claims of the United States under Article 11 of the DSU exclusively, arguing that "the Appellate Body should accord to the Panel's appreci ation of the evidence the same deference it has 
routinely accorded in other cases."
746  Finally, New Zealand states that the Panel correctly concluded 
that United States upland cotton producers are insu lated from market signals and correctly relied on 
                                                      
737See Brazil's appellee's submission, para. 804. 
738See ibid., para. 941. 
739See ibid., paras. 806-829. 
740See ibid., para. 136. 
741See ibid., para. 142. 
742See ibid., paras. 156 and 157. 
743See ibid., para. 158. 
744See Australia's third participant's submission, para. 23. 
745Ibid., para. 31. 
746Canada's third participant's submission, para. 40. WT/DS267/AB/RW 
Page 136  
 
several other factors in supporting its finding of present serious prejudice.
747  Moreover, New 
Zealand argues that the Panel did not make "egregious " errors rising "to a level that calls into question 
the objectivity of the Panel's assessment"748, which is required for a claim under Article 11 of the 
DSU to succeed. 
E. The Panel's Findings of "Present" Serious Prejudice under Articles 5(c) and 6.3(c) of 
the SCM Agreement 
348. We begin our analysis by addressing the United States' claim that the Panel failed to 
determine the degree of price suppression that it found to be "significant" within the meaning of Article 6.3(c) of the SCM Agreement .  We then turn to the Panel's analysis of causation and to the 
United States' claim that the Pane l failed to conduct a proper non-attribution analysis, as required by 
Article 6.3(c) of the SCM Agreement .  Next, we discuss the standard of review applicable in our 
examination of the various other errors the United St ates alleges that the Panel made in its assessment 
of the various factors supporting its finding of si gnificant price suppression.  In the light of the 
applicable standard of review, we finally consider the United States' argument that the Panel erred in 
its evaluation of the various factors supporting its finding of significant price suppression. 
1. Significant Price Suppression under Article 6.3(c) of the SCM Agreement
 
349. In terms of Article 6.3(c) of the SCM Agreement , "serious prejudice", in the sense of 
Article 5(c) of the  SCM Agreement , may arise where: 
… the effect of the subsidy is a significant price undercutting by the 
subsidized product as compared with  the price of a like product of 
another Member in the same market or significant price suppression, price depression or lost sales in the same market. 
                                                     
 
747See New Zealand's third participant's submission, paras. 4.3 and 4.16-4.30. 
748Ibid., para. 4.31.  WT/DS267/AB/RW 
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350. In the original proceedings, the Appellate Body agreed with the following description of price 
suppression provided by the original panel: 
Thus, " price suppression " refers to the situation where "prices"—in 
terms of the "amount of money set for sale of upland cotton" or the 
"value or worth" of upland cotton—either are prevented or inhibited 
from rising (i.e. they do not increase when they otherwise would have) or they do actually increase, but the increase is less than it otherwise would have been.  Price depression  refers to the situation 
where "prices" are pressed down, or reduced.[*]
749 (emphasis added 
by the Appellate Body) 
   
[*original footnote 1388] In the remainder of our analysis, we use the term 
"price suppression" to refer both to an actual decline (which otherwise 
would not have declined, or would have done so to a lesser degree) and an 
increase in prices (which otherwise would have increased to a greater 
degree). 
The Appellate Body observed that "'the situation where 'prices' ... are prevented or inhibited from 
rising' and 'the situation where "prices" are pressed down, or reduced' may overlap."750  However, it 
disagreed with the original panel's use of the term "price suppression" as short-hand for both price 
suppression and price depression, noting that Article 6. 3(c) refers to the two as distinct concepts.751 
351. At a conceptual level, we see some differenc es between the concepts of "price depression" 
and "price suppression" as defined in the original pr oceedings.  While price depression is a directly 
observable phenomenon, price suppression is not so.  Falling prices can be observed;  by contrast, 
price suppression concerns whether prices are le ss than they would otherwise have been in 
consequence of various factors, in this case, the subsidies.  The identification of price suppression, 
therefore, presupposes a comparison of an observable factual situation (prices) with a counterfactual 
situation (what prices would have been) where one has to determine whether, in the absence of the 
subsidies (or some other controlling phenomenon) , prices would have increased or would have 
increased more than they actually did.  Price depressi on, by contrast, can be directly observed, in that 
falling prices are observable.  The determination of whether such falling prices are the effect of the 
subsidies will require consideration of what pric es would have been absent the subsidies.  Thus, 
counterfactual analysis is an inescapable part of an alyzing the effect of a subsidy under Article 6.3(c) 
of the  SCM Agreement . 
                                                      
749Original Panel Report, para. 7.1277 and footnote 1388 thereto (quoted in Appellate Body Report, 
US – Upland Cotton , para. 423).  
750Appellate Body Report, US – Upland Cotton , para. 424 (quoting Original Panel Report, 
para. 7.1277). 
751See Appellate Body Report, US – Upland Cotton , para. 424. WT/DS267/AB/RW 
Page 138  
 
352. In the original proceedings, the panel conducte d a two-step analysis of whether "price 
suppression" existed and whether it was "significant".  In the first step, the original panel examined: 
(i) the relative magnitude of United States production and exports;  (ii) general price trends;  and 
(iii) the nature of the subsidies.
752  Under the second step, the original panel interpreted the term 
"significant" as meaning "important, notable ... consequential"753, and noted that the term may have a 
"numeric"754 connotation, but that the nature of the ma rket and of the product under consideration 
may enter into such assessment as we ll.  The original panel recalled its assessment of the evidence in 
the light of the same three factors mentioned above, and concluded that it was not looking at an "insignificant or unimportant world price phenomenon".
755   
353. By contrast, in these Article 21.5 proceedings, the Panel stated that it would adopt a 
"unitary"756 approach and would not separate into thr ee analytical steps whether there was price 
suppression in the world market for upland cotton, wh ether this price suppression was significant, and 
whether a causal relationship existed between this  significant price suppression and the subsidies.  
The Panel found support for this approach in the finding of the Appellate Body in the original 
proceedings that "it would be difficult to make a judgement on significant price suppression without 
taking into account the effect of the subsidies."757 
354. Because of the counterfactual nature of price suppression, it is difficult to separate price 
suppression from its causes.  Hence, the Panel's "unitary " analysis", at least in respect of identifying 
price suppression and its causes, has a sound conceptual foundation.   
355. In this case, the Panel was required to consid er the impact of marketing loan and counter-
cyclical payments on the prices of upland cotton on  the world market.  Brazil did not allege that 
marketing loan and counter-cyclical payments to United States upland cotton farmers have a direct 
impact on world market prices.  Rather, these payments are alleged to have had an impact on farmers' planting decisions and, consequently, on domestic upland cotton production levels .  Thus, the analysis 
should initially focus on the effects of the subsidi es on production levels by examining whether there 
was more production than there otherwise would ha ve been as a result of the marketing loan and 
counter-cyclical payments.  It is the marginal production attributable to the marketing loan and 
counter-cyclical payments that matters.  If there were to be increased upland cotton production, the 
                                                     
 
752See Original Panel Report, para. 7.1280. 
753Ibid., para. 7.1325. 
754Ibid., para. 7.1329. 
755Ibid., para. 7.1332.  The Appellate Body did not disturb the original panel's analysis.  (See Appellate 
Body Report, US – Upland Cotton , paras. 429 ff) 
756Panel Report, para. 10.46. 
757Appellate Body Report, US – Upland Cotton , para. 433.  WT/DS267/AB/RW 
 Page 139 
 
 
analysis would then focus on whether that increase  in supply had effects on prices in the world 
market.  All else being equal, the marginal production attributable to the subsidy would be expected to 
have an effect on world prices, particularly if the subsidy is provided in a country with a meaningful 
share of world output. 
356. Given the focus on production and price effects, an analysis of price suppression would 
normally include a quantitative component.758  There is some inherent difficulty in quantifying the 
effects of subsidies, because, as we have indicated, the increase in prices, absent the subsidies, cannot 
be directly observed.  One way to undertake the analysis is to use economic modelling or other quantitative techniques.  These techniques can be used  to estimate whether there are higher levels of 
production resulting from the subsidies and, in turn, the price effects of that production.  Economic 
modelling and other quantitative techniques provide a framework to analyze the relationship between 
subsidies, other factors, and price movements. 
357. Brazil presented an economic simulation model be fore the Panel.  The United States criticized 
certain structural aspects of the economic simulation model presented by Brazil, as well as the parameters used in that model.  Instead of offe ring its own model, the United States ran Brazil's model 
using its own preferred parameters.  The results of both simulations were presented to the Panel.  The 
Panel provided an extensive discussion of the simula tions presented by both parties, the differences in 
the parameters used by each, and the explanations provided by each party to justify their choice of 
parameters.
759  It also described the resu lts of the various simulations.760  The Panel concluded that 
"all the simulations conducted by the parties support th e view that [United Stat es] marketing loan and 
counter-cyclical payments have led to an increase in [United States] producti on and exports of cotton 
that have then suppressed world prices."761  Because the examination of price suppression necessarily 
involves an analysis of what would have been the case in the absence of an intervening event, 
modelling exercises are likely to be an important an alytical tool that a panel should scrutinize.  The 
relative complexity of a model and its parameters is  not a reason for a panel to remain agnostic about 
them.  Like other categories of evidence, a pane l should reach conclusions with respect to the 
                                                      
758The original panel stated that "the 'significance' of any degree of price suppression may vary from 
case to case, depending upon the factual circumstances, and may not solely depend upon a given level of numeric significance".  It added that "[o]ther considerations, including the nature of the 'same market' and the 
product under consideration may also enter into such an  assessment, as appropriate in a given case." (Original 
Panel Report, para. 7.1329 (footnote omitted);  see also Appellate Body Report, US – Upland Cotton , para. 434)  
These findings were not disturbed by the Appellate Body. (Appellate Body Report, US – Upland Cotton , 
para. 490) 
759See Panel Report, paras. 10.197-10.222. 
760The results are graphically set out in Figure 4 at ibid., para. 10.203. 
761Ibid., para. 10.222. WT/DS267/AB/RW 
Page 140  
 
probative value it accords to economic simulations or models presented to it.  This kind of assessment 
falls within the panel's authority as the initial trier of facts in a serious prejudice case. 
358. In the present case, the Panel did not take a position on which parameters were more 
appropriate to measure the effect of the subsidies at issue on prices, or the appropriateness of the structure of the model itself.  The Panel simply concluded that all simulations showed increases of production and exports and the con sequential suppression of prices.  While the Panel appropriately 
examined the model, the parameters used by each  party, and the arguments made by the parties
762, and 
noted the different results generated by the simula tions conducted by each party, the Panel could have 
gone further in its evaluation and comparative analys is of the economic simula tions and the particular 
parameters used.   
359. We proceed to consider the specific aspects of the Panel's analysis challenged by the United 
States, namely, the Panel's alleged failure to dete rmine the degree of price suppression it found to be 
"significant", the Panel's non-attribution analysis, a nd the other allegations of error raised by the 
United States.  
2. The United States' Claim that the Pane l Failed to Determine the Degree of 
Price Suppression It Found to Be "Significant"  
360. The United States claims on appeal that the Panel failed to determine what degree of price 
suppression was "significant"763, as required by Article 6.3(c) of the  SCM Agreement . 
361. The Panel adopted, as indicated, a "unitary" approach".  It did not, as the original panel did, 
separate its analysis into three steps to determ ine whether there was price suppression in the world 
market for upland cotton, whether this price suppression was significant, and whether a causal 
relationship existed between such signifi cant price suppression and the subsidies.764  Rather, in 
undertaking a unitary analysis, the Panel considered  both quantitative and qualitative elements in its 
assessment.  It made a quantitativ e assessment of significance by ev aluating the magnitude of the 
subsidies, the gap between United States upland co tton producers' revenues and costs of production, 
the United States' share of world production and expo rts, and the economic simulations;  and it made 
                                                      
762We note that in paragraph 10.198 of its Report, the Panel stated that it had considered "in some detail 
the arguments made by the parties about the model, its assumptions and results" and that, to the extent possible, 
it had "provided [its] assessment of these arguments, and based on that arrived at an overall conclusion about the 
simulation results."  However, its overall conclusion in para graph 10.222 is limited to the consideration that "all 
the simulations conducted by the par ties support the view that [United States] marketing loan and counter-
cyclical payments have led to an increase in [United States] production and exports of cotton that have then 
suppressed world prices". 
763United States' appellant's submission, para. 221. 
764See Panel Report, para. 10.46.  WT/DS267/AB/RW 
 Page 141 
 
 
a qualitative assessment by evaluating the structure,  design, and operation of the subsidies.  The 
adoption of a unitary approach, however, did not absolve the Panel from clearly explaining its 
position on the question of "significance".  The Pane l could have provided a clearer explanation of 
how the factors that it examined supported its finding that the price suppression was "significant". 
362. In our view, several of the factors evaluated by the Panel support the proposition that the 
effect of the marketing loan and counter-cyclical payments is "significant" price suppression in the 
world market for upland cotton.  The Panel noted that there was some disagreement between Brazil 
and the United States on the exact magnitude of the subsidies, particularly in relation to counter-
cyclical payments, with the United States' data showing lower payments than Brazil's data.765  The  
data submitted by the United States showed that ma rketing loan payments ex ceeded US$1.7 billion in 
MY 2004, and US$1.2 billion in MY 2005.766  The United States indicated that counter-cyclical 
payments to upland cotton production exceeded  US$800 million in MY 2004 and in MY 2005.767  In 
other words, the subsidies provided to upland cotton production under the marketing loan and 
counter-cyclical payments programmes exceeded US $2 billion in both MY 200 4 and MY 2005.  This 
magnitude of the marketing loan and counter-cycli cal payments is significant not only in absolute 
terms, but also as a share of Unite d States producers' total revenues.  The Panel found, in this regard, 
that "[t]he share of marketing loan payments an d counter-cyclical payments in total revenues of 
[United States] upland cotton producers was 35 per ce nt in MY 2004 and 27 per cent in MY 2005."768 
363. Although the Panel did not quantify the effect  of these subsidies on upland cotton plantings 
and production, it established that the marketing lo an and counter-cyclical payments "affect the level 
of [United States] upland cotton acreage and produc tion as a result of their mandatory and price-
contingent nature and thei r revenue-stabilizing effect."769  Moreover, the Panel found that "there exists 
a significant gap between the total costs of productio n of [United States] upland cotton producers and 
                                                      
765The Panel provided a table comparing the results of various calculations provided by Brazil and the 
United States of the amounts of counter-cyclical payments to United States upland cotton producers. (See Table 2A, Panel Report, para. 10.32) 
766See ibid., para. 10.24, Table 1: Marketing Loan Payments, MY 2002-2005 (referring to data 
provided by the United States in its response to Question 4 posed by the Panel, Panel Report, p. D-140, para. 14). 
767See ibid., para. 10.32, Table 2A: Counter-cyclical Payments (non-Annex IV Methodology), 
MY 2002-2005 (referring to data provided by the United States in its response to Question 4 posed by the Panel, ibid., p. D-141, para. 16). 
768Ibid., para. 10.111. (footnote omitted)     
769Ibid., para. 10.248.  The United States has appealed the Panel's findings with respect to the "market-
insulating" effects of the marketing loan and counter-cyc lical payments.  The United St ates claims are examined 
infra , para. 387.  We uphold the Panel's findings.  WT/DS267/AB/RW 
Page 142  
 
their market revenue."
770  The gap between revenues and costs was found to exist in four of the five 
years examined by the Panel, if ginning costs are in cluded in the calculation, or in three of the five 
years, if ginning costs are excluded.771  Costs exceeded market revenues by between 3.7 per cent 
and 71.9 per cent, if ginning costs are included, or by 12.3 per cent and 83.6 per cent, if ginning costs 
are excluded.772  The Panel reasoned in this regard: 
[V]iewed together with other ev idence on the record, including the 
fact that the adjusted world price in most recent years has been below 
the marketing loan rate, the magnitude of the marketing loan and counter-cyclical payments, the importance of these subsidies as a share of the revenues of [United States] upland cotton producers and 
their role in covering a significant part of the costs of production of 
these producers, it is reasonable to conclude that without these subsidies the level of [United States] upland cotton acreage and production would likely be significantly lower.
773 (footnote omitted)  
The effect of marketing loan and counter-cycli cal payments on production of upland cotton was 
confirmed in the economic simulations  conducted by the parties.  Even  when run using the parameters 
that the United States considered to be appropria te, the simulation showed 12 per cent to 18 per cent 
additional production of upland cotton due to marke ting loan and counter-cyclical payments in the 
period MY 2002-2005.774 
364. The Panel also found that "the United States exerts a substantial proportionate influence on 
the world market for upland cotton".775  According to the Panel, th e United States' share of world 
upland cotton production was 19.6 per cent in MY 2002,  20.9 per cent in MY 2005, and was projected 
to be 18.6 per cent in MY 2006.776  The United States' share of world exports of upland cotton 
was 39.9 per cent in MY 2002, 39.8 per cent in MY 2005, and was projected to be 36.3 per cent in 
MY 2006.777  We understand the Panel's finding to imply that, given the United States' significant 
shares of world exports and production, the incr eased production resulting from the marketing loan 
and counter-cyclical payments would have an eff ect on the world market for upland cotton and would 
be reflected in the world market price of upland cotton.   
                                                      
770Panel Report, 10.196.  The United States has also challenged the Panel's assessment of the difference 
between United States upland cotton producers' re venues and costs.  These claims are addressed infra , para. 419.  
We also uphold the Panel's findings in this regard. 
771See ibid., paras. 10.189 and 10.190, Tables 6A and 6B. 
772Ibid. 
773Ibid., para. 10.104.  
774See United States' first written submission to  the Panel, Annex I, Table A8, p. 14. 
775Panel Report, para. 10.58. 
776See ibid., para. 10.58. 
777Ibid.  WT/DS267/AB/RW 
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365. The Panel found confirmation for this propos ition in the economic simulations.  The 
simulation with the parameters preferred by the Un ited States showed that the removal of marketing 
loan and counter-cyclical payments would have  increased the world price of upland cotton 
by 1.41 per cent to 2.26 per cent in the period MY 2002-2005.778  The simulation run with the 
parameters suggested by Brazil showed that, in MY 2002-2005, the world price of upland cotton would have been higher by 8.2 to 8.9 per cent in  the absence of the marketing loan and counter-
cyclical payments.
779  The Panel further noted the significan ce of even relatively small changes in 
price for commodity products such as upland cotton, endorsing the original panel's view that: 
… for a basic and widely traded co mmodity, such as upland cotton, a 
relatively small decrease or suppression of prices could be significant because, for example, profit margins may ordinarily be narrow, 
product homogeneity means that sales are price sensitive or because 
of the sheer size of the market in terms of the amount of revenue involved in large volumes traded on the markets experiencing the price suppression.
780 
The United States has not challenged the accuracy of th is statement.  Thus, the range of price effects 
resulting from the simulations would fall within the Panel's view of what constitutes "significant" 
price suppression in the specific context of the world price of upland cotton. 
366. Therefore, we find that the evidence on the r ecord supports the Panel's conclusion that the 
effect of the marketing loan and counter-cyclical payments is "significant" price suppression, within 
the meaning of Article 6.3(c) of the  SCM Agreement . 
3. Causation and Non-attribution  
367. The United States submits that the Panel failed to conduct a proper non-attribution analysis 
under Article 6.3(c) of the SCM Agreement , despite having recognized that it had an obligation to 
do so.781  According to the United States, "[m]issing fro m the Panel's analysis was any discussion of 
just how other factors, including China, actually played a role in establishing the world price for 
upland cotton."782 
368. The Appellate Body explained in the original  proceedings that Articles 5 and 6.3 of the SCM 
Agreement   do not contain the more elaborate and precise "causation" and "non-attribution" language 
                                                      
778See Panel Report, para. 10.202. 
779See ibid., para. 10.201. 
780Original Panel Report, para. 7.1330 (quoted in Panel Report, para. 10.50). 
781See United States' appellant's submission, para. 210. 
782Ibid., para. 214. WT/DS267/AB/RW 
Page 144  
 
found in the trade remedy provisions of the SCM Agreement .
783  This means that "a panel has a certain 
degree of discretion in selecting an appropriate me thodology for determining whether the 'effect' of a 
subsidy is significant price suppression".784  In the original proceedings, the Appellate Body found 
that the original panel's approach with respect to  causation and non-attribution was similar to that 
reflected in Appellate Body findings in the contex t of other WTO agreements , which defined a causal 
link as involving "a genuine and substan tial relationship of cause and effect"785 and required the non-
attribution of effects caused by other factors.  The Appellate Body "agree[d] with the [original panel] 
that it is necessary to ensure that the effects of ot her factors on prices are not improperly attributed to 
the challenged subsidies", explaining that, "[i]f th e significant price suppression found in the world 
market for upland cotton were caused by factors othe r than the challenged subsidies, then that price 
suppression would not be 'the effect of' the cha llenged subsidies in the sense of Article 6.3(c)."786 
369. The approach to causation and non-attributio n taken by the Panel in these Article 21.5 
proceedings differs from the approach taken by the or iginal panel.  In the original proceedings, the 
panel's approach consisted of "exami n[ing] whether or not 'the effect of the subsidy' is significant 
price suppression which [it had] found to exist in the same world market".787  The original panel then 
separately "consider[ed] the role of other alleged cau sal factors in the record before [it] which may 
[have] affect[ed] [the] analysis of the causal  link between the United States subsidies and the 
significant price suppression."788  The Panel in these Article 21.5 proceedings "adopted a 'but for' 
approach to the question of whether the effect of [United States] marketing loan and counter-cyclical 
subsidies to upland cotton producers is significant price suppression within the meaning of 
Article 6.3(c) of the SCM Agreement ".789  The Panel also considered that, having adopted a "but for" 
approach, "it is not necessary in this respect to  undertake a comprehensive evaluation of factors 
affecting the world market price for upland cotton."790 
370. We recall that "a panel has a certain degree of discretion in selecting an appropriate 
methodology for determining whether the 'effect' of a subsidy is significant price suppression".791  
Articles 5(c) and 6.3(c) of the SCM Agreement  do not exclude, therefore, that a panel could examine
                                                      
783See Article 15.5 of the  SCM Agreement .  See also Article 3.5 of the  Anti-Dumping Agreement   and 
Article 4.2(b) of the  Agreement on Safeguards .  
784Appellate Body Report, US – Upland Cotton , para. 436. 
785Ibid., para. 438.  
 786 Ibid., para. 437.   
787Ibid., para. 437 (quoting Panel Report, para. 7.1345). 
 788Appellate Body Report, US – Upland Cotton , para. 437 (quoting Original Panel Report, 
para.  7.1346). 
789Panel Report, para. 10.243. 
790Ibid. 
791Appellate Body Report, US – Upland Cotton , para. 436.  WT/DS267/AB/RW 
 Page 145 
 
 
causation based on a "but for" approach.  We have  explained that a price suppression analysis is 
counterfactual in nature.  The Panel's choice of a "but  for" approach reflects this.  In consequence, the 
Panel had to determine whether the world price of upland cotton would have been higher in the 
absence of the subsidies (that is, but for  the subsidies). 
371. In the original proceedings, th e Appellate Body observed that: 
... the ordinary meaning of the transitive verb "suppress" implies the 
existence of a subject (the challenge d subsidies) and an object (in this 
case, prices in the world market for upland cotton).  This suggests that it would be difficult to make a judgement on significant price suppression   without taking into account the effect of the subsidies.  
The Panel's definition of price suppression, explained above, reflects 
this problem;  it includes the notio n that prices "do not increase when 
they  otherwise   would have" or "they do actually increase, but the 
increase is less than it  otherwise   would have been".  The word 
"otherwise" in this context refers to the hypothetical situation in which the challenged subsidies are absent.  Therefore, the fact that 
the Panel may have addressed some of the same or similar factors in 
its reasoning as to significant price suppression and its reasoning as to "effects" is not necessarily wrong.
792 (original emphasis;  footnotes 
omitted) 
The Panel's choice of a "but for" approach, theref ore, is consistent with the definition of price 
suppression endorsed by the Appellate Body in the or iginal proceedings, insofar as the counterfactual 
determination of whether price suppression exists cannot  be separated from the analysis of the effects 
of the subsidies. 
372. We note that Article 6.3(c) does not use the wo rd "cause" but, rather, provides that serious 
prejudice may arise where "the effect of the subs idy is ... significant price suppression".  The 
Appellate Body stated in the origin al proceedings that the text of Article 6.3(c) nevertheless requires 
the establishment of a causal link between th e subsidy and the significant price suppression.793  We 
agree that Article 6.3(c) requires the establishmen t of a causal link, but we observe that, while the 
term "cause" focuses on the factors that may trigger a certain event, the term "effect of" focuses on the 
results of that event.  The effect—price suppressi on—must result from a chain of causation that is 
linked to the impugned subsidy. 
373. The United States has not appealed the Panel's choice of a "but for" approach  per se .  Instead, 
the United States argues that the Panel erred in dec lining to carry out a comprehensive evaluation of 
other factors affecting the world market price fo r upland cotton.  According to the United States, 
                                                      
792Appellate Body Report, US – Upland Cotton , para. 433.  
793See ibid., para. 435. WT/DS267/AB/RW 
Page 146  
 
"[t]he very use of a but-for analysis ... requires th e Panel not to attribute effects to [United States] 
payments that they are not having."
794 
374. The Panel does not clearly articulate the standard implicated in its "but for" approach.  Brazil 
submits that the Panel's "but for" standard "effectively  isolated  the effects of [United States] 
subsidies from the effects of other factors."795  New Zealand asserts that the Panel's finding—that 
without the United States subsidies the price of upland cotton would be higher—"stands independent 
of any other global factors that might also be suppressing world market prices".796  T h i s  m a y  
somewhat oversimplify the position.  A subsidy may be necessary, but not sufficient, to bring about price suppression.  Understood in this way, the "but for" test may be too undemanding.  By contrast, 
the "but for" test would be too rigorous if it required the subsidy to be the only cause of the price suppression.  Instead, the "but for" test should determine that price suppression is the effect of the 
subsidy and that there is a "genuine and s ubstantial relationship of cause and effect".
797 
375. The United States argues that the Panel was re quired to conduct a non-attribution analysis as 
part of its "but for" approach.  While we agree th at Article 6.3(c) requires the Panel to have ensured 
that the effects of other factors on prices did not di lute the "genuine and substantial" link between the 
subsidies and the price suppression, Article 6.3(c) leaves some discretion to panels in choosing the 
methodology used for this assessment.  In the light of this flexibility, it would not have been improper 
for the Panel to have assessed the effect of other f actors as part of its counterfactual analysis, rather 
than conducting a separate analysis of non-attribution.   In our view, the Panel's "but for" standard, 
understood as we have set out  above, is permissible unde r Article 6.3(c) of the SCM Agreement , and it 
is consistent with the Panel's counte rfactual analysis of price suppression. 
376. The United States relied upon only one other fa ctor that it considered required a non-
attribution analysis.  That factor is China's role  in the upland cotton market.  The Panel considered 
that "based on the evidence before  it, ... while China may play a si gnificant role in the market for 
upland cotton, this does not diminish the significance of the impact of [United States] subsidies on the 
world price for upland cotton as a result of their effect on [United States] supply to the world 
market".798  It further noted that "[d]evelopments concerning the role of China's demand and supply 
                                                      
794United States' appellant's submission, para. 213. 
795Brazil's appellee's submission, para. 921. (original emphasis) 
796New Zealand's third participant's submission, para. 4.25. 
797Appellate Body Report, US – Upland Cotton , para. 438 (quoting Appellate Body Report, US – 
Wheat Gluten , para. 69). 
798Panel Report, para. 10.243.  WT/DS267/AB/RW 
 Page 147 
 
 
do not change the fact that, with a share of world exports of around 40 per cent, the United States is 
capable of exerting a substantial proportionate influence on the world market".799 
377. The United States asserts that China is "one of the most important 'other' factors influencing 
the world price of upland cotton."800  According to the United States, China is "the world's largest 
producer of upland cotton, the world's largest cons umer of upland cotton and world's largest importer 
of upland cotton" with "its share of world im ports rising from only 1% in MY 1998 to 44% in 
MY 2005".801  The United States also asserts that "downward pressure on cotton prices may also have 
resulted from uncertainty over China's supply and demand statistics, as well as ad hoc  changes to 
government policies."802 
378. As we review the United States' arguments, we  have considerable difficulty understanding 
how China's increasing consumption and imports of cotton could have contributed to the suppression 
of the world price of cotton.  To the contrary, the additional demand from China's imports would have 
been likely to contribute positively to world prices.  We are also not persuaded that the United States 
has established how uncertainties over China's supply  and demand statistics and ad hoc changes in 
government policies have contributed to price suppression.  In both cases, the United States asserts 
that China has an impact on world upland cotton pr ices, but fails to demonstrate how China's role 
impacts  negatively   on world prices.  The United States relies on a report of the International Cotton 
Advisory Committee, which notes that "uncertain ties regarding statistics on cotton production, 
consumption, and stocks" make it "difficult to est imate the gap between supply and use in China ..., 
and therefore to predict the level of Chinese imports from one season to another", and that the "timing 
and amount of import quotas released by China ... has t hus become precious information to evaluate 
the need for cotton by Chinese mills."803  The report further suggests that "the lack of information 
about the future releases of these import quot as may contribute to pushing prices downward".804  
However, the same report is unambiguous about th e general overall effect of China on the price of 
cotton, stating that, "[i]n the past 25 years, signifi cant increases in Chinese imports resulted in hikes in 
international cotton prices".805  Moreover, the evidence submitted  by the United States suggests that 
uncertainty about China's demand may cause pri ce volatility in the world upland cotton market.
                                                      
799Panel Report, para. 10.243. 
800United States' appellant's submission, para. 211.  In its appellant's submission, the United States 
sometimes refers to "other factors", in the plural.  However, it only makes arguments on the role of China. 
801Ibid. 
802Ibid., para. 212. 
803United States' first written submission to the Panel, para. 315 (quoting International Cotton Advisory 
Committee (ICAC) Report, p. 7 (Exhibit Bra- 485 submitted by Brazil to the Panel, supra , footnote 131). 
804Ibid. (emphasis added by United States omitted) 
805Ibid. WT/DS267/AB/RW 
Page 148  
 
However, we are not persuaded that the evidence of volatility demonstrates  prima facie   that Chinese 
consumption of cotton and policies have a suppressi ng effect on the price of upland cotton in the 
world market.  The effects of volatility appear to be  inconclusive.  Therefore, while the Panel agreed 
with the United States that "China may play a significant role in the market for upland cotton"
806, it 
properly concluded that this does not diminish price suppressing effects of marketing loan and counter-cyclical payments.   
379. For these reasons, we find that the Panel did not e rr in finding that the role of China's trade in 
cotton "does not attenuate the link between significa nt price suppression and the subsidies at issue in 
this proceeding".
807 
380. The United States also argues that the Panel faile d to make an objective assessment of the 
matter, as required by Article 11 of the DSU, by disregarding evidence that the United States had 
submitted that was relevant to the non-attribution analysis, and by failing to provide a reasoned and 
adequate explanation for its conclusions in th e light of possible alternative explanations.808 
381. We have found that the Panel's finding concerni ng the role of China is not inconsistent with 
Article 6.3(c) of the  SCM Agreement .  We disagree with the assertion by the United States that the 
Panel "ignored completely, and never took into account"809, evidence concerning the role of China 
submitted by the United States.810  Although its analysis of China's role may be succinct, the Panel 
considered, " based on the evidence before it , that while China may play a significant role in the 
market for upland cotton, this does not diminish the significance of the impact of [United States] 
subsidies on the world price for upland cotton as a r esult of their effect on [United States] supply to 
the world market."811  Moreover, we stated above that the evidence submitted by the United States on 
the role of China in the world cotton trade does not establish that China is a factor that contributes to 
the suppression of world upland cotton prices.  We do not believe, therefore, that the Panel was 
required to conduct a more thorough analysis of the role of China in the light of the evidence
                                                      
806Panel Report, para. 10.243. 
807Ibid., para. 10.252. 
808See United States' appellant's submission, para. 243. 
809Ibid.  
810Brazil argues that the United States should have raised this claim under Article 12.7 of the DSU.  We 
are not persuaded by the argument put forward by Brazil that such a claim should have been raised under 
Article 12.7 of the DSU and that, as it was not, it should fail for that reason.  We recall that Article 12.7 requires 
panels to set out the findings of fact, the applicability of  relevant provisions, and the basic rationale behind any 
findings and recommendations it makes. 
811Panel Report, para. 10.243. (emphasis added)  WT/DS267/AB/RW 
 Page 149 
 
 
submitted by the United States.  In our view, theref ore, the Panel did take into account the evidence 
submitted by the United States on the role of China and properly reached the conclusion that China's 
role in the world cotton trade did not impact negati vely on world upland cotton prices.  For the same 
reasons, we also do not believe that the Panel faile d to provide a "reasoned a nd adequate explanation" 
for its conclusions in the light of "possible alternative explanations"812, as alleged by the United 
States.813 
4. Other Allegations of Error Raised by the United States  
(a) Standard of Review 
382. The United States claims that the Panel erred in its evaluation of the various elements, which 
supported its finding that marketing loan and co unter-cyclical payments cause significant price 
suppression.  In particular, the United States asserts that  the Panel erred:  (i) in finding that marketing 
loan and counter-cyclical payments insulated Un ited States producers of upland cotton from market 
signals;  (ii) in finding that there was a significant gap between the total costs of production of United States upland cotton producers and th eir market revenues;  (iii) in its evaluation of the economic 
simulations conducted by the parties;  (iv) in its ev aluation of the impact of the withdrawal of Step 2 
payments;  and (v) in its assessment of the magn itude of the marketing loan and counter-cyclical 
payments and the alleged substantia l proportionate influence of the United States in the world upland 
cotton market. 
383. Before turning to the arguments raised by the United States, we address the preliminary 
question of the applicable standard of review, bearing in mind that, with respect to some of these 
claims, the United States has challenged the Pane l's findings under both Article 6.3(c) of the SCM 
Agreement   and Article 11 of the DSU. 
384. We recall that, in the original dis pute, the Appellate Body stated:   
Pursuant to Article 17.6 of the DSU, appeals are "limited to issues of 
law covered in the panel report and legal interpretations developed by 
the panel".  To the extent that th e United States' arguments concern 
the Panel's appreciation and weighing of the evidence, we note from the outset that the Appellate Body will not interfere lightly with the Panel's discretion "as the trier of facts".  At the same time, the 
Appellate Body has previously poin ted out that the "consistency or 
inconsistency of a given fact or set of facts with the requirements of a 
given treaty provision is ... a lega l characterization issue".  Whether 
the Panel properly interpreted the re quirements of Article 6.3(c) of 
                                                     
 
812See Appellate Body Report, US – Lamb , para. 106. 
813United States' appellant's submission, para. 243. WT/DS267/AB/RW 
Page 150  
 
the  SCM Agreement   and properly applied that interpretation to the 
facts in this case is a legal question.  This question is different from whether the Panel made "an objective assessment of the matter before it, including an objective asse ssment of the facts of the case", 
in accordance with Article 11 of the DSU.
814 (footnotes omitted) 
 
385. The United States has charact erized its appeal under Article 6.3(c) of the  SCM Agreement   as 
one relating to the Panel's application of the law to  the facts, although it has also brought some claims 
under Article 11 of the DSU that challenge the objectivit y of the Panel's assessme nt of the facts.  We 
recognize that the boundary between an issue that is  purely factual and one that involves mixed issues 
of law and fact is often difficult to draw.  However, we consider that many of the United States' claims against the Panel's evaluation of the elem ents supporting its finding of significant price 
suppression are primarily directed at the Panel's a ppreciation and weighing of the evidence, and the 
inferences that the Panel drew from the evidence, both of which fall within its authority that is 
recognized under Article 11 of the DSU.
815  Therefore, we shall review those claims and arguments 
raised by the United States concerning the applicati on of the law to the facts under the legal standard 
of Article 6.3(c) of the SCM Agreement , and those claims and argum ents concerning the Panel's 
appreciation and weighing of the evidence under Article 11 of the DSU.  
386. The United States claims that, in its finding of significant price suppression, the Panel relied 
excessively on the findings in the origin al panel and Appellate Body reports.816  A s  t h e  P a n e l  
recognized, the Appellate Body has stated that proceedings under Article 21.5 of the DSU do not 
occur in isolation, but are part of a "continuum of events"817, and "doubts could arise about the 
objective nature of an Article 21.5 panel's assessment if, on a specific issue, that panel were to deviate 
from the reasoning in the original panel report in  the absence of any change in the underlying 
evidence in the record".818   Thus, in this case, it was appropria te for the Panel to have relied on the 
findings from the original proceedings unless "any ch ange in the underlying evidence in the record" 
would have justified departing from them.  It is undisputed "that the conditions of application of the 
marketing loan and counter-cyclical payments, as de fined in the relevant provisions of the FSRI Act 
of 2002, are the same at present as when th e original panel analyzed these measures."819  On appeal, 
however, the United States asserts that "[t]he fact s in the original proceeding and this compliance 
proceeding vary in fundamental ways which make unsupportable the Panel's reliance on the original 
                                                      
814Appellate Body Report, US – Upland Cotton , para. 399.  
815See Appellate Body Report, EC – Sardines , para. 299. 
816See United States' appellant's submission, para. 135. 
817Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 121. 
818Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada) , para. 103.  
819Panel Report, para. 10.71.  WT/DS267/AB/RW 
 Page 151 
 
 
panel and Appellate Body reports on issues related to market insulation."820  According to the United 
States, this is so because the DSB's recommendations  and rulings related to a package of payments 
that included Step 2 payments, which have been repealed.821  We note that the Panel specifically 
addressed the repeal of Step 2 payments and anal yzed the impact of the elimination of these 
payments, an issue to which we return below.822  As regards marketing loan and counter-cyclical 
payments, the Panel concluded that "[n]othing in the facts presented ... in this proceeding would 
appear to warrant a conclusion different from the conclusion drawn by the panel and the Appellate 
Body in the original proceeding".823 
(b) Market Insulation 
387. The United States claims that the Panel erred in finding that marketing loan and counter-
cyclical payments insulated United States pr oducers of upland cotton from market signals.824  I n  
particular, the United States challenges the Panel' s evaluation of upland cotton producers' planting 
decisions825;  the Panel's assessment of the economic studi es submitted by the parties about the impact 
of counter-cyclical payments on production826;  and the Panel's analysis of the relationship between 
upland cotton base acres and production.827  The United States also argues that the Panel made several 
findings that contradict its conclusion that marke ting loan and counter-cyclical payments insulated 
United States producers of upland cotton from market signals.828  Finally, the United States challenges 
the Panel's alleged failure to determine the degr ee of market insulation and the degree of production 
effects related to that insulation.829 
                                                      
820United States' appellant's submission, para. 136.  The United States adds: 
Neither the original panel nor the A ppellate Body addressed the precise 
serious prejudice claims that Brazil made before the Panel.  The findings 
and recommendations of the original panel and Appellate Body, and the 
recommendations and rulings of the DSB,  related to the package of Step 2, 
market loss assistance, marketing loan , and counter-cyclical payments made 
in MY 1999-2002.  The compliance proceeding pertained to marketing loan 
payments and counter-cyclical payments made in MY 2006.  Whether these payments insulated [United States] upl and cotton producers, and ultimately, 
whether they caused significant price suppression, was a question of first 
impression, which involved the consid eration of new evidence on market 
conditions and producers' expectations. 
(Ibid. (footnotes omitted)) 
821See United States' appellant's submission, para. 136. 
822See infra , para. 436. 
823Panel Report, para. 10.82. 
824See United States' appellant's submission, para. 132. 
825See ibid., para. 134. 
826See ibid., paras. 144 and 145. 
827See ibid., para. 154. 
828See ibid., para. 157. 
829See ibid., para. 164. WT/DS267/AB/RW 
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388. Before examining the specific arguments raised by the United States, we note that the Panel 
did not examine whether marketing loan or counter-c yclical payments, "taken individually, [were] a 
cause of significant price suppression", nor did the Panel "pronounce on the relative importance of 
each of these subsidies in causing significant price suppression".
830  Instead, the Panel "conduct[ed] an 
examination of the collective effects of the marketing loan and counter-cyclical payments".831 
(i) Factors Relevant to Planting Decisions 
389. The United States submits that the Panel "did not adequately take into account all factors 
relevant to producers' planting decisions"832, and, instead, placed "excessive reliance" on the findings 
from the original proceedings.833  We have determined that the Panel did not improperly rely on the 
findings from the original proceedings, considering th at the conditions of application of the marketing 
loan and counter-cyclical payments are the same as when the original panel analyzed these measures. 
390. The United States points to several elements th e Panel allegedly failed to take into account, 
which show that "[United States] producers looked to other factors, aside from the expected price of 
upland cotton, and responded to them as the market would predict."834  First, the United States asserts 
that "in MY 2003-2007, producers' decisions on pl anting [upland] cotton were consistent with 
expectations concerning the costs and revenues of competing crops."835  We observe that the United 
States' argument regarding competing crops was examin ed by the Panel, albeit in a separate section of 
its report.836  The Panel dismissed the relevance of the data submitted by the United States on the 
relationship between cotton and soybean prices: 
The Panel notes, in this regard, that  the ratio of cotton futures prices 
to soybean futures prices and [United States] cotton planted acreage only moved in the same direction in MY 2006.  In MY 2003, the ratio of cotton futures prices to soybeans futures prices increased 
sharply while cotton planted acreage declined.  The ratio decreased in 
both MY 2004 and MY 2005, while planted acreage increased in 
both years.  Thus, even if we agree with the argument of the United States that futures prices of altern ative crops to cotton need to be 
taken into account, the data does not support an important role for 
this ratio of cotton futures prices to soybeans futures prices.
837 
                                                      
830Panel Report, para. 10.51. 
831Ibid., para. 10.51. 
832United States' appellant's submission, para. 134. 
833See ibid., para. 135. 
834Ibid., para. 140. 
835Ibid. 
836See Panel Report, Section X.B.7, dealing with the alleged link between high levels of United States 
subsidies and high levels of United States  planted acreage, production and exports. 
837Ibid., para. 10.124.  WT/DS267/AB/RW 
 Page 153 
 
 
391. The fact that "the relationship of [United St ates] planted acreage to the soybean and cotton 
futures ratio did move in the same direction"838 in MY 2006 is, in our view, insufficient to rebut the 
data from other years in which such relationship m oved in opposite directions, or the other evidence 
on which the Panel relied.839  The United States also asserts that , in MY 2005, there was a shift from 
soybean to cotton production "due to concerns about an outbreak of Asian soybean rust in 
MY 2004."840  A USDA document cited by the United States in support of this argument indicates that 
the gains in upland cotton planted acres only "partly"841 reflected the impact of Asian rust.  Moreover, 
we observe that, while the United States provides fra gmentary evidence as to the impact of the price 
of competing crops on upland cotton planting decisi ons, it does not provide a systematic account of 
substitutability between upla nd cotton and other crops. 
392. The United States' argument appears to focus on the short-term impact of marketing loan 
payments, that is, on how they affect year-to-year planting decisions.  However, nothing in 
Article 6.3(c) of the  SCM Agreement   suggests that the examination of the effect of a subsidy must 
focus exclusively on the short-term perspective.  Whether production of a particular product is higher 
than it would have been in the absence of the subsid y is often a critical issue in establishing whether 
the effect of the subsidy is significant price suppres sion.  In our view, the effect of a subsidy on 
production can also be assessed on the basis of a long-term perspective that focuses on how the 
subsidy affects decisions of producers to enter or ex it a given industry.  The Panel considered, in this 
regard, that "the evidence on the r ecord, notably the evidence regarding the role of marketing loan and 
counter-cyclical payments in covering the differenc e between the market revenue of [United States] 
upland cotton producers and their costs of productio n, supports the view that these subsidies have a 
long-term impact on acreage and pr oduction of upland cotton by affec ting decisions of [United States] 
cotton farmers to enter or exit cotton farming."842   
393. Secondly, the United States refers to "survey evidence of MY 2007 upland cotton planting 
intentions, showing that [United States] producer s intended to pull back on their upland cotton 
plantings".843  As the United States recognizes844, the Panel examined this survey in its analysis of the
                                                      
838United States' appellant's submission, footnote 157 to para. 140. 
839The United States also submits that the comparison it submitted of planted upland cotton acreage to 
the ratio of soybean and cotton future  prices was a simplified analysis, a nd that other crops and extraneous 
factors could, and did, influence farmers' decisions. ( Ibid.)  Given that this point was offered by the United 
States in rebuttal, we consider that it bears the responsibility for any limitations in the evidence that it presented. 
840Ibid., para. 140. 
841Cotton and Wool Situation and Outlook Yearbook (November 2005) (Exhibit Bra-448 submitted by 
Brazil to the Panel), p. 2 (quoted in United States ' first written submission to the Panel, para. 234). 
842Panel Report, para. 10.83. 
843United States' appellant's submission, para. 141. 
844See ibid. WT/DS267/AB/RW 
Page 154  
 
impact of the elimination of Step 2 payments, i ndicating that the reduction of plantings would be 
"consistent" with the argument that the elimination of that programme is having an effect.  Thus, as 
we see it, the decline in plantings in MY 2007 could be, at least in part, explained by the fact that 
Step 2 payments were no longer available, and does not demonstrate that marketing loan and counter-
cyclical payments do not "insulat e" producers from market signals. 
394. In addition, the United States submits that th e Panel erred by failing to evaluate whether 
producers actually expected that harvest prices woul d be below the marketing loan rate in MY 2006 
or in any other year.
845 
395. The Panel, like the original panel, considered  that the marketing loan payments operate as a 
safety net, stabilizing producers' revenue and influenc ing producers' decisions regardless of the level 
of expected prices.  This is so because, at the tim e of planting, upland cotton producers know they will 
receive a payment should the actual harvest price be below the loan rate.  We find no flaws with this 
logic.  Furthermore, we do not see why the Panel was required to establish whether producers, in fact, expected harvest prices to fall below the loan rate.  In any event, the Panel observed that "in most 
recent years actual market prices have been lower th an expected market prices at the time of planting 
and ... the adjusted world price has been below the marketing loan rate".
846  In our view, it is not 
unreasonable to assume that producers were aware of these historical trends and that, on this basis, they would have expected to receive a payment in the event that the price fell below the loan rate, 
even when the expected pri ce was above the loan rate. 
396. We further observe that some of the United States' arguments seem to be premised on a 
particular understanding of the Pane l's finding:  that marketing loan and counter-cyclical payments 
completely insulate United States producers from other factors that may affect planting decisions.  We do not consider that the Panel adopted such a rigid vi ew of market insulation.  Instead, we understand 
the Panel to have taken the position that marketi ng loan and counter-cyclical payments make United 
States upland cotton producers less responsive to other factors that affect planting decisions.  This is 
evident from the Panel's finding that "the degree of price insulation that the original panel found is 
                                                     
 
845The United States focuses on the following statement of the Panel: 
[E]ven if expected market prices at the time of planting are higher than the 
marketing loan rate and producers do  not expect to receive marketing 
payments at that time, the availability of marketing loan payments can be 
considered to influence planting deci sions.  While [United States] upland 
cotton producers may be uncertain at the time of planting as to whether actual harvest prices will be below the marketing loan rate, there is no 
uncertainty as to the fact that, if actual harvest prices are below the 
marketing loan rate, they will r eceive marketing loan payments. 
(Panel Report, para. 10.77 (footnote omitted)) 
846Ibid., para. 10.81.  WT/DS267/AB/RW 
 Page 155 
 
 
now weaker".847  Moreover, the Panel referred to the origin al panel's description of price-contingent 
subsidies (which include marketing loan and count er-cyclical payments) as "numbing the response of 
United States producers to production adjustment decisions when prices are low".848  The use of the 
term "numbing" also suggests that the Panel intended "market insulation" to mean "lower 
responsiveness" rather than complete insulation.  While the Panel clearly took into account the new 
evidence submitted by the parties, it did not find that  market insulation was reduced to such an extent 
that subsidies would no longer have an eff ect on the production and prices of upland cotton. 
397. Turning to the structure, design, and operation of marketing loan payments, the Panel made a 
comprehensive assessment of the arguments and the evidence before it.  The Panel referred to the 
findings made in the original proceedings, which was the proper thing for it to do considering that 
Article 21.5 and original proceedings are part of a "continuum of events"849 and that the programs 
authorizing marketing loan payments remained unc hanged.  More importantly, it is clear from the 
Panel Report that the Panel examined the new argu ments and evidence submitted by the parties.  For 
instance, the Panel examined upland cotton pri ce patterns from the most recent years before 
concluding that the relationship found by the origin al panel between (higher) expected harvest prices 
and (lower) actual prices has not changed.850 
398. For these reasons, we do not consider that the United States has demonstrated that the Panel 
improperly relied on the conclusions from the original proceedings or failed to take into account other 
factors that may have influenced producers' plan ting decisions.  We recall that, in the original 
proceedings, in addressing the appeal by the United States relating to the specific reasons behind the 
original panel's conclusions that the effect of the price-contingent subsidies was significant price 
suppression within the meaning of Article 6.3(c) of the  SCM Agreement , the Appellate Body noted: 
The way in which United States upland cotton farmers make 
decisions relating to the production of upland cotton, and the basis on which they make such decisions, are factual matters that fall within the Panel's task of weighing and assessing the relevant evidence, and 
we will not review these matters.  However, in our view, the 
application of the legal requirements of Article 6.3(c) to the facts determined by the Panel falls within  the scope of appellate review.
851 
399. The United States also claims, unde r Article 11 of the DSU, that the Panel failed to carry out 
an objective assessment of the f acts, because it disregarded the ne w evidence submitted by the United 
                                                      
847Panel Report, para. 10.127. 
848Ibid., para. 10.67 (quoting Original Panel Report, para. 7.1308). 
849Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 121. 
850See Panel Report, paras. 10.80 and 10.81. 
851Appellate Body Report, US – Upland Cotton , para. 441. WT/DS267/AB/RW 
Page 156  
 
States on producers' expectations and competing cr ops;  relied exclusively on findings from the panel 
and the Appellate Body in the original proceedings ;  and failed to provide a reasoned and adequate 
explanation for its conclusions in the light  of plausible alternative explanations.
852  In our view, the 
Panel did not fail to analyze the new evidence a nd arguments submitted by the United States, nor did 
it, in the light of the reasons given above, re ly excessively on the findings from the original 
proceedings.  For these reasons, we do not believe that the Panel failed to carry out an objective 
assessment of the facts, as required by Article 11 of the DSU. 
(ii) Studies on the Production Impact of Counter-cyclical 
Payments 
400. Next, the United States challenges the Panel's evaluation of certain studies853 submitted by the 
parties on the effects of counter-cyclical payments on plantings and production.854  The United States 
argues that the Panel downplayed and improperly interpreted the studies submitted by the United 
States855 and that it "did not even address the shortc omings of the research submitted by Brazil."856  In 
our view, the United States is asking us to revi ew the Panel's appreciati on and weighing of these 
studies, which is a matter that was within the Panel's authority as the trier of facts.  It is evident from 
                                                      
852See United States' appellant's submission, paras. 232 and 233. 
853The following studies were submitted by the United States:  B. Goodwin and A. Mishra, "Another 
Look at Decoupling: Additional Evidence on the Production Effects of Direct Payments" (2005) 87(5) American 
Journal of Agricultural Economics  1200 (Exhibit US-41 submitted by the United States to Panel);  W. Lin and 
R. Dismukes, "Supply Response Under Risk: Implications  for Counter-cyclical Payments' Production Impacts" 
(2005) 29(1) Review of Agricultural Economics  64 (Exhibit US-85 submitted by the United States to the Panel);  
W. Lin and R. Dismukes, "Risk Considerations in Supply Response: Implications for Counter-Cyclical 
Payments' Production Impact," Selected Paper, American Agricultural Economics Association (July 2005) (Exhibit US-34 submitted by the United States to the Pane l);  P.A. Westcott, "Counter-Cyclical Payments Under 
the 2002 Farm Act: Production Effects Likely to be Limited" (2005) 20(3) Choices  (a publication of the 
American Agricultural Economics Association) p. 201 (Exhibit US-35 submitted by the United States to the 
Panel);  C.E. Young, A. Effland, P.A Westcott, and D.  Johnson, "US Agricultural Policy: Overview and Recent 
Analyses", presented at the 93rd seminar of the European Association of Agricultural Economists, " The Impacts 
of Decoupling and Cross Compliance on Agriculture in the Enlarged EU " held on 22-23 September 2006 in 
Prague, Czech Republic (Exhibit US-40 submitted by th e United States to the Pane l);  Abler and Blandford 
study, Exhibit US-32 submitted by the United States to the Panel, supra , footnote 98). 
The following studies were submitted by Brazil:  B.  Goodwin and A. Mishra, "Are 'Decoupled' Farm 
Payments Really Decoupled?  An Empirical Evaluation" American Journal of Agricultural Economics  (Exhibit 
Bra-618 submitted by Brazil to the Panel);  N. Key, R. Lubowski and M. Roberts, "Farm-Level Production Effect From Participation in Government Commodity Programs:  Did the 1996 Federal Agricultural 
Improvement and Reform Act Make a Difference?" (2005) 87(5) American Journal of Agricultural Economics  
1211 (Exhibit Bra-566 submitted by Brazil to the Panel);  C.R. McIntosh, J.F. Shogren, and E. Dohlman, "Supply Response to Counter-Cyclical Payments and Base  Acre Updating under Uncertainty:  An Experimental 
Study" American Journal of Agricultural Economics  (Exhibit Bra-565 submitted by Brazil to the Panel);  
E.J. O'Donoghue and J. Whitaker, "How distorting are direct payments?", paper prepared for presentation at the 2006 American Agricultura l Economics Association in Long Beach, California (Exhibit Bra-568 submitted 
by Brazil to the Panel). 
854See United States' appellant's submission, para. 145. 
855See ibid., para. 144 and footnote 165 thereto. 
856Ibid., para. 153.  WT/DS267/AB/RW 
 Page 157 
 
 
the Panel Report that the Panel carefully reviewed  the studies submitted by both parties and reached 
its own conclusions as to the meaning and signifi cance of these studies for the present dispute.  It 
found that the studies were of "somewhat limited relevance", because none of them "specifically 
analyzes the experience with counter-cyclical  payments to growers of upland cotton".857  The Panel 
also found that all of the studies concurred that counter-cyclical payments can or may have production 
effects, because they increase wealth and reduce risk aversion, thus leading farmers to increase 
production.858 
401. As we indicated earlier, the Panel did not assess whether counter-cyclical payments, taken 
individually, were a cause of significant price suppression but, rather, conduc ted "an examination of 
the collective effects of the marketi ng loan and counter-cyclical payments".859  Therefore, the Panel's 
evaluation of the production effects of counter-cycli cal payments must be understood in the light of 
the collective assessment of the two subsidy measures. 
402. The Panel observed that the studies submitted by the United States examine other types of 
payments programmes (such as production flexibility c ontract payments), or examine counter-cyclical 
payments provided to producers of crops other than  upland cotton (such as corn, wheat, and soybean).  
The Panel noted that some of the studies that exam ined the effects of counter-cyclical payments on 
plantings of other crops did not carry out an empirical  analysis of their effects but, rather, are surveys 
of other studies.  In addition, the Panel pointed out that there was "some variation in the type and 
quality of the studies: some are published or slated to  be published in academic journals while others 
are articles in newsletters or unpublished manuscripts".860  The Panel considered that the studies 
submitted by Brazil suffered from similar shortcomings. 
403. The United States also claims, unde r Article 11 of the DSU, that the Panel failed to carry out 
an objective assessment of the facts, because it wilf ully distorted and misrepresented the meaning of 
the economic studies submitted by the United States on the effects of counter-cyclical payments on 
production, and failed to provide a reasoned and adequate explanation for its conclusions in the light 
of plausible alternative explanations.861  The Panel relied on the new studies on counter-cyclical 
payments submitted by the parties only "insofar as they provide new information [that was] not 
available to the original panel reflecting the experience with the operation of counter-cyclical 
                                                      
857Panel Report, para. 10.91. 
858Ibid., para. 10.92. 
859Ibid., para. 10.51. 
860Ibid., paras. 10.91 and 10.92. 
861See United States' appellant's submission, para. 234. WT/DS267/AB/RW 
Page 158  
 
payments to upland cotton."
862 
404. In our view, the arguments presented by the United States do not succeed in demonstrating 
that the Panel erred in its evaluation of the economic studies submitted by the United States on the 
effects of counter-cyclical payments on producti on.  To the contrary, the Panel made a careful 
evaluation of the studies.  For this reason, we do not  consider that the Panel wilfully distorted and 
misrepresented the studies submitted by the United St ates on counter-cyclical payments, nor that it 
failed to provide a reasoned and ad equate explanation for its conclusions in the light of plausible 
alternative explanations.  The fact that the Pane l accorded to the studies a different meaning and 
weight than did the United States does not constitute  a failure to make an objective assessment of the 
matter under Article 11 of the DSU. 
405. The United States also argues that the Panel erred in finding that "a strongly positive 
relationship exists between recipients of upla nd cotton counter-cyclical payments who hold upland 
cotton base acres and those who continue to plant upland cotton" because it "never actually tested the 
strength of the relationship between payments and plantings in order to  conclude that the former was 
driving the latter."863  The Panel based this finding on da ta which showed that, in MY 2005, 
95 per cent of cotton acreage was planted on farms that held upland cotton base acres and 
that 83 per cent of cotton planted acreage corres ponded directly to cotton base acres eligible for 
counter-cyclical payments.864  We note that the United States does not question the accuracy of these 
data, although it disagrees with the conclusions the Panel reached based on the data.  With respect to 
the United States' argument that 40 per cent of upland cotton base acres are not currently planted to 
upland cotton, the Panel found that "[United St ates] upland cotton base acres are not a reliable 
measure to compare to annual [United States] upland cotton acreage"865, considering that total base 
acres have been historically higher than total pro duction.  The Panel explained that, when given an 
opportunity to update their base acres, only those farmers producing more than in the past have 
elected to update, while those producing less declined to do so.866 
406. We see nothing improper in the Panel's reasoning that the fact that 83 per cent of cotton 
planted acreage corresponded directly to upland cotton base acres supports the conclusion that a
                                                      
862Panel Report, para. 10.90. 
863United States' appellant's submission, para. 154. 
864See Panel Report, footnote 341 to para. 10.97, and footnote 350 to para. 10.102. 
865Ibid., footnote 341 to para. 10.97. 
866Relying on an argument made by Brazil, the Panel noted that the high level of upland cotton base 
relative to production reflects the fact that with consecu tive base updates, United States farms elected to update 
only if that would increase their high payment upland cotton base, while they declined to update if this would 
have decreased upland cotton base in favour of a lower payment crop base. ( Ibid., footnote 341 to para. 10.97)  WT/DS267/AB/RW 
 Page 159 
 
 
strongly positive relationship exists between recipi ents of upland cotton counter-cyclical payments 
who hold upland cotton base acres and those who continue to plant upland cotton.  In any event, we 
consider that, on this issue, the United States is essentially challenging the inferences drawn by the 
Panel from the evidence before it, and this is a matte r that was within the Panel's authority as the trier 
of facts.  We note that the United States did not  raise a claim under Article 11 of the DSU on this 
issue. 
(iii) The Panel's Alleged Contradictory Findings 
407. Next, the United States argues that the Panel "made several findings that contradict its 
ultimate conclusion that marketing loan and count er-cyclical payments insulated [United States] 
producers of upland cotton from market prices."867 
408. First, the United States refers to the Panel's findi ng that "[t]he fact that the [United States'] 
share of production and exports has remained relativ ely constant in MY 2002-2005 suggests to us that 
[United States] producers have increased production and exports in proportionately the same way as 
foreign producers."868  The United States submits that, "[i]f the [United States'] share of world 
production and exports was stable, and if [United States] producers acted in much the same way as 
those in other countries, then the Panel could not rationally have found that [United States] payments 
insulated [United States] producers to any meaningful degree."869  The Panel did not disregard the fact 
that the United States ' market share of world upland cotton production had remained stable in 
MY 2002-2005.  The Panel specifically addressed this i ssue and noted that "the stable [United States] 
share of world production and exports does not mean an absence of insulation of [United States] producers from market price signals."
870  Rather, it means that "the degree of price insulation that the 
original panel found is now weaker possibly b ecause prices are not as depressed as during the period 
examined by the original panel."871  The Panel further explained that "insulation of [United States] 
producers from market price signals applies in partic ular when expected prices are below intervention 
levels", and that it is "less wh en expected cotton prices are above their intervention levels".872  
Therefore, we do not consider that the Panel "overlooked"873 its own findings in this regard.  Its 
conclusions do not lack a rational basis, nor are they contradictory. 
                                                      
867United States' appellant's submission, para. 157. 
868Panel Report, para. 10.127. 
869United States' appellant's submission, para. 160.  
870Panel Report, para. 10.127. 
871Ibid. 
872Ibid. 
873United States' appellant's submission, para. 157. WT/DS267/AB/RW 
Page 160  
 
409. Secondly, the United States refers to the Panel' s finding that "Brazil's claim of insulation of 
[United States] producers from market price signals applies in particular when expected prices are 
below their intervention levels. ...  However, the degree of insulation is less when expected cotton 
prices are above their intervention levels.  In such a situation, [United States ] cotton producers 
should respond to higher expected cotton prices much in the same way as foreign cotton 
producers ."
874  The United States points out that it demonstrated to the Panel that, "in MY 2006, the 
year relevant to the analysis of 'present' signifi cant price suppression, the e xpected market price of 
upland cotton was above the marketing loan rate"875 and, thus, "[a]ccording to  the Panel's own logic, 
[United States] producers should have responded just  as foreign producers did, a fact proven by the 
existence of stable [United States] shares  of world upland cotton production and exports."876 
410. We note that, while the United States' share of world upland cotton production remained 
stable in MY 2002-2005, the United States has been providing subsidies to upland cotton over a long 
period of time.  Therefore, the fact that its shar es of world upland cotton production remained stable 
over a three-year period is not necessarily indicative of a reduction in the market insulating effects of 
the subsidies. 
411. Contrary to the United States' assertion, the Pa nel did take into account the fact that, in 
MY 2006, the expected market price of upland cotto n was above the marketing loan rate.  The Panel 
stated that:  
... the fact that [United States] co tton producers know that they will 
receive marketing loan payments wh enever the adjusted world price 
is below the marketing loan rate c ontinues to be an important factor 
affecting the level of acreage plante d to cotton (and thus the level of 
production), even when, a s  i n  M Y  2 0 0 6 , the expected market price 
for upland cotton at the time of pl anting is higher than the marketing 
loan rate.877 (emphasis added) 
Thus, the Panel considered that, even when expected  prices were higher than the marketing loan rate, 
the availability of marketing loan payments affected plantings. 
412. Moreover, in the statement to which the Un ited States draws attention, the Panel 
acknowledges that "the degree of insulation is less when expected cotton prices are above their 
                                                      
874United States' appellant's submission, para. 161 (quoting Panel Report, para. 10.127). (emphasis 
added by the United States) 
875Ibid.  The United States explains that it also showed a similar pattern in MY 2003 and MY 2004.  In 
MY 2005, where expected prices were  below the marketing loan rate, the United States explained that other 
factors drove planting decisions. ( Ibid., footnote 192 to para. 161) 
876Ibid., para. 161. 
877Panel Report, para. 10.81.   WT/DS267/AB/RW 
 Page 161 
 
 
intervention levels".878  The Panel was not suggesting that there would be no insulation when expected 
prices are higher than the marketing loan rate but, rather, that such insula tion would be of a lesser 
degree.  The Panel's following statement—that, "[i]n such a situation, [United States] cotton producers 
should respond to higher expected cotton pr ices much in the same  way as foreign cotton 
producers"879—should be read in the light of the previous statement.  In other words, the Panel was 
indicating that, given that the degree of insulation would be less when expected prices were higher 
than the marketing loan rate, the behaviour of Un ited States farmers, in those situations, should 
diverge less from the behaviour of their foreign co mpetitors.  Therefore, we do not see a contradiction 
in the Panel's statements, as the United States suggests. 
413. Thirdly, the United States refers to the Panel' s finding that "the data ... indicates that with 
respect to several key factors relied upon by the original panel in finding 'a discernible temporal 
coincidence' of suppressed world market prices and th e price-contingent [United States] subsidies, the 
current situation is  significantly  different from the situation considered by the original panel."880  The 
United States also draws attention to the Panel's c onclusion that "two factors—first, that other major 
cotton producers were increasing their production and exports at the same time as [United States] 
producers and second, that prices received by [Unite d States] cotton producers were not declining 
dramatically during this period—make it more difficult to discern a pronounced temporal coincidence between the [United States] subsid ies, the increase in [United States] cotton exports and the drop in 
world market prices."
881  In the United States' view, the absen ce of a discernible temporal coincidence 
reinforced the United States' arguments that mark eting loan and counter-cyclical payments did not 
insulate United States producers from market signa ls.  Therefore, the United States argues that, in 
finding that marketing loan and counter-cyclical  payments insulated United States producers, the 
Panel contradicted its own findings regarding the lack of discernible temporal coincidence.882 
414. The difficulty in discerning a temporal coincidence between the United States subsidies, the 
increase in United States exports, and the drop in market prices, does not, in our view, necessarily 
undermine the Panel's finding on market insulation.  Th e Panel did take into account the fact that the 
share of United States production and exports was not increasing, but it did not consider that this fact 
undermined its conclusion regarding market insulatio n made on the basis of a number of factors, such
                                                      
878Panel Report, para. 10.127. (emphasis added) 
879Ibid. 
880United States' appellant's submission, para. 162 (quoting Panel Report, para. 10.133). (emphasis 
added by the United States) 
881Ibid. (quoting Panel Report, para. 10.139). 
882See ibid., para. 163. WT/DS267/AB/RW 
Page 162  
 
as their mandatory and price-contingent nature and their revenue-stabilizing effect.  Therefore, we do 
not consider that the Panel's finding on the diffi culty of discerning a temporal coincidence between 
the United States subsidies, upla nd cotton exports, and upl and cotton prices necessarily contradicts its 
finding on market insulation. 
415. The United States has also raised  a claim under Article 11 of the DSU that the Panel failed to 
carry out an objective assessment of the facts, b ecause it "deliberately distorted" the meaning and 
significance of the evidence on stable United Stat es shares of world upland cotton production and 
exports, and failed to provide a reas oned and adequate explanation for its conclusions in the light of 
plausible alternative explanations.
883  We do not consider that the arguments presented by the United 
States succeed in demonstrating that the Panel erre d in its evaluation of the meaning and significance 
of the evidence on stable United St ates shares of world upland cotton production and exports.  As we 
explained above, the Panel did not disregard or dist ort the meaning and significance of such evidence, 
nor did it fail to provide a reasone d and adequate explanation for its  conclusions in the light of 
plausible alternative explanations.  We, therefore,  find that the Panel did not fail to carry out an 
objective assessment of the facts, as required by Article 11 of the DSU. 
(iv) Degree of Market Insulation 
416. Finally, the United States claims that the Pa nel failed to determine the degree of market 
insulation.  As the Appellate Body explained in th e original proceedings, "Article 6.3(c) does not set 
forth any specific methodology for determining whether the effect of a subsidy is significant price suppression" and, consequently, "[t]here may well be  different ways to make this determination".
884  
Accordingly, Article 6.3(c) does not specifically require a panel to dete rmine whether a subsidy 
"insulates" producers, nor does it require a quantification of the degree of such insulation.  What 
Article 6.3(c) does require is that the price suppressi on be "significant", which the Appellate Body has 
understood as "connoting something that can be  characterized as "important, notable or 
consequential".885  However, the fact that the price supp ression must be "significant" does not mean 
that a panel examining various factors that support a finding of significant price suppression, as did 
the Panel, must make a determination precisely quantif ying the effects of each factor.  A factor that 
itself is not "significant" may, together with othe r factors (whether individually shown to be of a 
significant degree or not), establish "significant pri ce suppression".  What needs to be significant is 
the degree of price suppression, not necessarily the degree of each factor used as an indicator for 
                                                      
883See United States' appellant's submission, para. 237. 
884Appellate Body Report, US – Upland Cotton , para. 427. 
885Ibid., para. 426.  WT/DS267/AB/RW 
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establishing its existence.  Nor does each factor nec essarily have to be capable of demonstrating, to 
the same extent, significant price suppression. 
417. In the present case, the Panel examined market insulation as part of its examination of the 
structure, design, and operation of the marketing loan and counter-cyclical payments.  The structure, design, and operation of the payments, in turn, were  one of several elements on which the Panel based 
its conclusion that the effect of marketing loan and counter-cyclical  payments is "significant price 
suppression".  Moreover, the Panel emphasized that, "in determining whether the structure, design and 
operation of these subsidies support a finding of significant price suppression under current factual 
conditions , we need to consider this factor in conjunction with other facts."
886 
418. Article 6.3(c) requires a demonstration of "si gnificant" price suppression.  It does not require 
that panels make a determination of "significance"  for each of the factors examined in its price 
suppression analysis.  We do not consider that the Panel erred by not determining the precise degree 
of market insulation887, which is but one factor in the Panel's overall analysis.  
(c) Costs of Production 
419. The United States claims that the Panel erred in finding that there is "a significant gap 
between the total costs of production of [Unite d States] upland cotton producers and their market 
revenue".888  In particular, the United States disagrees with  the Panel's decision to:  (i) use total costs 
of production as the relevant parameter instead of variable costs889;  (ii) use only crop-specific cost 
data published by the USDA890;  (iii) include opportunity costs for items such as unpaid labour and 
owned land in total costs of production891;  and (iv) disregard off-farm income and income from other 
crops in calculating producers' revenues.892 
420. We note that the United States has not raised a claim under Article 11 of the DSU against the 
Panel's determination that there is a significant gap between costs of production and revenues of 
United States upland cotton producers.  Therefore, pu rsuant to Article 17.6 of the DSU, we can only 
                                                      
886Panel Report, para. 10.104. (original emphasis) 
887The Panel implicitly made a quantitative assessment of the degree of market insulation when it noted 
that such insulation is now weaker than it was in the period considered in the original proceedings. (See Panel 
Report, para. 10.127)  In its appellee's submission, Brazil argues that, although it was not required to do so, the Panel did quantify the degree of market insulation resulting from marketing loan and counter-cyclical payments 
by quantifying their order of magnitude and their importa nce as a share of the revenu e of United States upland 
cotton producers.  (See Brazil's appellee's submission, paras. 618-620) 
888United States' appellant's submission, para. 168 (quoting Panel Report, para. 10.196). 
889See ibid., paras. 170-172. 
890See ibid., para. 181. 
891See ibid., paras. 184-188. 
892See ibid., para. 189. WT/DS267/AB/RW 
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review the claim by the United States to the extent  that it relates to an error of interpretation or 
application of Article 6.3(c) of the  SCM Agreement . 
421. In the original proceedings, the United States made similar arguments concerning the 
calculation of production costs and revenues.
893  The Appellate Body found that the original panel had 
not erred in finding that "the six-year period from 1997-2002 ... lends itself to an assessment of the 
medium- to longer-term examination of developmen ts in the United States upland cotton industry"894 
and, as a consequence, in relying on total rather than  variable costs of production.  The original panel 
also relied on USDA cost data and declined to ta ke into account off-farm income, noting that it was 
examining "costs and market revenues … of the upland cotton industry".895 
422. In US – Softwood Lumber VI (Article 21.5 – Canada) , the Appellate Body noted that "doubts 
could arise about the objective nature of an Article 21 .5 panel's assessment if, on  a specific issue, that 
panel were to deviate from the reasoning in the origin al panel report in the absence of any change in 
the underlying evidence in the record".896  The only relevant difference between the situation before 
the Panel and the original proceedings in this disput e is the length of the review period considered to 
establish whether significant price suppression exists :  six years in the original proceedings 
(MY 1997-2002) as opposed to five years in the Article 21.5 proceedings (MY 2002-2006).  In our 
view, this difference does not justify a departur e from the costs and reve nues methodology used by 
the original panel, or from the medium- to long-te rm analysis contemplated in the original panel 
report, considering also that compliance measures subject to Article 21.5 proceedings by their very 
nature will be in force for a shorter period of time .  Moreover, the marketing loan and counter-cyclical 
programmes remained unchanged since the original proceedings.897  Therefore, considering that 
relevant circumstances in the current proceedings ha ve not changed since the original proceedings, it 
was proper for the Panel not to have deviated from the approach of the panel and the Appellate Body 
in the original proceedings, which relied on total co sts of production, and did not to take into account 
off-farm income when comparing production cost with revenues. 
423. The Panel's decision to undertake an analysis over the medium- to long-term and, therefore, to 
compare market revenues with total costs, rather th an with variable costs, is consistent with the 
approach adopted by the Appellate Body in Canada – Dairy (Article 21.5 – New Zealand and US) .  
                                                      
893See Appellate Body Report, US – Upland Cotton,  paras. 452 and 453;  and Original Panel Report, 
para.  7.1354 and footnote 1470 thereto. 
894Appellate Body Report, US – Upland Cotton , para. 453 (quoting Original Panel Report, 
para. 7.1354). 
895Original Panel Report, footnote 1470 to para. 7.1354. 
896Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada) , para. 103. 
897See Panel Report, paras. 3.9 and 3.12.  WT/DS267/AB/RW 
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The Appellate Body explained, in that case, that "fixed and variable costs are the total amount which 
the producer must spend in order to produce [a comm odity] and the total amount it must recoup, in the 
long-term, to avoid making losses".898  The fact that a producer does not recover the total costs of 
production may indicate that it is covering its lo sses from some other source, such as subsidies.899  
Consequently, we do not consider that the Pane l erred in using total costs of production when 
calculating whether there was a gap between producers' costs of production and revenues. 
424. In any event, the methodology used by the Panel in determining which production costs and 
revenues to compare to establish whether there is a gap between upland cotton producers' costs of 
production and revenues is not an issue of legal inte rpretation or application under Article 6.3(c) of 
the SCM Agreement .  The existence of a revenue gap is  not a legally required benchmark under 
Article 6.3(c).  In other words, there is no lega l consequence under Article 6.3(c) that necessarily 
flows from the fact that there is a gap between produc ers' revenues and costs.  Rather, it is merely one 
of the elements that the Panel considered in determining whether there was "significant price 
suppression".  Thus, the profitability of upland cotton  production is a factual matter, the evaluation of 
which fell to the Panel to determine. 
425. Regarding the use by the Panel of crop-specifi c data published by the USDA, we observe that 
the Panel relied on USDA cost of production surveys900, which combined total costs and total returns 
from upland cotton lint and cottonseed.901  This type of cost data was also relied upon by the original 
panel in making its findings about United States upland cotton producers' cost of production.  The 
Panel referred to the original panel's statement that these "data are calcula ted in accordance with a 
methodology which the USDA itself has deemed to be a sufficiently reliable reflection of United 
States upland cotton producers' costs and revenues."902  Although the Panel agreed with the United
                                                      
898Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US) , para. 87.     
899See ibid. 
900The United States also argues that using USDA cost  data would lead to the absurd result that total 
cost of production was greater than market returns for nearly all United States field crops in MY 2005. (United 
States' appellant's submission, paras. 174-176)  We note that, in response, Brazil refers to a report prepared by 
the United States Congressional Research  Service, which indicates, based on USDA data, that it is only with the 
aid of subsidies that a substantial portion of United States production (of all crops) is made economically viable.  
(Brazil's appellee's submission, paras. 770 and 771 (refe rring to Schnepf and Womach, "Potential Challenges to 
US Farm Subsidies in the WTO" (Exhibit Bra-577 submitted by Brazil to the Panel), supra , footnote 227)) 
901See Panel Report, para. 10.185. 
902Original Panel Report, para. 7.1354. WT/DS267/AB/RW 
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States that imputing values to resources for which ther e are no market transactions is not as reliable as 
direct market valuation, the Panel noted that "the methodology used by the USDA conforms to 
standards recommended by the [American Agricultura l Economics Association], and the application 
of that methodology proba bly produces the best estimates that can be achieved."
903 
426. We see no reasons to interfere with the Panel's decision to rely on data calculated on the basis 
of a methodology that the United States Government itself deems to be reliable and which was 
accepted by the panel in the original proceedings .  Despite considering that the United States 
Government deemed the cost data relied upon by the original  panel (including revenues from 
cottonseed and costs from ginning) to be sufficientl y reliable, the Panel also took into account the 
approach proposed by the United States in its submissions, which included only revenues from cotton 
lint and excluded ginning costs.  The Panel foun d that, even excluding the revenues from cottonseed 
and the ginning costs, a significant gap existe d between market revenues and total costs of 
production.904 
427. As for non-cash opportunity costs for items such  as unpaid labour and owned land, the Panel 
agreed with Brazil that such costs should be incl uded in the calculation of total costs of production, 
because this was consistent with the basic economic principle that resources allocation is guided by 
opportunity cost.  The Panel noted that all resources that a farmer uses to produce cotton have a cost 
(whether this must be paid in cash or not), whic h is the value they can obtain when employed in the 
next best alternative.  In addition, the Panel noted that, by applying the methodology used by the 
USDA, it was possible to impute opportunity costs and arrive at a reliable estimate of total costs.905 
428. Moreover, we note that, in Canada – Dairy (Article 21.5 – US and New Zealand II) , the 
Appellate Body ruled that non-cash opportunity costs such as family labour or cost of capital should 
have been included in the calculation of the cost of production of milk, noting that "the [cost of production standard] must cover all of the eco nomic resources invested in the production ... 
                                                     
 
903Panel Report, para. 10.169. 
904See ibid., paras. 10.190, 10.191 and 10.196. 
905See ibid., paras. 10.169 and 10.170.  WT/DS267/AB/RW 
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irrespective of whether the resour ces involve an actual cash cost."906  The Panel's approach was 
consistent with the approach followed by the Appellate Body in Canada – Dairy (Article 21.5 – US 
and New Zealand II) .  We see no reason, therefore, to interfe re with the Panel's decision to include 
non-cash opportunity costs for items such as unpaid labour and owned land in the calculation of total 
costs of production. 
429. Turning to the Panel's decision not to take into account off-farm income and income from 
other crops in calculating producers' revenues, we r ecall that the original panel had already rejected 
the United States' request to include off-farm inco me as part of United States upland cotton producers' 
revenues.  The original panel reasoned that its ex amination of costs and re venues should be confined 
to the upland cotton industry, considering that th e legal focus of its analysis under Articles 5 
and 6.3(c) of the  SCM Agreement   was on the subsidized product of upland cotton lint.  The original 
panel also noted that the very fact that Un ited States upland cotton farmers relied on cross-
subsidization from off-farm income and income fro m other crops supported the proposition that, in 
the long term, they would lose money if they were involved in upland cotton production alone.907 
430. The Panel in these Article 21.5 proceedings not ed the reasoning of the original panel in 
rejecting off-farm income and turned to two new stud ies, which, according to the United States, "note 
the increased prevalence of off-farm employment a nd off-farm income for farm households in the 
United States".908  The Panel noted that the new studies submitted by the United States demonstrate 
that off-farm income has grown in importance to fa rm operators' income, but are ambivalent as to the
                                                      
906Appellate Body Report, Canada – Dairy (Article 21.5 – US and New Zealand II) , para. 102.  The 
Appellate Body  also found that: 
… For the dairy farmer, and his or her family, the investment of services in the dairy enterprise has an economic cost, as those services cannot be put to 
an alternative remunerative use.  …  [F]rom the perspective of economic 
theory, any labour and management services provided to an enterprise involve such an economic "opportunity" cost.  …  
The same is also true of any equity the owner invests in the dairy enterprise.  
The allocation of such capital is, clearly, an investment of economic resources and carries an economic opportunity co st to the owner because the capital 
cannot simultaneously be invested elsewhere.   
(Ibid., paras. 103 and 104 (footnotes omitted)) 
907See Original Panel Report, footnote 1470 to para. 7.1354. 
 908Panel Report, para. 10.178.   WT/DS267/AB/RW 
Page 168  
 
impact of off-farm income on farm exit.
909  The Panel concluded that, due  to this ambivalence, the 
new studies submitted by the United States did not su cceed in showing that off-farm income played a 
role in sustaining the economic viability of upland cotton farming and that, therefore, the studies 
failed to undermine Brazil's argument that Unite d States producers would exit upland cotton farming 
without the support of marketing lo an and counter-cyclical payments. 
431. In our view, it was reasonable for the Panel to  exclude off-farm income from United States 
upland cotton producers' income.  First, considering that the Panel was assessing the profitability of 
upland cotton producers, we agree that its analysis  should have been limite d to costs and revenues 
related to upland cotton.  Secondly, assuming that off-farm income plays a role in keeping upland 
cotton producers in business, such cross-subsidizati on by other activities appears to confirm, rather 
than contradict, the Panel's conclusion that uplan d cotton production is not economically viable for 
some producers.  Thirdly, the Panel properly conclu ded that the studies produced  by the United States 
are inconclusive as to the role played by off-farm income in upland cotton production. 
432. The exclusion of off-farm income is one com ponent of the Panel's determination of the 
existence of a revenue gap.  We have already c onsidered that the profitability of upland cotton 
production is a factual matter, the evaluation of which fell within the Panel's authority.  Accordingly, 
we see no reason to interfere with the Panel's decision to rely on total costs, use USDA crop-specific data, include opportunity costs for items such as unpaid labour and owned land, and exclude off-farm 
income.  We, therefore, find that the Panel's ev aluation of these factors was proper and within the 
bounds of its authority as the trier of facts.  Th e United States has not made  a claim under Article 11 
of the DSU with respect to the Panel's finding on the existence of a revenue gap, nor in relation to the 
components of the Panel's determination. 
(d) Economic Simulation Model 
433. The United States claims that th e Panel erred in its evaluation of the economic simulations 
conducted by the parties regarding the impact of United States' subsidies on world prices for upland 
cotton.  In particular, the United States submits that, "to rely on the results of modeling for its
                                                     
 
909Panel Report, paras. 10.180-10.184.  For instance, the study by Hoppe and Korb notes that: 
Off-farm work could hypothetically aff ect exits in two ways. First, off-farm 
work may be the first step in an exit from farming, which would be reflected in higher exits for farms the operators of which work off-farm. Second, off-
farm work might lower the probability of exit by providing farm operator 
households with another source of income. 
(Hoppe and Korb, "Understanding US Farm Exits" (Exhibit US-46 submitted by the United States to the Panel), 
supra , footnote 116, p. 20)  WT/DS267/AB/RW 
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conclusion, the Panel would had to have concluded which model or models were  appropriate, 
determined the level of price suppression resulting from that model, and found that such price 
suppression was  significant ".910 
434. We have already considered that, while the Panel appropriately examined the model, the 
parameters used by each party, and the arguments made by the parties, it could have gone somewhat 
further in its evaluation and comparative analysis  of the economic simulati ons and the particular 
parameters used.  We nevertheless concluded that, in its assessment of the simulations, the Panel did 
not commit an error of law.   
435. The United States asserts that the Panel failed to  make an objective assessment of the matter, 
as required by Article 11 of the DSU, because it ov erlooked flaws in Brazil's economic simulation 
model and it misrepresented and distorted the re sults of the simulation conducted by the United 
States.911  We disagree that the Panel "overlooked the fl aws" in Brazil's economic model, considering 
that the Panel expressly stated that it was "mindful  of the criticism by the United States that Brazil's 
model 'has no foundation within economic circles'" and that Br azil's model "needs to earn the 
confidence of this Panel".912  Nor do we consider that the Pane l "misrepresented and distorted" the 
results of the simulations carried out by the Unite d States.  The arguments presented by the United 
States on appeal do not succeed in demonstrating that the Panel erred in its evaluation of the economic 
simulation.  Contrary to the United States' asser tion, the Panel did not find that the United States' 
simulation demonstrated that the price suppression was significant.  The Panel's finding was that the 
model, when run using parameters preferred by the United States, also showed price suppression, 
which the United States does not deny.  The United St ates, rather, contends that the results showed 
that the price suppression would be minimal.913  The Panel simply did not take a view on the 
significance of the results.  Moreover, the Panel did not rely exclusively on the results of the
                                                      
910United States' appellant's submission, para. 196. (original emphasis) 
911See ibid., paras. 196 and 240. 
912Panel Report, para. 10.220 (quoting United States' second written submission to the Panel, Annex I, 
para. 7).  See also ibid., paras. 10.202, 10.205, 10.207, and 10.216. 
 913The United States explains that: 
Using long-run values for supply and demand elasticities, complete removal of the two programs would only show an increase in world prices 
of 2.26 per cent over the period MY 2002-2005 and 1.52 per cent over the 
period MY 2006-2008.  Even though the [United States] estimates were overstated given the structural flaws in Brazil's model for which the United 
States was unable to adjust, the magnitude of the price suppression as 
demonstrated by the [United States] adjustments to the Brazilian model could hardly be called "significant". 
(United States' appellant's submission, para. 238 (footnotes omitted)) WT/DS267/AB/RW 
Page 170  
 
simulations;  rather, it noted that all simulations  conducted by the parties "support the view" that 
marketing loan and counter-cyclical  payments have led to an increase in United States production and 
exports of upland cotton that woul d then have suppressed world prices, a conclusion the Panel also 
reached on the basis of other elements and indicators.  Thus, the results of the simulations were one of several elements on which the Panel based its finding under Article 6.3(c) of the  SCM Agreement .  In 
our view, the Panel's assessment of the economic simulations falls with in its authority as the trier of 
facts and we have not been pe rsuaded that the Panel exceeded the bounds of its authority. 
(e) Impact of the Elimination of Step 2 Payments 
436. The United States challenges the Panel's analysis of the impact of the elimination of Step 2 
payments on three grounds.  First, the United Stat es argues that it demonstr ated that there was a 
significant decline in United States production and exports of upland cotton in MY 2006 after the 
repeal of Step 2 payments.
914  As a result, the United States submits, Brazil had the burden of proving 
that the impact of the repeal of Step 2 payments  on United States production and exports was modest.  
Therefore, the United States considers that the Panel erred in finding that "the elimination of this 
subsidy does not affect the price suppressing effect s of the marketing loan payments and counter-
cyclical payments in the world market for upland cotton."915   
437. In our view, the United States' argument is based on a mischaracterization of Brazil's claim 
and of the findings of the Panel.  As the compla inant in these Article 21.5 proceedings, Brazil set out 
to prove that the effect of marketing loan a nd counter-cyclical payments was significant price 
suppression, within the meaning of Article 6.3(c) of the  SCM Agreement .  This did not require Brazil 
to establish that the impact of the elimination of Step 2 payments was "modest", though it did require 
it to demonstrate that the payments under the ot her two programmes (marketing loan and counter-
cyclical payments) caused significant price suppr ession.  We observe that the Panel's finding of 
significant price suppression did not rest on the impact  of the elimination of Step 2 payments.  The 
Panel found significant price suppression based on the following:  its examination of the structure, 
design, and operation of marketing loan and coun ter-cyclical payments;  the existence of a gap 
between United States upland cotton producers' co sts of production and revenues;  and the large 
magnitude of the subsidies and the substantial pr oportionate influence of the United States in the 
world market for upland cotton.  Therefore, the Panel's finding of significant price suppression stands independently of the impact of the elimination of Step 2 payments. 
                                                     
 
914See United States' appellant's submission, para. 198. 
915Ibid., para. 199 (quoting Panel Report, para. 10.253).  WT/DS267/AB/RW 
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438. Secondly, the United States contends that th e Panel misconstrued and overlooked the United 
States' evidence as to the indirect impact  of the repeal of Step 2 payments, which will result, 
according to the United States, in the substantial decrease of marketing loan payments and in no 
significant increase of counter-cyclical payments.916   
439. In assessing the indirect impact of the elimination of Step 2 payments, the Panel referred to 
projections of the United States Congressional Budget Office (the "USCBO"), which it found 
"credible"917, and according to which "lower [United States ] prices due to elimination of Step 2 would 
lead to an increase in counte r-cyclical payments of $484 milli on over the 2006-2015 period" and 
"higher world prices would reduce the cost of cotton marketing loans by $17 million over the 2006-2015 period."
918  The United States does not contest th e accuracy of these figures but, rather, 
refers to other projections from a study by the F ood and Agricultural Policy Research Institute (the 
"FAPRI"), which show that the elimination of the Step 2 payments programme results in an average 
increase of 0.4 cent/lb in the adjusted world pr ice in MY 2006-2010, and a decline of the same 
amount in the marketing loan payments.919   
440. In our view, the Panel did not exceed its authorit y as the trier of facts when it decided to rely 
on the USCBO projections after having found them to be credible.920  We note, moreover, that the 
Panel specifically took note of the point made by the United States921 that the projected reduction in 
marketing loan payments would apply only to  MY 2006 and MY 2007, since no payments were 
expected beyond that date.922  However, the Panel still found this  projected reduction (US$17 million) 
to be modest compared to the annual payments unde r the marketing loan programme and the increase 
                                                      
916See United States' appellant's submission, para. 201. 
917Panel Report, para. 10.238. 
918Congressional Budget Office Cost Estimate, 20 October 2005, Agricultural Reconciliation Act 
of 2005, as approved by the Senate Committee on Agriculture, Nutrition, and Forestry on 19 October 2005, (Exhibit Bra-482 submitted by Brazil to the Panel), p. 5. 
919See United States' appellant's submission, para. 202. 
920The Appellate Body has repeatedly stated that the credibility and weight of the evidence is within the 
panel's discretion as the trier of facts.  Appellate Body Report, EC – Hormones , para. 132; Appellate Body 
Report, US – Wheat Gluten , para. 151;  Appellate Body Report, EC – Sardines , para. 299;  Appellate Body 
Report, US – Carbon Steel , para. 142;  Appellate Body Report, Japan – Apples , para. 221. 
921See United States' appellant's submission, para. 204. 
922See Panel Report, para. 10.238. WT/DS267/AB/RW 
Page 172  
 
in counter-cyclical paym ents projected by the USCBO (US$484 million).
923  The Panel also noted that 
it would not be enough simply to compare the magnit ude of the reduction in marketing loan payments 
with that of the increase in counter-cyclical payments, because the production inducing effects of 
marketing loan payments were greater than those of  counter-cyclical payments.  Overall, however, the 
Panel found that the indirect effects of the elimin ation of Step 2 payments on United States production 
and exports would likely be small,  considering the modest projected reduction in marketing loan 
payments coupled with significant increases in count er-cyclical payments and the fact that these 
changes would run counter to one another.924 
441. Finally, according to the United States, the Panel's analysis of the impact of the elimination of 
Step 2 payments was flawed, because the Panel did not determine how much of an effect remained 
after the repeal of Step 2 payments, and how this  compared to the price suppression found to exist in 
the original proceedings, in order to determin e whether the remaining effect was significant.925  The 
Panel set out to determine whether the effect of marketing loan and counter-cyclical payments was 
present serious prejudice in the form of significant price suppression, and for this purpose conducted an evaluation of several factors.  There is no requirement in Article 6.3(c) of the SCM Agreement  that 
a panel follow a particular methodology
926, much less a requirement that a panel adopt an approach 
that involves subtracting the price suppressing effects of the repealed measure (in this case, the Step 2 
payments).  We do not see why the Panel could not have analyzed the price suppressing effects of the remaining marketing loan and counter-cyclical paymen ts instead of analyzing the effects of the bundle 
of price-contingent subsidies at issue in the origin al proceedings and then subtracting the impact of 
the repeal of the Step 2 payments programme.  In  any event, even if the Panel did not precisely 
quantify the effect of the elimination of Step 2 payments, it did examine the amount of Step 2 payments before their elimination, the impact of the elimination upon export volumes, and the likely 
increase and decrease in marketing loan and counte r-cyclical payments resulting from the elimination 
of Step 2 payments. 
                                                     
 
923According to data submitted by Brazil, the projected amount of marketing loan payments in 
MY 2006 was US$650 million based on USDA Budget Estimates, US$475 million based on data from the FAPRI, and US$757 million based on February 2007 USDA stochastic projections. (Panel Report, para. 10.25 
(footnotes omitted))  Brazil also submitted data on pr ojected counter-cyclical payments.  Based on USDA 
Budget Estimates, allocated counter-cyclical payments to United Stat es upland cotton producers were projected 
at US$715 million in MY 2006, US$516 million in MY 2007, and US$449 million in MY 2008, MY 2009, and 
MY 2010.  Based on the July 2006 FAPRI Baseline Upda te for US Agricultural Mark ets, projected allocated 
counter-cyclical payments were US$912 million in MY 2006, US$825 million in MY 2007, US$732 million in 
MY 2008, US$679 million in MY 2009, and US$686 million in MY 2010. (See Panel Report, para. 10.33 
(footnotes omitted)) 
924See ibid., para. 10.239. 
925See United States' appellant's submission, para. 209. 
926See Appellate Body Report, US – Upland Cotton , para. 427.  WT/DS267/AB/RW 
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(f) Magnitude of the Subsidies 
442. The United States challenges the Panel's finding that, "when considered in conjunction with 
other factors, the order of magnitude of the mark eting loan payments and counter-cyclical payments 
supports a finding of significant price suppression, even  when account is taken of the decline in the 
amount of marketing loan payments projected for MY 2006."927  According to the United States, this 
finding is premised on the Panel's earlier conclusion that the struct ure, design, and operation of the 
marketing loan and counter-cyclical  payments had an "important re venue-stabilizing effect" on United 
States farmers, and that the payments bridged "the gap between costs of production and market 
revenues of [United States] upland cotton producers."928  Since the United States considers that the 
Panel's findings on the structure, design, and opera tion of the marketing loan and counter-cyclical 
payments, and on the payments' role in covering the alleged cost-revenue gap, are erroneous, it 
considers that "the Panel's finding as to the magn itude of the marketing loan and counter-cyclical 
payments, which depends on those same fi ndings, also fails as a matter of law."929 
443. We agree that the Panel linked the probative value of the magnitude of the subsidies, for 
purposes of the analysis of significant price suppressi on, to its findings on the structure, design, and 
operation of the subsidies and on the gap between costs of production and market revenues of United 
States upland cotton producers.930  We have already found that the Panel did not err in its findings on 
the structure, design, and operation of the marketi ng loan and counter-cyclical payments, including its 
findings on the market-insulating effects of tho se payments, and on the gap between producers' 
revenues and costs.931  Therefore, given that the United States has not offered any additional 
arguments that could substantiate its challenge of the Panel's findings on the magnitude of the 
subsidies, we see no reason to disturb these findings. 
(g) Substantial Proportionate Influence on the World Market for Upland 
Cotton 
444. The United States claims that the Panel erre d in finding that the United States exerts a 
substantial proportionate influence on the world mark et for upland cotton, because it overlooked how 
United States upland cotton competed with cotton from other sources932 and the fact that the United 
                                                      
927United States' appellant's submission, para. 216 (quoting Panel Report, para. 10.111). 
928Ibid. 
929Ibid., para. 217. 
930See Panel Report, para. 10.111.  The Panel explained that "the relevance of the magnitude of the 
subsidies in this connection must also be assessed in li ght of our analysis above of the structure, design and 
operation of the subsidies". 
931See supra , Sections VII.E.4(b) and (c). 
932See United States' appellant's submission, para. 219. WT/DS267/AB/RW 
Page 174  
 
States' shares of world production and exports of upland cotton have remained stable in recent 
years.
933 
445. The Panel found that, with 20.9 per cent of world upland cotton production and 39.8 per cent 
of world upland cotton exports in MY 2005, the Un ited States exerted a substantial proportionate 
influence on the world market for upland cotton, ev en taking into account the projected declines in 
these shares in MY 2006.934  The Panel referred to an analysis of  a consultant retained by Brazil "of 
the functioning of the world market for upland cotton".935  In this analysis, the consultant indicated 
that, "because China is a 'relatively small exporter[] ', it has 'less of an impact on the discovery of 
world cotton prices".936  The Panel also discussed the role of China in its brief non-attribution 
analysis.  
446. 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 and 
MY 2007 and the Panel's findings of substantial pro portionate 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 the fact that the United States continued to 
exert a substantial proportionate influence in the pe riod examined by the Panel, just as it had during 
the period examined by the original panel.  We also observe that the Panel speci fically noted that this 
element supported its finding of significant price suppression when "analyzed in the light of the 
totality of the evidence".937  Therefore, we do not consider that the Panel erred in finding that the 
United States exerts a substantial proportionate influence on the world market for upland cotton.938 
F. Conclusion 
447. For all the reasons stated above, the United States has not persuaded us that the Panel 
incorrectly interpreted the requirements of Article 6.3(c) of the  SCM Agreement   or erred in applying 
that provision to the facts of the case.  We also find that the Panel did not fail to comply with its duties 
under Article 11 of the DSU to make an objective asse ssment of the matter before it, including an 
objective assessment of the facts of the case.  We therefore  uphold   the Panel's findings, in 
paragraphs 10.256 and 15.1(a) of th e Panel Report, that the United Stat es acts inconsistently with its 
                                                      
933See United States' appellant's submission, para. 220. 
934See Panel Report, para. 10.58.  For United States shares of production and exports in previous years, 
see ibid., para. 10.56. 
935See ibid., footnote 279 to para. 10.58. 
936Brazil's appellee's submission, para. 930 (quoting D eclaration of Andrew Macdonald, attached as 
Annex II to Brazil's first written submission to the Panel, para. 23). 
937Panel Report, para. 10.58. 
938See ibid.  WT/DS267/AB/RW 
 Page 175 
 
 
obligations under Articles 5(c) and 6.3(c) of the  SCM Agreement   in that the effect of marketing loan 
and counter-cyclical payments pr ovided to United States upland cotton producers pursuant to the 
FSRI Act of 2002 is significant price suppression, within the meaning of Article 6.3(c) of the  SCM 
Agreement , in the world market for upland cotton c onstituting "present" serious prejudice to the 
interests of Brazil, within the meaning of Article 5(c) of the  SCM Agreement .  In addition, we  uphold  
the Panel's consequential finding, in paragraphs 10.257 and 15.1(a) of the Panel Report, that "by 
acting inconsistently with Articles 5(c) and 6.3(c) of the  SCM Agreement   the United States has failed 
to comply with the DSB recommendations and ru lings" and "[s]pecifically, the United States has 
failed to comply with its obligation under Article 7.8 of the  SCM Agreement   'to take appropriate 
steps to remove the adverse effects or ... withdraw the subsidy'." 
VIII.  Findings and Conclusions 
448. For the reasons set out in this Report, the Appellate Body: 
(a) as regards the scope of these Article 21.5 proceedings: 
(i) upholds  the Panel's finding, in paragraph 9.27 of the Panel Report, that 
Brazil's claims relating to export cred it guarantees for pig meat and poultry 
meat are properly within the scope of these Article 21.5 proceedings.  Because the condition on which it is pr edicated has not been fulfilled, the 
Appellate Body does not find it necessary
 to consider Brazil's other appeal 
that the Panel erred when it found that the measure that is the subject of 
Brazil's claims is not the revised GSM 102 programme itself;  and     
(ii) upholds  the Panel's finding, in paragraph 9.81 of the Panel Report, that 
Brazil's claims against marketing loan  and counter-cyclical payments made 
by the United States after 21 September 2005 are properly within the scope of these Article 21.5 proceedings.  Because the condition on which it is predicated has not been fulfilled, the Appellate Body does not find it 
necessary  to consider Brazil's other appeal that the Panel erred in finding that 
the original panel's conclusions and recommendations addressed only the 
payments made under the marketing lo an and counter-cyclical payments 
programmes, and not the programmes themselves; 
(b) as regards the revised GSM 102 export credit guarantee programme: WT/DS267/AB/RW 
Page 176  
 
(i) finds
 that the Panel failed to make an objective assessment of the matter, 
under Article 11 of the DSU, because it dismissed the import of the 
re-estimates data submitted by the Un ited States on the basis of internally 
inconsistent reasoning.  Conseque ntly, the Appellate Body reverses  the 
Panel's intermediate finding, in paragra ph 14.89 of the Panel Report, that "the 
initial subsidy estimates provide a strong indication that GSM 102 export 
credit guarantees are provided against prem ia which are inadequate to cover 
the long-term operating costs and losses of the GSM 102 programme";  
(ii) upholds  the Panel's finding, in paragra ph 14.131 of the Panel Report, that 
"the GSM 102 programme is not design ed to cover its long term operating 
costs and losses";    
(iii) upholds , albeit for reasons that differ from those of the Panel, the Panel's 
conclusion, in paragraph 14.133 of the Panel Report, that "the GSM 102 
export credit guarantee programme constitu tes an 'export subsidy' because it 
is provided against premiums which are inadequate to cover its long term 
operating costs and losses under the terms of item (j) of the Illustrative List".  
Consequently, upholds  the Panel's finding, in paragraph 14.134 of the Panel 
Report, that GSM 102 export credit guarantees issued after 1 July 2005 are export subsidies within the meaning of Article 3.1(a) of the  SCM Agreement   
and Article 10.1 of the  Agreement on Agriculture ;  and   
(iv) in the light of this, the following findings, in paragraphs 14.140, 14.149, 
14.150, 14.156, 14.157, and 15.1(c) of the Panel Report, also stand:   
- regarding export credit guarantees issued under the revised GSM 102 
programme 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 United States' export subsidy commitments with respect to  certain unscheduled products and 
certain scheduled products, and as a resu lt acts inconsistently with Article 8 
of the  Agreement on Agriculture ;  WT/DS267/AB/RW 
 Page 177 
 
 
 
- regarding export credit guarantees issued under the revised GSM 102 
programme after 1 July 2005, the United States also acts inconsistently with 
Articles 3.1(a) and 3.2 of the  SCM Agreement   by providing export subsidies 
to unscheduled products and by prov iding export subsidies to scheduled 
products in excess of the commitments of the United States under the  Agreement on Agriculture ;  and 
- by acting inconsistently with Articles 10.1 and 8 of the  Agreement on 
Agriculture   and Articles 3.1(a) and 3.2 of the  SCM Agreement , the United 
States has failed to comply with th e 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";  and 
(c) as regards whether the effect of marketi ng loan and counter-cyclical payments is 
significant price suppression:  
(i) upholds
 the Panel's findings, in paragraphs 10.256, 10.257, and 15.1(a) of the 
Panel Report, that:  
- the United States acts inconsistently with its obligations under Articles 5(c) 
and 6.3(c) of the  SCM Agreement   in that the  effect of marketing loan and 
counter-cyclical payments provided to  United States upland cotton producers 
pursuant to the FSRI Act of 2002 is significant price suppression, within the 
meaning of Article 6.3(c) of the  SCM Agreement , in the world market for 
upland cotton, constituting "present" ser ious prejudice to the interests of 
Brazil within the meaning of Article 5(c) of the  SCM Agreement ;  and  
- by acting inconsistently with Artic les 5(c) and 6.3(c) of the  SCM Agreement , 
the United States has failed to comply with the DSB's recommendations and 
rulings;  specifically, the United States  failed to comply with its obligation 
under Article 7.8 of the  SCM Agreement   "to take appropriate steps to 
remove the adverse effects or ... withdraw the subsidy";  and WT/DS267/AB/RW 
Page 178  
 
 
(ii) finds
 that the Panel did not fail to make an objective assessment of the matter 
before it, as required by Article 11 of the DSU, in its analysis of Brazil's 
claim that the effect of the marketing loan and counter-cyclical payments is 
significant price suppression.  
449. The Appellate Body recommends  that the DSB request the United States to bring its 
measures, found in this Report, and in the Panel Repor t as modified by this Report, to be inconsistent 
with the Agreement on Agriculture  and the  SCM Agreement , into conformity with its obligations 
under those Agreements.  WT/DS267/AB/RW 
 Page 179 
 
 
Signed in the original in Geneva this 16th day of May 2008 by:  
 
    
_________________________ 
Luiz Olavo Baptista 
Presiding Member 
 
 
 
  
 _________________________ _________________________ 
 Jennifer Hillman David Unterhalter 
 Member Member 
 
 
   WT/DS267/AB/RW 
Page 180  
 
ANNEX I
 
 
 WORLD TRADE  
ORGANIZATION  WT/DS267/33 
19 February 2008 
 (08-0733) 
 Original:   English 
  
UNITED STATES – SUBSIDIES ON UPLAND COTTON 
 
Recourse to Article 21.5 of the DSU by Brazil
 
 
Notification of an Appeal by the United States  
under Article 16.4 and Article 17 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes (DSU),  
and under Rule 20(1) of the Working Procedures for Appellate Review  
   The following notification, dated 12 February  2008, from the Delegation of the United States, 
is being circulated to Members.  
_______________ 
 
Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the 
Settlement of Disputes  ("DSU") and Rule 20 of the Working Procedures for Appellate Review, the 
United States hereby notifies its decision to appeal  to the Appellate Body certain issues of law 
covered in the report of the panel in United States – Subsidies on Upland Cotton: Recourse to 
Article 21.5 of the DSU by Brazil (WT/DS267/RW) ("Panel Report") a nd certain legal interpretations 
developed by the panel in this dispute.   1. The United States seeks review by the Appella te Body of the panel's finding that Brazil's 
claims relating to GSM 102 export credit guarantees fo r exports of pig meat and poultry meat were 
within the scope of this proceeding under Article 21.5 of the DSU.
1  This finding is in error and is 
based on erroneous findings on issues of law and related legal interpretations. 
 2. The United States seeks review by the Appella te Body of the panel's finding that Brazil's 
claim that the United States failed to comply with its obligation unde r Article 7.8 of the  Agreement on 
Subsidies and Countervailing Measures ("SCM Agreement ") with respect to marketing loan payments 
and counter-cyclical payments made by the Unite d States after September 21, 2005 was properly 
before the panel.
2  This finding is in error and is based  on erroneous findings on issues of law and 
related legal interpretations.  
3. The United States seeks review by the Appellate Body of the panel's legal conclusion that as 
to GSM 102 export credit guarantees issued after July  1, 2005, the United States acted inconsistently 
with Article 10.1 of the Agreement on Agriculture by applying export subsidies in a manner which 
resulted in the circumvention of U.S. export su bsidy commitments with respect to unscheduled 
                                                     
 
1See, e.g., Panel Report, paras. 9.20-9.27. 
2See, e.g., Panel Report, paras. 9.75-9.81.  WT/DS267/AB/RW 
 Page 181 
 
 
products and certain scheduled prod ucts, and as a result acted incons istently with Article 8 of the 
Agreement on Agriculture .3  The United States also seeks review by the Appellate Body of the panel's 
related legal conclusion that the United States acted in consistently with Articles 3.1(a) and 3.2 of the 
SCM Agreement  by providing export subsidies to unsche duled products and by providing export 
subsidies to scheduled products in excess of U.S. commitments under the Agreement on Agriculture .4  
These conclusions are in error and are based on erro neous findings on issues of law and related legal 
interpretations.  4. The United States requests the Appellate Body to find that the panel failed to make "an 
objective assessment of the matter before it, including an objective assessment of the facts of the case 
and the applicability of and conformity with the relevant covered agreements" as required by 
Article 11 of the DSU with respect to Brazil's claims that the GSM 102 export credit guarantees 
constituted prohibited export subsidies.  The pa nel's failure to undertake an objective assessment 
includes, for example, the following:  
 (a) The panel disregarded and misconstrued the import of the GSM 102 export credit 
  guarantee budgetary re-estimates data submitted by the United States
5; 
  (b) When conducting its analysis under item (j) of the Illustrative List of Export 
Subsidies to the SCM Agreement , the panel relied upon assumptions not supported by 
evidence on the record
6 and on inappropriate comparisons of fees.7 
 
5. The United States seeks review by the Appellate  Body of the panel's legal conclusion that the 
United States failed to comply with the DSB's ruli ngs and recommendations relating to the original 
panel's findings of inconsistency with Articles 10.1 and 8 of the Agreement on Agriculture and 
Articles 3.1(a) and 3.2 of the SCM Agreement .8  This erroneous conclusi on is based on the panel's 
erroneous legal conclusions and failure to undertake an objec tive assessment, described in 
paragraphs 3-4 above.  6. The United States seeks review by the Appella te Body of the panel's finding that the United 
States acted inconsistently with its obliga tions under Articles 5(c) and 6.3(c) of the SCM Agreement  in 
that the effect of marketing loan and counter-c yclical payments provided to U.S. upland cotton 
producers after September 21, 2005 was significant price suppression within the meaning of 
Article 6.3(c) of the SCM Agreement  in the world market for upland cotton constituting "present" 
serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the SCM Agreement .
9  
This conclusion is in error and is based on err oneous findings on issues of law and related legal 
interpretations. 
 
7. The United States requests the Appellate Body to find that the panel failed to make "an 
objective assessment of the matter before it, including an objective assessment of the facts of the case 
and the applicability of and conformity with the relevant covered agreements" as required by 
Article 11 of the DSU with respect to Brazil's claims of present serious prejudice.  The panel's failure to undertake an objective assessment in cludes, for example, the following: 
                                                     
 
3See, e.g. , Panel Report, paras. 14.89, 14.97, 14.110, 14.115, 14.120, 14.128-14.129, 14.131, 
14.133(a)-(c), 14.134, 14.140, 14.149, 15.1(c). 
4See, e.g., Panel Report, paras. 14.156, 15.1(c). 
5See, e.g., Panel Report, paras. 14.80-14.81. 
6See, e.g., Panel Report, paras. 14.101, 14.125, 14.129. 
7See, e.g., Panel Report, paras. 14.94-14.103, 14.124-14.128, 14.129-14.131. 
8See, e.g., Panel Report, paras. 14.150, 14.157, 15.1(c), 15.2. 
9See, e.g., Panel Report, paras. 10.50, 10.58, 10.104, 10.111, 10.196, 10.222, 10.231, 10.239, 10.243, 
10.247-10.256, 15.1(a). WT/DS267/AB/RW 
Page 182  
 
  (a) The panel disregarded and misconstrue d evidence on the record concerning the 
structure, design, and operation of marketing loan and counter-cyclical payments
10; 
  (b) The panel disregarded and misconstrued evidence on the record and its own finding 
that the U.S. share of world upland cotton production and exports was stable over 
MY 2002-2005
11; 
  (c) The panel misconstrued the results of  U.S. econometric modeling concerning the 
effect of U.S. marketing loan and counter-cyclical payments on the world price for 
upland cotton
12; 
  (d) The panel disregarded and misconstrue d evidence concerning the alleged gap 
between the costs of production and the revenues of U.S. upland cotton farmers
13; 
 
 (e) The panel disregarded evidence relevant to ensuring that the effect of other factors on 
upland cotton prices was not improperly a ttributed to U.S. marketing loan and 
counter-cyclical payments.14 
 8. The United States seeks review by the Appellate  Body of the panel's legal conclusion that the 
United States failed to comply with the DSB's ru lings and recommendations related to the original 
panel's findings of inconsistenc y with Articles 5 and 6 of the SCM Agreement .
15  This erroneous 
conclusion is based on the panel's erroneous legal conclusions and fa ilure to undertake an objective 
assessment, described in paragraphs 6-7 above.  
_______________ 
 
                                                     
 
10See, e.g., Panel Report, paras. 10.61-10.82, 10.92-10.95.  
11See, e.g., Panel Report, paras. 10.127, 10.251. 
12See, e.g., Panel Report, paras. 10.221-10.222, 10.251. 
13See, e.g., Panel Report, paras. 10.176, 10.184, 10.195-10.196. 
14See, e.g., Panel Report, para. 10.243. 
15See, e.g., Panel Report, paras. 10.257, 15.1(a), 15.2-15.3.  WT/DS267/AB/RW 
 Page 183 
 
 
 
ANNEX II  
 
 WORLD TRADE  
ORGANIZATION  WT/DS267/34 
29 February 2008 
 (08-0923) 
 Original:   English 
  
UNITED STATES – SUBSIDIES ON UPLAND COTTON 
 
Recourse to Article 21.5 of the DSU by Brazil
 
 
Notification of an Other Appeal by Brazil  
under Article 16.4 and Article 17 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes (DSU),  
and under Rule 23(1) of the Working Procedures for Appellate Review  
   The following notification, dated 25 February 2008, from the Delegation of Brazil, is being 
circulated to Members. 
 
_______________ 
 
1. Pursuant to Articles 16.4 and 17.4 of the Understanding on Rules and Procedures Governing 
the Settlement of Disputes  ("DSU") and Rule 23 of the Working Procedures for Appellate Review , 
Brazil appeals certain issues of law and lega l interpretations in the Panel Report in United States – 
Subsidies on Upland Cotton – Recourse to  Article 21.5 of the DSU by Brazil .
1 
 2. Brazil's first appeal is contingent on the Appellate Body reversing the compliance Panel's 
finding, in accordance with the United States' app eal, that payments made after 21 September 2005 
pursuant to the Marketing Loan Payments ("ML")  program and Counter-Cyclical Payments ("CCP") 
program were within the scope of this proceeding under Article 21.5 and, th erefore, properly before 
the compliance Panel.
2 
 3. In that event, Brazil seeks reversal of  the compliance Panel's finding that the DSB's 
recommendations and rulings in the original pro ceedings, and the original panel's recommendations 
and conclusions, included only the ML and CCP pa yments, and not also the ML and CCP programs.
3  
This finding constitutes an error by the comp liance Panel under Article 21.5 of the DSU.  
Alternatively, in making this finding, the complianc e Panel failed to make an objective assessment of 
the matter under Article 11 of the DSU.  
4. Brazil furthermore requests that the Appellate Body find: 
 
                                                     
 
1WT/DS267/RW, circulated on 18 December 2007.  
2Panel Report, paras. 9.75 to 9.81, as challenged in the United States' Appellant's Submission, 
Section II.B, paras. 56 to 74. 
3Panel Report, paras. 9.44 to 9.55, in particular para. 9.47. WT/DS267/AB/RW 
Page 184  
 
(a) that the ML and CCP payments made after 21 September 2005 constitute measures 
taken to comply with the DSB's recomme ndations and rulings in the original 
proceedings within the meaning of Article 21.5 of the DSU, because of the close connection to the ML and CCP programs subject to those recommendations and rulings;  or, alternatively
, 
(b) that the United States, through the continued use of the ML and CCP programs, 
causes serious prejudice to Brazil's interests within the meaning of Articles 5(c) and 6.3(c) of the Agreement on Subsidies and Countervailing Measures . 
5. Second, in the event that the Appellate Body  reverses, in accordance with the United States' 
appeal, the compliance Panel's finding that Brazil' s claims "relating to export credit guarantees 
["ECGs"] for exports of pig meat and poultry m eat" were properly before the compliance Panel
4, 
Brazil requests that the Appellate Body find that th e compliance Panel erred in rejecting Brazil's view 
that "the measure that is the subject of [Brazil's] claims is the amended [General Sales Manager ("GSM")] programme itself".
5  This finding is inconsistent with Article 21.5 of the DSU.  
Alternatively, in making this fi nding, the Panel failed to make an objective assessment of the matter 
under Article 11 of the DSU.  Brazil requests that th e Appellate Body find, instead, that the amended 
GSM program itself was the measure taken to comply for purposes of Article 21.5 of the DSU, was the measure subject to Brazil's claims, and was properly before the compliance Panel.  6. As part of this conditional appeal relating to  ECGs, Brazil further requests that the Appellate 
Body find that the United States applies th e GSM 102 program in a manner that results in 
circumvention of U.S. export subsidy commitment s with respect to pig meat and poultry meat, 
contrary to Articles 10.1 and 8 of the Agreement on Agriculture , as well as to Articles 3.1(a) and 3.2 
of the SCM Agreement . 
__________ 
 
 
                                                     
 
4Panel Report, para. 9.27, as challenged in the United States' Appellant's Submission, Section II.A, 
paras. 33 to 55. 
5Panel Report, para. 9.25.