WORLD TRADE  
ORGANIZATION  WT/DS265/AB/R 
WT/DS266/AB/R 
WT/DS283/AB/R 
28 April 2005 
 
 (05-1728) 
 Original:   English 
 
 
     
 
    
 
     
EUROPEAN COMMUNITIES – EXPORT SUBSIDIES ON SUGAR 
   
AB-2005-2 
 
 
    
 
     
 
Report of the Appellate Body 
 
   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page i 
   I.
 Introduction................................................................................................................... ..............1  
II. Arguments of the Participants and the Third Participants ..........................................................6  
A. Claims of Error by the European Communities – Appellant .........................................6  
1. The Panel's Terms of Reference .......................................................................6  
2. Footnote 1 to Section II, Part IV of the European Communities' 
Schedule............................................................................................................7  
3. Payments under Article 9.1(c) of the Agreement on Agriculture ...................10  
(a) Payments in the Form of Below-cost Sales of C Beet ........................10  
(b) Payments in the Form of "Cross-subsidization" ................................11  
4. Nullification or Impairment ............................................................................13  
5. Article 3.10 of the DSU and the Principle of Good Faith...............................14  
B. Arguments of Australia – Appellee ..............................................................................15  
1. The Panel's Terms of Reference .....................................................................15  
2. Footnote 1 to Section II, Part IV of the European Communities' 
Schedule..........................................................................................................16  
3. Payments under Article 9.1(c) of the Agreement on Agriculture ...................16  
(a) Payments in the Form of Below-cost Sales of C Beet ........................16  
(b) Payments in the Form of "Cross-subsidization" ................................17  
4. Nullification or Impairment ............................................................................19  
5. Article 3.10 of the DSU and the Principle of Good Faith...............................20  
6. The European Communities ' Notice of Appeal ..............................................21  
C. Arguments of Brazil – Appellee ...................................................................................21  
1. The Panel's Terms of Reference .....................................................................21  
2. Footnote 1 to Section II, Part IV of the European Communities' 
Schedule..........................................................................................................21  
3. Payments under Article 9.1(c) of the Agreement on Agriculture ...................22  
(a) Payments in the Form of Below-cost Sales of C Beet ........................22  
(b) Payments in the Form of "Cross-subsidization" ................................23  
4. Nullification or Impairment ............................................................................25  
5. Article 3.10 of the DSU and the Principle of Good Faith...............................25  
D. Arguments of Thailand – Appellee ...............................................................................25  
1. The Panel's Terms of Reference .....................................................................25  
2. Footnote 1 to Section II, Part IV of the European Communities' 
Schedule..........................................................................................................26  
3. Payments under Article 9.1(c) of the Agreement on Agriculture ...................28  
(a) Payments in the Form of Below-cost Sales of C Beet ........................28  
(b) Payments in the Form of "Cross-subsidization" ................................29  
4. Nullification or Impairment ............................................................................30  
5. Article 3.10 of the DSU and the Principle of Good Faith...............................31  
E. Claims of Error by Australia – Appellant ....................................................................32  
F. Claims of Error by Brazil – Appellant .........................................................................34  
G. Claims of Error by Thailand – Appellant ....................................................................35  
H. Arguments of the European Communities – Appellee .................................................37  
I. Arguments of the Third Participants ............................................................................39  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page ii 
  
1.
 ACP Countries ................................................................................................39  
2. Canada ............................................................................................................40  
3. China...............................................................................................................41  
4. New Zealand...................................................................................................42  
5. The United States............................................................................................43  
III. Issues Raised in This Appeal ................................................................................................... .45 
IV. The Panel's Terms of Reference ...............................................................................................46  
A. Panel Findings and Arguments on Appeal ..................................................................47  
B. Article 6.2 of the DSU ..................................................................................................50  
C. Alleged "Payments" in the Form of Low-priced Sales of C Beet to Sugar 
Producers .....................................................................................................................51  
V. Footnote 1 to Section II, Part IV of  the European Communities' Schedule..............................55  
A. Introduction .................................................................................................................55  
B. The European Communities' Export Subsidy Commitments Regarding Sugar ...........55  
C. The Panel's Analysis and the European Communities' Appeal ...................................56  
D. Interpretation of Footnote 1 .........................................................................................58  
1. The Meaning of Footnote 1 ............................................................................59  
2. First Sentence of Footnote 1:  "Sugar of ACP and Indian Origin" .................61  
3. Second Sentence of Footnote 1:  Limitation of Subsidization of 
ACP/India Sugar.............................................................................................63  
E. Conformity of Footnote 1 with Obli gations under the Agreement on Agriculture ......65  
1. Article 3.3 of the  Agreement on Agriculture .................................................65  
2. Article 9.1 of the  Agreement on Agriculture .................................................70  
F. The Relationship Between Members' Schedules and the Agreement on 
Agriculture ...................................................................................................................73  
G. Conclusion ...................................................................................................................78  
VI. Payments under Article 9.1(c) of the  Agreement on Agriculture .............................................78  
A. Preliminary Remarks ...................................................................................................78  
B. Do Sales of C Beet Involve Export Subsidies within the Meaning of 
Article 9.1(c)? ..............................................................................................................79  
C. Do "Payments" in the Form of "C ross-subsidization" Constitute Export 
Subsidies within the Meaning of Article 9.1(c)? ..........................................................88  
1. Introduction.....................................................................................................88  
2. Whether "Cross-subsidization" Co nstitutes a "Payment" within the 
Meaning of Article 9.1(c) of the  Agreement on Agriculture ..........................89  
3. Whether "Payment" in the Form "Cross-subsidization" is "On the 
Export" within the Meaning of Article 9.1(c) of the  Agreement on 
Agriculture ......................................................................................................95  
4. The European Communiti es' Claim under Article 11 of the DSU..................99  
5. The European Communities' Argu ments Concerning the Cost of 
Production of C Sugar...................................................................................100  
6. Overall Conclusion .......................................................................................101   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page iii 
  VII.
 Australia's Claim under Article 10.1 of the  Agreement on Agriculture .................................101  
VIII. Nullification or Impairment .................................................................................................... 101 
IX. Article 3.10 of the DSU and the Principle of Good Faith.......................................................104  
A. Panel Findings and Appeal by the European Communities ......................................104  
B. Whether the Panel Failed "to Address" th e European Communities' Claim that 
the Complaining Parties Acted Inconsiste ntly with Article 3.10 of the DSU and 
the Principle of Good Faith .......................................................................................105  
C. Whether the Complaining Parties were Estopped from Bringing Claims 
Against C Sugar .........................................................................................................106  
D. Whether the Complaining Par ties Acted Inconsistently w ith Article 3.10 of the 
DSU and the Principle of Good Faith .......................................................................109  
X. Judicial Economy............................................................................................................... .....110  
A. The Panel's Analysis and the Arguments on Appeal ..................................................110  
B. Exercise of Judicial Economy in WTO Dispute Settlement Generally ......................112  
C. Did the Panel Err in Exercising Judicial Economy with Respect to the Claims 
under Article 3 of the SCM Agreement? ....................................................................113  
D. Completing the Panel's Legal Analysis ......................................................................115  
XI. The European Communities ' Notice of Appeal ......................................................................118  
XII. Findings and Conclusions....................................................................................................... 120 
 
ANNEX 1 Request for the Establishment of a Panel by Australia ANNEX 2 Request for the Establishment of a Panel by Brazil ANNEX 3 Request for the Establishment of a Panel by Thailand ANNEX 4 Section II, Part IV of the European Communities' Schedule  
ANNEX 5 Notification of an Appeal by the European Communities under 
paragraph 4 of Article 16 of the DSU 
ANNEX 6 Notification of an Other Appeal by Australia under Article 16.4 and 
Article 17 of the DSU, and under Rule 23(1) of the Working 
Procedures for Appellate Review  
ANNEX 7 Notification of an Other Appeal by Brazil under Article 16.4 and 
Article 17 of the DSU, and under Rule 23(1) of the Working 
Procedures for Appellate Review  
ANNEX 8 Notification of an Other Appeal by Thailand under Article 16.4 and 
Article 17 of the DSU, and under Rule 23(1) of the Working 
Procedures for Appellate Review  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page iv 
  
TABLE OF ABBREVIATIONS USED IN THIS REPORT 
 
Abbreviation Definition 
A, B, and C sugar The EC sugar regime establishes two categories of production quotas:  
one for A sugar and one for B sugar.  These quotas constitute the 
maximum quantities eligible for domestic price support and direct export subsidies.  C sugar is simply sugar produced in excess of A  and B quotas.  There is no difference in physical characteristics between A,  B, and C sugar.   
A, B, and C beet Beet processed into A, B, and C sugar, respectively.  There is no 
difference in physical characteristics between A, B, and C beet.   Unlike for A and B beet, there is no minimum guaranteed price for 
C beet. 
ACP African–Caribbean–Pacific 
ACP Countries The third participant ACP countries in this appeal are:  Barbados, 
Belize, Côte d'Ivoire, Fiji, Guyana, Jamaica, Kenya, Madagascar, 
Malawi, Mauritius, St. Kitts & Nevis, Swaziland, Tanzania, Trinidad & Tobago 
CEM commercial export milk 
Complaining Parties Australia, Brazil, Thailand 
Division Appellate Body Division hearing the appeal 
DSB Dispute Settlement Body 
DSU Understanding on Rules and Procedures Governing the Settlement of 
Disputes  
EC Regulation 1260/2001 
  Council Regulation (EC) No. 1260/ 2001, on the common organization 
of the markets in the sugar sector, 19 June 2001 
EC sugar regime Council Regulation (EC) No. 1260/2001 and related instruments 
Footnote 1 Footnote 1 to Section II, Part IV of the European Communities' 
Schedule  
GATT  General Agreement on Tariffs and Trade  
Illustrative List Illustrative List of Export Subsidies in the SCM Agreement  
Modalities Paper Modalities for the Establishment of Specific Binding Commitments, 
Note by the Chairman of the Market Access Group, MTN.GNG/MA/W/24, 20 December 1993  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page v 
  
Abbreviation Definition 
Panel Reports  Panel Report, EC – Export Subsidies on Sugar (Australia) ;  
Panel Report, EC – Export Subsidies on Sugar (Brazil) ; 
Panel Report, EC – Export Subsidies on Sugar (Thailand)  
Panel requests Request for the Establishment of a Panel by Australia of 9 July 2003, 
WT/DS265/21;  Request for the Establishment of a Panel by Brazil of 
9 July 2003, WT/DS266/21;  Request for the Establishment of a Panel 
by Thailand of 9 July 2003, WT/DS283/2 
SCM Agreement Agreement on Subsidies and Countervailing Measures  
Vienna Convention  Vienna Convention on the Law of Treaties , done at Vienna, 23 May 
1969, 1155 UNTS 331;  8 International Legal Materials 679 
WTO World Trade Organization 
WTO Agreement  Marrakesh Agreement Es tablishing the World Trade Organization  
Working Procedures Working Procedures for Appellate Review , WT/AB/WP/5, 4 January 
2005 
 WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page vi 
  
TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Argentina – Poultry  
Anti-Dumping Duties Panel Report, Argentina – Definitive Anti-Dumping Duties on Poultry from 
Brazil , WT/DS241/R, adopted 19 May 2003 
Australia – Salmon  Appellate Body Report, Australia – Measures Affecting Importation of Salmon , 
WT/DS18/AB/R, adopted 6 November 1998, DSR 1998:VIII, 3327 
Brazil – Aircraft  Panel Report, Brazil – Export Financing Programme for Aircraft , WT/DS46/R, 
adopted 20 August 1999, as modified by the Appellate Body Report, 
WT/DS46/AB/R, DSR 1999:III, 1221 
Canada – Aircraft  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377 
Canada – Aircraft  
(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 – Aircraft Credits and Guarantees
  Panel Report, Canada – Export Credits and Loan Guarantees for Regional Aircraft , 
WT/DS222/R and Corr.1, adopted 19 February 2002 
Canada – Autos  Panel Report, Canada – Certain Measures Affecting the Automotive Industry , 
WT/DS139/R, WT/DS142/R, adopted 19 June 2000, as modified by the Appellate 
Body Report, WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, 3043 
Canada – Dairy  Appellate Body Report, Canada – Measures Affecting the Importation of Milk and 
the Exportation of Dairy Products , WT/DS103/AB/R, WT/DS113/AB/R and 
Corr.1, adopted 27 October 1999, DSR 1999:V, 2057 
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)
  Panel 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/RW, WT/DS113/RW, adopted 
18 December 2001, as reversed by the Appellate Body Report, WT/DS103/AB/RW, WT/DS113/AB/RW, DSR 2001:XIII, 6865 
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 R ecourse 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 
Canada – Dairy  
(Article 21.5 – New Zealand 
and US II)  Panel 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/RW2, WT/DS113/RW2, adopted 
17 January 2003, as modified by the Appellate Body Report, WT/DS103/AB/RW2, 
WT/DS113/AB/RW2 
Canada – Periodicals  Appellate Body Report, Canada – Certain Measures Concerning Periodicals , 
WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, 449 
Canada – Wheat Exports and Grain Imports Appellate Body Report, Canada – Measures Relating to Exports of Wheat and 
Treatment of Imported Grain , WT/DS276/AB/R, adopted 27 September 2004  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page vii 
  
Short Title Full Case Title and Citation 
Chile – Price Band System  Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products , WT/DS207/AB/R, adopted 
23 October 2002 
EC – Asbestos  Panel Report, European Communities – Measures Af fecting Asbestos and Asbestos-
Containing Products , WT/DS135/R and Add.1, adopted 5 April 2001, as modified 
by the Appellate Body Report, WT/DS135/AB/R, DSR 2001:VIII, 3305 
EC – Bananas III  Appellate Body Report, European Communities – Regime for the Importation, Sale 
and Distribution of Bananas , WT/DS27/AB/R, adopted 25 September 1997, 
DSR 1997:II, 591 
EC – Computer Equipment  Appellate Body Report, European Communities – Customs Classification of 
Certain Computer Equipment , WT/DS62/AB/R, WT/DS67/AB/R, 
WT/DS68/AB/R, adopted 22 June 1998, DSR 1998:V, 1851 
EC – Export Subsidies on Sugar (Australia) Panel Report, European Communities – Export Subsidies on Sugar, Complaint by 
Australia , WT/DS265/R, 15 October 2004 
EC – Export Subsidies on Sugar 
(Brazil) Panel Report, European Communities – Export Subsidies on Sugar, Complaint by 
Brazil , WT/DS266/R, 15 October 2004 
EC – Export Subsidies on Sugar 
(Thailand) Panel Report, European Communities – Export Subsidies on Sugar, Complaint by 
Thailand , WT/DS283/R, 15 October 2004 
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 
Guatemala – Cement II  Panel Report, Guatemala – Definitive Anti-Dumping Measures on Grey Portland 
Cement from Mexico , WT/DS156/R, adopted 17 November 2000, DSR 2000:XI, 
5295 
India – Patents (US)  Appellate Body Report, India – Patent Protection for Pharmaceutical and 
Agricultural Chemical Products , WT/DS50/AB/R, adopted 16 January 1998, 
DSR 1998:I, 9 
Japan – Film  Panel Report, Japan – Measures Affecting Consumer Photographic Film and 
Paper , WT/DS44/R, adopted 22 April 1998, DSR 1998:IV, 1179 
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 
Thailand – H-Beams  Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, Shapes and 
Sections of Iron or Non-Alloy Steel and H-Beams from Poland , WT/DS122/AB/R, 
adopted 5 April 2001, DSR 2001:VII, 2701 
Turkey – Textiles  Appellate Body Report, Turkey – Restrictions on Imports of Textile and Clothing 
Products , WT/DS34/AB/R, adopted 19 November 1999, DSR 1999:VI, 2345 
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 WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page viii 
  
Short Title Full Case Title and Citation 
US – Corrosion-Resistant Steel 
Sunset Review  Appellate Body Report, United States – Sunset Review of Anti-Dumping Duties on 
Corrosion-Resistant Carbon Steel Flat Products from Japan , WT/DS244/AB/R, 
adopted 9 January 2004  
US – FSC  Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" , 
WT/DS108/R, adopted 20 March 2000, as modified by the Appellate Body Report, 
WT/DS108/AB/R, DSR 2000:IV, 1675 
US – Gasoline  Appellate Body Report, United States – Standards for Reformulated and 
Conventional Gasoline , WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, 3 
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 – Lead and Bismuth II  Appellate Body Report, United States – Imposition of Countervailing Duties on 
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom , WT/DS138/AB/R, adopted 7 June 2000, DSR 2000:V, 2595 
US – 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 – Softwood Lumber V  Appellate Body Report, United States – Final Dumping Determination on Softwood 
Lumber from Canada , WT/DS264/AB/R, adopted 31 August 2004 
US – Sugar GATT Panel Report, United States – Restrictions on Imports of Sugar , adopted 
22 June 1989, BISD 36S/331 
US – Superfund  GATT Panel Report, United States – Taxes on Petroleum and Certain Imported 
Substances , adopted 17 June 1987, BISD 34S/136 
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R, adopted 21 March 2005 
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 
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of Woven Wool 
Shirts and Blouses from India , WT/DS33/AB/R and Corr.1, adopted 23 May 1997, 
DSR 1997:I, 323 
 
 
  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 1 
  
W
ORLD TRADE ORGANIZATION  
APPELLATE BODY 
 
 
European Communities – Export Subsidies 
on Sugar 
 
European Communities, Appellant/Appellee  
Australia, Appellant/Appellee  
Brazil, Appellant/Appellee  
Thailand, Appellant/Appellee  
 Barbados, Third Participant 
Belize, Third Participant 
Canada, Third Participant 
China, Third Participant 
Colombia, Third Participant 
Côte d'Ivoire, Third Participant 
Cuba, Third Participant 
Fiji, Third Participant 
Guyana, Third Participant 
India, Third Participant 
Jamaica, Third Participant 
Kenya, Third Participant 
Madagascar, Third Participant 
Malawi, Third Participant 
Mauritius, Third Participant 
New Zealand, Third Participant 
Paraguay, Third Participant 
St. Kitts & Nevis, Third Participant 
Swaziland, Third Participant 
Tanzania, Third Participant 
Trinidad & Tobago, Third Participant 
United States, Third Participant  
  AB-2005-2 
 
 Present:  
  Ganesan, Presiding Member  Janow, Member  Taniguchi, Member 
 
 
 
I. Introduction 
1. The European Communities appeal s certain issues of law and legal interpretations contained 
in the Panel Reports, European Communities − Export Subsidies on Sugar  (the "Panel Reports").1  
                                                      
1Complaint by Australia , WT/DS265/R, 15 October 2004;  Complaint by Brazil , WT/DS266/R, 
15 October 2004;  Complaint by Thailand , WT/DS283/R, 15 October 2004. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 2 
  
The Panel was established
 2 to consider complaints by Australia, Brazil, and Thailand (the 
"Complaining Parties") regarding export subsidi es for sugar and sugar-containing products accorded 
under Council Regulation (EC) No. 1260/2001 of 19  June 2001 ("EC Regulation 1260/2001") and 
related instruments (together, the "EC sugar regime").   
2. EC Regulation 1260/2001 is valid for the marketing years 2001/2002 to 2005/2006 and 
establishes, inter alia :  quotas for sugar production;  an inte rvention price for raw and white sugar, 
respectively;  a basic price and a minimum price for beet for quota sugar production;  quota (that is, "A" and "B") sugar as well as  non-quota (that is, "C") sugar
 3;  import and export licensing 
requirements;  producer levies;  and preferential import arrangements.  Furt hermore, the EC sugar 
regime provides "export refunds" to its sugar exporte rs for certain quantities of sugar, other than  
C sugar.  These "refunds", which are direct expo rt subsidies, cover the difference between the 
European Communities' internal market price and th e prevailing world market price for sugar.  Non-
quota sugar (that is, C sugar) must be exported, unl ess it is carried forward, but no "export refunds" 
are provided for such exports.  The factual aspects of  the EC sugar regime are set out in greater detail 
in the Panel Reports.4 
3.  The Complaining Parties claimed before th e Panel that, under the EC sugar regime, the 
European Communities provided ex port subsidies for sugar in excess of its reduction commitment 
levels specified in Section II, Part IV  of the European Communities' Schedule5, in violation of certain 
provisions of the Agreement on Agriculture  and the Agreement on Subsidies and Countervailing 
Measures  (the " SCM Agreement ") governing export subsidies.6  The Complaining Parties alleged that 
such subsidies in excess of th e European Communities' reduction co mmitment levels were provided 
                                                      
2On 9 July 2003, Australia, Brazil, and Thailand each made a separate request for the establishment of 
a panel (WT/DS265/21; WT/DS266/21; and WT/DS283/2 (attached as Annexes 1, 2, and 3 to this Report, 
respectively)).  On 29 August 2003, the Dispute Settlement  Body (the "DSB"), pursuant to Article 9.1 of the 
Understanding on Rules and Procedures Governing the Settlement of Disputes  (the "DSU"), established one 
single panel to examine these three complaints.  At the request of the European Communities, pursuant to 
Article 9.2 of the DSU, the Panel issued three separate , but identical reports, one for each Complaining Party. 
3The EC sugar regime establishes two categories of production quotas:  one for A sugar and one for 
B sugar.  These quotas constitute the maximum quantities eligible for domestic price support and direct export 
subsidies.  C sugar is simply sugar produced in excess of A and B quotas. There is no difference in physical 
characteristics between A, B, and C sugar.  Likewise, th ere is no difference in phys ical characteristics between 
A, B, and C beet.  C beet is simply beet used for C sugar production.  Unlike for A and B beet, there is no 
minimum guaranteed price for C beet. 
4See Panel Reports, paras. 3.1-3.15.  
5Section II, Part IV of the European Communities' Schedule is attached as Annex 4 to this Report. 
6The provisions of the covered ag reements alleged by the Complaining Parties to be violated are 
Articles 3.3, 8, 9.1(a), 9.1(c), and 10.1 of the Agreement on Agriculture  and Articles 3.1(a) and 3.2 of the  SCM 
Agreement .  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 3 
  
to exports of C sugar as well as to sugar equivale nt in volume to sugar imported into the European 
Communities under preferential arrangements with  certain African–Caribbean–Pacific countries
 7  
(the "ACP Countries") and India. 
4. The Panel Reports were circulated to Members of the World Trade Organization ("WTO") on 
15 October 2004.  The Panel concluded, at paragraph 8.1 of the Panel Reports, that: 
(a) the European Communities' budgetary outla y and quantity commitment levels for 
exports of subsidized sugar are determined with reference to the entry specified in 
Section II, Part IV of its Schedule, and the content of Footnote 1 thereto in relation to 
these entries is of no legal effect and does not enlarge or otherwise modify the 
European Communities' specified commitment levels; 
(b) the European Communities' quantity commitm ent level for exports of sugar pursuant 
to Articles 3.3 and 8 of the  Agreement on Agriculture  is 1,273,500 tonnes per year, 
effective from the marketing year 2000/2001; 
(c) the European Communities' budgetary outlay commitment level for exports of sugar 
pursuant to Articles 3.3 and 8 of the  Agreement on Agriculture  is €499.1 million per 
year, effective from the marketing year 2000/2001; 
(d) the Complaining Parties have provided prima facie  evidence that, since 1995, the 
European Communities' total exports of s ugar exceed its quantity commitment level.  
In particular, in the marketing year 2000/2001, the European Communities exported 4,097,000 tonnes of sugar, that is, 2,823, 500 tonnes in excess of its commitment level; 
(e) there is prima facie  evidence that the European Communities has been providing 
export subsidies within the meaning of Article 9.1(a) of the  Agreement on Agriculture  
to what the European Communities considers to be exports of "ACP/India equivalent 
sugar" since 1995;  and 
(f) there is prima facie  evidence that the European Communities has been providing 
export subsidies within the meaning of Article 9.1(c) of the  Agreement on Agriculture  
to its exports of C sugar since 1995.  
                                                     
 
7The third participant ACP countries in this appeal are:  Barbados, Belize, Côte d'Ivoire, Fiji, Guyana, 
Jamaica, Kenya, Madagascar, Malawi, Mauritius, St. Kitts & Nevis, Swaziland, Tanzania, and Trinidad & 
Tobago. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 4 
  
5. In a communication dated 2 December 2004, Australia, Brazil, the European Communities, 
and Thailand informed the Chair of the Dispute Settlement Body (the "DSB") of a "procedural 
agreement" concluded between these four parti es regarding the 60-day period provided for in 
Article 16.4 of the  Understanding on Rules and Procedures Governing the Settlement of Disputes  
(the "DSU")
8 for the adoption or appeal of the Panel Reports.  The parties requested the DSB to 
postpone the consideration of the Panel Reports and to agree to th e extension of the time period in 
Article 16.4 of the DSU until 31 January 2005.  At  a meeting held on 13 December 2004, the DSB 
took note of these requests and agreed that it woul d adopt the Panel Reports on or before 31 January 
2005, unless the DSB decided by consensus not to do so , or a party notified the DSB of its decision to 
appeal.9 
6. On 13 January 2005, the European Communities no tified the DSB of its intention to appeal 
certain issues of law covered in the Panel Reports and certain legal interpre tations developed by the 
Panel, pursuant to Article 16.4 of the DSU, and filed a Notice of Appeal10 pursuant to Rule 20 of the 
Working Procedures for Appellate Review (the " Working Procedures ").11   
7. After consultation with the Appellate Body Secretariat, the European Communities and 
Australia, Brazil, and Thailand agreed, in letters filed on 19 January 2005, that it would not be 
possible for the Appellate Body to circulate its Re port in this appeal within the 90-day time limit 
referred to in Article 17.5 of the DSU.  The European Communities and Australia, Brazil, and 
Thailand accordingly confirmed that they would deem  the Appellate Body Report in this proceeding, 
issued no later than 28 April 2005, to be an Appella te Body Report circulated pursuant to Article 17.5 
of the DSU.12 
8. On 20 January 2005, the European Comm unities filed an appellant's submission.13  O n  
25 January 2005, Australia, Brazil, and Thailand each  notified the DSB of an intention to appeal 
certain issues of law covered in the Panel Reports and certain legal interpre tations developed by the 
Panel, pursuant to Article 16.4 and Article 17 of the DSU, and filed a Notice of Other Appeal 14 
                                                      
8WT/DS265/24, WT/DS266/24, WT/DS283/5.  
9WT/DSB/M/179, paras. 8-9.  
10WT/DS265/25, WT/DS266/25, WT/DS283/6 (attached as Annex 5 to this Report).  
11WT/AB/WP/5, 4 January 2005. 
12On 24 January 2005, the Appellate Body notified the Chair of the DSB that the expected date of 
circulation of its Report was 28 April 2005 (WT/DS265/26, WT/DS266/26, WT/DS283/7). 
13Pursuant to Rule 21 of the Working Procedures. 
14WT/DS265/27;  WT/DS266/27;  and WT/DS283/8 (attached as Annexes 6, 7, and 8 to this Report, 
respectively).   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 5 
  
pursuant to Rule 23(1) of the Working Procedures .  On 28 January 2005, Australia, Brazil, and 
Thailand each filed an othe r appellant's submission.
15  On 7 February 2005, Australia, Brazil, the 
European Communities, and Thailand each filed an appellee's submission.16  On the same day, 
Canada, China, New Zealand, and the United States  each filed a third participant's submission, and 
Barbados, Belize, Côte d'Ivoire, Fiji, Guyana, Jamaica, Kenya, Madagascar, Malawi, Mauritius, 
St. Kitts & Nevis, Swaziland, Tanzania, and Trin idad & Tobago filed a joint third participant's 
submission as the "ACP Countries".17  On the same day, Colombia, Cuba, India, and Paraguay 
notified their intention to appear at the oral hearing as third participants.18 
9. On 28 January 2005, the Appellate Body received an amicus curiae  brief from the 
Association of Central American Sugar Industries (Azucareros del Istmo Cent roamericano (AICA)).  
The Appellate Body Division hearing the appeal (the "Division") did not find it necessary to take this 
amicus curiae   brief into account. 
10. By letter dated 10 February 2005 , Canada requested authorization from the Division, pursuant 
to Rule 18(5) of the Working Procedures , to correct a "typographical error" in its third participant's 
submission.19  On 15 February 2005, the Division, pursuant to Rule 18(5) of the Working Procedures , 
invited all participants and third participants to comment on Canada's request.  None of the 
participants objected to Canada's request.  On 17 February 2005, the Division authorized Canada to 
correct the error in its third participant's submi ssion, identified in its letter of 10 February 2005. 
11. On 17 February 2005, Mauritius informed the Appellate Body that the ACP Countries were 
proposing to retain, for the oral hearing before the Appellate Body, the services of a legal counsel that 
had also been retained by two associations for European sugar and beet producers.  Australia 
commented on the letter from Mauritius by letter date d 23 February 2005, noting that "representation 
of 'the ACP' in the oral hearing by counsel concurrently engaged by private sector bodies in respect of the same dispute could raise concerns about a pe rceived or apprehended conflict with the basic 
principle that appearance and representation before  the Appellate Body is limited to Members and 
their counsel."
20  In response to Australia's comments, Mauritius confirmed, in a letter dated  
28 February 2005, that its legal counsel appearing on  its behalf at the hearing "would be doing so 
                                                      
15Pursuant to Rule 23.3 of the Working Procedures .  
16Pursuant to Rule 22 of the Working Procedures.  
17Pursuant to Rule 24(1) of the Working Procedures .  
18Pursuant to Rule 24(2) of the Working Procedures . 
19Letter from Canada to the Presiding Member of the Division.  
20Letter from Australia to the Director of the Appellate Body Secretariat. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 6 
  
solely as representatives of the WTO Member ACP th ird participants, and not as representatives of 
either the ACP (which includes WTO Members who are not participants in this dispute) or of the 
counsel's other private clients."
21 
12. The oral hearing in this appeal was held on 7 and 8 March 2005.  The participants and third 
participants presented oral arguments (with the ex ception of Colombia, Cuba, India, and Paraguay) 
and responded to questions posed by the Members of the Division hearing the appeal. 
 
II. Arguments of the Participants  and the Third Participants 
A. Claims of Error by the European Communities – Appellant 
1. The Panel's Terms of Reference  
13. The European Communities appeals the Panel's find ing that the alleged payments in the form 
of low-priced sales of C beet to C sugar producers were within the Panel's terms of reference.22  
According to the European Communities, in rejec ting the European Communities' assertion that this 
"claim" was not within its terms of reference, the Panel misinterpreted the notions of a "claim" and an "argument". 
14. The European Communities submits that a simple  reference to the measure at issue as the 
export subsidies granted under EC Regulation 1260/ 2001, or even more vaguely, under the EC sugar 
regime, is not sufficient for identification of the " specific measure  at issue", as required by Article 6.2 
of the DSU.  This is because the operational pr ovisions of EC Regulation 1260/2001 are contained in 
as many as 51 articles, with seven annexes a nd numerous paragraphs and sections, and those 
provisions lay down a regulatory regime of great complexity.
23 
15. Furthermore, according to the European Commun ities, "[e]ven assuming that a reference to 
[EC] Regulation 1260/2001 or to the EC sugar re gime were 'specific' enough, the panel requests 
would still fail to 'provide a brief summary of the lega l basis' [of the complaint] that is 'sufficient to 
present the problem clearly' ", as required by Article 6.2 of the DSU.24  To meet that requirement, the 
Complaining Parties should have identified in thei r panel requests, "albeit in summary form, each of 
                                                      
21Letter from Mauritius to the Director of the Appellate Body Secretariat.  
22European Communities' appellant's submission, para. 40 (referring to Panel Reports, paras. 7.18-
7.37). 
23Ibid., para. 60. 
24Ibid., para. 62.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 7 
  
the export subsidies which they considered to  be provided by [EC] Regulation 1260/2001".
25  T h e  
Complaining Parties identified an alleged export subs idy with respect to "payments" in the form of 
sales of C sugar, but their panel requests contained no suggestion to the effect that the sales of C beet 
at low prices also posed a "problem", let alone explain how such a "problem" would arise.26  
Therefore, according to the Europ ean Communities, in respect of sales of C beet at low prices, the 
panel requests did not "present[] the problem clearly", as required by Article 6.2.27     
16. The European Communities also argues that the provision of Article 10.3 of the  Agreement 
on Agriculture  relating to burden of proof does not exclude or limit the application of Article 6.2 of 
the DSU.  According to the European Communities,  "[t]he issue of who bears the burden of proof 
must not be confused with the distinct and previous  issue of who must state the claims in a dispute."28  
Referring to the Appellate Body Report in  Canada – Dairy (Article 21.5 – New Zealand and US II) , 
the European Communities argu es that a complaining party is required to identify  all  alleged export 
subsidies in order to have complied with th e requirements in Article 6.2 of the DSU. 
2. Footnote 1 to Section II, Part IV of the European Communities' Schedule  
17. The European Communities appeals the Panel's finding that Footnote 1 to Section II,  
Part IV of the European Communities' Sche dule ("Footnote 1") is "of no legal effect".29 
18. The European Communities argues that the Panel erred in finding that the ordinary meaning 
of the terms of Footnote 1 does not indicate any  limitation  on export subsidies that may be provided 
to sugar of ACP and Indian origin.30  According to the European Communities, "[h]ad the Panel 
properly examined the context of the second sentence  [of Footnote 1], it would have realised that the 
reference to 1.6 million tonnes is intended as a limitation."31  The European Communities emphasizes 
                                                      
25European Communities' appellant's submission, para. 66. 
26Ibid. 
27Ibid. 
28Ibid., para. 72.  
29Ibid., para. 79;  Panel Reports, para. 7.222. 
30The text of Footnote 1 reads: 
Does not include exports of sugar of ACP and Indian origin on which the 
Community is not making any reduction commitments.  The average of export in the period 1986 to 1990 amounted to 1,6 mio t. 
31European Communities' appellant's submission, para. 97. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 8 
  
that "[i]f Footnote 1 is simply an exclusion, ther e would be no need to insert the second sentence, and 
no reason to refer to the 1.6 million tonnes as the average during [the] 1986-1990 base period."
32 
19. The European Communities argues that the Pane l failed to consider "uncontested evidence 
showing that the EC had treated the lower of the level of ACP/India imports and 1.6 million tonnes as 
a limitation on its ability to provide  export subsidies on exported sugar."33  The Panel also erred in 
finding that the notifications by the European  Communities to the WTO Committee on Agriculture 
were relevant to the issue of whether there is a li mitation in Footnote 1.  According to the European 
Communities, the notifications simply reflected the meaning of Footnote 1 that the European 
Communities was assuming no reduction commitments with respect to its exports of sugar of ACP 
and Indian origin. 
20. The European Communities submits that the Pa nel erred in its conclusion that Footnote 1 
covers only re-exports of sugar of ACP/Indian origin and that it does not cover an amount of 
subsidized sugar "equivalent" to the amount of s ugar imported from those countries.  The European 
Communities points out that the term "export" in the phrase "average of export" in the second 
sentence of Footnote 1 must have the same meaning as "exports" in the first sentence, and that this 
clearly shows that Footnote 1 refers to "the equi valent quantity of ACP/India sugar that had been 
imported".34   
21. The European Communities further requests the Appe llate Body to find that the Panel erred in 
finding that Footnote 1, interpreted as a  limitation , is inconsistent with Articles 3.3 and 9.1 of the 
Agreement on Agriculture .  The European Communities asserts, first, that Article 3.3 of the 
Agreement on Agriculture  does not require a Member to have  scheduled both budgetary outlay  and 
quantity commitments.  The European Communitie s submits that paragraph 11 of the "Modalities 
Paper" 35 refers to scheduling both such commitments , but that obligation was assumed by the 
participants in the negotiations;  it was not carried over into the  Agreement on Agriculture .  Referring 
to the text of Article 3.3, the European Communities points out that the use of the word "and" in that 
Article is simply as a conjunctive and it does not imply a requirement that WTO Members undertake 
both budgetary outlay and quantity commitments.  A ccording to the European Communities, "[t]he 
obligation in Article 3.3 is only to provide Article 9.1-listed subsidies in conformity with whatever 
                                                      
32European Communities' appellant's submission, para. 97. (footnote omitted) 
33Ibid., para. 101.  
34Ibid., para. 115. (footnote omitted) 
35Modalities for the Establishment of Specific Bi nding Commitments, Note by the Chairman of the 
Market Access Group, MTN.GNG/MA/W/24, 20 December 1993.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 9 
  
commitments are found in a Member's schedule."
36  The European Communities submits that the 
same applies to Articles 9.2(a) and 9.2(b)(iv) of the  Agreement on Agriculture , "which both mention 
the existence of the two forms of commitments, wit hout implying that a Member must always have 
scheduled both."37   
22. Turning to the chapeau of Article 9.1, th e European Communities asserts that "[t]he 
normative content of Article 9.1 ... is not to impo se reductions, but to define the scope of those 
subsidies which are permitted within commitment levels."38  The European Communities adds that, 
even assuming that there is an obligation in Article  9.1 to reduce export subsidy commitment levels, 
the European Communities has complied with this obligation by reducing "the overall ceiling of its 
commitments [for sugar] over the implementation period".39   
23. Finally, the European Communities submits that, even assuming  arguendo  that Footnote 1 is 
inconsistent with the  Agreement on Agriculture , "there is no hierarchy between the export subsidy 
commitments in a Member's schedule and the  Agreement on Agriculture ."40  According to the 
European Communities, a finding that one provision or set of provisions prevails over another should be made only where explicit permission exists to set aside all or part of a treaty.  Such a possibility 
would exist in situations covered by the  General interpretative note to Annex 1A   to the  Marrakesh 
Agreement Establishing the World Trade Organization (the " WTO  Agreement ") or in situations 
covered by the report of the GATT panel in  US – Sugar , which held that a Member could not 
derogate in its Schedule from  other obligations under the  General Agreement on Tariffs and Trade  
(the "GATT").  
24. The European Communities, moreover, disagrees  with the Panel that Article 8 of the  
Agreement on Agriculture  can be interpreted to mean that "a  Member's Schedule cannot provide for 
non-compliance with provisions of the  Agreement on Agriculture ".
41  According to the European 
Communities, Article 8 merely provides that a Member must respect both the provisions of the 
Agreement on Agriculture   and its Schedule.  The European Communities adds that the Panel did not 
point to any other provision that would support its finding that the  Agreement on Agriculture   would 
prevail over a provision contained in a Schedule. 
                                                      
36European Communities' appellant's submission, para. 140.  
37Ibid., para. 139. 
38Ibid., para. 148. 
39Ibid., para. 149. 
40Ibid., para. 156. 
41Ibid., para. 164 (quoting Panel Reports, para. 7.161). WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 10 
  
3. Payments under Article 9.1(c) of the Agreement on Agriculture
 
(a) Payments in the Form of Below-cost Sales of C Beet 
25. The European Communities argues that the Panel erred in finding that sales of C beet are 
"financed by virtue of governmental action" within  the meaning of Article 9.1(c), and sets out four 
arguments in its appeal from th e Panel's finding.  First, the European Communities argues that the 
Panel misconstrued the phrase "by virtue of  gove rnmental action".  The European Communities 
refers to findings of the Appellate Body in  Canada – Dairy (Article 21.5 – New Zealand and US)  
and   Canada – Dairy (Article 21.5 – New Zealand and US II) , and argues that the Panel 
"misconstrued" the phrase "by virtue of " 42 to mean that an export subsidy exists because 
governmental action "enable[s]" beet gr owers to finance and make payments.43  
26. Secondly, the European Communities argues that the Panel failed to cite evidence in support 
of its assertion that a "significant" percentage of farmers are "likely to finance sales of C beet below 
the costs of production as a result of participation in the domestic market in selling high priced A and B beet".
44  Instead, according to the European Commun ities, even by the Complaining Parties' own 
evidence, profits obtained with the sales of A and B beet would be "largely insufficient" to cover all 
the fixed costs of producing C beet.45  The sales of A and B beet were profitable only in two of the 
three most recent marketing years, and the profits account for "barely 13 and 27 per cent" of all the 
fixed costs of producing C beet.46  Moreover, the price of C beet in the last ten years did not cover 
even the marginal cost of producing C beet.  Accord ing to the European Communities, this shows that 
the production of C beet is not "financed by virtue of governmental action", but instead is largely the 
result of other factors independent of governmental action. 
27. Thirdly, the European Communities submits that governmental action in the European 
Communities' beet market is less pervasive than in the Canada – Dairy  dispute.  European 
Communities authorities do not exercise a comparable de gree of control in the beet market.  Although 
the EC sugar regime fixes minimum prices for A and B beet, it leaves the beet growers "totally free" 
to decide whether or not to produce C beet, to plan their production as they wish, and to agree on 
                                                      
42European Communities' appellant's submission, heading VI.C.1. 
43Ibid., para. 268.  
44Ibid., para. 277 (quoting Panel Reports, para. 7.291).  
45Ibid., para. 279.  
46Ibid.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 11 
  
C beet prices with the sugar producers.
47  C beet growers are also free to use or sell C beet for other 
purposes such as animal fodder, alcohol, or yeast, wh ile C sugar produced with C beet can be carried 
forward.  No such flexibility or  alternatives existed in the  Canada – Dairy   dispute.   
28. Fourthly, according to the Europ ean Communities, the Panel disregarded factors that do not 
involve governmental action, but that do affect in a significant way the supply and prices of C beet, such as yield fluctuations and the "unint ended" nature of a "substantial part"
48 of C beet production, 
agronomic factors, the possibility that high prices for A and B beet may finance other alternative crops, as well as the differences between dairy and b eet farming.  The Panel either did not address 
these factors or dismissed them without proper cons ideration.  In the European Communities' view, 
given the role of these other factors, the "nexus " between "governmental action" and the alleged 
payments cannot be considered "tight" enough for a finding that sales of C beet are financed by virtue 
of governmental action.
49 
(b) Payments in the Form of "Cross-subsidization" 
29. The European Communities appeals the Panel's fi nding that the producers of C sugar receive 
export subsidies through "cross-subsidization" with in the meaning of Article 9.1(c) of the  Agreement 
on Agriculture .50  According to the European Communities,  cross-subsidization does not constitute a 
"payment" as it does not involve a "transfer of resources" to the sugar producers.51  The existence of a 
transfer of resources "implies, by definition, the presence of two different parties, one which grants 
the resources and another which receives them".52  In contrast, the Panel's interpretation of "cross-
subsidization" involves "an internal allocation of each sugar producer's own resources" instead of a 
"transfer of resources".53  The European Communities submits that the Panel's interpretation of 
Article 9.1(c) "would effectively read out of that provision the requirement that there must be a 'payment on the export' and turn it into a prohibition of low priced exports" or a "sort of blunt anti-
dumping instrument".
54  According to the European Communiti es, "[o]n the Panel's own theory", the 
only relevant transfer of resources in the presen t case would take place from European Communities' 
                                                      
47European Communities' appellant's submission, para. 281.   
48Ibid., para. 287. 
49Ibid., paras. 264, 268, and 291. 
50Panel Reports, para. 7.314. 
51European Communities' appellant's submission, para. 179. 
52Ibid., para. 183. 
53Ibid., para. 179. 
54Ibid., para. 180. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 12 
  
consumers to the sugar producers.
55  However, the Panel failed to examine that aspect and did not 
ascertain whether the price paid by the European  Communities' consumers was above any objective 
benchmark. 
30. The European Communities further contends that  "cross-subsidization" cannot be considered 
to provide a subsidy because the "transfer of res ources" confers no benefit on the sugar producers.56  
Further, the Panel erred in finding that Article 9. 1(c) does not require the de monstration of a benefit 
for a measure to constitute a payment within the m eaning of that provision.  "[T]he existence of a 
'benefit' is always inherent in the notion of 'subs idy', so that there can be no subsidy without the 
corresponding benefit."57  The European Communities argues th at the Panel's conclusion regarding 
cross-subsidization is not supported by the findings of the Appellate Body in Canada − Dairy .  The 
Appellate Body in Canada − Dairy  did not hold that "cross-financing"  or "cross-subsidization" by the 
milk producers was in itself a payment, but rather  found the payment to exist in the sale of export 
milk to cheese producers.58  The European Communities also submit s that the Panel's interpretation of 
Article 9.1(c) has no equivalent in the SCM  Agreement  and that there is "no apparent reason" why 
agricultural products should be subject to stricter disciplines than other products.59  Finally, according 
to the European Communities, the Panel's interpretation was not envisaged by the drafters of the 
Agreement on Agriculture ;  in this context, the European Commu nities refers to price support systems 
for sugar in other WTO Members and argues that th e Panel's interpretation would have "sweeping and 
totally unintended consequences".60 
31. The European Communities also di sagrees with the Panel's finding that the alleged payments 
are made "on the export".61  The European Communities affirms that the Panel's finding that the 
payments were "on the export" is based on a misint erpretation of that requirement.  The European 
Communities states that "the term 'on the export' must be read as meaning 'contingent on' exports, 
rather than simply 'in connection with ' or to the 'advantage' of exports."62  The European Communities 
argues that the alleged payments are not contingent  on exports of C sugar, given that there is no 
requirement to produce C sugar in order to be nefit from the support provided to A and B sugar. 
                                                      
55European Communities' appellant's submission, para. 186.  
56Ibid., para. 191. 
57Ibid., para. 193. 
58Ibid., para. 198. 
59Ibid., para. 201.  
60Ibid., para. 205.  
61Ibid., para. 170. 
62Ibid., para. 222.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 13 
  
32. Finally, the European Communities alleges that  the Complaining Parties did not even claim 
that "cross-subsidization" was a "payment".
63  Therefore, the Panel acted inconsistently with 
Article 11 of the DSU by making a finding with r espect to a claim that was not advanced by the 
Complaining Parties.  As a "subsidiar[y]" allega tion, the European Communities contends that the 
Panel failed to take into consideration that the cost  of production of C sugar is significantly lower than 
that of A and B sugar because the C beet price is  lower than the minimum prices for A and B beet.64 
4. Nullification or Impairment  
33. The European Communities objects to the Panel's co nclusion that the alleged violations of the 
Agreement on Agriculture  resulting from exports of C sugar nullify or impair benefits accruing to the 
Complaining Parties.  According to the European Communities, the "benefits" that could be nullified 
or impaired consist of "expectations  of improved competitive opportunities".65  In the European 
Communities' view, "until recently, the Complainants shared the EC's understanding that the C sugar 
regime does not provide export subsidies."66  The Complaining Parties "had no expectations of 
improved competitive opportunities that would come from the EC reducing its exports of C sugar."67  
Consequently, a violation, even if established, "does not result in the nullification or impairment of 
benefits accruing to the Complainants".68 
34. The European Communities points out that a finding of violation would result in "unjust 
enrichment" of the Complaining Parties.69  The purpose of dispute settlement proceedings is "not to 
present some Members with a windfall profit at the expense of another".70 
35. The European Communities furt her argues that the Panel e rroneously relied on panel and 
Appellate Body findings in  US − Superfund , EC − Bananas III , and  Turkey − Textiles , without 
understanding the important differences between t hose cases and the present dispute.  The European 
Communities had not argued that the Complaining Parties' trade position would not, or only 
minimally, improve if the EC sugar regime were fo und to violate WTO rules, as the Panel asserted;  
                                                      
63European Communities' appellant's submission, para. 256. 
64Ibid., heading V.D.  
65Ibid., para. 370 (quoting GATT Panel Report, US – Superfund , para. 5.19;  and Appellate Body 
Report, EC – Bananas III , paras. 251-253). 
66Ibid., para. 370.  
67Ibid.  
68Ibid. 
69Ibid., para. 373.  
70Ibid. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 14 
  
on the contrary, the European Communities argued that  the trade effects of the Panel's ruling would 
be "significant" as it would give the Complain ing Parties "a considerable windfall profit".
71  T h e  
European Communities also takes issue with the Panel's finding th at the European Communities did 
not rebut the evidence with regard to the amount of trade lost by the Complaining Parties as a result of 
the EC sugar regime.  The European Communities subm its that, "that is precisely what past cases say 
is unacceptable  to prove lack of nullification or impairment."72  The Panel's approach amounts to 
saying that there is no way to rebut the presumpti on of nullification or impairment of benefits.73 
36. The European Communities requests the Appella te Body to reverse the Panel's finding 
concerning nullification or impairment of the be nefits accruing to the Complaining Parties under 
the  Agreement on Agriculture .  The European Communities further submits that the Appellate Body 
should "[a]t least ... reverse the Panel's finding to the extent that the current volume of subsidised exports does not exceed 79 per cent of the quantity of subsidised exports made during the base 
period."
74 
5. Article 3.10 of the DSU and the Principle of Good Faith  
37. The European Communities appeals the Panel's finding that the Complaining Parties acted 
consistently with Article 3.10 of the DSU and w ith the principle of good faith.  The European 
Communities considers that "[t]he circumstances of this dispute are such that the exercise by the 
Complainants of their right to bring a claim agai nst the C sugar regime is manifestly unreasonable 
and, therefore, inconsistent with Article 3.10 of the DSU." 75  According the European Communities, 
the alleged breach of its reduction commitments was "the result of an excusable scheduling error on 
the part of the EC" because other Members, includi ng the Complaining Parties themselves, had made 
the same errors.76  
38. The European Communities alleges that, in d ealing with its objection based on estoppel, the 
Panel "misconstrued and misapplied" the principle of estoppel.77  The European Communities 
maintains that the Panel "cited no authority for the assertion that silence can give rise to estoppel only 
                                                      
71European Communities' appellant's submission, para. 377. 
72Ibid., para. 378. (original underlining)  
73Ibid., para. 379. 
74Ibid., para. 381. 
75Ibid., para. 325. 
76Ibid., para. 326. 
77Ibid., para. 341.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 15 
  
if there is a 'legal duty to speak'."
78  With respect to the Panel's finding that the Complaining Parties' 
silence could not be held against other WTO Me mbers, the European Co mmunities maintains that 
estoppel may operate exclusively between two Me mbers because it does not alter the substantive 
rights under the  WTO  Agreement . 
39. The European Communities also points out that it did not request the Panel to "force"79 the 
Complaining Parties to agree to a correction of its Schedule of Concessions.  As explained by the European Communities, the intention of this obser vation was to show why the Complaining Parties 
had acted inconsistently with Article 3.10 of th e DSU.  The European Communities emphasizes that 
"[a] good faith Member which recognises that anot her Member has made an  excusable scheduling 
mistake ... would not seek to exploit that mistake in  order to secure a very considerable advantage".
80  
The European Communities' contentio n before the Panel was that "by bringing the claim that exports 
of C sugar exceed the EC's commitments, rather than  seeking the correction of the EC's schedule, so 
as to include C sugar in the base quantity, as a go od faith partner would have agreed to do, the 
Complainants were acting inconsistently with Ar ticle 3.10 [of the] DSU and the principle of good 
faith."81 
B. Arguments of Australia – Appellee 
1. The Panel's Terms of Reference  
40. Australia agrees with the Panel that the Compla ining Parties' arguments relating to payments 
on C beet fell within the Panel's terms of reference.   Australia submits that the European Communities 
wrongly characterizes a "payment" as a "measure".  Australia points out that it did not claim that a 
"payment", in itself, was an export subsidy, but rather, that the European Communities was in 
violation of its WTO obligations because it provi ded subsidies in excess of its reduction commitment 
levels on sugar and sugar-containi ng products.  Australia further affirms that the Panel correctly 
applied the distinction between "claims" and "ar guments", and agrees with the Panel that "the 
Complainants did not have to detail how a nd why such exports were being subsidized."82   
                                                      
78European Communities' appellant's submission, pa ra. 353 (quoting Panel Reports, para. 7.73). 
79Ibid., para. 361. 
80Ibid., para. 362. 
81Ibid., para. 363. 
82Australia's appellee's submission, para. 78 (quoting Panel Reports, para. 7.30). WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 16 
  
2. Footnote 1 to Section II, Part IV of the European Communities' Schedule
 
41. Australia agrees with the Panel that F ootnote 1 is inconsistent with the  Agreement on 
Agriculture  and cannot be regarded as a second com ponent of the European Communities' export 
subsidy commitments on sugar.  Australia emphasi zes that the inclusion of Footnote 1 in the 
European Communities' Schedule was not negotiated a nd that "[t]here is no evidence of any relevant 
exchanges between the parties or any other form of  negotiation, let alone agreement on this subject 
matter."83  Australia further maintains that the seco nd sentence of Footnote 1 does not indicate 
"a ceiling or other limitation on these exports".84    
42. Australia submits that the findings of the Appellate Body in  Canada – Dairy  do not provide 
support to the European Communities' contention that  Footnote 1 should be read to impose a limit on 
subsidization.  Australia explains that, unlike in the present case, in Canada – Dairy , the United States 
and Canada held "lengthy nego tiations" regarding reciprocal market access for dairy products.85  
43. Australia sees no reason why the princi ple enunciated by the GATT panel in  US – Sugar  and 
by the Appellate Body in  EC – Bananas III —namely, the principle that Members may incorporate 
into their Schedules acts yielding rights under the GATT, but not acts diminishing obligations under 
that Agreement—should not apply in the present ca se.  Moreover, Australia agrees with the Panel 
that, unless explicitly authorized, scheduled commitm ents "cannot overrule or conflict" with the 
obligations contained in the covered agreements.86  
3. Payments under Article 9.1(c) of the Agreement on Agriculture  
(a) Payments in the Form of Below-cost Sales of C Beet 
44. Australia argues that the European Communiti es "misrepresent[s]" the reasons for C beet 
production.87  According to Australia, yield variations would not lead to C beet production in the 
absence of high prices for quota sugar and the "web of supporting regulations".88  Furthermore, there 
is no demonstrated agronomic benef it that would induce growers to grow large quantities of beet at a 
substantial financial loss.  Rather, the production an d processing of below-cost C beet is financed and 
                                                      
83Australia's appellee's submission, para. 160 (quoting Panel Reports, para. 7.213). 
84Ibid., para. 164. 
85Ibid., para. 173 (citing Appellate Body Report, Canada – Dairy , para. 139). 
86Ibid., para. 221 (quoting Panel Reports, para. 7.158). 
87Ibid., heading VI.B.1.  
88Ibid., para. 372.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 17 
  
driven by the structure of the EC sugar regime, in cluding the incentive to ensure receipt of full-quota 
sugar revenue, the needs of sugar processors, and incentives for producing above-quota beet.  
Although growers and processors have some fl exibility when negotiating their contractual 
arrangements for C beet, that flexibility is limited.  
45. Australia submits that the payments in the form of below-cost sales of C beet are "financed by 
virtue of governmental action".  In Australia's view , "governmental action", in this dispute, finances 
the "payments" as the "other factors" identifie d by the European Communities do not explain the 
"persistent production and sale of below cost C beet".
89  Furthermore, in challenging the Panel's 
finding that a significant percentage of growers of C beet are likely to finance sales of C beet as a 
result of selling high-priced A and B beet, the Eu ropean Communities intro duces new material that 
had not been provided to the Panel.  Moreover, the European Communities erroneously examines  
the relevant figures for the European Communities " as a whole ".90  According to Australia, the 
examination of figures as a whole is inappropriate because those growers that actually produce C beet 
have greater profits from A and B beet, and lower fi xed costs of growing C beet to cover with those 
profits.  
46. Australia also argues that governmental control in the EC sugar regime is not less pervasive 
than in the situation present in  Canada – Dairy .  The European Communities, in Australia's view, 
implies that European Communities' growers have  more choice as to what they produce and where 
they market their production than do Canadian da iry farmers.  However, the incentives provided 
through the EC sugar regime "dominate the growers' choices".91 
(b) Payments in the Form of "Cross-subsidization"  
47. Australia argues that the European Communiti es misrepresents the cost of production of 
C sugar, compared to A and B sugar.  Australia points out that, since C sugar is always produced 
jointly with A and B sugar, the average total cost of  producing C sugar is identical to the average total 
cost of producing A and B sugar.  Likewise, the averag e total cost of growing beet is the same for A, 
B, and C beet.92  The fact that the price for C beet is lowe r than that of A and B beet is not relevant, 
because the cost of producing sugar includes the cost of all of the economic resources used in beet 
                                                      
89Australia's appellee's submission, heading VI.C.2.ii.  
90Ibid., para. 404. (original emphasis)  
91Ibid., para. 410.    
92Ibid., para. 252. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 18 
  
production, transport, and processing.  The lowe r beet prices for C beet only "lessen the degree"
93 of 
cross-subsidy between quota sugar and C sugar, but th ey do not eliminate the cross-subsidy.  Australia 
further contends that the European Communities mi srepresents the reasons for C beet and C sugar 
production.  Producers plan production so as to ensu re quota receipt and avoid losing quota for future 
seasons.  In addition, C sugar may be produced so  that farmers and processors can profit from 
producing it at marginal cost, given that its  fixed cost is covered by quota revenue. 
48. Australia further argues that the "purely noti onal ['payment']" identified by the European 
Communities is "but one link in th e chain connecting the EC sugar re gime to the below cost exports 
of C sugar".94  According to Australia, in the light of the  Canada – Dairy (Article 21.5 – New 
Zealand and US) jurisprudence, the export of sugar at be low the average total cost of production 
constitutes a "decisive element" in examining whet her an Article 9.1(c) export subsidy exists.95  In 
Australia's view, the average total cost of production  is the appropriate benchmark in this case;  and 
the use of the world market price as the benchm ark, as suggested by the European Communities, 
would be "illogical" in this dispute, because Europ ean Communities exporters must sell their sugar at 
the prevailing world market price.96 
49. Australia further submits that the Panel was corr ect in finding that the term "on the export", in 
Article 9.1(c), does not mean "contingent on export performance".  In any event, even if the phrase 
"on the export" did mean "contingent on exports", as submitted by the European Communities, such a 
test would also be satisfied in the present case, b ecause C sugar must be exported unless it is carried 
forward.  Australia notes also that the European  Communities has not appealed the Panel's finding 
that the payments at issue, namely, payments in the form of "cross-subsidization", are "financed by 
virtue of governmental action". 
50. In response to the other arguments advan ced by the European Communities, Australia 
contends that Article 9.1(c) does not require the iden tification of a benefit;  there is no risk of blurring 
the distinction between domestic suppor t and export subsidies;  there is no risk of Article 9.1(c) being 
turned into a "blunt anti-dumping instrument"97;  there is no requirement to identify an "equivalent" 
obligation in the  SCM Agreement ;  and "cross-subsidization" is not a novel concept.  Finally, 
Australia submits that the European Communities do es not properly indicate, in its Notice of Appeal, 
                                                      
93Australia's appellee's submission, para. 254.    
94Ibid., para. 263 (citing European Communities' appellant's submission, para. 199).   
95Ibid., para. 272.    
96Ibid., para. 278.   
97Ibid., heading V.C.3.iii.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 19 
  
a claim under Article 11 of the DSU with respect to the Panel' s finding on "cross-subsidization", and 
that, in any event, such a claim would be without merit.  
4. Nullification or Impairment
 
51. Australia notes that the European Communities doe s not contest on appeal its burden of proof 
to rebut the presumption of nullification or impairment set out in Article 3.8 of the DSU.  The 
European Communities also does not contest that there would be a presumption of nullification or 
impairment in respect of the export subsidies applie d to ACP/India equivalent sugar.  In Australia's 
view, there are no "special factors" that would justif y applying a different standard to C sugar than to 
ACP/India sugar.98   
52. Australia submits that a panel may not qualif y the extent of any "adverse impact" under 
Article 3.8 of the DSU, or find that there is no such "adverse impact" on the grounds that Australia 
"could not have expected that the EC  would conform to its obligations".99  Australia agrees with the 
Panel that the protection of "legitimate expectations" could not be used to de termine the existence of 
nullification or impairment.100  Moreover, Australia submits, the European Communities incorrectly 
ascribes to Australia an expectation that the Eur opean Communities would not take any measure to 
reduce its exports of C sugar.  There is no "evi dentiary basis" for the European Communities' 
assertion that there was any "shared ... understandi ng" between the European Communities and the 
Complaining Parties.101  In any event, legal expectations " accrue from legal treaty rights", not from 
"what might ... be a Member's own assessment at any point in time".102  Australia also argues that the 
European Communities' interpretation of Article 3.8 of the DSU would "strip Article 3.8 of its object 
and purpose"103;  the European Communities' interpretati on would also imply that "adverse impact" 
should be "rebated in full" against future "wi ndfall" accruing to the Complaining Parties once the 
European Communities has implemented its obligations.104  Finally, Australia contends that the fact 
                                                      
98Australia's appellee's submission, para. 570.   
99Ibid., para. 588.  
100Ibid., para. 589.  
101Ibid., para. 596. 
102Ibid.  
103Ibid., para. 614.  
104Ibid., para. 617. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 20 
  
that it may be difficult to rebut the presumption of nullification or impairment under Article 3.8 
"reflects the treaty status" of this presumption.
105   
5. Article 3.10 of the DSU and the Principle of Good Faith  
53. Australia refers to the European Communities'  assertion that the Complaining Parties were 
seeking to exploit "an 'excusable scheduling error' in  order to secure a manifestly unfair advantage".106  
Australia emphasizes, in this respect, that the Euro pean Communities made modifications to its sugar 
regime subsequent to 1995 and that the European  Communities "has no basis upon which to implicate 
Australia and the other Complainants in the viol ation of [the European Communities'] obligations."107  
54. Australia supports the Panel's conclusion that the principle of estoppel cannot be applied in 
WTO dispute settlement.  With respect to the cont ent of estoppel, Australia submits that estoppel 
"cannot apply as to a statement of a legal situation".108  Australia points to the European Communities' 
assertion that it was reasonable to infer from the Compla ining Parties' lack of reaction at the time of 
the conclusion of the  WTO Agreement  that they shared the European Communities' understanding 
that exports of C sugar did not benefit from export subsidies.  According to Australia, this assertion 
does not go to a question of fact, but rather to the legal issue of whether C sugar exports were 
subsidized.  It follows, in Australia's view, that th ere is no basis for estoppel to be applied in this case, 
and "[e]ven if there were, the EC's subsequent modifications of its [suga r] regime would have 
changed the factual basis upon which the estoppel rested, putting an end to it."109  Accordingly, the 
Appellate Body should find that "the EC's claim th at the Complainants have been estopped is without 
basis as not coming within the terms of that principle."110  Such a finding, according to Australia, 
"would not require the Appellate Body to rule on wh ether estoppel could be applied in relation to the 
WTO Agreement ".111    
                                                      
105Australia's appellee's submission, para. 621.  
106Ibid., para. 455. 
107Ibid., para. 482. 
108Ibid., para. 510.  
109Ibid., para. 512.  
110Ibid., para. 513. 
111Ibid., para. 514.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 21 
  
6. The European Communities' Notice of Appeal
 
55. Australia argues that the European Communities'  Notice of Appeal does not satisfy the "due 
process requirements" of Rule 20(2)(d) of the  Working Procedures .112  Australia submits that the 
European Communities does not quote, in its Notice of  Appeal, specific conclusions or findings of the 
Panel on which it seeks review;  fails to distinguish between a conclusion and a finding or fails to 
identify the findings in question;  does not list, for each claim, the provisions that the Panel allegedly 
erred in interpreting or applying;   and, finally,  erroneously refers to a part of its Schedule as  
"a provision of a covered agreement".113  In Australia's view, these issues are "fundamental defects 
that deny due process" to the Complaining Parties.114 
C. Arguments of Brazil – Appellee 
56. Brazil submits that the European Communities fa ils to demonstrate that the Panel's legal 
conclusions are in error, and requests the Appellate Body to uphold the Panel's conclusions and reject 
the European Communities' appeal.   
1. The Panel's Terms of Reference  
57. Brazil recalls that Article 6.2 of the DSU requir es a complaining party to identify the specific 
measures at issue and provide a brief summary of th e legal basis of the complaint sufficient to present 
the problem clearly.  Brazil submits that its panel re quest in this case went beyond the requirement of 
Article 6.2 of the DSU by identifying the subs idizing measure and providing evidence of the 
European Communities' subsidies to excess suga r exports.  Brazil adds that the European 
Communities has not demonstrated any prejudice resulti ng from a lack of specificity in Brazil's panel 
request, nor has it offered any supporting par ticulars in its appellant's submission.   
2. Footnote 1 to Section II, Part IV of the European Communities' Schedule  
58. Brazil argues that a Member must specify in its Schedule both budgetary outlay and quantity 
commitment levels in respect of export subsidi es falling within the ambit of Article 9.1 of the 
Agreement on Agriculture .  If either of the two types of commitments is not specified, there is no 
reduction commitment within the meaning of the  Agreement on Agriculture .  Brazil submits that the 
European Communities acknowledges that Footnote  1 constitutes a departure from the general 
                                                      
112Australia's appellee's submission, para. 23.  
113Ibid., para. 24(d).   
114Ibid., para. 25.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 22 
  
obligations imposed on Members by the  Agreement on Agriculture .  Consequently, in Brazil's view, 
the European Communities' attempt to exclude subs idized exports of ACP/India equivalent sugar 
from its reduction commitments must fail, because Article XVI:5 of the  WTO Agreement  explicitly 
prohibits reservations unless the multilateral ag reement concerned provides otherwise.   
59. Brazil supports the Panel's rejection of the Eu ropean Communities' claim that Footnote 1  
was "negotiated" with other Members.
115  Furthermore, according to Brazil, GATT and WTO 
jurisprudence has recognized the pr inciple that Members may yield  rights and grant benefits but may 
not use their Schedules to diminish their reduction commitment obligations.  Brazil further notes that 
the  Agreement on Agriculture  does not authorize Members to s ubject their reduction commitments  
to individualized terms and conditions, in contrast to Article II:1(b) of the GATT 1994 and Article XVI:1 of the GATS that allow for such c onditions and qualifications.  Even assuming that 
Footnote 1 were a legitimate part of the European  Communities' Schedule, the text of Footnote 1 is, 
according to Brazil, "merely informative" and does not support the interpretation suggested by the 
European Communities to authorize the subsidizati on of ACP/India "equivalent" sugar exports.  The 
European Communities seeks, imperm issibly, to have the Appellate Body read into the text of 
Footnote 1 a meaning that does not follow from the or dinary meaning of the terms in that Footnote.  
The International Court of Justic e has explained that the principle of effectiveness cannot justify 
attributing meaning to provisions that woul d be contrary to their letter and spirit.
116  Moreover, 
assuming  arguendo  that Footnote 1 is ambiguous, the principle of  contra proferentem  requires that 
any ambiguity be construed against the European Co mmunities, as the drafter is held responsible for 
any inaccuracies or ambiguities.117  
3. Payments under Article 9.1(c) of the Agreement on Agriculture  
(a) Payments in the Form of Below-cost Sales of C Beet 
60. Brazil agrees with the Panel's findings that gove rnmental action results in profitable sales of 
C beet below their total cost of production.   Br azil submits that, although the European Communities 
makes "extensive factual assertions" concerning altern ative uses for C beet other than C sugar, it does 
not explain why, if more attractive alternative market s for C beet exist, growers continue to sell their 
                                                      
115Brazil's appellee's submission, paras. 38-41 (referrin g to Panel Reports, paras. 7.203, 7.213, 7.216, 
7.218, and 7.220).  
116Ibid., para. 50 (referring to International Court of Justice, Advisory Opinion, Interpretation of Peace 
Treaties with Bulgaria, Hungary and Romania (Second Phase) , 1950, ICJ Reports, 221, at 229).  
117Ibid., paras. 57-58.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 23 
  
beet to C sugar producers for less than  the cost of producing that beet.
118  Brazil also maintains that 
there was "ample evidence" in the record to support the Panel' s conclusion that a significant 
percentage of farmers are likely to finance sales of  C beet below total cost of production "as a result 
of participation in the domestic market".119  Brazil also rejects the Eu ropean Communities' argument 
that the Panel confused a regulation merely enabling payments to occur with a regulation that finances 
those payments;  Brazil points to the Panel's finding that the European Communities "controls virtually every aspect of domestic beet and sugar supply and management".
120  
61. Brazil further contends that Table 9 in the European Communities' appellant's submission—
intended to show that "there are other factors which explain the farmers' decision to produce 
C beet"—"is highly misleading and misrepresents the data it cites as a source".121  For instance, the 
European Communities has created an "erroneous subs titute" for the fixed cost set out in that table.122  
In any event, in Brazil's view, th e European Communities admits that the Panel was correct in finding 
that profits from A and B beet support the sale of C beet below its total cost of production by stating 
that "the profits obtained with sal es of A and B beet would be  largely insufficient to cover all   the 
fixed costs of producing C beet."123  Brazil argues that profits from the sales of A and B beet do not 
need to cover all fixed costs of producing C beet in  order to cross-subsidize those sales, rather, these 
profits need only cover some of the fixed costs of C beet.  According to Brazil, "[s]o long as the price 
obtained for C beet covers its marginal cost and makes a  contribution  to the coverage of fixed costs, 
it is more profitable for a grower to produ ce and sell the C beet than not to do so."124  Brazil submits 
that, as a result, even the European Communitie s' own argument supports the Panel's conclusion.125  
(b) Payments in the Form of "Cross-subsidization"  
62. Brazil agrees with the Panel that C sugar receiv es a "payment on export" that is "financed by 
virtue of governmental action".  Brazil argues that the European Communities admits the facts 
                                                      
118Brazil's appellee's submission, para. 102.  
119Ibid., para. 104 (quoting European Communities' appellant's submission, para. 266, in turn quoting 
Panel Reports, para. 7.291).   
120Ibid., para. 105 (quoting Panel Reports, para. 7.291).   
121Ibid., para. 106.   
122Ibid., para. 107 (referring to European Communities' appellant's submission, para. 279, Table 9, 
line (f)).  
123Ibid., para. 108 (quoting European Communities' a ppellant's submission, para. 279). (emphasis 
added by Brazil)  
124Ibid., para. 108. (original emphasis) 
125Ibid.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 24 
  
necessary to support the Panel's conclusion, becau se the European Communities never challenged the 
"detailed economic data and two economic analyses" that the Complaining Parties submitted to the 
Panel.
126  The European Communities, in Brazil's view, attempts to revisit the economic issues "under 
the guise of legal argument".127 
63. With respect to the European  Communities' argument that "cross-subsidization does not 
transfer any resources to the sugar producers" and is therefore not a "payment", Brazil submits that the 
financial resources generated by A and B quota suga r make C sugar production profitable, even when 
sold below its average total cost of production.  An "economic resource"128, namely money, is being 
transferred from domestic consumers, by virtue  of governmental action, to C sugar producers.  
Furthermore, the export sale of C sugar involves a pa yment to the buyer.  According to Brazil, for 
purposes of WTO disciplines, "it does not matter that the recipient of the payment – or an export subsidy – is located in a third country."
129  The export sale is economically possible and profitable to 
the C sugar producer only because of the payments that the C sugar producer receives, including 
payments from European sugar consumers in the fo rm of high prices for A and B sugar resulting from 
the EC sugar regime;  payments-in-kind in the form of C beet below its total cost of production;  and 
direct export refunds on A and B quota sugar and ACP/India sugar. 
64. Brazil furthermore disagrees with the European Communities' contention that the Panel made 
no finding concerning the appropriate benchmark.  According to Brazil, the Panel relied on the 
Appellate Body Report in  Canada – Dairy (Article 21.5 – New Zealand and US) , which identified 
and used the proper benchmark, namely, average to tal cost of production.  Brazil submits that the 
European Communities' arguments concerning the  SCM Agreement  are not relevant to the Panel's 
conclusions under the Agreement on Agriculture , because it is not necessary to allege or prove a 
benefit  as a separate element in a di spute concerning payment under Ar ticle 9.1(c).  Brazil also 
submits that the European Communities cannot justif y its own violations of its WTO obligations by 
pointing to alleged violations by other WTO Members.  
65. Finally, according to Brazil, the Panel correctly  applied the standard for the term "on the 
export" contained in Article 9.1(c).  The Europ ean Communities' arguments incorrectly characterize 
the Panel's finding on this issue.  The Panel's fi ndings do not blur the distinction between domestic 
                                                      
126Brazil's appellee's submission, para. 65.  
127Ibid., para. 67.  
128Ibid., para. 69. 
129Ibid., para. 71.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 25 
  
and export subsidies.  Brazil contends that the fact that there is no requirement to produce C sugar is 
not relevant to the question whether the sale of C sugar involves a payment on export financed by 
virtue of governmental action. 
4. Nullification or Impairment
 
66. Brazil observes that the European Communities' rationale that nullification or impairment 
depends on "expectations of  improved competitive opportunities" is  an argument that "sets GATT and 
WTO jurisprudence on its head".130   In Brazil's view, the European Communities points to GATT and 
WTO panel and Appellate Body reports that held that the concept of nullification or impairment 
encompassed "expectations of improved competitiv e opportunities", but concludes erroneously that 
"only"131 expectations of improved competitive opportun ities are included in that concept.  Brazil 
refers to the result of an Oxfam study concluding that the EC sugar regime caused immediate losses of 
US $494 million to Brazil in 2002, which, in Braz il's view, constitutes "serious" nullification or 
impairment of actual trade.132  Brazil argues that the European Communities did not challenge that 
evidence.133 
5. Article 3.10 of the DSU and the Principle of Good Faith  
67. Brazil supports the Panel's conclusion that th e Complaining Parties were not  estopped   from 
bringing claims against export subsidies provided to e xports of C sugar.  With respect to Article 3.7 of 
the DSU, Brazil states that it exercised its judgem ent and concluded that action would be "fruitful" 
within the meaning of that provision.   
D. Arguments of Thailand – Appellee 
1. The Panel's Terms of Reference  
68. Thailand maintains that in appealing the Pane l's finding that "the Complainants' claims 
relating to the 'alleged' payments in the form of lo w priced sales of C beet to EC sugar producers were 
within the Panel's terms of reference"134, the European Communities is, in fact, appealing a finding 
                                                      
130Brazil's appellee's submission, para. 121. 
131Ibid. (original emphasis) 
132Ibid., para. 122.  
133Ibid. (referring to Panel Reports, para. 7.372).  
134Thailand's appellee's submission, para. 119 (quoting European Communities' appellant's submission, 
para. 40). WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 26 
  
that the Panel did not make.  Specifically, accordi ng to Thailand, the Panel at no point identified 
"payments" in the form of low-priced sales of C b eet as a "claim" within its terms of reference.   
69. Thailand further submits that, in any event, in claiming that export subsidies were granted in 
excess of the quantity commitments under Articles 3.3 and 8 of the  Agreement on Agriculture ,  
Thailand was under no obligation to refer to the term  "payments".  Instead, it was required "to claim 
only that the export subsidies were granted in  excess of the EC's quantity commitments under 
Articles 3.3 and 8 of the Agreement on Agriculture".
135  Thailand submits that, in the light of the 
burden of proof rule set out in Article 10.3 of the  Agreement on Agriculture , its panel request 
articulated sufficiently the claims it was requi red to make under Articles 3.3 and 8 of the  Agreement 
on Agriculture .  
70. Thailand recalls the European Communities' alle gation that "the Panel misinterpreted the 
notions of claims and argument".136  In this regard, Thailand submits  that "[t]he EC attempts to 
separate the issue of what must be proven in a pr oceeding in which Article 10.3 is invoked and what 
must be claimed in a proceeding in which vi olations of Articles 3. 3 and 8 are alleged."137  Thailand 
relies upon the finding of the Appellate Body in  Korea  – Dairy  to argue that an examination under 
Article 6.2 of the DSU must be conducted on a case-by-case basis, as the requirements of this 
provision "will differ from agreement to ag reement, and provision to provision".138  
2. Footnote 1 to Section II, Part IV of the European Communities' Schedule   
71. Thailand agrees with the Panel's interpretation of Footnote 1.  Thailand points out that the 
issue to be resolved by the Appe llate Body is whether Footnote 1 ope rates to "enlarge or otherwise 
modify"139 the European Communities' export subsidy co mmitment levels.  Regarding the issue of 
whether Footnote 1 includes a budgetary outlay commi tment, Thailand submits that the European 
Communities' position is not clear, given that, in its  appellant's submission, it does not contest the 
Panel's finding on this matter.  Therefore, Tha iland assumes that the European Communities no longer 
holds the position that Footnote 1 expresses a budgetary outlay commitment level.   
                                                      
135Thailand's appellee's submission, para. 126. 
136Ibid., para. 132. 
137Ibid., para. 134. 
138Ibid., para. 135 (referring to Appellate Body Report, Korea –Dairy , para. 123). 
139Ibid., para. 23 (referring to Panel Reports, para. 7.191).  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 27 
  
72. Thailand submits that the Appellate Body should  reject the European Communities' allegation 
that Footnote 1 operates as a "second component" of  the European Communities' Schedule.  Instead, 
according to Thailand, the second sentence of Footnot e 1 "merely contains a factual statement" and 
not a limitation as argued by the European Communities.
140  Thailand argues that, "[i]f the EC had 
intended to set out in [Footnote 1] one component  of a binding reduction commitment, it would not 
have used merely descriptive language."141  Thailand opines that the interpretation proposed by the 
European Communities would result in "the imputation into a treaty of words that are not there", in 
violation of the Appellate Body's finding in  India – Patents (US) .142  Thailand alleges that "the EC 
asks the Appellate Body to substitute the phrase ' making  a reduction commitment' for the phrase  
'not making  any reduction commitment.'"143  According to Thailand, the European Communities 
further asks the Appellate Body to read the phrase "the average of exports in the period 1986-1990 
amounted to 1.6 million t" to mean that "[t]he EC  commits not to subsidise more than 1.6 million 
tonnes of sugar of ACP/India equivalent sugar per year".144  
73. With respect to the European Communities' cha llenge to the Panel's decision to rely on the 
notifications to the WTO Committee on Agricultu re, Thailand submits that these objections are 
"without any practical consequence".145  Thailand emphasizes that the European Communities did not 
notify the export subsidies provided to ACP/India equivalent sugar to the WTO Committee on 
Agriculture and  did not explain clearly its reas ons for failing to report those subsidies.   
74. Thailand supports the Panel's reliance on the pr inciple articulated by the GATT panel in  
US – Sugar  to conclude that "a Member's schedule 'cannot provide for non-compliance with the 
provisions of the Agreement on Agriculture'."146  Thailand asserts that, contrary to the European 
Communities' contentions, the Appellate Body in  EC  –  Bananas III  has already ruled that the 
principle applied in  US – Sugar  is valid for "concessions" as well as for "commitments".147  
                                                      
140Thailand's appellee's submission, para. 32. 
141Ibid. 
142Ibid., paras. 36-37 (quoting Appellate Body Report, India – Patents (US) , para. 45). 
143Ibid., para. 37. (original emphasis) 
144Ibid. 
145Ibid., para. 42. 
146Ibid., para. 57 (quoting Panel Reports, para. 7.161). 
147Ibid., para. 61. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 28 
  
Therefore, Thailand requests the Appellate Body to "r eject the EC's attempt to put into question this 
well-established principle of WTO law".
148 
75. Furthermore, Thailand disagrees with the Eur opean Communities' assertion that Article 8 of 
the Agreement on Agriculture  does not oblige Members to comply with the provisions of the 
Agreement on Agriculture  in addition to their reduction commitments.  Thailand requests the 
Appellate Body to dismiss the European Comm unities' argument that Article 8 of the  Agreement on 
Agriculture  does not express a "hierarchy" between the  Agreement on Agriculture and WTO 
Members' Schedules.149  Thailand states that the European Communities' position is that, "in certain 
circumstances, such as the present, it is possible to comply with the Agreement on Agriculture  or  the 
schedule."150  In Thailand's view, "[t]his amounts to subs tituting the negotiated term 'and' [in Article 8 
of the  Agreement on Agriculture ] with the word 'or' and is, conse quently, a clear departure from the 
text."151 
3. Payments under Article 9.1(c) of the Agreement on Agriculture  
(a) Payments in the Form of Below-cost Sales of C Beet 
76. Thailand submits that, if the Appe llate Body were to conclude that C sugar exports involve a 
subsidy within the meaning of Article 9.1(c), it would no longer need to examine whether those 
exports are also subsidized through payments in th e form of below-cost C beet sales.  Subsidiarily, 
Thailand argues that the Panel correctly found that below-cost sales of C beet were "financed by 
virtue of governmental action" within the meaning of Article 9.1(c) of the  Agreement on Agriculture .  
According to Thailand, most, if not all, of the objections raised by the European Communities fall 
outside the scope of appellate review, as they relate  to factual matters and to the Panel's discretion to 
weigh and assess evidence.  However, Thailand argues, the Appellate Body has "consistently 
expressed reluctance"152 to review the weighing and assessing of evidence by panels, and it should not 
"depart[] from this line of reasoning".153  Thailand also notes that the European Communities, in 
attempting to demonstrate that profits on A and B b eet are insufficient to cover the fixed costs of 
C beet, is introducing new factual evidence th at had not been provided to the Panel. 
                                                      
148Thailand's appellee's submission, para. 61. 
149Ibid., para. 63 (citing European Communities' appellant's submission, para. 165). 
150Ibid., para. 63. (original emphasis) 
151Ibid.  
152Ibid., para. 148.   
153Ibid., para. 150.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 29 
  
77. Should the Appellate Body find the European Comm unities' appeal to be within the scope of 
appellate review, Thailand argues that the Panel app lied the correct legal standard as clarified by the 
Appellate Body.  In the alternative, Thailand requ ests the Appellate Body to complete the Panel's 
legal analysis on the basis of the factual findings of the Panel, but, in doing so, should not consider the 
facts that the European Communities "is attempting to bring up for the first time".
154 
78. According to Thailand, in concluding that th ere was a "demonstrable link" and "clear nexus" 
between elements of the EC sugar regime and the below-cost sales of C beet, the Panel correctly weighed and assessed the evidence before it.  The European Communities' assertion that the 
governmental action in the European Communities'  beet market is less pervasive than in  Canada – 
Dairy   is "irrelevant and, in any case, inaccurate".
155  Thailand also rejects the European Communities' 
assertion that, because of other factors (such as yield variability, the productio n of alternative crops, 
or the differences in the nature of fixed costs be tween dairy and beet farming), the requisite nexus 
between governmental action and below-cost sales of C beet is not present in this dispute.  Thailand 
notes that the European Communities has provided no evidence to support its propositions in this 
regard. 
(b) Payments in the Form of "Cross-subsidization"  
79. Thailand requests the Appellate Body to uphold the Panel's conclusion that the European 
Communities failed to demonstrate that it was not pr oviding export subsidies on C sugar in the form 
of "cross-subsidization".  In Thailand's view, th e European Communities' argument that the "cross-
subsidization" identified by the Panel constitut es merely an "internal allocation of each sugar 
producer's own resources"156 and a "notional payment"157, "attempts to turn an issue of vocabulary 
into an issue of substance".158  The "internal" transfer of resources in the form of profits on A and 
B sugar identified as "payments" by the Panel is the "counterpart" of the "external" transfer of 
resources in the form of the below-cost sale to the external customer identified as a "payment" by the 
Complaining Parties.159 
                                                      
154Thailand's appellee's submission, para. 158.  
155Ibid., heading C.3(c)(ii).  
156Ibid., para. 68 (referring to European Communities' appellant's submission, para. 179).  
157Ibid. (referring to European Communities' appellant's submission, para. 199).  
158Ibid., para. 69. 
159Ibid. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 30 
  
80. Thailand submits that the term "payments" under Article 9.1(c) requires, in the present case, a 
comparison of the average cost of production of s ugar in the European Comm unities with the average 
return on export sales of C sugar.  According to uncontested evidence before  the Panel, European 
Communities' sugar producers sell C sugar at prices fa r below that sugar's total cost of production.  
Thailand also rejects the European Communities' argume nt that Article 9.1(c) is limited to "payments" 
conferring benefits on domestic producers.  If this were so, the scope of Article 9.1(c) would be 
limited to agricultural products that farmers sell to domestic processors before their disposal on the 
export market.  According to Thailand, "[t]he 'pay ments' need not confer a benefit upon a recipient 
located within the EC".
160 
81. Thailand also agrees with the Panel that the payments made on the export of C sugar are 
"financed by virtue of governmental action".  Th e Panel correctly found that European Communities' 
sugar producers are able to recover most, or all, of their fixed costs by producing and selling quota 
sugar in the protected domestic market or with e xport refunds in the world market.  The beneficiaries 
of sugar production quotas are protected from al l potential sources of competition from foreign 
suppliers or new domestic suppliers  and sell sugar at high intervention prices set by law that yield 
high returns.  Another reason why sugar producers fi nd it profitable to produce and export C sugar is 
because they attempt to ensure th e full utilization and preservation of their allotted quotas of A and B 
sugar.  As a result, the EC sugar regime "enc ourages overproduction of sugar, segregates the export 
market for C sugar completely from the domestic mark et, generates the profits used to fund the export 
of that sugar, and imposes sanctions for failure to export that sugar."161 
82. Furthermore, Thailand maintains that payments  made by C sugar producers are made "on the 
export" of that sugar within the meaning of Article  9.1(c).  A payment can be regarded as a payment 
"on the export" only if a WTO Member causes it to  be a payment on the export.  Thailand endorses 
the findings of the Panel that, under the EC suga r regime, C sugar must be exported.  Finally, 
Thailand rejects the European Communities' argume nts that the Panel's findings would require WTO 
Members to dismantle their price-support systems or to prevent dumping by private parties. 
4. Nullification or Impairment  
83. With reference to the European  Communities' claim on nullification or impairment, Thailand 
submits that the European Communities is advanc ing "a novel legal theory, according to which a 
WTO-inconsistent measure does not nullify or impa ir benefits accruing under a covered agreement if 
                                                      
160Thailand's appellee's submission, heading II.B.2(d). 
161Ibid., para. 99.    WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 31 
  
it could be anticipated."
162  Thailand contends that the "most fundamental benefit" accruing to a WTO 
Member under the provisions of the covered agreemen ts is "the benefit of their observation in good 
faith by the other Members", and that "[t]his be nefit accrues to Members independently of the 
existence of legitimate expectations of improved conditions of competition."163  Hence, in Thailand's 
view, the Panel correctly relied on the Appellate Body's finding in  India – Patents (US)   to conclude 
that the principle of "legitimate expectations" cannot be used to rebut the existence of nullification or 
impairment.  Thailand argues that the Panel was correct in finding that the European Communities 
failed to meet its burden of proof under Article 3.8 of the DSU in this regard. 
5. Article 3.10 of the DSU and the Principle of Good Faith  
84. Thailand affirms that the Panel correctly found that the Complaining Parties did not act 
inconsistently with Article 3.10 of the DSU and th e principle of good faith.  Thailand agrees with the 
Panel's conclusion that, in the absence of bad faith , Article 3.7 of the DSU does not authorize panels 
to question a WTO Member's decision to initiate  dispute settlement proceedings.  In Thailand's 
opinion, the Appellate Body should reject the Eu ropean Communities' allegation that the Panel 
"misconceived the relationship between Articles 3.7 and 3.10 of the DSU".164  In this respect, 
Thailand submits that "[t]he Panel could not have looked at the question of whether the complainants 
had initiated dispute settlement proceedings in good faith, without referring to Article 3.7 of the 
DSU."165  Thailand also urges the Appellate Body to  dismiss the European Communities' assertion 
that the Panel failed to act in accordan ce with Article 7.2 of the DSU.   
85. Thailand requests the Appellate Body to reject the European Communities' arguments 
regarding the principle of estoppel.   Thailand alle ges that "[t]he logical extension of the EC's 
argument is that in this case, there are two categories of rights that can be enforced:  those owed to the 
original Members, and those owed to new Members."166  Thailand states that the Panel was correct in 
concluding that "[the principle of] estoppel is not me ntioned in the WTO Agreement, or the DSU, and 
that it has never been applied by any panel or the Appellate Body."167  In relation to the European 
Communities' statement that estoppel may be based on silence, Thailand responds that "[i]n the 
                                                      
162Thailand's appellee's submission, para. 198. 
163Ibid., para. 203.  
164Ibid., para. 172 (quoting European Communities' appellant's submission, heading VIII.C.2). 
165Ibid., para. 172. 
166Ibid., para. 183. 
167Ibid., para. 186 (referring to Panel Reports, para. 7.63). WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 32 
  
context of estoppel, silence can only amount to re presentation in 'exceptional circumstances' and 
where there is a duty or obligation to object ."
168 
E. Claims of Error by Australia – Appellant 
86. Australia appeals the Panel's decision to dec line examination of Australia's claims under 
Articles 3.1(a) and 3.2 of the SCM Agreement , and the Panel's conseque nt failure to make a 
recommendation in accordance with Article 4.7 of that Agreement. 
87. Australia submits, first, that the Panel' s decision, that the findings under the  Agreement on 
Agriculture  should be sufficient to fully resolve the matter at issue, is based on a misinterpretation of 
"what needs to be done" to bring a prohibite d export subsidy into conformity with the SCM 
Agreement .169  Furthermore, it is an incorrect applicati on of the principle of judicial economy as set 
forth in  Australia – Salmon .170  Australia emphasizes that a recommendation under Article 4.7 of the  
SCM Agreement  would have entitled Australia to take countermeasures under Article 4.10, and 
would have precluded the need for recourse to the procedures of Article 21 of the DSU in order to 
establish a reasonable implementation period.  Austra lia adds that a finding that, under Article 3.2 of 
the  SCM Agreement , the European Communities is granting and maintaining prohibited subsidies, 
would have led to a recommendation that subsidi es in excess of reduction commitments under the 
Agreement on Agriculture  be withdrawn within a specified time period.   
88. Secondly, with regard to the question whether the Panel was entitled to make a 
recommendation to withdraw the measure and to specify a time period in accordance with the 
provisions of Article 4.7 of the  SCM Agreement  in the circumstances before it 171, Australia submits 
that, having found Australia's claims under the  SCM Agreement to be within its terms of reference , 
the Panel should have addressed those  claims in accordance with Article 7.2 of the  DSU  and applied 
the special and additional rules and procedures of the  SCM  Agreement  to its findings and 
recommendations. 
                                                      
168Thailand's appellee's submission, para. 191 (referring to International Court of Justice, Temple of 
Preah Vihear Case , 1962, ICJ Reports, p. 62;  and Panel Report, Guatemala – Cement II , footnote 79 to 
para. 4.120). (emphasis added by Thailand) 
169Australia's other appellant's submission, para. 21. 
170Ibid., paras. 16-26 (referring to Appellate Body Report, Australia – Salmon , para. 226). 
171According to Australia, the Panel gave inappropriate weight to the finding of the panel in Canada – 
Dairy  (Article 21.5 – New Zealand and US)  that "[t]here is some issue as to whether this Panel is entitled to 
make such a recommendation and to specify such a time period in the circumstances before it". (Australia's 
other appellant's submission, para. 27 (quoting Panel Reports, para. 7.384, in turn citing Panel Report, Canada – 
Dairy (Article 21.5 – New Zealand and US) , para. 6.99))    WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 33 
  
89. Thirdly, Australia asserts that the Pa nel mischaracterized its rights under the  SCM Agreement  
as being limited to obtaining more rapid compliance.
172  Indeed, the Panel's erroneous exercise of 
judicial economy deprives and diminishes Australia's rights under the  SCM Agreement  and under 
various provisions of the DSU.173  Australia further disagrees with the Panel's statement that Australia 
did not present its claims under Article 3 of the  SCM Agreement  as unambiguously as it presented its 
claims under the  Agreement on Agriculture .174  Australia points out that the European Communities 
did not assert or seek a ruling that Australia's claims under the  SCM Agreement  were not sufficiently 
clear or unambiguous.   
90. Australia requests the Appellate Body to complete  the legal analysis on the basis of factual 
findings by the Panel and the undisputed facts on th e Panel record, and rule on Australia's claims 
under Articles 3.1(a) and 3.2 of the SCM Agreement .  In addition, Australia requests the Appellate 
Body to make the recommendation provided for in Article 4.7 of the  SCM Agreement .  
91. For the Appellate Body to complete the anal ysis, Australia argues that the export refund 
payments paid by the European Communities with r espect to exports of ACP/India equivalent sugar 
constitute direct export subsidies within the meaning of item (a) of the Illustrative List  of Export 
Subsidies in the   SCM Agreement  (the "Illustrative List") and  therefore come within the definitional 
scope of Article 3.1(a) of that Agreement.  Austra lia adds that the factual findings made by the Panel 
in regard to Article 9.1(a) of the  Agreement on  Agriculture  can be used to support a finding that the 
European Communities is also providing export subs idies within the meaning of item (a) of the 
Illustrative List. 
92. Australia further argues that the EC sugar regime 's different treatment of sugar beet destined 
for the production of A and B sugar, as compared w ith beet used to produce C sugar, constitutes an 
export subsidy under item (d) of the Illustrative List th at is prohibited by Articles 3.1(a) and 3.2 of the 
SCM Agreement .  In the alternative, Australia argues that  the EC sugar regime provides a subsidy to 
C sugar within the meaning of Article 1.1 of the  SCM Agreement , as income or price support to 
C sugar, and that a benefit is thereby conferred within the meaning of Article 1.1(b) of the  SCM 
Agreement .   
                                                      
172Australia's other appellant's submission, paras. 44-47;   Panel Reports, para. 7.384. 
173Australia's other appellant's submission, paras. 48-51 (referring to Articles 3.2, 3.4, 3.7, 11, and 19.2 
of the DSU). 
174Ibid., paras. 52-66 (referring to Panel Reports, para. 7.386).  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 34 
  
F. Claims of Error by Brazil – Appellant 
93. Brazil requests the Appellate Body to find that  the Panel erred in finding that it was not 
necessary to examine the Complaining Parties' claims that "the EC's support for A, B and C sugar, and 
for ACP/India equivalent sugar, involves prohibite d export subsidies under Articles 3.1(a) and 3.2 of 
the  SCM Agreement ".
175  Should the Appellate Body agree that the Panel erred in exercising judicial 
economy, Brazil requests the Appellate Body to comp lete the legal analysis "to determine that the 
EC's support for A, B and C sugar, and for ACP/I ndia equivalent sugar, involves export subsidies 
within the meaning of Articles 3.1(a) and 3.2 of the  SCM Agreement ".176  If the Appellate Body finds 
this to be the case, Brazil requests the Appellate B ody to recommend that the prohibited subsidies be 
withdrawn within a specified time period, as required by Article 4.7 of the  SCM Agreement .   
94. In Brazil's view, panels must decide whether to  exercise judicial economy in the light of the 
particular implementation obligatio ns that would apply if a claim were upheld.  Brazil notes that in 
previous disputes, where the Appellate Body has examined the exercise of judicial economy, the 
relevant implementation obligations were those in Article 19.1 of the DSU.  Brazil agrees with the 
Panel that, in those previous rulings, the Appellate Body sought to ensure that a panel's findings are 
sufficiently complete "as to what  needs to be done, rather than on when  it needs to be done".177  The 
reason is that, under Article 19.1 of the DSU, panels  are required to recommend only what needs to be 
done "to bring the measure into conformity".   
95. Brazil emphasizes that the situation is different  where a panel upholds a claim under Article 3 
of the  SCM Agreement .  Under that provision, a panel is required to specify the time  period within 
which the measure must be withdrawn.  Thus, wh en implementation occurs under Article 4.7, the 
recommendations and rulings of the DSB "are concerned with  both what   needs to be done ... and  
most importantly  when   it needs to be done".178   
96. Brazil further contends that the Panel diminish ed Brazil's rights under the covered agreements 
by depriving Brazil of its right to have the dispute resolved in terms of the implementation obligations 
in Article 4.7 of the SCM Agreement  and of its right to seek countermeasures, in appropriate 
circumstances, under Article 4.10 of the  SCM Agreement .  
                                                      
175Brazil's other appellant's submission, para. 11. 
176Ibid. 
177Ibid., paras. 4 and 25 (quoting Panel Reports, para. 7.384). (emphasis added by the Panel) 
178Ibid., para. 33. (original emphasis)  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 35 
  
97. With respect to its request for the Appellate Body to complete the legal analysis, Brazil 
submits that export refund payments for A and B quota sugar and ACP/Indi a equivalent sugar  
involve a direct transfer of funds "to firms, to the exporting industry and to producers of sugar",  
and, therefore, constitute "financial contributions" by a government, within the meaning of 
Article 1.1(a)(1)(i) of the  SCM Agreement .
179  According to Brazil, these export refunds confer a 
"benefit" and "are contingent in law upon export".180 
98. Brazil further submits that the production of C sugar involves a "financial contribution" under 
Article 1.1(a)(1) and "income or price support" w ithin the meaning of Article 1.1(a)(2) of the  SCM 
Agreement .  Brazil asserts that the financial contribu tion and the income or price support confer 
"benefits" through the provision of additional cro ss-subsidized resources and through an income and 
price-support mechanism that maximizes producers' re venues.  According to Brazil, this subsidy is 
"contingent upon export performance" because C suga r cannot be sold domestically and "must be 
exported".181 
99. Finally, Brazil submits that the EC sugar regi me mandates a minimum price for A and B beet 
that is inevitably higher than the price for C beet, for which there is no mandated price.  The EC sugar 
regime, therefore, mandates higher prices for beet th at is used to produce domestic sugar than it does 
for C beet used to produce sugar that must be expor ted.  Thus, in terms of item (d) of the Illustrative 
List, sugar producers do not have alte rnative sources of beet available at prices that are as favourable 
as those for C beet.  The provision of C beet for production and export of C sugar is, therefore, inconsistent with item (d) of the Illustrative List.  
G. Claims of Error by Thailand – Appellant 
100. Thailand submits that the Panel erred in its exercise of judicial economy with respect to 
Thailand's claims under the  SCM Agreement .  Should the Appellate Body agree, Thailand requests 
the Appellate Body to complete the legal analysis of Thailand's claims under the  SCM Agreement   
and recommend the European Communities to withdr aw the export subsidies granted in excess of its 
export subsidy reduction commitments within a specifi ed time period, as required by Article 4.7 of the  
SCM Agreement .   
                                                     
 
179Brazil's other appellant's submission, para. 56. 
180Ibid. (citing Appellate Body Report, Canada – Aircraft , para. 157). 
181Ibid., para. 9. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 36 
  
101. Thailand submits that the Panel' s exercise of judicial economy deprived Thailand of its rights 
under Article 4.7 of the  SCM Agreement .  Referring to its status as a developing country, Thailand 
submits that a recommendation under Article 4.7 of the  SCM Agreement  would preclude the need for 
recourse to a "costly arbitration procedure" unde r Article 21 of the DSU in order to establish a 
reasonable implementation period.
182  Moreover, Thailand submits that, by not making the findings 
necessary to enable the DSB to discharge its responsibilities under Article 4.7 of the  SCM Agreement,  
the Panel acted inconsistently with Article 11 of  the DSU, which requires panels to make such 
findings "as will assist the DSB in making the recommendations provided for in the covered 
agreements".  According to Thailand, the Pane l declined to address Thailand's claims brought  
under the  SCM  Agreement  based on a distinction between substantive and procedural rights and 
obligations.  However, Thailand submits that Article 11 of the DSU does not recognize such a 
distinction.    
102. Thailand requests the Appellate Body to comple te the legal analysis and rule on Thailand's 
claims under Articles 3.1(a) and 3.2 of the  SCM Agreement .  Thailand affirms that, in the present 
case, there are sufficient undisputed facts and factua l findings on record to enable the Appellate Body 
to complete the legal analysis.183 
103. With respect to quota sugar and ACP/India e quivalent sugar, Thailand points out that the 
European Communities did not contest before the Pa nel that it grants export refunds within the 
meaning of Article 9.1(a) of the  Agreement on Agriculture .184  Thailand submits that these subsidies 
are provided directly by the government to the sugar industry and that they ar e contingent upon export 
performance.  Therefore, in Thailand's view, they  are covered by item (a) of the Illustrative List  and 
are, therefore, inconsistent with Articles 3.1(a) and 3.2 of the  SCM Agreement . 
104. With regard to C sugar,  Thailand contends th at the export subsidies granted by the European 
Communities are export subsidies within the meaning of item (d) of the Illustrative List.  Thailand 
submits that the relevant question is not whether the European Communities "mandates" beet farmers 
to provide C beet to sugar producers, rather, as Th ailand sees it, the question is whether the European 
Communities "mandates" beet farmers to provide C beet "on terms or conditions more favourable 
                                                      
182Thailand's other appellant's submission, para. 15. 
183Ibid., paras. 52-53. 
184Ibid., para. 59 (citing Panel Reports, para. 7.235).  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 37 
  
than for the provision of like or directly competitiv e products".  Thailand refers to the findings of the 
panel in  Canada− Dairy (Article 21.5 − New Zealand and US II) , in support of its position.
185   
H. Arguments of the European Communities – Appellee 
105. The European Communities requests the Appellate  Body to uphold the Panel's decision to 
exercise judicial economy with respect to th e Complaining Parties' claims under the  SCM Agreement .   
106. Referring to the report of the Appellate Body in  Canada – Wheat Exports and Grain Imports , 
the European Communities asserts that "judicial economy does not concern the manner in which a 
panel's decision to exercise its discretion affects eventual implementation, but rather whether the 
findings in question are sufficient to resolve a dispute  as to the consistency of a measure with the 
covered agreements ."186  Thus, according to the European Comm unities, it is "a panel's findings of 
consistency which 'resolve a dispute'".187  Findings and recommendations under Articles 3 and 4 of 
the  SCM Agreement  were therefore not necessary in this case. 
107. The European Communities asserts "subsidiarily" 188 that, even assuming that the Panel erred 
in exercising judicial economy, the Appellate Body should find that the export subsidy provisions of 
the SCM Agreement  are not applicable to export subsidies maintained under the Agreement on 
Agriculture .  The European Communities emphasizes that  a recommendation to "withdraw" a subsidy 
cannot be "reconciled" with the right to grant an export subsidy under the Agreement on 
Agriculture .189  The European Communities adds that  the phrase "except as provided in the 
Agreement on Agriculture" in Article 3.1 of the  SCM Agreement  means that "all export subsidies 
granted in respect of agricultural products, irresp ective of whether they are consistent with the 
Agreement on Agriculture, are not to be considered prohibited by Article 3.1".190   Quoting the 
Appellate Body Report in  EC – Bananas  III 191, the European Communities submits that, "[i]t is  
quite clear that the  Agreement on Agriculture   has very specific provisions dealing with  
export subsidisation, and that this is th e 'same matter' as dealt with in the  SCM Agreement ."192  
                                                      
185Thailand's other appellant's submission, paras. 69-70. 
186European Communities' appellee's subm ission, para. 15. (emphasis added) 
187Ibid., para. 14.  
188Ibid., heading II.C.4. 
189Ibid., para. 51.  
190Ibid., para. 64. 
191See  ibid., para. 69 (quoting Appellate Body Report, EC – Bananas III , para. 155).   
192Ibid., para. 70.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 38 
  
Consequently, the  SCM Agreement  should not be applied in this case.  The European Communities 
finds further support for its view in Article 21.1 of the  Agreement on Agriculture .  In addition, 
according to the European Communities, applying the mo re stringent procedural and remedial rules of 
Article 4 of the SCM Agreement  to subsidies maintained under the Agreement on Agriculture  would 
nullify the perception that the  Agreement on Agriculture  has only initiated the process of reform of 
subsidies in the agricultural sector.   
108. In any event, according to the European Commun ities, in the circumstances of this dispute, 
the Appellate Body would not be in a position to co mplete the legal analysis on the claims raised 
under the  SCM Agreement .  This is because the Panel did not make sufficient factual findings to 
enable the Appellate Body to do so and, even assumi ng that it did, the different rules on the burden of 
proof in the  SCM Agreement  and in the  Agreement on Agriculture   would mean that the Appellate 
Body would have to reassess the evidence that was be fore the Panel in order to determine whether the 
Panel would have reached the same  factual finding had the burden of proof been on the Complaining 
Parties.   
109. Turning to the Complaining Parties' claims under the SCM Agreement , the European 
Communities contends that the Complaining Parti es' panel requests did not properly identify the 
claims based on item (d) of the Illust rative List, and that such claims are, therefore, outside the Panel's 
terms of reference.  In any event, the EC sugar regime does not "mandate" the provision of C beet to 
sugar producers or the terms on which C beet is sold  to them.  Instead, "[t]he prices for C beet  
are freely agreed between the growers and the sugar producers."
193  In addition, the European 
Communities submits that "the EC price cannot be neither  more  nor  less  favourable than the world 
market price, for the simple reason that no such comparison between prices is possible"194 because 
there is no world market for beet.   
110. The European Communities also su bmits that Brazil and Australia did not claim or establish, 
respectively, a  prima facie  case before the Panel that the EC sugar regime provides C sugar 
contingent upon exports with subsidies in the form of income or price support.  Minimum prices for A 
and B beet do not confer a benefit on sugar produ cers.  Furthermore, according to the European 
Communities, the alleged "cross-subsidization" to C s ugar is not a "financial contribution", within the 
                                                      
193European Communities' appellee's submission, para . 92 (referring to the European Communities' 
response to Question 31 posed by the Panel). 
194Ibid., para. 105. (original emphasis)  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 39 
  
meaning of Article 1.1(a)(1) of the  SCM Agreement , and export refunds on A and B sugar do not 
confer a benefit on C sugar. 
I. Arguments of the Third Participants 
1. ACP Countries
195 
111. The ACP Countries disagree with the Panel's finding that Footnote 1 is of no legal effect.  
According to the ACP Countries, the Panel failed to c onsider the context of Footnote 1 in finding that 
Footnote 1 does not provide for any commitme nts for "equivalent" amounts of sugar from ACP 
countries and India.  The ACP Countries submit that the Panel should have considered the 
relationship between Footnote 1 and the Sugar Pr otocol, and protected the rights and legitimate 
expectations of the ACP Countries by interpre ting Footnote 1 as having legal effect.  The ACP 
Countries further emphasize the adverse economic c onsequences that could arise from the Panel's 
findings with regard to Footnote 1 and C sugar. 
112. The ACP Countries further argue that, had the Panel correctly reviewed the provisions of the 
Agreement on Agriculture  relating to the granting of export subsidies, it would have found that 
Articles 3.3 and 8 are framed around what is actually  specified in Members' Schedules in terms of 
quantity or budgetary outlay commitments limiting s ubsidization in the sense of Article 3.1 of  
the Agreement on Agriculture .  Article 9.2(a) of the Agreement on Agriculture , which provides 
interpretative context for Articles 3.1 and 3.3,  defines the obligation involved in reduction 
commitments as a "ceiling", and not as the level to which export subsidies must be reduced.196   
113. With respect to the resolution of a possible conflict between scheduled commitments on the 
one hand, and obligations under the  Agreement on Agriculture  on the other, the ACP Countries 
submit that Article 8 of the Agreement on Agriculture  gives equal weight to both the rules and the 
specific scheduled commitments.  The ACP Countries argue that the principle articulated by the 
GATT panel in  US – Sugar  applies where a Member, through a condition in its  Schedule, contradicts 
its pre-existing substantive obliga tions under other covered agreements , or purports to exclude the 
application of the substantive obligations contained in the  Agreement on Agriculture .  In such cases, 
                                                      
195The third participant ACP countries in this appeal ar e:  Barbados, Belize, Côte d'Ivoire, Fiji, Guyana, 
Jamaica, Kenya, Madagascar, Malawi, Mauritius, St. Kitts & Nevis, Swaziland, Tanzania, and Trinidad & 
Tobago. 
196ACP Countries' third participant's submission, para. 29. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 40 
  
giving effect to the scheduled conditions may have major systemic implications.  This needs to be 
distinguished from the mere effect of a footnote in a scheduled commitment, as in this dispute. 
114. The ACP Countries argue that the Panel's findings with respect to non-quota beet and sugar 
imply that the same source of finance under the EC  sugar regime appears to be responsible for 
concurrently financing—directly and/or indirectly —two sets of payments on the same exports.  It 
would be legally problematic to uphold both these pr opositions, as the Panel has done.  Furthermore, 
in examining whether the required nexus and degree of governmental action in the financing of the 
alleged payments on expor ts exist, the Panel pl aces undue reliance on  Canada – Dairy (Article 21.5 – 
New Zealand and US) , even though there are major differences  between the EC sugar regime and the 
facts that were at issue in that  case.  For example, private entities are key players in the European 
Communities' sugar market and, under the EC sugar regime, it is not governments that pool, allocate, 
and distribute revenues from domestic sales to producers. 
2. Canada
 
115. Canada argues that the Appellate Body s hould reverse the Panel' s interpretation of 
Article 9.1(c) of the  Agreement on Agriculture .  According to Canada, th e Panel failed to consider 
"fully" the relationship between subsidies disciplin es and the "specific rules" set out in the  Agreement 
on Agriculture , and that "Members are faced with an impossible task to distinguish between 
permissible domestic support and the now ex ceptionally broad class of export subsidies".197 
116. In Canada's view, "cross-subsidization" is not ap plicable in an analysis of "payments" within 
the meaning of Article 9.1(c).  There is nothing in  Article 9.1 that suggests that a payment analysis 
should involve "a far-reaching review of possible side-effects of potentially unrelated financial 
transactions".198  To the extent that a cross-subsidization analysis is used, it should be limited to an 
analysis of governmental action. 
117. Canada further submits that the existence of a benefit is "essential"  to a subsidy finding.199  
The Panel erroneously "read[] out" the benefit requirement from subsidies under Article 9.1(c).200  
                                                      
197Canada's third participant's submission, para. 50.  
198Ibid., para. 16.  
199Ibid., heading II.A.2(a)ii.  
200Ibid., para. 17.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 41 
  
However, "benefit" is a "fundamental component of a finding of subsidization", whether or not that 
finding occurs in an agricultural or industrial context.
201 
118. Canada also objects to the Panel's interpretati on of the term "on the export".  The Panel's 
reliance on Article XI:1 of the GATT 1994 in this context was incorrect, and the Panel failed to 
account for the context of Article 9.1(c).  In addition,  the Panel's factual finding s in respect of C beet 
production and its reliance on those findings demonstrat e that the Panel, in fact, believed that "export 
contingency  must   be required for Article 9.1(c) to apply."202  Canada submits that "contingency" 
suggests that a subsidy must be conditional or depe ndent upon export performance;  it is not sufficient 
to suppose that "a payment was made in me re anticipation that exports could result."203 
119. Finally, Canada submits that there is a "pr essing need to revisit the so-called 'cross-
subsidization' standard".204  Canada argues that it is not clear how Members may distinguish between 
domestic support and export subsidies and that th e Panel has failed to determine the appropriate 
dividing line between these two types of support.   In applying a "broad standard" of cross-
subsidization while "denying" the requirement of  contingency, a panel can find a violation of 
Article 9.1(c) "solely on the basis of unrelated pa yments made through various actors that may or may 
not be acting with governmental direction".205 
3. China  
120. China focuses its comments on the issue of the Pane l's terms of reference.  China recalls that 
the Appellate Body found in  US – Carbon Steel  that Article 6.2 of the DSU requires the complaining 
party to identify the specific measures at issue and to  provide a brief summary of the legal basis of the 
complaint sufficient to present the problem clearly.  Referring to the Appellate Body Report in  Korea 
– Dairy , China submits that a "claim" is an assertion th at the respondent party has violated, nullified, 
or impaired the benefits arising from an identified treaty provision.206  "Arguments", in contrast, are 
adduced by a complaining party to demonstrate that  the responding party's measure is indeed in 
breach of an identified treaty provision.   China adds that the panel in  Japan – Film  spelt out that the 
                                                      
201Canada's third participant's submission, para. 21.   
202Ibid., para. 34. (original emphasis) 
203Ibid., para. 36 (referring to Appellate Body Report, Canada – Aircraft , para. 172;  and Appellate 
Body Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 48).     
204Ibid., heading II.B. 
205Ibid., para. 47.    
206China's third participant's submission, para . 16 (referring to Appellate Body Report, Korea – Dairy , 
para. 139). WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 42 
  
sufficiency of a panel request depends on whether the ability of the respondent to defend itself was 
prejudiced.
207 
4. New Zealand  
121. New Zealand agrees with the Panel's finding that  C sugar receives export subsidies within the 
meaning of Article 9.1(c) of the Agreement on Agriculture .  New Zealand submits that the 
inconsistency with Article 9.1(c) of the Agreement on Agriculture  resides in the governmental 
requirement to export C sugar, not in the fact th at exports are conducted at prices below cost of 
production.  Therefore, New Zealand argues that the Appellate Body should dismiss the European 
Communities' characterization of the Panel's interpretation of Article 9.1(c) of the  Agreement on 
Agriculture  as being "a 'broad prohibition' on exports below cost of production".208  The European 
Communities' contention that the Panel's ruling convert s a payment under Article 9.1(c) into a "blunt 
anti-dumping mechanism" is also without foundation.   Dumping reflects the choice on the part of an 
individual exporter to sell at below its cost of pr oduction.  However, in the present case, governmental 
action creates strong incentives for surplus production  and requires export of this surplus production. 
122. New Zealand contends that the Panel correctly concluded that there was a "payment" within 
the meaning of Article 9.1(c) of the  Agreement on Agriculture .  Below-cost sales of C beet constitute 
"payments", a finding from which the European Co mmunities does not appeal.  New Zealand also 
asserts that there is a transfer of resources to the production and export of C sugar, and that "revenue 
is foregone vis-à-vis the proper value [which constitutes] a 'payment'."209  New Zealand also affirms 
that the Panel correctly concluded that "benefit" is  not a required element under Article 9.1(c) of the  
Agreement on Agriculture . 
123. In New Zealand's view, in ruling that the paym ent was "on the export" within the meaning of 
Article 9.1(c), the Panel correctly placed "gr eat emphasis on the ... legal requirement to export 
C sugar".210  Furthermore, New Zealand submits that the emphasis of Article 9.1(c) is whether the 
actual payment is on the export, not whether the European Communities' price support as a whole is 
contingent on C sugar being exported.   
                                                      
207China's third participant's submission, pa ras. 18-19 (referring to Panel Report, Japan – Film , 
para. 10.8).  
208New Zealand's third participant's submission, para. 3.06 (referring to European Communities' 
appellant's submission, para. 200). 
209Ibid., para. 3.23. 
210Ibid., para. 3.29 (referring to Panel Reports, para. 7.321).   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 43 
  
124. New Zealand furthermore submits that th e Appellate Body should uphold the Panel's 
conclusion that the payments are "financed by virt ue of governmental action" within the meaning of 
Article 9.1(c) of the  Agreement on Agriculture .  The Panel correctly identified a variety of "actions" 
through which the European Communities "regulat es, controls and supervises its domestic sugar 
market in a way that results in the financing of C sugar exports".
211  New Zealand also identifies 
"similarities ... that are striking" between the governmental action in Canada – Dairy   and 
governmental action in the present case.212  In addition, the Panel correctly found that growers and 
sugar producers are encouraged to produce C beet and C sugar in order to ensure that they fill their 
production quotas on A and B sugar.  In New Zeal and's view, in the absence of the European 
Communities' regulation of its sugar regime, "C s ugar would not be produced, payments to export[s] 
of C sugar would not occur, and export sales of C sugar would not occur."213 
5. The United States  
125. With regard to the legal status of Footnote 1,  the United States asserts that the Panel properly 
concluded that, in the event of any conflict between the  Agreement on Agriculture  and Footnote 1, 
the former would prevail.214  The United States also submits that WTO Members may yield rights in 
their Schedules, but they may not diminish their obligations under the GATT.  The United States finds support for its position in the Appellate Body Report in  EC – Bananas III  and the report of the 
GATT panel in  US – Sugar.  
126. The United States submits that Article 21 of the  Agreement on Agriculture  supports the 
proposition that in the event of a conflict between the  Agreement on Agriculture   and the provision of 
a Schedule, the  Agreement on Agriculture  would prevail.
215  The United States maintains that 
"Members explicitly recognized that there may be conflicts between the  Agreement on Agriculture  
and other agreements, including the GATT 1994" and that by agreeing on the terms of Article 21 of 
the  Agreement on Agriculture , "Members ... provided a rule for how to handle any such conflicts."216  
The European Communities' Footnote is part of the GATT 1994 and, therefore, by virtue of 
                                                      
211New Zealand's third participant's submission, para. 3.40.  
212Ibid., para. 3.41. 
213Ibid., para. 3.45.  
214United States' third participant's submission, para. 15. 
215Ibid., para. 16. 
216Ibid. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 44 
  
Article 21, the  Agreement on Agriculture   would prevail over Footnote 1.  The United States also 
draws attention to paragraph 3 of the Marra kesh Protocol to reinforce this point.
217   
127. Regarding the concept of estoppel, the United St ates submits that "[n]owhere in the DSU or 
the other covered agreements is there a reference to 'estoppel'." 218  According to the United States, 
" '[e]stoppel' is not a defense that Members have agre ed on, and it therefore should not be considered 
by the Appellate Body."219   
128. The United States submits that the argumen t advanced by the European Communities 
regarding "lack of good faith" under Article 3.10 of the DSU should be dismissed by the Appellate 
Body.  According to the United States, Article 3. 10 of the DSU "is not a general incorporation of 
'good faith' principles of public international law, whatever the precise contours of those might be".220  
Rather, Article 3.10 sets out an "understanding" of Members to engage in good faith in the dispute 
settlement procedures.221  The United States also submits that "[a] choice by a Member not to 
challenge or complain about another Member's meas ure at any given point in time, including during 
the negotiations of the Uruguay Round, does not precl ude a future challenge.  Nor does such a failure 
to object at one point in time render a later objection in bad faith."222  
 
                                                      
217United States' third participant's submission, para. 17. 
218Ibid., para. 5. 
219Ibid., para. 9. 
220Ibid., para. 6. 
221Ibid. 
222Ibid., para. 8. (footnote omitted)  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 45 
  
III. Issues Raised in This Appeal 
129. The following issues are ra ised in this appeal: 
(a) whether the Panel erred in finding, in para graph 7.37 of the Panel Reports, that the 
alleged "payments", within the meaning of Article 9.1(c) of the  Agreement on 
Agriculture , in the form of low-priced sales of C beet
223 to sugar producers, fell 
within the Panel's terms of reference; 
(b) whether the Panel erred in finding, in para graphs 7.191, 7.198, 7.222, and 8.1(a) of 
the Panel Reports, that Footnote 1 to Section II, Part IV of the European Communities' Schedule ("Footnote 1") is of no legal effect and does not enlarge or 
otherwise modify the European Communities'  commitment levels specified in that 
Schedule;  
(c) whether the Panel erred in finding, in para graph 7.292 of the Panel Reports, that the 
alleged payments in the form of low-pri ced sales of C beet to sugar producers are 
"financed by virtue of governmental action", within the meaning of Article 9.1(c) of 
the  Agreement on Agriculture ; 
(d) whether the Panel erred in finding, in para graph 7.334 of the Panel Reports, that the 
production of C sugar receives a "payment on the export financed by virtue of 
governmental action", within the meaning of Article 9.1(c) of the Agreement on 
Agriculture , in the form of transfers of financial resources through cross-subsidization 
resulting from the operation of the Eu ropean Communities' sugar regime; 
(e) whether, as a result of its findings under (c) and (d) above, the Panel erred in finding, 
in paragraph 8.1(f) of the Panel Reports, that there is  prima facie   evidence that the 
European Communities has been providing e xport subsidies, within the meaning of 
Article 9.1(c) of the  Agreement on Agriculture , to its exports of C sugar since 1995; 
                                                     
 
223The European Communities' sugar regime establishes two categories of production quotas:  one for 
A sugar and one for B sugar.  These quotas constitute the maximum quantities eligible for domestic price 
support and direct export subsidies.  C sugar is simply sugar produced in excess of A and B quotas.  There is no difference in physical characteristics be tween A, B, and C sugar.  Likewise, there is no difference in physical 
characteristics between A, B, and C beet .  C beet is simply beet used for C sugar production.  Unlike for A and 
B beet, there is no minimum guaranteed price for C beet. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 46 
  
(f) whether the Panel erred in finding, in para graphs 7.374 and 8.4 of the Panel Reports, 
that the European Communities' violations of the  Agreement on Agriculture  nullified 
or impaired the benefits accruing to the Complaining Parties under the  Agreement on 
Agriculture ; 
(g) whether the Panel erred in finding, in pa ragraph 7.74 of the Panel Reports, that 
Australia, Brazil, and Thailand (the "Compl aining Parties") acted in good faith, under 
Article 3.10 of the Understanding on Rules and Procedures Governing the Settlement 
of Disputes  (the "DSU"), in the initiation and conduct of the present dispute 
settlement proceedings and have not been est opped, through their actions or silence, 
from alleging that the European Communities'  exports of C sugar are in excess of its 
export subsidy reduction commitments; 
(h) whether the Panel erred, in paragraph 7.387 of the Panel Reports, in exercising 
judicial economy and declining to examin e the Complaining Parties' claims under 
Articles 3.1(a) and 3.2 of the Agreement on Subsidies and Countervailing Measures  
(the " SCM Agreement ");  and 
(i) whether certain aspects of the Eur opean Communities' Notice of Appeal
 224 satisfy the 
requirements of Rule 20(2)(d) of the  Working Procedures for Appellate Review  (the 
"Working Procedures "). 
130. We proceed to analyze these issues in the order set out above. 
 
IV. The Panel's Terms of Reference  
131. The Panel found that production of C sugar r eceives two forms of "payments" within the 
meaning of Article 9.1(c) of the  Agreement on Agriculture :  (i) below total cost of production sales of 
C beet to C sugar producers;  and (ii) transfers of financial resources to C sugar producers through 
cross-subsidization from sales of A and B sugar.225  With respect to its challenge concerning the 
Panel's terms of reference, the European Communitie s' appeal is limited to the Panel's refusal to 
                                                      
224Notification of an Appeal by the European  Communities, WT/DS265/25, WT/DS266/25, 
WT/DS283/6, 13 January 2005 (attached as Annex 5 to this Report). 
225Panel Reports, paras. 7.270 and 7.338.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 47 
  
dismiss, as falling outside its term s of reference, the Complaining Pa rties' allegations that C  sugar 
receives "payments" in the form of low- priced sales of C beet to sugar producers.
226   
A. Panel Findings and Arguments on Appeal 
132. The Panel was established with standard terms of reference 227, specifically: 
To examine, in the light of the relevant provisions of the covered 
agreements cited by Australia in document WT/DS265/21, by Brazil in document WT/DS266/21 and by Thailand in document WT/DS283/2, the matters referred therein to the DSB by Australia, Brazil and Thailand, and to make such findings as will assist the DSB 
in making the recommendations or in giving the rulings provided for 
in those agreements.
228 
 
The documents referred to in the Panel's terms of reference are the Complaining Parties' requests for 
the establishment of a panel.229  
133. Before the Panel, the European Communities argued that the Complaining Parties "should 
have identified, in their panel requests, the  specific measures  of the European Communities' sugar 
regime which, in their view, provided the alle ged export subsidies" within the meaning of 
Article 9.1(c) of the  Agreement on Agriculture .230  According to the European Communities, each 
alleged "payment" should, therefore, have been spec ifically identified by the Complaining Parties in 
their panel requests.231  The European Communities contended be fore the Panel that sales of "C beet 
at prices below the minimum prices for A and B beet " were not identified as a "payment" in the panel 
requests of the Complaining Parties and that, theref ore, this "payment" fell outside the Panel's terms 
of reference.232  Before the Panel, the European Communiti es also argued that Brazil's claim regarding 
the other form of "payment"—namely, "payment" from European Communities ' consumers to sugar 
producers in the form of "artificially high" dom estic prices for A and B sugar—was not properly 
identified in Brazil's panel request.  But, as stated  earlier, the European Communities' appeal with 
respect to the Panel's terms of reference is lim ited to the sales of C beet to sugar producers. 
                                                      
226European Communities' appellant's submission, para . 40 (referring to Panel Reports, paras. 7.18-
7.37). 
227Panel Reports, para. 1.5. 
228Ibid., para. 1.6. 
229WT/DS265/21;  WT/DS266/21;  and WT/DS283/2 (attached as Annexes 1, 2, and 3 to this Report). 
230Panel Reports, para. 7.18. (emphasis added) 
231See  ibid., heading VII.B.1(d). 
232Ibid., paras. 4.12 and 7.20. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 48 
  
134. After reviewing those parts of the Complaining Parties' panel requests that "identified the 
measures at issue and the violations claimed to have occurred"
233, the Panel found that:  
... for Australia and Brazil the m easures are the "subsidies in excess 
of the EC's reduction commitment levels under Council Regulation No. 1260/2001", while for Thailand the measures are the "export subsidies accorded under Counc il Regulation No. 1260/2001" on 
sugar.  The violations claimed by the Complainants are essentially 
the same, that is that the Europ ean Communities is providing export 
subsidies for sugar in excess of its commitment level and consequently the European Communitie s is acting inconsistently with 
its obligations under Articles 3.3, 8, 9.1(a) and 9.1(c) of the Agreement on Agriculture  or, alternatively, Article 10.1 of the 
Agreement on Agriculture .  In the Panel's view, although the 
Complainants drafted their panel requests using slightly different 
terms, each of the complaining parties' panel request has identified 
essentially the same measures  – subsidies accorded under Council 
Regulation 1260/2001 for the EC sugar regime – and the same 
alleged violation – that the European Communities exceeds its 
budgetary outlays and quantity comm itments contrary to Article 3 
and 8 of the Agreement on Agriculture .
234 (emphasis added;  footnote 
omitted) 
 
135. The Panel held that the Complaining Parties have satisfied the requirements of Article 3 of the  
Agreement on Agriculture   with respect to their claims under that provision by alleging, first, that the 
European Communities has exported sugar above its  commitment level, and secondly, that such 
exports of sugar were subsidized.  The Panel also held that the Complaining Parties did not have to 
detail in their panel requests how and why such exports were subsid ized.  Moreover, the Panel noted 
that the Complaining Parties "did indicate some aspe cts of the export subsidization" of sugar in their 
panel requests by referring to Articles 9.1(a) and 9.1(c) of the  Agreement on Agriculture .235 
136. The Panel concluded that the panel requests "com plied with the requirements of Article 6.2 of 
the  DSU  in that they adequately identified the measur es at issue and the violations claimed to have 
occurred, i.e. that the European  Communities' exports of subsidized sugar exceeded the European 
Communities' commitment level contrary to Articles 3 and 8 of the  Agreement on Agriculture ."236  
The Panel stated that, consequently, the Complain ing Parties' "argumentation that C sugar receives 
                                                      
233Panel Reports, para. 7.12. 
234Ibid., para. 7.16. 
235Ibid., para. 7.30. 
236Ibid., para. 7.36.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 49 
  
advantages from various subsidies and payments, within the meaning of Article 9.1(c) of the 
Agreement on Agriculture , is not outside the Panel's terms of reference."
237 
137. On appeal, the European Communities contends that the alleged "payments" in the form of 
low-priced sales of C beet to sugar producer s fell outside the Panel's terms of reference.238  According 
to the European Communities, each of the payments  alleged by the Complaining Parties "constituted a 
different claim", and, as the panel requests made no me ntion of the alleged "payments" in the form of 
sales of C beet at low prices, this claim fell outside the Panel's terms of reference.239  The European 
Communities also argues that the identification of th e measure at issue in the panel requests as "the 
export subsidies granted under [C ouncil] Regulation [(EC) No.] 1260/ 2001 or, even more vaguely, 
under the 'EC sugar regime' " was not sufficient for purposes of complying with the requirement of 
Article 6.2 of the DSU, because that provision requires "not just the identification of a 'measure', but 
of the ' specific measure  at issue'."240  According to the European Co mmunities, the mere reference to 
Council Regulation (EC) No. 1260/2001 ("EC Re gulation 1260/2001") or to the European 
Communities' sugar regime did not put the European Communities on notice that the Complaining Parties intended to challenge, as an export subsidy,  low-priced sales of C beet to sugar producers.
241  
When asked whether the European  Communities considered each alleged payment to be a "specific 
measure at issue", or a "specific claim", the Euro pean Communities clarified during the oral hearing 
that, in its view, each form of payment under Article 9.1(c) of the  Agreement on Agriculture  
constitutes a "specific measure at issu e" within the meaning of Article 6.2 of the DSU.  Therefore, in 
order to comply with Article 6.2, the panel requ ests should have identified separately each form of 
export subsidy alleged by the Complaining Parties.242 
138. In reply, the Complaining Parties argue that their panel requests sufficiently identified the 
"specific measures at issue" and stated the legal b asis of their complaint so as to present the "problem 
clearly", as required by Article 6.2 of the DSU.243  They also refute th e European Communities' 
assertion that their panel requests covered only certa in forms of "payments".  Moreover, Australia 
                                                      
237Panel Reports, para. 7.37. 
238European Communities' appellant's submission, para. 40. 
239Ibid., para. 48.  
240Ibid., paras. 56-57. (original emphasis) 
241Ibid., para. 61. 
242The European Communities added that, to the extent that each payment alleged by the Complaining 
Parties is a specific measure, it may be the subject of  a claim. (European Communities' response to questioning 
at the oral hearing) 
243Australia's appellee's submission, paras. 81 and 86;  Brazil's appellee's submission, para. 21;  
Thailand's appellee's submission, paras. 140-141 and 143. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 50 
  
argues that the European Communities attempts to redefine a "claim" as a "measure".  According to 
Australia, a "claim" is one of inconsistency with th e provisions of a covered agreement.  A "measure" 
is not a "claim", but rather, the basis  for  the "claim".
244   
139. The Complaining Parties also contend that, with  respect to claims under Articles 3 and 8 of 
the  Agreement on Agriculture , a complaining Member is not requ ired to identify each alleged export 
subsidy in its panel request.  Rather, it is suffici ent to allege that the responding Member has exported 
an agricultural product in quantities exceeding its qu antity commitment level and has granted export 
subsidies with respect to such excess quantities.245 
B. Article 6.2 of the DSU 
140. Before addressing the Panel's terms of referenc e and the panel requests in this dispute, we 
consider the requirements of Article 6.2 of the DSU in  general as they relate to the determination of a 
panel's terms of reference. 
141. A panel's terms of reference are determined by the "specific measures at issue" and the "legal 
basis of the complaint" (that is, "claims") stat ed in the complaining Member's request for the 
establishment of a panel.246  Article 6.2 of the DSU provides that a panel request shall: 
... identify the specific measures at issue and provide a brief summary 
of the legal basis of the complain t sufficient to present the problem 
clearly. 
 
142. The Appellate Body observed in  Thailand – H-Beams  that: 
Article 6.2 of the DSU calls for sufficient clarity with respect to the 
legal basis of the complaint, that is, with respect to the "claims" that 
are being asserted by the complaining party .  A defending party is 
entitled to know what case it has to an swer, and what violations have 
been alleged so that it can begin preparing its defence.247 (emphasis 
added;  footnotes omitted) 
 
                                                      
244Australia's appellee's submission, para. 68. 
245Complaining Parties' responses to questioning at the oral hearing;  Thailand's appellee's submission, 
para. 126. 
246Article 7.1 of the DSU. 
247Appellate Body Report, Thailand – H-Beams , para. 88.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 51 
  
143. In  US – Carbon Steel , the Appellate Body explained that: 
The requirements of precision in the request for the establishment of 
a panel flow from the two essential purposes of the terms of reference.  First, the terms of reference define the scope of the dispute.  Secondly, the terms of reference, and the request for the 
establishment of a panel on which they are based, serve the  due 
process   objective of notifying the parties and third parties of the 
nature of a complainant's case.  When  faced with an issue relating to 
the scope of its terms of reference, a panel must scrutinize carefully the request for establishment of a panel "to ensure its compliance with 
both the letter and the spirit of Article 6.2 of the DSU." 
... [C]ompliance with the requireme nts of Article 6.2 must be 
demonstrated on the face of the request for the establishment of a panel.  ... [C]ompliance with the re quirements of Article 6.2 must be 
determined on the merits of each case, having considered the panel request as a whole, and in the light of attendant circumstances. 
248 
(original emphasis;  footnotes omitted) 
 
144. In addition, the Appellate Body clarified in  EC – Bananas III   that Article 6.2 of the DSU 
"requires that the  claims , but not the  arguments , must all be specified sufficiently in the request for 
the establishment of a panel".249   
C. Alleged "Payments" in the Form of Low- priced Sales of C Beet to Sugar Producers 
145. We turn to an examination of the panel requests insofar as they relate to "payments" in the 
form of sales of C beet to sugar producers. 
146. Looking at the panel requests, we note that  Australia stated in its panel request: 
Australia is particularly concerne d at the subsidies provided by the 
EC for "C sugar" exports under th e EC sugar regime.  Under the 
regime, producers of C sugar are able to sell C sugar on the world market at below the total average cost of production through cross-
subsidisation of C sugar from quot a sugar profits.  By financing 
payments on the export of C sugar, the EC exceeds its export subsidy reduction commitments under the WTO Agreement on Agriculture. 
... 
                                                     
 
248Appellate Body Report, US – Carbon Steel , paras. 126-127. 
249Appellate Body Report, EC – Bananas III , para. 143. (original emphasis) WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 52 
  
Australia considers that the provision of the above subsidies and the relevant elements of the EC sugar regime are inconsistent with the 
EC's obligations under the following provisions: 
– Articles 3.3, 8, 9.1(a), 9.1(c), and alternatively, 10.1 of the 
 Agreement on Agriculture[.]
 250 
 
147. Similarly, Brazil stated in its panel request: 
Payments in the form of high prices provided to growers and 
processors by the EC sugar regime  finance the production and export 
of C sugar at prices below its total cost of production.251 
 
Therefore, according to Brazil: 
The amount of sugar thus subsidized, alone or in combination  
with other export subsidies for sugar provided by the EC, exceeds  the export subsidy reduction comm itment levels and, as such, 
constitutes a violation of the EC's ob ligations under Articles 3.3, 8,  
9.1(a) and (c), or, alternatively,  Article 10.1 of the  Agreement on 
Agriculture.
252   
 
148. Finally, Thailand stated in its panel request: 
By virtue of the EC sugar regime, exporters of C-sugar are able to 
export such sugar at prices below the average cost of production.  The EC therefore accords export subs idies to C-sugar in the form of 
payments on the export of sugar fina nced by virtue of governmental 
action. 
... 
As a result, the EC provides export subsidies for sugar in excess  
of its reduction commitments and co nsequently acts inconsistently 
with its obligations under Articles 3.3, 8, 9.1(a) and 9.1(c) ... or, alternatively, Article 10.1 of the Agreement on Agriculture.
253 
 
                                                      
250Request for the Establishment of a Panel by Aust ralia of 9 July 2003, WT/DS265/21 (attached as 
Annex 1 to this Report), p. 2. 
251Request for the Establishment of a Panel by Brazil of 9 July 2003, WT/DS266/21 (attached as 
Annex 2 to this Report), p. 2, item (i). 
252Ibid., p. 2. 
253Request for the Establishment of a Panel by Tha iland of 9 July 2003, WT/DS283/2 (attached as 
Annex 3 to this Report), pp. 1-2.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 53 
  
149. We note, first, as did the Panel, that the pane l requests of all the Complaining Parties have 
clearly identified the "specific measures at issue" as the subsid ies accorded under EC Regulation 
1260/2001 and related instruments (the "EC sugar regime"), and the alleged violations as the 
European Communities' exports of  subsidized  sugar in excess of th e European Communities' 
commitment levels in contraven tion of Articles 3 and 8 of the  Agreement on Agriculture .   
150. Secondly, we note that all three panel requests refer specifically to C sugar and identify as an 
area of concern the subsidized exports of C suga r in excess of the European Communities' reduction 
commitment levels.  Thirdly, we observe that all three panel requests clearly explain, although in 
different terms, that C sugar is being exported at below its total av erage cost of production and that 
this occurs due to the subsidies provided under the EC  sugar regime for C sugar, which subsidies arise 
from the profits made by sugar producers on sales of A and B sugar.  Fourthly, we note that Brazil's panel request specifically refers to payments in  the form of "high prices paid to growers and 
processors by the EC sugar regime", which, in the case of growers, could only mean the high prices 
provided for A and B beet by the EC sugar regime. 
151. Lastly, and more importantly for consideration of the issue at hand, all three panel requests 
specifically allege that the export subsidies provided for C sugar exports violate the obligations of the 
European Communities under Article 9.1(c) of the  Agreement on Agriculture .  The panel requests 
clearly draw attention to the allegation of the Comp laining Parties that the export subsidies in question 
for C sugar exports are in the form of "payments" fa lling within the meaning of Article 9.1(c) of the  
Agreement on Agriculture.  
152. We agree with the European Communities that the panel requests did not specifically identify 
that low-priced sales of C beet by growers to pr oducers was one form of such alleged "payments".  
Nevertheless, we consider that , taken as a whole, the panel requests should have informed the 
European Communities that the Complaining Parties we re alleging in their panel requests that C sugar 
exports below total average cost of production were  being enabled by subsidies in the form of 
"payments" within the meaning of Article 9.1(c) of the Agreement on Agriculture .  C beet being a 
critical input for C sugar production, and C beet not being eligible for a minimum guaranteed price, 
unlike A and B beet, the panel requests should have alerted the European Co mmunities that one form 
of such alleged "payments" could be low-pri ced sales of C beet by growers to producers. 
153. The European Communities argues that the Appellate Body Report in  Canada – Dairy 
(Article 21.5 – New Zealand and US II)  supports its position that a complaining Member must at least 
identify or specify sufficiently in its panel request "all the ' claimed  export subsidies'", although it is WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 54 
  
not necessary that a complaining party make a  prima facie  case that the elements of the claimed 
export subsidy are present.
254  The European Communities conc ludes from the Appellate Body's 
reasoning in that appeal that: 
Article 10.3 [of the Agreement on Agriculture ] transfers to the 
defending party the burden of proof  with respect to the "export 
subsidization aspect" of the complaining party's claim. But, before such transfer can take place, it is  necessary that the complaining party 
states that part of the claim.
255 
 
154. We are unable to agree with the European Communities on the conclusion drawn by it from 
the Appellate Body Report in  Canada – Dairy (Article 21.5 – New Zealand and US II) .  The 
Appellate Body made those observations in the c ontext of discussing the burden of proof requirement 
under Article 10.3 of the  Agreement on Agriculture , and not in the context of examining the 
requirements of Article 6.2 of the DSU.  Article 6.2 of the DSU and Article 10.3 of the  Agreement on 
Agriculture  address different matters and apply at differe nt stages of panel proceedings.  A panel 
request, on its face, must comply with the requirements of Article 6.2 of the DSU, whereas Article 10.3 of the  Agreement on Agriculture  relates to a Member's duty to adduce evidence to 
substantiate its assertions  during the course of the panel proceedings .  The Appellate Body did not 
require, in  Canada – Dairy (Article 21.5 – New Zealand and US II) , that a panel request identify the 
details of each and every claimed export subsidy.     
155. For these reasons, we agree with the Panel th at the Complaining Parties' panel requests 
"complied with the requirements of Article 6.2 of the  DSU   in that they adequately identified the 
measures at issue and the violations claimed to ha ve occurred, i.e. that the European Communities' 
exports of subsidized sugar exceeded the Europ ean Communities' commitment level contrary to 
Articles 3 and 8 of the  Agreement on Agriculture ."
256 
156. Consequently, we  uphold  the Panel's finding, in paragraph 7. 37 of the Panel Reports, that the 
alleged "payments", within the meaning of Article 9.1(c) of the Agreement on Agriculture ", in the 
form of low-priced sales of C beet to sugar produ cers, fell within the Panel's terms of reference. 
                                                      
254European Communities' appellant's submission, para. 77 (quoting Appellate Body Report, Canada – 
Dairy (Article 21.5 – New Zealand and US II) , para. 76). (emphasis added by the European Communities) 
255Ibid., para. 76 (referring to Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand 
and US II) , paras. 70-71). 
256Panel Reports, para. 7.36.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 55 
  
V. Footnote 1 to Section II, Part IV of the European Communities' Schedule 
A. Introduction 
157. We turn next to examine the European Communities' appeal with respect to the Panel's 
finding that "the content of Footnote 1 ... is of no  legal effect" and that, as a consequence, for exports 
of sugar, the European Communities' quantity comm itment level is 1,273,500 tonnes per year and its 
budgetary outlay commitment level is €499.1 million per year, with e ffect from the marketing year 
2000/2001.
257   
158. Our analysis of this issue proceeds as follows.  First, we set out the European Communities' 
export subsidy commitments regarding sugar.  Sec ondly, we summarize the Panel's analysis and the 
European Communities' arguments on appeal.  Thir dly, we examine the meaning of Footnote 1.  
Fourthly, we consider the conformity of Foot note 1 with Members' obligations under the  Agreement 
on Agriculture .  Finally, we examine the relationshi p between Members' Schedules and the  
Agreement on Agriculture .   
B. The European Communities' Export Su bsidy Commitments Regarding Sugar 
159. The export subsidy commitments made by the Eu ropean Communities with respect to sugar, 
as specified in Section II, Part IV of the European Communities' Schedule258, are as follows:  (i) the 
"base quantity level" (the average of the quantity of  subsidized exports of sugar during the base period 
1986-1990) was 1,612,000 tonnes, a nd this quantity level would be progressively reduced to 
1,273,500 tonnes in the year 2000 as the "final quantit y commitment level" for sugar;  and (ii) the 
"base outlay level" (the average of the budgetary ou tlay on subsidized exports of sugar during the base 
period 1986-1990) was €779.9 million,  and this budgetary outlay le vel would be progressively 
reduced to €499.1 million in the year 2000 as the "final [budgetary] outlay commitment level" for 
sugar.259  There is no dispute in this case regarding these figures pertaining to quantity and budgetary 
outlay commitment levels for sugar as specified  in the European Communities' Schedule. 
                                                      
257Panel Reports, para. 8.1(a)-(c).  
258Section II, Part IV of the European Communities' Sc hedule, which includes Footnote 1, is attached 
as Annex 4 to this Report. 
259European Communities' appellant's submission, para. 19, Table 1.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 56 
  
160. According to the European Communities, thes e export subsidy commitments are "further 
elaborated"
260 in Footnote 1 to the European Communities' Schedule, which states: 
Does not include exports of sugar of  ACP and Indian origin on which 
the Community is not making any reduction commitments.  The average of export in the period 1986 to 1990 amounted to 1,6 mio t. 
 
161. At issue in this dispute is the meaning of Footnote 1, its conformity with the European 
Communities' obligations under the  Agreement on Agriculture , and its implications for the European 
Communities' export subsidy reduc tion commitments for sugar. 
C. The Panel's Analysis and the European Communities' Appeal  
162. The Panel opined that the ordinary meaning of the terms of Footnote 1 "does not indicate any 
'limitation on export subsidies for sugar [of ACP/Indian origin]' to 1.6 million tonnes" and that the 
Panel "fail[ed] to see any commitment 'limiting subsidization'" in Footnote 1.
261  The Panel added that 
it "[did] not find any evidence that the European Communities itself was of the view, during the entire 
implementation period [of the Agreement on Agriculture ], that ACP /Indian sugar was another 
'component' of its commitments."262  The Panel concluded that: 
... the ordinary meaning of the terms [of Footnote 1] indicates that the 
European Communities is not making a commitment limiting subsidization on exports of sugar of ACP/India origin.  On the 
contrary, the terms of Footnote 1 indicate that the European Communities is making a statement that exports of subsidized sugar of ACP/Indian origin will not be subject to the reduction 
commitments provided for in Articles 3, 9.1 and 9.2(b)(iv) of the 
Agreement on Agriculture .
263  
                                                      
260European Communities' appellant's submission, para. 21.  
261Panel Reports, para. 7.169.  
262Ibid., para. 7.178 (referring to Article 3.1 of the  Agreement on Agriculture ). 
263Ibid., para. 7.179.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 57 
  
163. In sum, the Panel found that: 
... the ordinary meaning of the terms of Footnote 1 does not indicate 
any commitment or concessions constituting a limitation on export subsidization or any other type of commitment authorized by the Agreement on Agriculture  which could in any way enlarge or 
otherwise modify the European Communities' commitment level 
specified in Section II, Part IV of its Schedule.  Rather, Footnote 1 constitutes a unilateral statement by  the European Communities that, 
with regard to exports of ACP/ India sugar, it is not making any 
reduction commitment.  Moreover, Footnote 1, if it were to constitute 
such a limitation on subsidization, would only benefit sugar of 
ACP/Indian origin per se , contrary to the European Communities' 
suggestion that 1.6 million tonnes of sugar refer to an amount "equivalent" to the amount imported from ACP countries and India.
264  
 
164. After analyzing the meaning of Footnote 1, the Panel proceeded to find that, even if 
Footnote 1 could be interpreted as providing for a li mitation on subsidization in the form of a ceiling 
up to a maximum of an additional  1.6 million tonnes of sugar, as alleged by the European 
Communities:  
... the content of Footnote 1 ... is inconsistent and conflicts with 
Articles 3, 8, 9.1 and 9.2(b)(iv) of the Agreement on Agriculture  and 
as such cannot be read harmoniously with the provisions of the Agreement on Agriculture : it does not provide for any budgetary 
outlays, and subsidies provided to ACP/India equivalent sugar have 
not been subject to any reduction.  Footnote 1 cannot therefore 
constitute a second component of the European Communities' overall 
commitment level for export subsidies on sugar.   
Consequently, ... the content of Footnote 1 is of no legal effect and 
does not enlarge or otherwise m odify the European Communities' 
quantity commitment level specified in ... its Schedule to be 
1,273,500 tonnes of sugar per year, or its budgetary outlay commitment of €499.1 million per year, with effect since 2000/2001.
265 
 
165. On appeal, the European Communities submits th at the Panel erred in its interpretation of 
Footnote 1 as well as of Articles 3, 8, and 9.1 of the  Agreement on Agriculture .  The European 
Communities also argues, in the alternative, that th e Panel's finding is in error because "there is no 
                                                      
264Panel Reports, para. 7.183.  
265Ibid., paras. 7.197-7.198.  See also paras. 7.221-7.222. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 58 
  
rule of law giving the  Agreement on Agriculture   precedence over provisions in a Member's 
schedule."
266  We address each of these arguments in turn below. 
D. Interpretation of Footnote 1 
166. A preliminary question for our consideration is what rules apply in interpreting export subsidy 
commitments specified in a Member's Schedule under the  Agreement on Agriculture .  We observe 
that Article II:7 of the  General Agreement on Tariffs and Trade 1994  (the "GATT 1994") provides 
that the "Schedules annexed to this Agreement are hereby made an integral part of Part I of  
this Agreement."  Furthermore, Article  3.1 of the  Agreement on Agriculture  provides that "export 
subsidy commitments in Part IV of each Member's Sc hedule ... are hereby made  an integral part of 
[the] GATT 1994."   
167. The applicable rules for interpreting the provisions of the GATT 1994 are the "customary 
rules of interpretation of public international law".267  The Appellate Body has held that these rules  
are codified in the  Vienna Convention on the Law of Treaties 268 (the " Vienna Convention ").  As 
provisions of a Member's Schedule are "part of the terms of the treaty", they are subject to these same 
rules of treaty interpretation.269  Accordingly, these rules apply in interpreting Footnote 1.  We note 
that no participant or third participant in this appeal contests the applicability of these rules in 
interpreting Footnote 1. 
168. Bearing this in mind, we turn now to interpret Footnote 1 in the light of the arguments raised 
on appeal by the participants.   
                                                      
266European Communities' appellant's submission, para. 79.  
267Article 3.2 of the DSU. 
268Done at Vienna, 23 May 1969, 1155 UNTS 331;  8 International Legal Materials 679.  In US – 
Gasoline , the Appellate Body stated: 
[The] general rule of interpretation [as set out in Article 31(1) of the Vienna 
Convention on the Law of Treaties] has attained the status of a rule of 
customary or general international law. As such, it forms part of the 
"customary rules of interpretation of public international law" which the 
Appellate Body has been directed, by Article 3(2) of the DSU , to apply in 
seeking to clarify the provisions of the General Agreement  and the other 
"covered agreements" of the Marrakesh Agreement Establishing the World 
Trade Organization  (the " WTO Agreement ").   
(Appellate Body Report, US – Gasoline , p. 17, DSR 1996:I, 3, at 16) (footnotes omitted) 
269Appellate Body Report, EC – Computer Equipment , para. 84.  See also Appellate Body Report, EC – 
Bananas III , para. 154.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 59 
  
1. The Meaning of Footnote 1
 
169. The European Communities argues that, while th e budgetary outlay and quantity commitment 
levels for sugar included in its  Schedule constitute the first co mponent of its export subsidy 
commitment on sugar, Footnote 1 constitutes a di stinct second component of its export subsidy 
commitment on sugar.  According to the Europ ean Communities, the first sentence of Footnote 1 
means that the European Communities is not maki ng any export subsidy re duction commitments on 
the export of sugar equivalent in volume to its a nnual imports of sugar from ACP countries and India.  
In turn, the second sentence of Footnote 1 means that  the volume of such exports of sugar will be 
limited  to the lower of its actual imports from ACP countries and India or 1.6 million tonnes.  Thus, 
according to the European Communities, Footnote 1 provides for an additional subsidized export of 
up to 1.6 million tonnes of sugar, as well as a separat e commitment to "limit" such subsidization to 
1.6 million tonnes or the actual imports of sugar fro m ACP countries and India, whichever quantity is 
lower.270  Furthermore, the European Communities argues,  as it did before the Panel, that the words 
"exports of sugar of ACP/Indian origin" in the fi rst sentence of Footnote 1 do not mean "re-exports" 
of sugar of ACP/Indian origin, but mean "e xports" of sugar by the European Communities 
"corresponding" to its imports of sugar from ACP countries and India. 
170. On appeal, the European Communities contends th at "[i]t is the second sentence which is vital 
to understanding Footnote 1"271, and that, in ascertaining the meaning of Footnote 1, the Panel 
completely disregarded the second sentence and read it out of the Footnote.  In particular, the Panel 
failed to note that the word "export" in the second sentence must be given the same meaning as the 
word "exports" in the first sentence.  More importan tly, the Panel ignored the pointed reference in the 
second sentence to the period 1986-1990, which was the base period adopted in the negotiations for 
reduction commitments.  The European Communities argues: 
                                                      
270It is not in dispute that these additional exports of  sugar are given the same type of "export refunds" 
as exports of A and B sugar in respect of which the Me mber's Schedule gives the budgetary outlay and quantity 
commitment level reduction commitments.  It is also not disputed by the European Communities that, in respect 
of the additional exports covered by Footnote 1, the commitment contained in Footnote 1 is only to "limit" the 
quantity of subsidized exports to 1.6 million tonnes or the actual quantity of imports from ACP countries and India;  there is no commitment, with respect to thes e additional exports, either to "reduce" the quantities of 
exports from a base level or to indicate the base leve l budgetary outlay and to limit or reduce that outlay. 
271European Communities' appellant's submission, para. 97. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 60 
  
The reference to the period 1986-1 990 (which was the base period 
for the reduction commitments) is telling.  If Footnote 1 is simply an exclusion, there would be no need to insert the second sentence, and 
no reason to refer to the 1.6 million tonnes as the average during [the] 
1986-1990 base period.  This is a dir ect parallel to the base quantities 
in the table itself, which represent "the annual average" of subsidised exports in the 1986-1990 period.  Th is parallelism explains why the 
footnote refers to the "average of export".
272 (footnotes omitted) 
 
171. The European Communities thus contends that , had the Panel given proper meaning to both 
sentences of Footnote 1, it would have found that , by virtue of the first sentence, the European 
Communities is not making  any  export subsidy  reduction  commitments on its export of ACP/India 
equivalent sugar and that, by virtue of the sec ond sentence, the European Communities is "limiting" 
its subsidization of such exports to the annual aver age of the subsidized exports in the base period 
1986-1990, which was 1.6 million tonnes. 
172. In reply, the Complaining Parties submit that the Panel was correct in its interpretation of 
Footnote 1 that: 
... the ordinary meaning of the terms [of Footnote 1] indicates that the 
European Communities is not making a commitment limiting subsidization on exports of sugar of ACP/India origin.  On the 
contrary, the terms of Footnote 1 indicate that the European 
Communities is making a statement that exports of subsidized sugar of ACP/Indian origin will not be subject to the reduction commitments provided for in Article s 3, 9.1 and 9.2(b)(iv) of the 
Agreement on Agriculture .
273 
 
Specifically, with reference to the second sentence of  Footnote 1, Australia argues that "[t]he second 
sentence merely states that the average of expor ts during the period 1986-1990 was 1.6 million tonnes 
[and it] makes no promises or predictions regarding the level of future exports."274  Brazil submits that 
"[t]he second sentence merely discloses what the av erage of those exports was during the period 1986 
to 1990."275  In a similar vein, Thailand contends th at the second sentence "contains no normative 
term expressing a commitment, nor does it contain any term reflecting the idea of a ceiling."276 
                                                      
272European Communities' appellant's submission, para. 97.  
273Panel Reports, para. 7.179. 
274Australia's appellee's submission, para. 164.   
275Brazil's appellee's submission, para. 48.  
276Thailand's appellee's submission, para. 32.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 61 
  
173. We begin our interpretative analysis by  recalling the text of Footnote 1: 
Does not include exports of sugar of  ACP and Indian origin on which 
the Community is not making any reduction commitments.  The average of export in the period 1986 to 1990 amounted to 1,6 mio t. 
 
174. We address, first, the question whether a plain reading of Footnote 1 suggests that the 
European Communities is undertaking a commitment to "limit" its subs idization of "exports of sugar 
of ACP and Indian origin".  On its face, the fi rst sentence does not indicate that the European 
Communities is undertaking any such commitment.  On the contrary, the first sentence suggests two 
things:  first, the budgetary outlay and quantity level commitme nts specified in the European 
Communities' Schedule for sugar do not "include" su gar of ACP and Indian origin;  and secondly, 
with respect to exports of s ugar of ACP and Indian origin, the European Communities is not 
undertaking "any reduction commitments" either by way of budgetary outlay or quantity commitment.  
It is, therefore, to the second sentence of Footnote 1 that we need to turn to see whether it suggests 
any commitment to "limit" subsidization on the expor ts of sugar of ACP and Indian origin.  A plain 
reading of the second sentence does not indicate that it "imposes a limit on the volume of sugar [of 
ACP and Indian origin] which can  be exported with a subsidy".
277  The second sentence, in its plain 
language, only states that the average of exports of sugar of ACP and Indian origin in the period 1986-
1990 amounted to 1.6 million tonnes.  We see the European Communities as arguing that "an 
examination of the terms of Footnote 1, in its  context, and in light of its object and purpose"278 would 
show that Footnote 1 imposes a limit on the volume of subsidized exports of sugar of ACP and Indian 
origin. 
2. First Sentence of Footnote 1:  "Sugar of ACP and Indian Origin"  
175. We therefore turn to the question whether the fi rst sentence of Footnote 1, interpreted in its 
context, shows that it "was intende d to cover equivalent exports"279, that is, exports of sugar 
equivalent in volume to the European Communities' imports of ACP and Indian sugar.  Before the 
Panel, the European Communities argued that Footnote  1 refers to a quantity of sugar "equivalent to" 
the amount of sugar imported from ACP countries and India.280  The Panel concluded that: 
                                                      
277European Communities' appellant's submission, para. 88.  
278Ibid. 
279Ibid., para. 113.  
280Panel Reports, para. 7.180. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 62 
  
... the ordinary meaning of the terms of Footnote 1 does not provide that an amount of subsidized sugar "equivalent" to the amount of sugar imported from ACP/India will be maintained for export.  In the 
Panel's view, the Footnote appears to  require that the sugar exports 
excluded from export reduction commitments actually be  sugar of 
ACP and Indian origin , as stated in Footnote 1.  Payment of export 
subsidies on an equivalent am ount of sugar sourced from the 
European Communities does not co me within the terms of the 
Footnote.
281 (original emphasis) 
 
176. On appeal, the European  Communities argues that: 
... it was well known to all parties at the time of conclusion of the 
WTO Agreement that the EC did not grant export refunds only on the re-export of sugar originally of ACP/ Indian origin, but granted export 
refunds for a quantity equivalent to su ch exports.  This is reflected in 
the drafting of Footnote 1, which, in the second sentence, refers to 
the "average of export" as being 1. 6 million tonnes.  This is not a 
reference to ACP/India raw sugar imported and subsequently re-
exported. Rather, it is a referenc e to the equivalent quantity of 
ACP/India sugar that had been imported.  ...  Consequently, it is clear that Footnote 1 covers refunds on  exports equivalent to imports.
282 
(footnotes omitted) 
 
177. The European Communities also submits that it presented the Panel with undisputed evidence 
that it had "consistently treated Footnote 1 as imposing a limit at the lower of an amount  equivalent 
to [European Communities'] imports of ACP/Indian [origin] sugar  or 1.6 million tonnes".283 
178. The European Communities further contends that, "[ t]o the extent that it is necessary to have 
recourse to supplementary means of interpretati on, ... the negotiating history supports the EC's 
interpretation."284  The European Communities finds support for its position in vari ous documents that 
allegedly reflect the understanding of GATT Contr acting Parties, before the conclusion of the 
Uruguay Round, as to the European Communities' e xport subsidy commitments.  In particular, the 
European Communities refers to a letter dated 4 March 1992, in which it stated that it "ha[d] not 
included the volume of sugar  corresponding  to its imports of sugar from ACP countries".285  The  
                                                      
281Panel Reports, para. 7.180.  
282European Communities' appellant's submission, para. 115.  
283Ibid., para. 88. (emphasis added;  footnote omitted) 
284Ibid., para. 120. 
285Ibid., para. 116 (quoting letter dated 4 March 1992, providing the supporting tables on which the 
European Communities' export subsidy commitments were based (Exhibit EC-5 submitted by the European 
Communities to the Panel)). (emphasis added)  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 63 
  
European Communities also refers to evidence submitted by Australia to the Panel, which, in the 
European Communities' view, confirms that Footnote 1 should be read to refer to exports of a quantity 
of sugar that is equivalent to the volu me of imports from ACP countries and India.
286  In particular, 
the European Communities relies on an Australian memorandum dated 31 January 1994 that describes 
Footnote 1 as covering "direct export restitutions  (corresponding to [the European Communities'] 
imports of sugar from ACP countries and India)".287  
179. Finally, the European Communities argues that, since the base quantity figure of 1,612,000 
tonnes included in its Schedule did not include th e figure of 1.6 million tonnes of ACP/India sugar 
mentioned in the second sentence of Footnote 1, and since it does not export or re-export ACP/India 
sugar as such, the exports mentioned in the first se ntence could only be exports of sugar equivalent in 
volume to its imports of sugar from ACP countries and India. 
180. Like the Panel, we are not persuaded by these arguments, which rely on the presumed 
knowledge of other Members of the World Trade Organization (the "WTO")  on the export subsidy 
practices of the European Communities with respect to ACP/India sugar.288  We note that the 
Complaining Parties have rebutted the interpreta tions put forward by the European Communities on 
the terms, context, and negotiating history of Footnote 1.289  We also wish to note that the European 
Communities was unable to clarify at the oral hear ing, why, having written the aforementioned letter 
in March 1992, it did not consider it necessary to  use that same language in Footnote 1 in the 
December 1993 text, or to use language that plainl y shows that the exports referred to were those 
equivalent in volume to the sugar that was importe d from ACP countries and India.  In any event, we 
are of the view that the European Communities' subm issions do not alter the plain meaning of the first 
sentence of Footnote 1, so as to make it cover th e exports of sugar equiva lent in volume to the 
European Communities' imports of sugar from ACP countries and India. 
3. Second Sentence of Footnote 1:  Limitation of Subsidization of ACP/India 
Sugar  
181. We next address the question whether the second sentence of Footnote 1, interpreted in its 
context, contains a commitment on the part of the European Communities to "limit" its subsidization 
                                                      
286See European Communities' appellant's submission, paras. 121-122 (citing Exhibits ALA-3 and 
ALA-8 submitted by Australia to the Panel;  and Panel Reports, footnote 511 to para. 7.208).  
287Ibid., para. 121 (quoting Exhibit ALA-8 submitted by Australia to the Panel;  and Panel Reports, 
footnote 511 to para. 7.208). 
288See Panel Reports, para. 7.180 and footnotes 488-489 thereto. 
289Australia's appellee's submission, paras. 158-159. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 64 
  
of exports of sugar to the lower of its imports from ACP countries and India or 1.6 million tonnes.  
The European Communities relies on the following f our main arguments in support of its assertion 
that the second sentence imposes such a limitation.  First, Footnote 1 excludes ACP/India sugar from 
the budgetary outlay and quantity level commitments sp ecified in its Schedule, and, therefore, the 
base quantity level of 1,612,000 tonnes specified in  its Schedule excludes the figure of 1.6 million 
tonnes contained in the second sentence of Footnote 1.  The latter figure thus pertains solely to 
exports of ACP/India sugar, as the word "export" in the second sentence has the same meaning as the 
word "exports" in the first sentence of Footnote 1. 
182. Secondly, the reference to the period 19 86-1990 in the second sentence is "telling"
290, as this 
is the base period for export subsidy reduction commi tments.  The reference to "the average of 
export" in the base period in the second sentence must be  given proper meaning in its context.  Such a 
meaning can be given only if the second sentence is regarded as "limiting" subsidization to a 
maximum of 1.6 million tonnes, the average of the subsidized exports of ACP/India sugar during the 
period 1986-1990. 
183. Thirdly, the "undisputed evidence" with respec t to the European Communities' export subsidy 
practice shows that it has consistently "limited" its subsidization to the actual imports from ACP 
countries and India or 1.6 million tonnes, whichever was lower.291 
184. Lastly, other WTO Members, including the Comp laining Parties, were fully aware that the 
European Communities was exporting  additional  quantities of sugar (over and above its scheduled 
commitments) equivalent to its imports from ACP co untries and India, and that it was "limiting" its 
subsidization of those exports to the actua l level of its imports from those countries. 
185. The European Communities, ther efore, argues that the second sentence of Footnote 1, if 
interpreted properly in its context, clearly show s that it imposes a "limitation" on exports of sugar 
equivalent in volume to its imports of sugar fro m ACP countries and India up to a maximum of 1.6 
million tonnes (the average of its base period subsidi zed exports of such sugar) or its actual imports 
from those countries.  If the second sentence is read merely as a piece of information, as the Panel and 
the Complaining Parties do, then, according to the European Communities, it would be tantamount to 
reading the sentence out of the text and ignoring it entirely. 
                                                      
290European Communities' appellant's submission, para. 97. 
291Ibid., para. 88.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 65 
  
186. Here again, we are not convinced by the argu ments of the European Communities.  The fact 
that the second sentence makes a specific reference to  the average of such exports in the base period 
does not necessarily lead to an infe rence that there is a commitment  in the sentence to "limit" the 
quantity of subsidization to that level, particular ly when the first sentence says that the European 
Communities is not making "any reduction commitmen ts".  Nor does the practice of the European 
Communities providing subsidies on exports equivalent to its actual imports from ACP countries and 
India lead to an inference that that practic e flows from a commitment contained in the second 
sentence of Footnote 1.  We are also not persua ded by the argument that, because the first sentence 
excludes any  reduction   commitments and the second sentence refe rs to the average of the export in 
the base period (the starting point for any reduc tion commitment), the second sentence can only imply 
a commitment to "limit" the subsidization to the base level quantity. 
187. Lastly, we see merit in the Panel's reference to the notification practice of the European 
Communities to the WTO Committee on Agriculture to conclude that this practice does not support 
the interpretation advanced by the European Co mmunities.  If Footnote 1 does contain a commitment 
on the part of the European Communities with respect to the export subsidies provided by it on exports of sugar equivalent in volume to its actual imports from ACP countries and India or 1.6 
million tonnes (albeit such a commitment is only a "limitation" commitment and not a "reduction" 
commitment), we fail to see why the European  Communities did not notify the WTO Committee on 
Agriculture of the status of its compliance with that commitment throughout the period of 
implementation of the  Agreement on Agriculture .  The fact that the European Communities did not 
do so undermines its interpretation of the second sentence of Footnote 1. 
188. For all these reasons, we find that Footnote 1, by its terms, does not contain a commitment on 
the part of the European Communities to "limit" its  subsidization of exports  of sugar to a quantity 
equivalent to its actual imports of sugar from ACP countries and India or 1.6 million tonnes, 
whichever is lower.  Nor do we find that an inte rpretation of Footnote 1 that takes into account the 
arguments advanced by the European Communities l eads to the conclusion that Footnote 1 contains 
such a commitment to "limit" subsidization of exports of ACP/India sugar. 
E. Conformity of Footnote 1 with Obli gations under the Agreement on Agriculture 
1. Article 3.3 of the  Agreement on Agriculture
 
189. We have found that Footnote 1 does not cont ain a commitment "limiting" subsidization of 
exports of ACP/India equivalent sugar.  However,  in view of the extensive argumentation advanced WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 66 
  
by the European Communities, we proceed to an anal ysis of the conformity of Footnote 1 with the 
obligations prescribed by Articles 3, 8, and 9 of the  Agreement on Agriculture .  For this analysis, we 
assume  arguendo   that Footnote 1 does contain the export subsidy commitment claimed by the 
European Communities, namely, Footnote 1 reflec ts a commitment on the part of the European 
Communities to "limit" the export subsidies on ACP/I ndia equivalent sugar.  We note that the Panel 
also conducted a similar analysis.
292 
190. We begin this analysis with respect to the conf ormity of Footnote 1 with Article 3.3 of the  
Agreement on Agriculture .  The European Communities asserts that Article 3.3 does not  require   a 
Member to schedule both budgetary outlay  and  quantity commitments in respect of export subsidies 
listed in Article 9.1  According to the European Communities, "[n]owhere in the Agreement on 
Agriculture is there an obligation for Members to sch edule commitments in the form of both 
budgetary outlay and quantity commitments."293  Neither Article 3.3, nor Article 8 or 9.1, nor indeed 
the  Agreement on Agriculture   as a whole, addresses this question.294  The European Communities 
emphasizes that "Article 3.3 has as its function the prohibition of the provision of export subsidy in 
excess of  commitment levels "295 and that the obligation contained in  it is simply "not to exceed ... 
'budgetary outlay and quantity commitments specified' in a Member's Schedule ".296  But neither 
Article 3.3, nor indeed Article 8 or 9.1, specifi es how those commitments must be expressed in a 
Member's Schedule.  According to the European  Communities, the use of  the word "and" in 
Article 3.3 "does not imply a commitment that is only valid if it comports both a budgetary and a 
quantitative aspect.  It simply is a conjunctive betw een the two different forms of commitments ... .  
The word 'specified' refers to what is specified in  the [Member's] schedule, without requiring that both 
forms of commitments be specified."297 
191. In sum, the European Communities contends that  "[t]he obligation in Article 3.3 is only to 
provide Article 9.1-listed subsidies in conformity with  whatever   commitments are found in a 
Member's schedule."298  Such commitments may be budgetary outlay or quantity commitment or both, 
as a Member may choose to specify in its Schedule.   According to the European Communities, the 
                                                      
292Panel Reports, paras. 7.185 ff. 
293European Communities' appellant's submission, para. 150. 
294Ibid., para. 136. 
295Ibid., para. 135. (emphasis added) 
296Ibid., para. 139. (emphasis added) 
297Ibid. 
298Ibid., para. 140. (emphasis added)  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 67 
  
question of how commitments should be expressed is "one of scheduling" and is addressed in 
paragraph 11 of the "Modalities Paper" and not in the  Agreement on Agriculture .
299 
192. We begin our analysis of this issue by recalling the text of Article 3.3 of the  Agreement on 
Agriculture , which reads:    
Incorporation of Concessions and Commitments 
... 
3. Subject to the provisions of paragraphs 2(b) and 4 of 
Article 9, a Member shall not provide export subsidies listed in paragraph 1 of Article 9 in respect  of the agricultural products or 
groups of products specified in Sec tion II of Part IV of its Schedule 
in excess of the budgetary outlay and quantity commitment levels 
specified therein and shall not provide such subsidies in respect of 
any agricultural product not specified in that Section of its Schedule.  
 
193. By its terms, Article 3.3 of the Agreement on Agriculture prohibits the granting of export 
subsidies (listed in Article 9.1) in excess of the budgetary outlay  and  quantity commitment levels 
specified in a Member's Schedule.  Article 3.3 do es not, however, explicitly state that export subsidy 
commitments must be specified in a Member's  Schedule in terms of both budgetary outlay  and  
quantity commitment levels.  At the same time, Ar ticle 3.3 does not explicitly state that a Member 
may specify its commitment level in terms of either  of the two forms of commitments.  In our view, 
the use of the conjunctive "and", and the corresponding u se of the word "levels" in the plural, suggest 
that the drafters of the Agreement intended that bo th types of commitments must be specified in a 
Member's Schedule in respect of any export subsidy listed in Article 9.1.  Had the drafters intended 
that a Member could specify one or the other of the two forms of commitments, they would have 
chosen the disjunctive "or" and correspondingly used the word "level" in the singular.  Given the choice, Members would choose only one or the other type of commitment, but not both, so as to 
minimize their obligations.  Therefore,  it appears to us that the drafters intended to ensure that export 
subsidy commitments are specified in Members' Schedules in terms of both budgetary outlay and 
quantity commitments, by using the word "and" as well as the word "levels" in the text of Article 3.3. 
194. We find contextual support for the above inte rpretation in Article 9.2(b)(iv) of the  Agreement 
on Agriculture , which provides: 
                                                     
 
299European Communities' appellant's submission, para. 136.  We address the "Modalities Paper" later 
in this Report. (See  infra , paras. 198-199 and 204) WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 68 
  
(iv) the Member's budgetary outlays for export subsidies and the quantities benefiting from such subsidies, at the conclusion of the implementation period, are no greater than 64 per cent and 
79 per cent of the 1986-1990 base period levels, respectively.  For 
developing country Members these percentages shall be 76 and 86 
per cent, respectively.   
 
This provision prescribes the export subsidy commitment  levels to be reached at the conclusion of the 
implementation period (and to be maintained ther eafter), and those commitment levels are expressed 
in terms of both budgetary outlays and quantities.  We do not see how a Member could comply with 
Article 9.2(b)(iv), or for that matter Article 9. 2(a), without having specified its export subsidy 
commitments in terms of both budgetary outlays and quantities.  We also consider it significant that 
both Article 9.2(b)(iii) and Article 9.2(b)(iv) use the expression "budgetary outlays for export 
subsidies and the quantities  benefiting from such subsidies ". (emphasis added)  This shows the 
drafters' recognition of the need to address the budgetary outlays and quantities together. 
195. The European Communities contends that the "same logic" with respect to the use of the word 
"and" as a conjunctive applies equally to Article 9.2(a) and Article 9.2(b)(iv), and thus these 
provisions only mention the existence of both forms of commitments, without implying that Members must always schedule both.
300  We disagree.  The European Commu nities' contention runs counter to 
the plain language of these provisions .  Substituting the word "or" fo r "and" in these provisions would 
undermine the achievement of the specific commitment levels envisioned therein. 
196. Our interpretation that Article 3.3 (as well as Article 9.2) requires that export subsidy 
commitments in a Member's Schedule must be expressed in terms of both budgetary outlay and 
quantity commitment levels is also in cons onance with the object and purpose of the  Agreement on 
Agriculture .  We note, as did the Panel 301, that the third paragraph of the Preamble to the Agreement 
recognizes that the "long-term objective" of WTO Me mbers, in initiating a reform process to deal 
with the distortions in the world agricultural ma rkets, is "to provide for substantial progressive 
reductions in agricultural support and protection".  Purs uant to this objective, the fourth paragraph of 
the Preamble expresses the commitment of the WT O Members "to achieving binding commitments" 
in the three specified areas, including "export co mpetition".  An interpretation that export subsidy 
commitments must be expressed in a Member's Schedule in terms of both budgetary outlay and 
quantity commitment levels is more in harmony wi th the objectives stated in the Preamble to the 
                                                      
300European Communities' appellant's submission, para. 139.   
301Panel Reports, para. 7.136.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 69 
  
Agreement than an interpretation that a Member is only obliged to fulfil "whatever commitments"
302 it 
chooses to specify in its Schedule. 
197. We are also of the view that if an export subs idy commitment were allowed to be specified in 
only one form, budgetary outlay or quantity, as a Member may choose, and its conformity were 
measured on the basis of that one commitmen t alone, it would undermine the export subsidy 
disciplines of the  Agreement on Agriculture .  As we noted above, the draf ters recognized the need to 
deal with budgetary outlays and quantities together in order to restrain subsidized exports.  A 
commitment on budgetary outlay alone provides little  predictability on export quantities, while a 
commitment on quantity alone could lead to subs idized exports taking place that would otherwise 
have not taken place but for the budgetary support.  This is especially so given that the  Agreement on 
Agriculture  has initiated a reform process in an environmen t of high levels of export subsidies taking 
the form of budgetary outlays and quantities.  We are, therefore, not persuaded by the optimistic 
assumption of the European Communities that if one or the other form of commitment is fulfilled, it 
will, "in conjunction with preva iling market conditions and other factors", automatically act as a 
ceiling for the non-assumed commitment.303   
198. We now turn to the arguments of the Eur opean Communities relating to the so-called 
"Modalities Paper"304, which was used by the Members during the Uruguay Round negotiations in 
scheduling their commitments under the  Agreement on Agriculture .  The European Communities 
refers to the "Modalities Paper" in two ways.  First,  it contends that the obligations to schedule both 
forms of commitments, namely, budgetary outlay and quantity commitments, and to subject those 
commitments to reduction ("reducti ons commitments"), were set out only in paragraph 11 of the 
"Modalities Paper", but those obligations were not "carried over" into the Agreement on 
Agriculture .305  Secondly, with respect to "incorporated products", paragraph 9 of Annex 8 to the 
"Modalities Paper" permitted only one form of co mmitment, namely, budgetary outlay, to be 
scheduled.  The European Communities does not cont end that ACP/India equivalent sugar is an 
incorporated product, but argues that the treatment of  incorporated products is relevant to the legal 
question whether there is an obligation in the  Agreement on Agriculture  to have both budgetary 
outlay and quantity commitments.306  The European Communities has, however, not identified any 
                                                      
302European Communities' appellant's submission, para. 140.   
303Ibid., para. 141.   
304Modalities for the Establishment of Specific Binding Commitments, Note by the Chairman of the 
Market Access Group,  MTN.GNG/MA/W/24, 20 December 1993. 
305European Communities' appellant's submission, pars. 136-137. 
306European Communities' statement at the oral hearing. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 70 
  
provision of the "Modalities Paper" that perm its the scheduling of commitments for a non-
incorporated product like sugar in term s of only budgetary outlay or quantity. 
199. We do not find it necessary to decide in th is appeal on the relevance of the "Modalities 
Paper".  The "Modalities Paper" is not an agreem ent among the WTO Members and, by its terms, 
cannot be the basis of dispute settlement under the  Marrakesh Agreement Establishing the World 
Trade Organization (the " WTO Agreement ").  Furthermore, as the Appellate Body noted in  
EC – Bananas III , "the  Agreement on Agriculture  makes no reference to the  Modalities  document".
307  
We also note that the treatment of incorporated produ cts, or scheduling of commitments with respect to 
incorporated products, is not an issue in this dispute.  We cannot, ther efore, consider the question of an 
analogy being drawn from treatment of incorporat ed products for the scheduling commitments in 
respect of non-incorporated products.  In any event,  we fail to see how the "Modalities Paper" supports 
the contention of the European Communities that Members could choose to specify only one form of 
commitment for sugar, and that such a commitment need not be a "reduction commitment".308 
200. For all these reasons, we agree with the Panel that Article 3.3 requires a Member to schedule 
both budgetary outlay and quantity commitment leve ls in respect of export subsidies listed in 
Article 9.1 of the  Agreement of Agriculture .309  As Footnote 1 does not contain a budgetary outlay 
commitment in respect of export subsidies provided to  ACP/India equivalent sugar, we hold that it is 
inconsistent with Article 3.3 of the  Agreement on Agriculture . 
2. Article 9.1 of the  Agreement on Agriculture  
201. We now turn to address the question whether Footno te 1 is consistent with Article 9.1 of the 
Agreement on Agriculture . 
202. The Panel first noted that the chapeau of Artic le 9.1 provides that "[t]he following export 
subsidies are subject to reduction commitments under th is Agreement" and that Section II, Part IV of 
Members' Schedules is entitled "Budgetary Outlay and Quantity Reduction Commitments ".310  T h e  
Panel found that "Article 9.1 ... makes clear that in the absence of a specific exemption contained in 
that Agreement, all export subsidies coming within the definitions of 9.1(a) – 9.1(f) have to be subject 
                                                      
307Appellate Body Report, EC – Bananas III , para. 157. 
308See  infra , para. 204 for "reduction commitment". 
309Panel Reports, paras. 7.137-7.138. 
310Ibid., para. 7.133. (original emphasis)  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 71 
  
to reduction commitments."
311  The Panel further noted that, for Members that took advantage of the 
flexibility under Article 9.2(b), Article 9.2(b)(iv) of the  Agreement on Agriculture   provides that, "at 
the end of the implementation period, the Schedule  must  provide for budgetary outlay and quantity 
commitments no greater than 64 and 79 per cent of their respective base period levels."312  The Panel 
noted that "[this] was the case of the European Communities".313  Therefore, according to the Panel, 
"export subsidies contained in Section II, Part IV of a Member's Schedule ought to have been subject 
to the reduction commitments provided for in Article 9 of the  Agreement on Agriculture ." 314 
203. The European Communities asserts that "[t]he nor mative content of Article  9.1 ... is not to 
impose reductions, but to define the scope of tho se subsidies which are permitted within commitment 
levels."315  The European Communities further argues th at Article 9.2(b)(iv) does not set out a 
generally applicable requirement that budgetary outlay and quantity commitment levels must be 
reduced by the coefficients mentioned in that provision.  Instead, according to the European 
Communities, those coefficients are "triggered" on ly in "very specific situations arising in the 
implementation period", permitting Article 9.2(b) to be used.316 
204. As it argued with respect to  the obligation under Article 3.3, the European Communities 
contends that the reduction commitm ents, being a scheduling issue, are addressed only in paragraph 
11, and, in turn, in Annex 8 of the "Modalities Paper".317  According to the European Communities, 
the reduction commitments were agreed to in the "Modalities Paper", but they are "not operated by 
Article 9.1".318 
205. We note, first, that it is not in dispute in this case that the European Communities provides 
export subsidies to ACP/India sugar identical to  those given for A and B sugar and that these 
subsidies fall within the meaning of Article 9.1(a) of the  Agreement on Agriculture .319  The European 
Communities also does not dispute the Panel's stat ement that the European  Communities has availed 
itself of the flexibility provisions of Article 9.2(b)(iv). 
                                                      
311Panel Reports, para. 7.133.  
312Ibid. (original emphasis) 
313Ibid. 
314Ibid. 
315European Communities' appellant's submission, para. 148. 
316Ibid., para. 147.  
317Ibid., paras. 24-26. 
318Ibid., para. 147.   
319Panel Reports, para. 7.235;  European Communities'  appellant's submission, footnote 2 to para. 4. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 72 
  
206. The chapeau of Article 9.1 says that the subs idies listed in that Article "are subject to 
reduction commitments under this Agreement".  The export subsidies given to ACP/India equivalent 
sugar, which admittedly fall within the ambit of Article 9.1(a), are therefore subject to reduction 
commitments.  Furthermore, as noted by the Panel,  the provisions of Article 9.2(b)(iv) apply to 
Members that take advantage of the flexibility pr ovisions of Article 9.2(b).  Article 9.2(b)(iv) 
specifies the reduction levels to be achieved at the conclusion of the implementation period with 
respect to both budgetary outlays and quantities.  The provisions of Article 9.2(b)(iv) lend contextual 
support to the view that export subsidies listed in  Article 9.1 are subject to reduction commitments.
320  
We further note that Article 9.2(a)(i) and (ii)  also make it clear that both budgetary outlay and 
quantity commitments specified in a Member's Schedule for each year of the implementation period are "reduction" commitments.  It follows that the export subsidies provided to ACP/India equivalent 
sugar are subject to reduction commitments in terms of Article 9.1 of the  Agreement on Agriculture . 
207. The European Communities adds that, even assuming that Article 9.1 imposes an obligation 
to reduce export subsidy commitments, the European  Communities has complied with that obligation, 
as "the EC has reduced the overall ceiling of its co mmitments over the implem entation period", and as 
it "has ensured that the Article 9.1 subsidies it provides remain within its commitment levels".
321  We 
are not persuaded by the arguments of the Europ ean Communities.  Footnote 1 explicitly states that 
the European Communities is not making "any reduc tion commitments" in respect of ACP/India sugar 
(in terms of either budgetary outlay or quantity).  Moreover, we see no evidence that, overall, taking 
A, B, and ACP/India equivalent sugar together, the European Communities has reached the prescribed 
commitment levels, both in terms of budgetary outlay and quantity prescribed by the  Agreement on 
Agriculture .  We, therefore, do not see Footnote 1 as complying with Article 9.1 of the  Agreement on 
Agriculture . 
208. The ACP Countries322 have argued that "limiting subsid ization", without reducing budgetary 
outlays or quantity, is permissible under Article 3.1 of the  Agreement on Agriculture , which says that 
"[t]he domestic support and expor t subsidy commitments in Part IV of each Member's Schedule 
constitute commitments  limiting subsidization ". (emphasis added)  According to the ACP Countries, 
"the basic obligations of the Agreement with resp ect to a scheduled product such as sugar are found in 
                                                      
320In our view, the reduction commitment levels to be achieved at the conclusion of the implementation 
period, as specified in Article 9.2(b)(iv), apply equally  to all Members whether they avail themselves of the 
flexibility provisions of Article 9.2(b)(iv), or not.   
321European Communities' appellant's submission, para. 149. 
322The third participant ACP countries in this appeal ar e:  Barbados, Belize, Côte d'Ivoire, Fiji, Guyana, 
Jamaica, Kenya, Madagascar, Malawi, Mauritius, St. Kitts & Nevis, Swaziland, Tanzania, and Trinidad & 
Tobago.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 73 
  
Articles 3.3 and 8.  These paramount provisions are framed around and are directly linked to  what is 
specified  by the respective member  limiting subsidization  in the sense of requirements in Article 3.1 
of the Agreement."
323  In response to questioning at the oral hearing, the ACP Countries also 
emphasized that Article 3.1 permits "limiting" subsidization, and only what is specified in a Member's 
Schedule governs its obligation with respect to subsidization. 
209. We are not persuaded by this argument.  We do not see Article 3.1 as permitting a Member to 
limit subsidization to whatever commitment it chooses to specify in its Schedule without regard to 
Members' obligations under the  Agreement on Agriculture .  Rather, with respect to export subsidy 
commitments, we see Article 3.1 as requiring a Memb er to limit its subsidization to the budgetary 
outlay and quantity reduction commitments speci fied in its Schedule in accordance with the 
provisions of the  Agreement on Agriculture .  This is also clear from the provisions of Article 9.2(a) 
of the Agreement, which requires adherence by a Me mber in each year of the implementation period 
to the budgetary outlay and quantity "reduction commitments", as specified in the Member's 
Schedule. 
210. For all these reasons, we agree with the Panel that  Footnote 1 is inconsistent with Article 9.1 
of the  Agreement on Agriculture .324 
F. The Relationship Between Members' Schedules and the Agreement on Agriculture 
211. We now address the arguments of the Europ ean Communities on the relationship between 
Members' Schedules and the  Agreement on Agriculture .  In particular, we examine whether the 
claimed commitment in Footnote 1 "limiting" subsidi zation of exports of sugar can prevail over the 
provisions of the  Agreement on Agriculture , despite such a commitment being inconsistent with 
Articles 3.3 and 9.1 of the  Agreement on Agriculture .  We begin by recalling the Panel's findings on 
this point and the European Communities' arguments on appeal. 
212. Referring to the Appellate Body Reports in  EC – Bananas III , EC – Poultry , and Chile – 
Price Band System , and to the GATT panel report in  US – Sugar , the Panel found that:  
                                                      
323ACP Countries' statement at the oral hearing. (emphasis added) 
324Panel Reports, para. 7.190. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 74 
  
... GATT and WTO jurisprudence indicate that WTO Members may use entries in their schedules of concession  to clarify and qualify  the 
"concessions" they individually agr ee to assume in their Schedules 
but  not to reduce or conflict  with the obligations they have assumed 
under the GATT  or the WTO Agreement , including the Agreement on 
Agriculture .
325 (original emphasis) 
 
213. The Panel noted that "the jurisprudence cited above deals with tariff concessions and [that] 
this includes market access commitments with in the meaning of Article 1(g) of the Agreement on 
Agriculture ."326  The Panel acknowledged that expor t subsidy commitments under the  Agreement on 
Agriculture  are "different from tariff and other market access concessions".327  The Panel, however, 
took the view that: 
... the principle that scheduled commitments cannot overrule or 
conflict with the basic obligations contained in a WTO multilateral 
trade agreement, unless explicitly authorized, remains valid and 
applicable to export subsidy commitments scheduled in Section II, Part IV of Members' Schedules.
328   
 
In support of its position, the Panel stated that "this same principle"—that scheduled commitments 
cannot conflict with the obligations contained in  a WTO multilateral trade agreement—"is recognized 
in Article 8 of the  Agreement on Agriculture ".329  In the Panel's view, "Article 8 makes clear that a 
Member must at all times comply with the  Agreement on Agriculture (and its Schedule)."330  
According to the Panel, it follows that "a Me mber['s] Schedule cannot provide for non-compliance 
with provisions of the  Agreement on Agriculture ."331   
214. The European Communities submits that, even assuming  arguendo  that Footnote 1 is 
inconsistent with the  Agreement on Agriculture , "there is no hierarchy between the export subsidy 
commitments in a Member's schedule and the Agreement on Agriculture ."332  The European 
Communities also argues that the Panel erred in relying on the findings of the GATT panel in  
                                                      
325Panel Reports, para. 7.157 (referring to Appellate Body Report, EC – Bananas III , para. 154;  
Appellate Body Report, EC – Poultry , para. 98;  Appellate Body Report, Chile – Price Band System , para. 272;  
GATT Panel Report, US – Sugar , paras. 5.2 and 5.3). 
326Ibid., para. 7.158. 
327Ibid. 
328Ibid. 
329Ibid., para. 7.159. 
330Ibid., para. 7.161. (emphasis added;  footnote omitted) 
331Ibid. 
332European Communities' appellant's submission, para. 156.  We address the issue of hierarchy below.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 75 
  
US – Sugar .
333  The European Communities, moreover, disag rees with the Panel that Article 8 of the 
Agreement on Agriculture  can be interpreted to mean that "a  Member's Schedule cannot provide for 
non-compliance with provisions of the Agreement on Agriculture ".334  According to the European 
Communities, Article 8 merely provides that a Member must respect both the provisions of the 
Agreement on Agriculture   and its Schedule, but it does not prescribe the hierarchy between the two.  
We examine each of these arguments in turn. 
215. Article 8 of the Agreement on Agriculture , entitled "Export Competition Commitments", 
reads: 
Each Member undertakes not to provide export subsidies otherwise 
than in conformity with this Agre ement and with the commitments as 
specified in that Member's Schedule. 
 
216. It is clear from the plain wording of Article  8 that Members are prohibited from providing 
export subsidies otherwise than in conformity with the Agreement on Agriculture  and the 
commitments as specified in their Schedules.  T hus, compliance with both is obligatory.  As 
compliance with the provisions of the  Agreement on Agriculture  is obligatory, it is clear that the 
commitments specified in a Member's Schedule must  be in conformity with the provisions of the 
Agreement.  Only then would the export subsid ies be in compliance with the requirements of 
Article 8. 
217. We turn to the European Communities' argume nt that the Panel erred in relying on the 
findings of the GATT panel in  US – Sugar .  In that case, the United States, as the responding party, 
argued that, because Article II:1(b)335 of the GATT 1947 contemplated the possibility of making tariff 
concessions "subject to terms, conditions or qualifi cations", the United States was entitled to reserve 
the right to impose quantitative restrictions that woul d otherwise be prohibited by Article XI:1 of the 
GATT 1947.336  The GATT panel in  US – Sugar  rejected this argument, noting that: 
                                                      
333European Communities' appellant's submission, paras. 161-162. 
334Ibid., para. 164 (quoting Panel Reports, para. 7.161). 
335Article II:1(b) of the GATT 1994 provides that the products described in Members' Schedules of 
Concessions: 
... shall, on their importation into the te rritory to which the Schedule relates, 
and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set 
forth and provided for therein. 
336GATT Panel Report, US – Sugar , paras. 3.7 and 5.1. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 76 
  
Article II gives contracting parties the possibility to incorporate into the legal framework of the Ge neral Agreement commitments 
additional to those already contai ned in the General Agreement and 
to qualify such additional commitments, not however to reduce their 
commitments under other provisions of that Agreement .
 337 (emphasis 
added) 
 
218. The European Communities submits th at the principle articulated in US – Sugar , while 
dealing the with specific terms of Article II:1 of  the GATT 1947, cannot be "transferred" to the  
Agreement on Agriculture   as that Agreement has "no language ... with a comparable content".338 
According to the European Communitie s, the principle enumerated in  US – Sugar  applies "only ... if 
it can be derived from the various provisions of the  Agreement on Agriculture ".339 
219. We do not agree with the European Communities.  The GATT panel in  US – Sugar  did not 
rely solely on the language of Article II:1(b) of  the GATT 1947 in making its ruling, as the European 
Communities suggests.  Instead, the panel's reasoning was that, in the absence of a specific provision 
that would entitle Members to depart from their obligations under the GATT 1947, Members were not 
entitled to do so.  Thus, the GATT panel in  US – Sugar  concluded:   
Article II:1(b) does not permit cont racting parties to qualify their 
obligations under other provisions of  the General Agreement and that 
the provisions in the United States GATT Schedule of Concessions 
can consequently not justify th e maintenance of quantitative 
restrictions ... inconsistent with the application of Article XI:1.340 
 
220. Similarly, in this case, we find no provision under the  Agreement on Agriculture  that 
authorizes Members to depart, in their Schedules, from their obligations under that Agreement.  
Indeed, as we have noted, Article 8 requires that , in providing export subsidies, Members must 
comply with the provisions of both the Agreement on Agriculture  and the export subsidy 
commitments specified in their Schedules.  This is  possible only if the commitments in the Schedules 
are in conformity with the provisions of the  Agreement on Agriculture .  Thus, we see no basis for the 
European Communities' assertion that it coul d depart from the obligations under the  Agreement on 
Agriculture  through the claimed commitment provided in Footnote 1.  
                                                      
337GATT Panel Report, US – Sugar , para. 5.3. 
338European Communities' appellant's submission, para. 162. 
339Ibid. 
340GATT Panel Report, US – Sugar , para. 5.7.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 77 
  
221. In any event, we note th at Article 21 of the  Agreement on Agriculture  provides that:  "[t]he 
provisions of [the] GATT 1994 and of other Multilatera l Trade Agreements in Annex 1A to the WTO 
Agreement shall apply subject to the provisions of  this Agreement."  In other words, Members 
explicitly recognized that there may be conflicts between the Agreement on Agriculture  and the 
GATT 1994, and explicitly provided, through Article 21, that the Agreement on Agriculture would 
prevail to the extent of such conflicts.  Similarly, the  General interpretative note to Annex 1A  to the  
WTO Agreement   states that, "[i]n the event of conflict be tween a provision of the [GATT 1994] and a 
provision of another agreement in Annex 1A ..., the provision of the other agreement shall prevail to 
the extent of the conflict."  The  Agreement on Agriculture   is contained in Annex 1A to the WTO 
Agreement . 
222. As we noted above, Footnote 1, being part of  the European Communities' Schedule, is an 
integral part of the GATT 1994 by virtue of Article 3.1 of the  Agreement on Agriculture .  Therefore, 
pursuant to Article 21 of the  Agreement on Agriculture , the provisions of the Agreement on 
Agriculture prevail over Footnote 1.  We, therefore, do not  agree with the European Communities that 
"there is no hierarchy between the export subsid y commitments in a Member's schedule and the  
Agreement on Agriculture ."
341 
223. As a separate matter, we note that the Europ ean Communities asserts that Footnote 1 was 
"negotiated" with its partners in the Uruguay R ound negotiations and that it has been "respected".342  
Accordingly, Footnote 1 forms part of the treaty ratified by the WTO Members.  Similarly, the ACP Countries allege that Footnote 1 "was negotiate d and agreed upon" or acquiesced in by the 
Complaining Parties before the end of the Uruguay Round.
343  The Panel found, however, that "[t]he 
evidence and submissions produced by all parties s how that the Complainants did not agree to any 
European Communities' deviations from the  Agreement on Agriculture ."344  The Panel concluded that 
"participants in the Uruguay Round and WTO Memb ers did not agree to the European Communities' 
inclusion of Footnote 1 as an agreed departure from the European Communities' basic obligations 
under the  Agreement on Agriculture ."345  Accordingly, we see no basis in the Panel Reports for the 
contention of the European Communities and the ACP Countries that the Complaining Parties or the 
                                                      
341European Communities' appellant's submission, para. 156.   
342Ibid., footnote 77 to para. 114.   
343ACP Countries' response to ques tioning at the oral hearing.  
344Panel Reports, para. 7.210.  
345Ibid., para. 7.220.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 78 
  
WTO Members negotiated or agreed to Footnote 1 as a departure from the European Communities' 
obligations under the  Agreement on Agriculture .
346   
G. Conclusion 
224. For all these reasons, we find that, even assuming that Footnote 1 constitutes a "commitment" 
expressing a limitation on export subsidization of AC P/India equivalent sugar, Footnote 1 does not 
contain  both quantity and budgetary  commitments  and is, therefore, inconsistent with Article 3.3 of 
the  Agreement on Agriculture .  In addition, Footnote 1 is inconsistent with Article 9.1 of the  
Agreement on Agriculture , because exports of ACP/India equivalent sugar are not subject to  
reduction commitments .  As Footnote 1 is inconsistent with th e provisions of Articles 3.3 and 9.1, it 
follows that Footnote 1 is also inconsiste nt with Article 8 of the Agreement.   
225. We do not agree with the Panel that Footnote 1 "is of no legal effect".347  However, we agree 
with the Panel that Footnote 1 does not have the le gal effect of enlarging or otherwise modifying the 
European Communities' commitment levels as specified in its Schedule. 
226. Accordingly, we uphold  the Panel's finding, in paragraphs 7.191, 7.198, 7.222, and 8.1(a) of 
the Panel Reports, that Footnote 1 does not enlarge or otherwise modify the European Communities' 
commitment levels as specified in its Schedule. 
 
VI. Payments under Article 9.1(c) of the  Agreement on Agriculture  
A. Preliminary Remarks 
227. Before the Panel, the Complaining Parties clai med that the EC sugar regime involved various 
types of "payments on the export of an agricultural product that are financed by virtue of governmental action" within the mean ing of Article 9.1(c) of the  Agreement on Agriculture .  The 
Panel stated that the Complaining Parties claimed that the EC sugar regime: 
                                                     
 
346We acknowledge the arguments of  the ACP Countries regarding the importance of sugar production 
for the economies of the ACP countries, as well as th e significance that the ACP countries attach to their 
preferential access to the Eu ropean Communities' market.  Howeve r, we are unable to regard these 
considerations as relevant for our legal interpretation of Footnote 1 and its consistency with the European 
Communities' obligations under Articles 3, 8, and 9.1 of the  Agreement on Agriculture.  
347Panel Reports, paras. 7.198 and 7.222.    WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 79 
  
... involves a series of payments incl uding:  (a) payment in the form 
of below costs C beet sales to C sugar producers/exporters;  (b) payment in the form of cross-subsidization resulting from the 
profits made on sales of A and B sugar used to cover the fixed costs 
of the production/export of C sugar;  (c) payment in the form of exports of C sugar below total cost s of production;  and (d) payments 
in the form of high prices paid by consumers.
348 (footnote omitted) 
 
228. The Panel limited its examination to the first two of the four types of alleged export subsidies 
set out above.  The Panel found, with respect to the first type of "payment", that "C sugar producers 
receive payment on export by virtue of government al action through sales of C beet below the total 
costs of production to C sugar producers."349  As for the second type of "payment", the Panel found 
that "producers/exporters of C sugar ... receive pa yments on export by virtue of governmental action 
... in the form of transfers of financial resour ces, through cross-subsid ization resulting from the 
operation of the EC sugar regime".350  Thus, the Panel found that both types of "payments" examined 
by it are "payments on the export ... financed by vi rtue of governmental action", within the meaning 
of Article 9.1(c) of the  Agreement on Agriculture ,  and that, therefore, they constitute exports 
subsidies within the meaning of Article 9.1.  The Panel then concluded that the European 
Communities had not demonstrated, pu rsuant to Article 10.3 of the Agreement on Agriculture , that 
exports of C sugar exceeding the European Co mmunities' commitment levels since 1995 are not 
subsidized.351 
229. The European Communities appeal s certain aspects of the Panel's findings with respect to 
these two alleged export subsidies.  In our consid eration of the European Communities' appeal, we 
examine, first, the Panel's finding that the sales of C beet by beet growers to C sugar producers constitute an export subsidy within  the meaning of Article 9.1(c);  and secondly, whether what the 
Panel described as "cross-subsidization" constitutes an export subsidy within the meaning of that 
provision. 
B. Do Sales of C Beet Involve Export Subsidies within the Meaning of Article 9.1(c)? 
230. The Panel made three distinct fi ndings in concluding that sales of C beet by beet growers to 
sugar producers constitute an expor t subsidy within the meaning of Article 9.1(c) of the  Agreement 
on Agriculture .  The Panel held, first, that sales of C beet involved "payments", because C beet was 
                                                     
 
348Panel Reports, para. 7.252.  
349Ibid., para. 7.293.  
350Ibid., para. 7.338.  
351Ibid., para. 7.339.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 80 
  
being sold at prices below its average total cost of production
352;  secondly, that these payments were 
"on the export "353;  and, thirdly, that these "payments" were " financed by virtue of governmental 
action ".354  The European Communities does not appeal the first and second of these Panel findings.  
Rather, the European Communities a ppeals the third Panel finding, that is, that "payments" in the 
form of sales of C beet are "financed by virtue of governmental action".   
231. In making the contested finding, the Panel stated first that a "demonstrable link" and "clear 
nexus" between the financing of the payments and the governmental action must be established in 
order for the "payment" to qualify as a payment "financed by virtue of governmental action".  The 
Panel then found that "a significant percentage of farmers of C beet are likely to finance sales of 
C beet below the costs of production as a result of [their] participation in the domestic market in 
selling high priced A and B beet."355  The European Communities, acco rding to the Panel, controls 
virtually every aspect of domestic beet and sugar supply and management.  In particular, the price and 
supply of A and B beet are fixed with a view to ensuring a stable and adequate income to beet 
growers;  C beet (which is over-quota beet), genera lly speaking, can be used only in the production of 
C sugar, that is, over-quota sugar.356  Financial penalties are imposed by the European Communities 
on producers that divert C sugar into the domestic market.  The Panel considered this "controlling 
governmental action" to be "indispensable" to the tr ansfer of resources from consumers and tax payers 
to sugar producers and, through them, to A and B beet growers.357 
232. On appeal, the European Commun ities argues that the Panel applied a test whereby the phrase 
"financed by virtue of governmental action" w ill be satisfied where governmental action merely 
"enable[s]" the beet growers to  finance and make payments.358  The European Communities also 
                                                      
352Panel Reports, para. 7.270.  We note that the Panel found that "[t]here is uncontested evidence that 
C beet is sold to C sugar producers at prices well below its cost of production " and that "[t]he European 
Communities does not contest the cost of production figures and related data". ( Ibid., paras. 7.265 and 7.267) 
(emphasis added)  We note that the Panel did not, in the Panel Reports, disclose the actual cost of production 
data, due to the confidential nature of that data.   
353Ibid., para. 7.279. (original emphasis)  
354Ibid., para. 7.292. (original emphasis) 
355Ibid., para. 7.291. 
356Ibid., para. 7.283.  
357Ibid., para. 7.291. We note that, according to the Co mmission of the European  Communities, C beet 
is being sold at prices ranging between € 10-20 per tonne. (Commission of the European Communities, 
"Common Organisation of the Sugar Market: Description", Exhibit COMP-8 submitted by the Complaining 
Parties to the Panel, section 3.2, p. 10)  The price of € 10-20 per tonne for C beet may be contrasted with the minimum prices for A and B beet of € 46.72 and € 32.42 per tonne, respectively. (Articles 4-5 of Council 
Regulation (EC) No. 1260/2001) 
358European Communities' appellant's submission, para. 268.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 81 
  
argues that the Panel incorrectly assumed that beet growers "finance" the sales of C beet by profits 
from sales of A and B beet and that governmental act ion in the European Comm unities' beet market is 
"less pervasive"
359 than in  Canada – Dairy .  The European Communities also argues that the Panel 
disregarded certain "other factors" that affect the supply and prices of C beet, but do not involve 
governmental action.360 
233. Our analysis begins with the text of Article 9.1(c) of the  Agreement on Agriculture , which 
provides: 
Export Subsidy Commitments 
1. The following export subsidies are subject to reduction 
commitments under this Agreement:  
... 
(c) payments on the export of an agricultural product that are 
financed by virtue of governmental action, whether or not a charge 
on the public account is involved,  including payments that are 
financed from the proceeds of a levy imposed on the agricultural 
product concerned or on an agricultural product from which the exported product is derived[.] 
 
234. The Appellate Body has previously addressed Article 9.1(c) of the  Agreement on Agriculture   
in  Canada – Dairy , as well as in the compliance proceedings in that dispute, namely, Canada – Dairy 
(Article 21.5 – New Zealand and US)  and  Canada – Dairy  (Article 21.5 – New Zealand and US II) .  
In those disputes, the Appellate Body interpreted the various elements of the phrase "financed by 
virtue of governmental action".   
235. With respect to "governmental action", the A ppellate Body found that "[t]he essence of 
'government' is ... that it enjoys the effective power to 'regulate', 'control' or 'supervise' individuals, or 
otherwise 'restrain' their conduct, thro ugh the exercise of lawful authority."
361  The Appellate Body 
also held that Article 9.1(c) does not place any qu alifications on the types of "governmental action" 
that may be relevant under that provi sion.  The governmental action need  not  involve a government 
"mandate" or other "direction".362   
                                                      
359European Communities' appellant's submission, heading VI.C.3. 
360Ibid., heading VI.C.4.  
361Appellate Body Report, Canada – Dairy , para. 97.  
362Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , paras. 127-128.   WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 82 
  
236. Addressing the word "financed", the Appellate Body  held that this word generally refers to 
the "mechanism" or "process" by which financial resources are provided, such that payments are 
made.
363  Article 9.1(c), by stating "whether or not  a charge on the public account is involved", 
expressly provides that the  government itself   need  not  provide the resources for producers to make 
payments.  Instead, payments may be made and funded by private parties.364 
237. With respect to the words "by virtue of", the Appellate Body has previously held that there 
must be a "nexus" or "demonstrable link" between the governmental action at issue and the financing 
of payments.365  The Appellate Body clarified that no t every governmental action will have the 
requisite "nexus" to the financing of payments.366  For instance, the Appellate Body held that the 
"demonstrable link" between "governmental action" and the "financing" of payments would not exist 
in a scenario in which "governmental action ... establish[es] a regulatory framework merely  enabling   
a third person freely to make and finance 'payments'."367  In this situation, the link between the 
governmental action and the financing of payments w ould be "too tenuous", such that the "payments" 
could not be regarded as "financed by virtue of governmental action" within the meaning of 
Article 9.1(c).368  Rather, according to the Appellate Body, there must be a "tighter nexus" between 
the mechanism or process by which the payments are financed (even if by a third person) and 
governmental action.369  In this respect, the Appellate Body clarified that, although governmental 
action is essential, Article 9.1(c) contemplates that "payments may be financed by virtue of 
governmental action even though significant aspects of the financing might not involve government."
370  Thus, even if government does not fund the payments itself, it must play a 
sufficiently important part in the process by whic h a private party funds "payments", such that the 
requisite nexus exists be tween "governmental action" and the "financing".371  The alleged link must be 
                                                      
363Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 132. 
364Ibid., paras. 87 and 132. 
365Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US) , para. 113;  Appellate 
Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 130.  
366Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 131.   
367Appellate Body Report,  Canada – Dairy (Article 21.5 – New Zealand and US) , para. 115. (emphasis 
added) 
368Ibid.  
369Ibid.  
370Ibid., para. 114.   
371Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 133.    WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 83 
  
examined on a case-by-case basis, taking account of the particular character of the governmental 
action at issue and its relationship to the payments made.
372 
238. Turning to the specific circumstances of the pr esent dispute, we note that, in its finding that 
"payments" in the form of sales of C beet below its  total cost of production are "financed by virtue of 
governmental action", the Panel relied on a number of  aspects of the EC sugar regime.  The Panel 
considered, inter alia , that:  the EC sugar regime regulates prices of A and B beet and establishes a 
framework for the contractual relationships between beet growers and sugar producers with a view to 
ensuring a stable and adequate income for beet growers 373;  C beet is invariably produced together 
with A and B beet in one single line of production374;  a significant percentage of beet growers  
are likely to finance sales of C beet below the total cost of production as a result of participation in  
the domestic market by making "highly remunerative" sales of A and B beet 375;  the European 
Communities "controls virtually every aspect of dom estic beet and sugar supply and management", 
including through financial penalties imposed on sugar producers that divert C sugar into the domestic 
market 376;  the European Communities' Sugar Manage ment Committee "overviews, supervises and 
protects the [European Communitie s'] domestic s ugar through, inter alia , supply management"377;  the 
growing of C beet is not "incidental", but rather an  "integral" part of the governmental regulation of 
the sugar market 378;  and C sugar producers " have incentives  to produce C sugar so as to maintain 
their share of the A and B quotas", while C beet gr owers "have an incentive to supply as much as is 
requested by C sugar producers with a view to r eceiving the high prices for A and B beet and their 
allocated amount of ... C beet".379   
239. We agree with the Panel that, in the circumstan ces of the present case, all of these aspects of 
the EC sugar regime have a direct bearing on whet her below-cost sales of C beet are financed by 
virtue of governmental action.  As a result, we ar e unable to agree with the European Communities' 
first argument on appeal, namely, that the Panel app lied a test under which an Article 9.1(c) subsidy 
                                                      
372Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 134 
(referring to Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US) , para. 115). 
373Panel Reports, para. 7.283.  We recall that the Panel found that the price of C beet is approximately 
60 per cent of the C sugar world market price. ( Ibid., paras. 7.265 and 7.283) 
374Ibid., para. 7.283.  The Panel also stated, in paragraph 6.10 of the Panel Reports, that "there is no 
independent production of C beet." 
375Ibid., para. 7.291. 
376Ibid. 
377Ibid. 
378Ibid., para. 7.290.  
379Ibid., para. 7.288. (original emphasis) WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 84 
  
was deemed to exist "simply because [governmental] action 'enabled' the beet growers to finance and 
make payments".
380  Rather, we believe that the Panel relied on aspects of the EC sugar regime that go 
far beyond merely "enabling" or "permitting" beet  growers to make payments to sugar producers.  
Indeed, in our view, there is a tight nexus between  the European Communities' "governmental action" 
and the financing of payments in the case before  us.  We have no doubt that, without the highly 
remunerative prices guaranteed by the EC sugar regime for A and B beet, sales of C beet could not take place profitably at a price below the total cost of production. 
240. The European Communities' second argument on appeal is that the Panel incorrectly 
"assumed" that a "significant" percentage of beet growers are "likely to finance sales of C beet below 
the costs of production as a result of participation in the domestic market in selling high priced A and B beet".
381  In our view, had the Panel been confront ed with the allegations and the evidence the 
European Communities provides in its appellant's submission, the Panel would have been under an 
obligation to examine them.  Howeve r, the European Communities did  not  argue before the Panel 
that sales of A and B beet are "largely insufficient to cover all the fixed costs of producing C beet", in 
the manner in which it is arguing this point on appeal.382 
241. The Appellate Body previously held, in  Canada – Aircraft , that new arguments are not 
excluded from the scope of appellate review "simply because they are new".383  However, in that case, 
the Appellate Body also said:  
... for us to rule on [the] new argume nt [at issue], we would have to 
solicit, receive and review new facts that were not before the Panel, and were not considered by it.  In our view, Article 17.6 of the DSU 
manifestly precludes us from e ngaging in any such enterprise.
384 
 
242. In this respect, we note that the European Co mmunities supports its argument on appeal with 
a table containing calculations (Table 9 in its appellant's submission385).  This table was not placed 
                                                      
380European Communities appellant's submission, para. 268.  
381Panel Reports, para. 7.291.  
382European Communities' appellant's submission, para. 279.  The European Communities, in response 
to questioning at the oral hearing, confirmed that it had not made this assertion before the Panel and that Table 9 
of its appellant's submission, which provides data and ca lculations in support of this assertion, had not been 
included in its written submission to the Panel.  The Euro pean Communities explained at the oral hearing that it 
was making its assertion on appeal "in response to the Panel finding".  
383Appellate Body Report, Canada – Aircraft , para. 211.   
384Ibid. 
385Table 9 is in paragraph 279 of the European Communities' appellant's submission.  See also supra , 
footnote 382.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 85 
  
before the Panel, but uses data drawn from Exhi bits presented to the Panel by the Complaining 
Parties.  We also note that the Complaining Parti es, in their respective appellee's submissions and at 
the oral hearing, contested the accuracy of some  of the calculations, as well as certain concepts 
underlying the European Communities' calculations.
386   
243. We note that, in its analysis of whether the be low-cost sales of C beet were "financed by 
virtue of governmental action", the Panel consid ered the key aspects of the EC sugar regime and 
concluded that "C beet growers can use the profits made on the sales of A and B beet to cross-subsidize the sale of C beet"
387 and that "a significant percentage of farmers of C beet are likely to 
finance sales of C beet below the costs of produc tion as a result of participation in the domestic 
market in selling high priced A and B beet."388  The European Communities, by means of the data and 
calculations contained in Table 9, is, in essence, challenging the manner in which the Panel weighed 
and assessed the evidence in coming to  the conclusion that C beet gr owers finance sales of C beet as a 
result of participation in the highly regulated dom estic market.  We have carefully reviewed the 
Panel's finding, as well as the European Communities'  arguments and supporting calculations, and do 
not find fault with the Panel's analysis, much less a fault that would justif y our interfering with the 
Panel's appreciation of the evidence. 
244. We now turn to the European Communities' argument that governmental action under the 
EC sugar regime is "less pervasive" than governmental action in  Canada – Dairy (Article 21.5 – New 
Zealand and the US II) .389  We do not consider it inherently useful to compare the governmental 
action at issue and the governmental action in the contex t of a different dispute.  The issue before us is 
not a comparison between two governmental regimes,  but rather, whether "payments" under the EC 
sugar regime are "financed by virtue of governme ntal action".  As the Appellate Body stated in  
Canada – Dairy (Article 21.5 – New Zealand and the US) , "the existence of ... a demonstrable link 
[between governmental action and the financing of payments] must be identified  on a case-by-case 
basis , taking account of the particular governmental action at issue   and its effects on payments made 
by a third person."390  In any event, we have already review ed the aspects of the EC sugar regime on 
                                                      
386In particular, the European Communities, on the one hand, and the Complaining Parties, on the other 
hand, disagreed as to which cost items should properly be included in the category of "fixed costs". (See 
European Communities' appellant's submission, footnote  242 to Table 9, para. 279;  Brazil's appellee's 
submission, paras. 106-109;  and Thailand's appellee's submission, paras. 153 and 161) 
387Panel Reports, para. 7.283.  
388Ibid., para. 7.291.  
389European Communities' appellant's submission, heading VI.C.3.  
390Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and the US) , para. 115. 
(emphasis added) WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 86 
  
which the Panel relied to make its finding, includi ng the "European Communities['] control[] [of] 
virtually every aspect of domestic be et and sugar supply and management"
391, and found the EC sugar 
regime to be pervasive.  Hence, the Panel correctly  concluded that the "payments" at issue are being 
"financed by virtue of governmental action".392  
245. The European Communities further argues that th e Panel disregarded or improperly dismissed 
"other factors" that affect the supply and prices of C beet, but that do not involve governmental action.  The existence of such factors, in the European Co mmunities' view, signifies that "the 'nexus' between 
'[governmental] action' and the alleged payments can not be considered 'tight' enough for a finding that 
the sales of C beet are financed 'by virtue of' [governmental] action."
393 
246. We are not persuaded by the European Communitie s' arguments.  First, we note that, before 
the Panel, the European Communities provided only limited argumentation and evidence on these 
factors.394  It would also appear that, with respect to at least one of these alleged "other factors"—the 
differences between dairy and sugar beet productio n—the European Communities did not provide  
any  factual evidence to the Panel to support its assertion.395  In any event, we do not see the relevance 
of a comparison between beet production and dair y production for examining whether below-cost 
sales of C beet are financed by virtue of govern mental action.  As regards the remaining "other 
factors" identified by the European Communities,  we also note that, in addressing the European 
Communities' arguments, the Panel referred to a number of these "factors", namely:  "yield ... 
movements"396;  whether the growing of C beet was "incidental" or "unintended" in nature397;  and the 
issue of gross profit margins of alternative crops.398  Hence, in our view, the Panel considered the 
arguments and the evidence presente d by the European Communities, but did not attach the same 
significance to them as did the European Communities. 
247. Secondly, the issue of the alleged "other fact ors" affecting the supply and price of C beet 
appears to be at least partially linked to the Euro pean Communities' argument that the production of 
C beet is, in part, "unintended".  In response to  questioning at the oral hearing, the European 
                                                      
391Panel Reports, para. 7.291.  
392See  supra , para. 239. 
393European Communities' appellant's submission, para. 291.  
394European Communities' responses to Questions 30 and 65 posed by the Panel.  
395European Communities' response to Question 30(c) posed by the Panel;  and European Communities' 
appellant's submission, paras. 215 and 262. 
396Panel Reports, para. 7.286.  
397Ibid., para. 7.290;  European Communities' appellant's submission, para. 287. 
398Panel Reports, para. 7.286.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 87 
  
Communities stated that two "types" of production of C beet exist:  one part of the production of 
C beet is due to "profit reasons", namely, where beet  growers are trying to obtain an additional profit 
because they are able to se ll C beet above marginal costs and their fixed costs are covered by sales of 
A and B beet or of other products
 399;  and another part of C beet production, by contrast, is 
"unintended" and is the result of "other factors", in pa rticular, yield variations.  Hence, it is clear that a 
part of C beet is produced because beet growers ar e able to obtain "additional profit" by selling such 
beet below its average total cost of production, but above its marginal costs, while covering their fixed 
cost by means of sales of A and B beet (or other products).400  
248. In this regard, it also bears pointing out that  the European Communities did not contest the 
Panel's finding that production of C sugar represents  11 to 21 per cent of the European Communities' 
overall production of A and B sugar and that, corr espondingly, C beet represents the same proportion 
of the production of A and B beet. C beet is an impor tant input for C sugar production.  We also recall 
that C beet is being sold at prices that are a pproximately 60 per cent of the C sugar world market 
price, which is well below its average total cost of production.401  In our view, the continued 
production of such large volumes of over-quota beet, at prices well below its cost of production, could 
not take place but for governmental action.  In this respect, it is useful to note that the Panel found that 
"the European Communities fails to explain why large numbers of [European Communities'] farmers 
are engaged in growing C beet if such production only serves to deliver losses" and "the European 
Communities ... fails to explain why farmers would ma intain, within a mix of farming activities, any 
sectoral production for which expected revenue is pe rsistently less than the cost of production ... of 
C beet."402 
249. As a result, we find no fault with the Panel' s weighing and appreciation of the evidence and 
with the Panel's conclusion that the "payments" at  issue are "financed by virtue of governmental 
action" within the meaning of Article 9.1(c) of the  Agreement on Agriculture .  In this regard, the 
                                                      
399The European Communities did not specify what such  "other products" may be, in its appellant's 
submission, or in response to questioning at the oral hearing. 
400With respect to this issue, moreover, the Europ ean Communities, in its appellant's submission as 
well as at the oral hearing, referred to an estimate that "unintentional" C sugar production (and, by implication, 
also C beet production ) is equal to about 6 per cent of the total quota production. (European Communities' 
appellant's submission, footnote 212 to para. 262)  Hen ce, "intended" C beet production—C beet production due 
to "profit reasons"—would have, over the past years, fluctuated between 5 and 15 per cent of the overall 
production of quota beet.  In other words, it would appear that C beet representing between 5 and 15 per cent of 
the European Communities' total quota production is produced "intentionally" by beet growers. 
401We understand that the production of one tonne of sugar requires approximately eight tonnes of beet. 
(Australia's appellee's submission, footnote 165 to para. 253 and footnote 168 to para. 254) 
402Panel Reports, para. 7.286.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 88 
  
European Communities, pursuant to Article 10.3 of the  Agreement on Agriculture , bears the burden 
of demonstrating that no export subsidies within the m eaning of Article 9.1(c) exist.  It was therefore 
for the European Communities to have submitted befo re the Panel adequate evidence with respect to 
"other factors" affecting the production and supply of  C beet.  The Panel weighed and appreciated the 
evidence and found that the European Communities did not do so.   
250. For these reasons, we  uphold  the Panel's finding, in paragr aph 7.292 of the Panel Reports, 
that the alleged payments in the form of low-pri ced sales of C beet to sugar producers are "financed 
by virtue of governmental action", within the meaning of Article 9.1(c) of the  Agreement on 
Agriculture . 
C. Do "Payments" in the Form of "Cross- subsidization" Cons titute Export Subsidies 
within the Meaning of Article 9.1(c)? 
1. Introduction
 
251. We now turn to address the Panel's finding that pa yments in the form of "cross-subsidization" 
resulting from the EC sugar regime confer an export subsidy within the meaning of Article 9.1(c) of 
the  Agreement on Agriculture .   
252. The Panel stated that the Complaining Parties claimed that the EC sugar regime:  
... involves a series of payments incl uding:  (a) payment in the form 
of below cost C beet sales to C sugar producers/exporters;  (b) payment in the form of cross-subsidization resulting from the profits made on sales of A and B sugar used to cover the fixed costs of the production/export of C sugar;  (c) payment in the form of 
exports of C sugar below total cost s of production;  and (d) payments 
in the form of high prices paid by consumers.
403 (footnote omitted) 
 
253. As we stated earlier, the Panel limited its exam ination to the first two alleged payments.  The 
Panel found that "cross-subsidization", "in the form of transfers of financial resources from the high 
revenues resulting from sales of A and B sugar, for the export production of C sugar", constitutes an 
export subsidy within the meaning of Article 9.1(c) of the  Agreement on Agriculture .404   
254. The European Communities argues on appeal that th is finding of the Panel is in error because 
(i) "cross-subsidization" does not constitute a "pay ment", because it does not involve a "transfer of 
                                                      
403Panel Reports, para. 7.252.  
404Ibid., paras. 7.314 and 7.338.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 89 
  
resources" to the sugar producers;  and (ii) the alleged "payment" is not made "on the export" of 
C sugar, because the sugar producers are not required to produce or export C sugar.
405  The European 
Communities also argues that the Panel acted incons istently with Article 11 of the DSU by making a 
finding with respect to a claim that the Co mplaining Parties "neither made nor argued".406 
255. We begin our consideration of this issue by setting out the text of Article 9.1(c) of the 
Agreement on Agriculture , which provides: 
Export Subsidy Commitments 
1. The following export subsidies are subject to reduction 
commitments under this Agreement:  
... 
(c) payments on the export of an agricultural product that are 
financed by virtue of governmental action, whether or not a charge on the public account is involved,  including payments that are 
financed from the proceeds of a levy imposed on the agricultural 
product concerned or on an agricultural product from which the exported product is derived[.] 
 
256. Our analysis of this issue proceeds as follo ws.  We examine, first, whether "cross-
subsidization" constitutes a "payment" within the meaning of Article 9.1(c) and, secondly, whether 
any such payment is "on the export of an agricultura l product" within the meaning of that provision.  
We then go on to consider the European Communities'  claim with respect to Article 11 of the DSU.  
Finally, we address Australia's claim that, if the Appellate Body were to reverse the Panel findings 
under Article 9.1(c), the European Communities' measures would fall under Article 10.1 of the  
Agreement on Agriculture . 
2. Whether "Cross-subsidization" Constit utes a "Payment" within the Meaning 
of Article 9.1(c) of the  Agreement on Agriculture  
257. In finding that "cross-subsidization" cons titutes a "payment" within the meaning of 
Article 9.1(c) of the  Agreement on Agriculture , the Panel addressed a number of factors.  Recalling 
the Appellate Body's finding in  Canada – Dairy (Article 21.5 – New Zealand and US) , the Panel used 
the average total cost of production benchmark for C sugar and noted that C sugar was sold on the 
world market at prices "well under" the average to tal cost of production every year from 1992/1993 to 
                                                      
405European Communities' appellant's submission, para. 170.  
406Ibid., para. 171.  We note that the Complaining Parties agree with the Panel's finding on "cross-
subsidization" and contend that the Panel addressed, in essence, their arguments, albeit using different language. 
(See  infra , Section VI.C.5) WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 90 
  
2002/2003.
407  The Panel observed that "the price charge d for C sugar does not even remotely cover 
its cost of production."408  The Panel also found that "to the exte nt that the fixed costs of A, B and C 
[sugar production] are largely paid for by the prof its made on sales of A and B sugar, the EC sugar 
regime provides the advantage which allows EC sugar producers to produce and export C sugar at 
below total cost of production."409  The Panel concluded that there was a "payment" "in the form of 
transfers of financial resources from the high reve nues resulting from sales of A and B sugar, for the 
export production of C sugar, within the meaning of Article 9.1(c) of the Agreement on 
Agriculture ."410 
258. The European Communities argues that the alleged "cross-subsidization" does not involve a 
"transfer of resources" to the sugar producers, but rather, is:  "an internal allocation of each sugar 
producer's own resources"411;  the alleged "cross-subsidization"  provides no benefit to the sugar 
producers;  and the Panel's interpre tation is not supported by the findi ngs of the Appellate Body in the 
Canada – Dairy  disputes.  The European Communities also  submits that the Panel's interpretation 
turns Article 9.1(c) into "a prohibition of low pr iced exports" and a "sort of blunt anti-dumping 
instrument".412 
259. The Appellate Body interpreted Article 9.1(c) of the  Agreement on Agriculture   in the appeal 
in  Canada – Dairy , as well as in the compliance proceedings in that dispute, Canada – Dairy  
(Article 21.5 – New Zealand and US)  and  Canada – Dairy  (Article 21.5 – New Zealand and US II) .  
In those disputes, the Appellate Body held that the word "payment" in Article 9.1(c) denotes "a 
                                                      
407Panel Reports, para. 7.301.  
408Ibid.  The Panel also observed that: 
The EC has not contested the Complainants' evidence that C sugar is sold at 
prices that give the producers a positive contribution to net income even 
though those prices are approximately *** per cent below average total cost 
of production.  Accordingly, the evidence clearly establishes that a 
"significant proportion" of EC producers –and one hundred per cent of those 
producing C sugar – make export sales of C sugar at prices below the 
average total cost of production.  
(Ibid., footnote 618 to para. 7.301) 
409Ibid., para. 7.310. (footnote omitted)  The Panel had before it data submitted by the Complaining 
Parties that were confidential in nature. (See supra , footnote 352)  In this respect, we are also bound by the 
confidential nature of the data.  We find it useful, howeve r, to point out that the effective world market price 
relied on by the Panel is not even one third of the European Communities domestic market price. 
410Panel Reports, para. 7.314.   
411European Communities' appellant's submission, para. 179.  
412Ibid., para. 180.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 91 
  
transfer of economic resources"
413 and that the ordinary meaning of the word "payment" 
"encompasses 'payments' made in forms other than money".414  The Appellate Body also found that 
Article 9.1(c) of the  Agreement on Agriculture   describes an "unusual form of subsidy"415, in that 
"payments" can be made by private parties and need not be made by a government.416  The Appellate 
Body has also held that  the notion of payments  covers "a diverse range of practices involving 
monetary transfers, or transfers-in-kind"417;  the "payments" may take place in "many different factual 
and regulatory settings"418;  it is necessary to consider the "particular features" of the alleged 
"payments"419;  and the standard for determining the existence of "payments" under Article 9.1(c) 
must be identified after careful scrutiny of th e factual and regulatory settings of the measure.420 
260. In addition, in  Canada – Dairy (Article 21.5 – New Zealand and US)  and  Canada – Dairy 
(Article 21.5 – New Zealand and US II) , the Appellate Body held that, in the circumstances of those 
disputes, the determination of whether payments were made depended on a comparison between the 
price of a particular product—commercial export milk ("CEM") in those cases—and an "objective 
standard or benchmark which reflects the  proper value of [that product] to [its] provider ".421  I n  
those disputes, the Appellate Body found that the standard for determining the proper value of CEM 
was the average total cost of production, as th is standard represented the economic resources the 
producer invested in the milk that was an input to the production of dairy products.  If CEM was sold 
at less than its proper value—namely, its averag e total cost of production—"payments" were made, 
because there was a transfer of the portion of economic resources that was not reflected in the selling price of CEM. 
261. In the dispute before us, the Panel applied this  benchmark, namely, the average total cost of 
production for sugar.  On appeal, in  this context, the European Communities does not take issue with 
the Panel's use of the average total cost of produc tion benchmark in order to ascertain the existence of 
                                                     
 
413Appellate Body Report, Canada – Dairy , para. 107.  
414Ibid., para. 112.   
415Appellate Body Report, Canada – Dairy  (Article 21.5 – New Zealand and US II) , para. 87.  
416Moreover, "payments" within the meaning of Article 9.1(c) need not be funded from government 
resources, provided they are "financed by virtue of governmental action". (Appellate Body Report, Canada – 
Dairy  (Article 21.5 – New Zealand and US) , para. 114)  
417Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 87. 
418Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US) , para. 76.  
419Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 87.  
420Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US) , para. 76.  
421Ibid., para. 74. (emphasis added) WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 92 
  
"payments".
422  Rather, the European Communities argues th at the "payments" identified by the Panel 
are not "payments" within the meaning of Article 9.1(c), because they const itute only an "internal 
allocation" of the sugar producer's resources a nd do not provide the sugar producer with new 
additional resources.423  The European Communities submits th at the existence of a "transfer of 
resources" implies, by definition, the presence of two different parties, "one which grants the 
resources and another which receives them".424   
262. We note, first, that Article 9.1(c) does not qualify the term "payments" by reference to the 
entity making, or the entity receiving the payment.   This may be contrasted with, for instance, 
Articles 9.1(a) and 9.1(b) of the  Agreement on Agriculture , which specifically refer to the entities 
making and also, in the case of Article 9.1(a), to  the entity receiving the alleged export subsidy.  
Moreover, Article 9.1(c), on its face, does not qualif y the meaning of the term "payments", other than 
by requiring that the alleged "payments" be "on the export of an agricultural product" and "financed 
by virtue of governmental action".   
263. As we noted above, the European Communities su bmits, first, that a "payment" within the 
meaning of Article 9.1(c) requires, by definition, th e presence of two distinct legal entities.  We agree 
with the European Communities that  a "payment", within the meaning of Article 9.1(c), certainly 
occurs when one entity transfers economic resourc es to another entity.  For instance, the Panel 
found—and the European Communities did not appeal the Panel's finding—that beet growers transfer 
economic resources to sugar producers by means of belo w-cost sales of C beet.  In this instance, two 
distinct economic operators exist, and the "payment" is made by one to the other. 
264. This, however, does not imply that the term "p ayment" necessarily requires, in each and every 
case, the presence of two distinct entities.  In othe r words, contrary to th e European Communities' 
argument, we do not see, a priori , any reason why "payments", within the meaning of Article 9.1(c), 
cannot include, in the particular circumstances of  this dispute, transfers of resources within one 
                                                      
422In its statement at the oral hearing, the Europe an Communities referred to the cost of production 
benchmark for the purposes of Article 9.1(c) and the imp lications of thereof for domestic support systems.  
423European Communities' appellant's submission, para. 179. 
424Ibid., para. 183.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 93 
  
economic entity.
425  The "payment" in this case is not merely a "purely  notional  "426 one but,  
rather, reflects a very concrete transfer of ec onomic resources to C sugar production.  In the  
specific dispute before us, C sugar is being sold on the world market by European Communities' sugar 
producers/exporters at a price that does not "even remotely"427 cover its average total cost of 
production.428  In the light of the enormous difference between the price of C sugar and its average 
total cost of production, we do not see how the "payment" identified by the Panel was "purely notional".
429 
265. The European Communities' approach is, in our view, too formalistic.  To illustrate, one could 
envisage a scenario under which the producers of C s ugar are legally distinct from the producers of 
A and B sugar.430  In this situation, the European Co mmunities' approach could recognize that a 
"payment" under Article 9.1(c) could exist because there would be a transfer of economic resources 
between different parties.431  If, however, these same producers of A, B, and C sugar were integrated 
producers and organized as single legal entities, a payment under Article 9.1(c) would not exist, 
because the transfer would be merely "internal" .  We do not believe that the applicability of 
Article 9.1(c) should depend on how an  economic entity is legally organized. 
266. Accordingly, we do not share the European Co mmunities' objections to the Panel's findings 
on "cross-subsidization" in the case before us.  In this  respect, we are also mindful of the fact that, in 
the ordinary course of business, an economic opera tor makes a decision to produce and sell a product 
expecting to recover the total cost of production and to  make profits.  Clearly, sales below total cost of 
production cannot be sustained in the long term, unless they are financed from some other sources.  
                                                      
425In any event, we also note that the Panel did not describe "cross-subsidization"—the "payment" at 
issue—as consisting  merely  of an "internal allocation", within one single economic entity, of that entity's 
resources.  Rather, the Panel considered the cumulativ e advantages that sugar producers receive from the 
operation of the EC sugar regime to be a key component of the "payment" in the form of cross-subsidization.  The Panel went on to state that "to the extent that the fixed costs of A, B and C [sugar production] are largely 
paid for by the profits made on sales of A and B sugar, the EC sugar regime provides the advantage which 
allows ... sugar producers to produce and export C sugar at below total cost of production." (Panel Reports, para. 7.310) (footnote omitted)  The Panel concluded that "this cross-subsidization constitutes a payment in the 
form of a transfer of financial resources." ( Ibid.) 
426European Communities' appellant's submission, para. 199. (emphasis added)  
427Panel Reports, para. 7.301.  
428We also recall that C sugar production represents "11-21 per cent of the total EC sugar production".  
(Panel Reports, para. 7.320) (footnote omitted) 
429European Communities' appellant's submission, para. 199.  
430This scenario assumes that the economic circumst ances of sugar production are the same as in a 
scenario where A, B, and C sugar producers are legally integrated.  
431We note that, in paragraph 7.294 of the Panel Repo rts, the Panel referred to such a hypothetical 
scenario. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 94 
  
This is especially true when the vo lume of the loss-making sales is substantial.  It may be noted that 
between 1997 and 2002, C s ugar exports varied between 1.3 and 3.3 million tonnes
432, with the sales 
price not "even remotely" covering the average total cost of production of sugar.433   
267. Finally, we believe that the Panel did not err wh en it applied, in ascertaining the existence of 
"payments" under Article 9.1(c), the average total co st of production benchmar k, which the Appellate 
Body held was appropriate in the circumstances in  Canada – Dairy (Article 21.5 – New Zealand and 
US).  Given the huge volumes of C sugar exports and the price at which C sugar is being sold on the 
world market, we concur with the Panel that  such production quantities cannot be deemed 
"incidental".434  We note in this context that C sugar represents between 11 and 21 per cent of the 
European Communities' total quota production, an d that between 1997 and 2002, exports ranged 
between 1.3 and 3.3 million tonnes.  As we have al ready noted, C sugar is being sold on the world 
market for prices that do not "even remotely" cover its average total cost of production.435   
268. Having addressed, and rejected, the European Co mmunities' argument that the Panel's finding 
is in error, because the "payment" at issue is only an "internal allocation" of resources and it is "notional", we turn to another argument put forw ard by the European Communities.  The European 
Communities argues that, because the alleged "c ross-subsidization" involves no "transfer of 
resources" to the sugar producers, it confers no  benefit   upon these producers and, therefore, cannot 
be considered to provide a subsidy.
436  The European Communities disag rees with the Panel's finding 
that Article 9.1(c) does not require the demonstr ation of a benefit for a measure to constitute a 
"payment" within the meaning of that provision. 
                                                      
432European Communities' response to Question 36 posed by the Panel. 
433Panel Reports, para. 7.301.  
434Ibid., paras. 7.290 and 7.320.  
435Ibid., para. 7.301.  We recognize that commercial en tities, in the normal course of their business, 
make sales at "marginal" profit by covering only the variable costs of the "marginal" production, after having covered all the fixed costs through other sales.  However, where such "marginal" sales are the result of 
government subsidies, an examination is required of the nature and extent of these sales.  Such examination 
should take into consideration, inter alia , the magnitude of the "marginal" sales, the degree to which the 
marginal sales are below total cost of production, the period over which such  sales take place (that is, whether in 
the short term or on a regular and sustained basis), and the nature of the regulatory regime, which underpins 
such sales.  In particular, on this last point, the ex amination should consider whether the regulatory regime 
requires exportation of the subsidized product or export of the product in which the subsidized product is 
incorporated.  As we stated in  Canada – Dairy , the facts and circumstances of each case and the features of the 
regulatory regime must be examined carefully to determ ine that the total average cost of production benchmark 
used in  Canada – Dairy   would appropriately apply to the export subsidies at issue in the case under 
examination.  In the circumstances of this dispute, with respect to export of C sugar, which, under the EC sugar regime must be exported, we are of the view that the application of this benchmark to C sugar (as well as to 
C beet) is appropriate. 
436European Communities' appellant's submission, para. 191.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 95 
  
269. The chapeau of Article 9.1 provides: "The fo llowing export subsidies are subject to reduction 
commitments".  Hence, Article 9.1 sets forth a list of practices that, by definition, involve export 
subsidies.  In other words, a measure falling within  Article 9.1 is deemed to be an export subsidy 
within the meaning of Article 1(e) of the  Agreement on Agriculture .  We observe that Article 9.1(c) 
requires no independent enquiry into the existence of a "benefit".   
270. For these reasons, we  uphold  the Panel's finding, in paragr aph 7.334 of the Panel Reports, 
that, in the particular circumstances of this dis pute, the production of C sugar receives a "payment on 
the export financed by virtue of governmental acti on", within the meaning of Article 9.1(c) of the  
Agreement on Agriculture , in the form of transfers of financ ial resources through cross-subsidization 
resulting from the operation of the EC sugar regime. 
271. We turn next to examine whether the Panel w as correct in finding that the "payment" in the 
form of "cross-subsidization" is "on the e xport", within the meaning of Article 9.1(c). 
3. Whether "Payment" in the Form "Cross-subsidization" is "On the Export" 
within the Meaning of Article 9.1(c) of the  Agreement on Agriculture  
272. The Panel concluded that the "payment" in the form of "cross-subsidization" was a payment 
"on the export" of C sugar within the meaning of Article 9.1(c) of the  Agreement on Agriculture .  The 
Panel based its finding on the fact that C sugar, unl ess carried forward, must be exported.  The Panel 
stated that "[b]ecause of that legal requirement, a dvantages, payments or subsidies to C sugar, that 
must be exported, are subsidies 'on the export' of that product."437  The Panel also added that "[t]he 
only reason why producers of C sugar export C suga r, is because they are prohibited from introducing 
such sugar into the domestic market, facing heavy penalties pursuant to Article 13 of the 
EC Regulation [1260/2001] if they do."438   
273. The European Communities argues that the Pane l misinterpreted the requirement that a 
payment be "on the export" of an agricultural produc t, as contained in Article 9.1(c).  The European 
Communities argues that this term must be read as meaning "contingent on" exports, rather than "in 
connection with" or to the "advantage" of exports .  The European Communities contends that, under a 
proper interpretation of the requirement "on the export" , this requirement is not satisfied in the present 
                                                      
437Panel Reports, para. 7.321.  
438Ibid. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 96 
  
case because "the sugar producers are entirely free to decide whether or not to produce C sugar and, in 
fact, many do not produce any C sugar at all."
439 
274. We note, first, that the Panel interpreted th e phrase "on the export" in the context of its 
analysis of "payments" in the form of below-cost sales of C beet, and not in the context of examining 
"payments" in the form of cross-subsidization.  In  relation to below-cost sales of C beet, the Panel 
stated that "payments" "on the export" need not be  "contingent on" the export but, rather, need be  
"in connection" with exports.440  When analyzing whether "payments" in the form of "cross-
subsidization" were "on the export", the Panel did  not  use the same reasoning.  Instead, the Panel 
based its findings on the following reasoning: 
C sugar [can] only be sold for ex port.  If not reclassified, C sugar 
"may not be disposed of in the Community's internal market and 
must be exported without further processing."  Because of that legal 
requirement, advantages, payments or subsidies to C sugar, that must 
be exported, are subsidies "on the export" of that product.441 (footnote 
omitted) 
 
275. We agree with the Panel.  Under Article 13(1)  of EC Regulation 1260/2001, C sugar "must be 
exported".442  It follows that payments in the form of  "cross-subsidization" are, by definition, 
"payments" "on the export".   
276. The European Communities argues that there is no requirement to  produce   sugar under the 
EC sugar regime and hence payments in the form of "cross-subsidization" are not "on the export" 
within the meaning of Article 9.1(c).  In our vi ew, the Panel neither suggested that there is a 
requirement to  produce  C sugar, nor relied on such a requireme nt for its conclusion that "payments" 
in the form of "cross-subsidization" are "on the export".  Rather, the Panel relied on the fact that, 
under EC Regulation 1260/2001, C sugar, once produced ,  must be exported. 
277. The European Communities refers to the possi bility, under EC Regulati on 1260/2001, to store 
and "carry forward" C sugar to the next marketing year, up to an amount equivalent to 20 per cent of 
the A sugar quota.  We are not persuaded that the pos sibility to store and "carry forward" C sugar has 
a bearing on the criterion "on the export" in this dispute.  According to the European Commission, 
                                                      
439European Communities' appellant's submission, para. 223.  
440Panel Reports, para. 7.275. 
441Ibid., para. 7.321 (quoting Article 13(1) of Council Regulation (EC) No. 1260/2001). 
442Of course, C sugar may also be carried forward, in  which case it will count as part of a producer's 
sugar quota in another marketing year.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 97 
  
C sugar "carried forward" is "treated as A sugar produced by [a producer] as part of that year's 
production".
443  Moreover, when "carried over" sugar is  sold on the European Communities domestic 
market, the sugar producers must pay to beet growers "the guaranteed prices" that apply only to quota 
beet and not to C beet.444  It would appear, therefore, that carrying C sugar forward, for all practical 
purposes, is in effect a reclassification of C sugar into  quota sugar.  As a result, we do not believe that 
the possibility to "carry forward" C sugar invalidates the Panel's finding that "payments" in the form 
of "cross-subsidization" are "on the export" of C sugar. 
278. For these reasons, we  uphold  the Panel's finding, in paragr aph 7.322 of the Panel Reports, 
that "the payment on C sugar production in the form  of [a] transfer of financial resources through 
cross-subsidization resulting from the oper ation of the EC sugar regime is  on [the] export   within the 
meaning of Article 9.1(c) of the  Agreement on Agriculture ." (original emphasis) 
279. We wish now to address the European Comm unities' concern that upholding the Panel's 
finding that the payments at issue are "on the export" within the meaning of Article 9.1(c) would lead 
to "blur[ring] the distinction between the disciplines on domestic support and on export subsidies, which is an essential feature of the  Agreement on Agriculture "
445 and would "allow ... virtually any 
form of domestic support" to be "cha racterize[d] as an 'export subsidy'".446  As the Appellate Body has 
previously stated, WTO Members are entitled to provide " domestic support " to agricultural producers 
within the limits of their domestic subsidy commitments.447  We observe, however, that the Appellate 
Body has also held that economic effects of WT O-consistent domestic suppor t may "spill over" to 
benefit export production.  Such spill-over effects may arise, in particular, in circumstances where 
agricultural products result from a single line of  production that does not distinguish between 
production destined for the domestic market a nd production destined for the export market.448   
280. In this respect, the Appellate Body has cauti oned that, "if domestic support could be used, 
without limit, to provide support for exports, it wo uld undermine the benefits intended to accrue 
                                                      
443Commission of the European Communities, "Common Organisation of the Sugar Market:  
Description", Exhibit COMP-8 submitted by the Complain ing Parties to the Panel, section 3.2, p. 10.  
444Ibid. 
445European Communities' appellant's submission, para. 225.  
446Ibid., para. 240.  We also note that, at the oral hearing, Canada stated  that the Panel's approach to the 
term "on the export" would mean exposing "bona fide" domestic support to challenge.  
447Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US) , para. 88. (original 
emphasis) 
448Ibid., para. 89.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 98 
  
through a WTO Member's export subsidy commitments."
449  We believe that these statements are 
relevant to the present case.  In this case, we note that C sugar is produced and exported in huge 
quantities, and that there is a considerable differe nce between the world market price and the average 
total cost of production of sugar in the Europ ean Communities.  As we have noted above, the 
subsidized production and export of C sugar is no t the incidental effect of the domestic support 
system, but is a direct consequence of the EC sugar regime.450 
281. We also disagree with the European Communities'  argument that the Panel's finding blurs the 
distinction between domestic s upport and export subsidies;  we disagree, because the European 
Communities' legislation  requires   the exportation of C sugar, a nd prices obtained for C sugar on the 
world market are significantly below the average to tal cost of production of sugar in the European 
Communities.  In our view, European Communities' legislation leaves the sugar producer wishing to 
sell C sugar with no choice but to export, short of the limited option of "carry over".  We also note 
that the operation of the EC sugar regime enab les sugar producers to cover the fixed costs of 
producing sugar and to sell C suga r profitably, even though the prices obtained for C sugar are 
significantly below the average total cost of production of sugar.  
282. Thus, we do not consider that our interp retation erodes the boundary between "domestic 
support" and "export subsidies" recognized under the Agreement on Agriculture .  Rather, our 
interpretation respects the boundary between the two and operates to ensure that Members provide 
domestic support and export subsidies in conf ormity with their obligations under the  Agreement on 
Agriculture .  As we noted earlier, our interpretation is based on the specific facts and circumstances of 
this dispute. 
283. We also reject the European Communities' allegation that, by upholding the Panel's finding, 
our interpretation of Article 9.1(c) would turn this provision into "a prohibition of low priced exports".
451  Article 9.1(c) addresses "payments on the expor t ... financed by virtue of governmental 
action".  What is at issue is whether the produc t receives an export subsidy within the meaning of 
Article 9.1(c), and not merely whether expor ts sales are being made at low prices.  
                                                      
449Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US) , para. 91.   
450C sugar production ranges between 11 and 21 pe r cent of the European  Communities total quota 
production. (Panel Reports, para. 7.290)  Exports of C sugar range between 1.3 and 3.3 million tonnes. 
(European Communities' response to Question 36 posed by the Panel)  As the Panel stated, "the price charged 
for C sugar does not even remotely cover its cost of production." (Panel Reports, para. 7.301) 
451European Communities' appellant's submission, para. 180.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 99 
  
4. The European Communities' Clai m under Article 11 of the DSU
 
284. The European Communities argues that the Panel acted inconsistently with Article 11 of the 
DSU because it erroneously "attributed to the Compla inants the allegation that 'cross-subsidization' 
was a type of 'payment'".452  Moreover, "[b]y making a finding with respect to a claim which  
the Complainants had never articulated ..., the Pane l ... acted inconsistently with Article 11 of the 
DSU."453 
285. The Complaining Parties disagree with the Eu ropean Communities' characterization of the 
Panel's findings on "cross-subsidization".  The Co mplaining Parties acknowledge that they did not 
explicitly use the term "cross-subsidization" when  referring to "payments" within the meaning of 
Article 9.1(c), but contend that, by referring to "cross-subsidization" as a "payment" under that 
provision, the Panel addressed the substance of the payments identified by the Complaining Parties 
and merely used different language.454   
286. We have already upheld the Panel's finding that  the Complaining Parties' "argumentation that 
C sugar receives advantages from various subsid ies and payments, within the meaning of 
Article 9.1(c) of the  Agreement on Agriculture , is not outside the Pane l's terms of reference."455  We 
also recall the Appellate Body's statement in  EC – Hormones  that: 
... nothing in the DSU limits the faculty of a panel freely to use 
arguments submitted by any of the parties -- or to develop its own legal reasoning -- to support its ow n findings and conclusions on the 
matter under its consideration.
456   
 
In our view, the Panel did not act inconsistently with Article 11 of the DSU by developing its own 
reasoning as to why the EC sugar regime gives ri se to export subsidies within the meaning of 
Article 9.1(c).   
                                                      
452European Communities' appellant's submission, para. 255.  
453Ibid., para. 256. (footnote omitted) 
454Australia's appellee's submission, paras. 263 and 266; Thailand's appellee's submission, para. 69; 
Brazil's response to questioning  at the oral hearing.   
455Panel Reports, para. 7.37.  
456Appellate Body Report, EC – Hormones , para. 156.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 100 
  
5. The European Communities' Arguments Concerning the Cost of Production 
of C Sugar  
287. The European Communities argues th at, even if the Appellate Body were to conclude that 
"cross-subsidization" may constitute a "payment" w ithin the meaning of Article 9.1(c), the Panel's 
finding is "seriously flawed".457  The European Communities contends that, in ascertaining the 
existence of "payments", the Panel erred in using as a benchmark the average total cost of production 
of  all sugar.  According to the European Commun ities, the Panel should have used, instead, the 
average total cost of producing  C sugar , because the beet used in the production of C sugar is 
purchased at prices that are "generally lower"  than the minimum prices for A and B beet.458   
288. The average total cost of production of sugar in cludes the cost of all economic resources used 
in sugar production, which means the cost of a ll economic resources invested in beet production, 
transport, and processing of beet into sugar, which is  only notionally classified into A, B, and C sugar.  
It is for this reason that the Panel emphasized that  "[s]ugar is sugar whether or not produced under an 
EC created designation of A, B or C sugar."459  The Panel further emphasized that "A, B or C sugar 
are part of the same line of production"460 and that "[t]here is no independent production of 
C sugar."461  It follows, in our view, that the average to tal cost of production of C sugar must be the 
same as the average total cost of production of a ll sugar.  The European Communities' argument is 
flawed because the price of C beet does not determine the average to tal cost of production of C sugar.  
For these reasons, we do not agree with the European Communities that  the Panel's use of the average 
total cost of production of  all  sugar as a benchmark for ascertaining the existence of payments was 
flawed in the particular circumstances of this case.   
289. The European Communities furt her argues that the Panel "effectively double counted the 
subsidies allegedly granted upon the exports of C sugar".462  As we understand it, the European 
Communities is of the view that, having found that paym ents in the form of low-priced sales of C beet 
confer a subsidy to sugar producers, the Panel erre d in taking those same payments into account in 
order to establish the existence of payments in th e form of "cross-subsidi zation".  We do not agree 
with the European Communities.  Based on our reading of the Panel Reports, we understand the 
                                                      
457European Communities' appellant's submission, para. 257. 
458Ibid., para. 258.  
459Panel Reports, para. 7.310.  
460Ibid. 
461Ibid., paras. 6.10 and 7.306. 
462European Communities' appellant's submission, para. 259.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 101 
  
Panel's findings relating to payments in the form of  "cross-subsidization" to C sugar to be distinct 
from the Panel's findings relating to C beet as a form  of payment under Article 9.1(c).  Accordingly, 
we do not consider the Panel to have "double counted" the subsidies granted by the European 
Communities on exports of C sugar.
463 
6. Overall Conclusion  
290. For these reasons, we  uphold   the Panel's finding, in paragr aphs 7.340 and 8.3 of the Panel 
Reports, that the European Communities acted incons istently with its obligations under Articles 3.3 
and 8 of the  Agreement on Agriculture   by providing export subsid ies on sugar in excess of its 
commitment levels specified in its Schedule. 
 
VII. Australia's Claim under Article 10.1 of the  Agreement on Agriculture  
291. Australia requests that, if the Appellate Body  finds that the European Communities' export 
subsidies on C sugar are not export subsidies within the meaning of Article 9.1(c) of the  Agreement 
on Agriculture , the Appellate Body should find that (i) the European Communities has not established 
that no export subsidy, whether lis ted in Article 9 or not, has been granted in respect of C sugar 
exports;  and (ii) the European Communities is a pplying other export subsidies in a manner that 
results in, or threatens to lead to circumvention of export subsidy commitments, inconsistently with 
the provisions of Article 10.1 of the  Agreement on Agriculture .464 
292. As we have concluded that the European Communities is granting export subsidies with 
respect to C sugar within the meaning of Article 9. 1(c), the condition on which Australia's request is 
premised does not arise.  There is, therefore, no reason for us to rule on Australia's request.  
 
VIII.  Nullification or Impairment 
293. The European Communities argues that the Panel er red in finding that the alleged violations 
of the  Agreement on Agriculture  resulting from the European Communities' exports of C sugar 
nullify or impair benefits accruing to the Complaining Parties under that Agreement.465  According to 
the European Communities, "until recently, the Comp lainants shared the EC's understanding that the 
                                                      
463European Communities' appellant's submission, para. 259.  
464Australia's appellee's submission, para. 421.  
465European Communities' appellant's submission, para. 365 (referring to Panel Reports, para. 7.358-
7.374).  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 102 
  
C sugar regime does not provide export subsidies."
466  Therefore, the Complaining Parties "had no 
expectations of improved competitive opportunities th at would come from the EC reducing its exports 
of C sugar."467  Australia and Thailand respond that the Pane l was correct in finding that the existence 
of nullification or impairment does not  depend on "legitimate expectations".468  Brazil submits that the 
European Communities did not challenge evidence th at Brazil presented to the Panel to demonstrate 
that "the EC sugar regime caused immediate losses of US $494 million to Brazil alone in 2002"469 and 
thus nullified or impaired benefits accruing to Brazil.  
294. Having found that the European Commun ities acted inconsistently with the  Agreement on 
Agriculture  by providing export subsidies on sugar in excess of its commitment levels 470, the Panel 
found that the European Communities had failed to rebut the presumption, pursuant to Article 3.8 of the DSU, that this inconsistency had an adverse impact on the Complaining Parties.
471  In particular, 
the European Communities' "reliance on the Compla inants' general expectations or lack thereof"472 
was insufficient to rebut that presumption.  The Pa nel also held that the European Communities had 
not submitted "sufficient factual evidence to suggest  that the Complainants did not suffer an 'adverse 
impact'" as a result of the violation.473 
295. We begin our analysis by noting that Article 3.8 of the DSU provides: 
In cases where there is an infringement of the obligations assumed 
under a covered agreement, the action is considered prima facie  to 
constitute a case of nullification or impairment.  This means that there is normally a presumption that a breach of the rules has an adverse impact on other Members parties to that covered agreement, and in such cases, it shall be up to the Member against whom the 
complaint has been brought to rebut the charge. 
 
296. Thus, pursuant to Article 3.8, where a Member  has acted inconsistently with a covered 
agreement, the inconsistency is presumed to nullify or  impair benefits accruing to other Members.  In 
such a case, the burden falls on the defending Member  to rebut this presumption by demonstrating 
                                                     
 
466European Communities' appellant's submission, para. 370. (footnote omitted) 
467Ibid.  
468Australia's appellee's submission, paras. 589 and 594;  Thailand's appellee's submission, para. 204. 
469Brazil's appellee's submission, para. 122. (footnote omitted) 
470Panel Reports, paras. 7.340 and 8.3. 
471Ibid., paras. 7.374 and 8.4. 
472Ibid., para. 7.370. 
473Ibid., para. 7.373.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 103 
  
that the inconsistency did not result in nullificati on or impairment.  We observe that Article 3.8 
equates the concept of "nullification or impair ment" with "adverse impact on other Members", 
although the DSU does not define "adverse impact". 
297. In the present appeal, we have already uphe ld the Panel's finding that the European 
Communities acted inconsistently with the  Agreement on Agriculture  by providing export subsidies 
on sugar in excess of its commitment levels.
474  Accordingly, a presumption arises under Article 3.8 
that the European Communities has nullified or impaired benefits accruing to the Complaining 
Parties, and it is up to the European Communities to rebut this presumption. 
298. We note that the Complaining Parties provided evidence to the Panel suggesting that the 
EC sugar regime caused them losses, for exampl e, of US $494 million for Brazil and US $151 million 
for Thailand in 2002.475  The Panel specifically found that  "the European Communities has not 
rebutted the evidence submitted by the Complainants w ith regard to the amount of trade lost by the 
Complainants as a result of the EC sugar regime."476  The European Communities has not attempted 
to rebut this evidence on appeal.  The European Communities, instead, appear s to suggest that, to 
rebut the presumption of nullification or impairme nt, it need only demonstrate that the Complaining 
Parties "could not have expected that the EC w ould take any measure to reduce its exports of 
C sugar."477 
299. The text of Article 3.8 of the DSU suggests that a Member may rebut the presumption of 
nullification or impairment by demonstrating that its breach of WTO rules has no adverse impact on other Members.  Trade losses represent an obvious example of adverse impact under Article 3.8.  Unless a Member demonstrates that there are no adverse trade effects arising as a consequence of 
WTO-inconsistent export subsidies,  we do not believe that a complaining Member's expectations 
would have a bearing on a finding pursuant to Artic le 3.8 of the DSU.  Therefore, the European 
Communities has failed to rebut the presumption of nu llification or impairment pursuant to Article 3.8 
of the DSU.  
300. In these circumstances, we  uphold  the Panel's finding, in paragraphs 7.374 and 8.4 of the 
Panel Reports, that the European Communities' violations of the  Agreement on Agriculture  nullified 
or impaired the benefits accruing to the Complaining Parties under the  Agreement on Agriculture . 
                                                     
 
474Supra , para. 290. 
475Panel Reports, para. 7.363. 
476Ibid., para. 7.372.   
477European Communities' appellant's submission, para. 367.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 104 
   
IX. Article 3.10 of the DSU and the Principle of Good Faith 
301. We turn next to address the European Commun ities' assertion that the Panel erred in finding 
that, by claiming that exports of C sugar were in  breach of the European  Communities' commitments, 
the Complaining Parties did not act inconsistently with Article 3.10 of the DSU "and, more generally, 
with the requirements of the principle of good faith".
478  We begin by noting that this aspect of the 
European Communities' appeal is limited to claims against exports of C sugar.479   
A. Panel Findings and Appeal by the European Communities 
302. The Panel found that the Complaining Parties "h a[d] acted in good faith in the initiation and 
conduct of the present dispute proceedings".480  The Panel emphasized that the Complaining Parties 
"were entitled to initiate the present WTO proceedings  as they did and at no point in time have they 
been estopped, through their actions or silence, from challenging the EC sugar regime which they 
consider WTO inconsistent."481  The Panel explained that:   
... it is not possible to identify any facts or statements made by the 
Complainants where they have ad mitted that the EC measure was 
WTO consistent or where they have  promised that they would not 
take legal action against the European Communities.  In the Panel's view the "silence" of some of the Complainants cannot be equated with their consent to the European Communities' violations, if any.  
Moreover, the Complainants' silenc e cannot be held against other 
WTO Members who, today, could decide to initiate WTO dispute settlement proceedings agains t the European Communities.
482 
 
303. The European Communities appeals the Panel's findings on two grounds.  First, it argues that 
the Panel failed to address the European Communities' allegation th at the Complaining Parties acted 
                                                      
478European Communities' appellant's submission, para . 295 (referring to Panel Reports, paras. 7.54-
7.75 and 7.348-7.354).  
479In its Notice of Appeal, the European Communities notified that it seeks review of: 
5) The conclusion, and the related legal findings and interpretations, 
set out in paragraphs 7.61-7.75 and 7.348-7.354 of the Panel reports, that, by 
claiming that exports of C sugar were  in excess of the EC's commitment 
levels the Complainants did not act in consistently with Article 3.10 DSU 
and the principle of good faith. 
Thus, the European Communities has not appealed the Pane l's findings with regard to whether the Complaining 
Parties acted in good faith in bringing claims against export subsidies provided to sugar of ACP/Indian origin.   
480Panel Reports, para. 7.74.  
481Ibid. 
482Ibid., para. 7.73.   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 105 
  
inconsistently with Article 3.10 of the DSU "and,  more generally, with the requirements of the 
principle of good faith".
483  The European Communities submits that, by not addressing that 
allegation, the Panel "failed to make an obj ective assessment of the matter", as required under 
Article 11 of the DSU, and "failed to address the rele vant provisions of the covered agreements cited 
by the parties", as required by Article 7.2 of the DSU.  Secondly, the European Communities contends 
that the Panel erred in finding that the Complaining Parties were not precluded or estopped from bringing their claims in relation to C sugar.  
B. Whether the Panel Failed "to Address" th e European Communities' Claim that the 
Complaining Parties Acted Inconsistently  with Article 3.10 of the DSU and the 
Principle of Good Faith 
304. The European Communities alleges that the Pa nel failed to address its allegation that the 
Complaining Parties acted inconsistently with Artic le 3.10 of the DSU and the principle of good faith 
by exercising their rights under the DSU in an " unreasonable" and "abusive manner" by "seeking to 
exploit what would be, at most, an excusable sched uling error in order to secure a manifestly unfair 
advantage".
484  The European Communities acknowledges,  however, that the Panel addressed its 
arguments regarding the "related, but distinct" issue of whether the Complaining Parties were "estopped" from bringing a claim against C sugar.
 485  The Complaining Parties, in contrast, take the 
view that the Panel's findings on estoppel also a ddressed the European Comm unities' claims relating 
to Article 3.10 of the DSU and good faith.   
305. We understand the Panel to have addressed the European Communities' arguments on 
Article 3.10 of the DSU and good faith together  with the European Communities' arguments 
regarding estoppel.  We note, for instance, that, at th e outset of its analysis, the Panel referred to the 
"parties' arguments in respect to good faith  and  estoppel".486  In summarizing those arguments, the 
Panel referred, inter alia , to the European Communities' conten tion that "the Complainants were 
acting inconsistently with the general principle of good faith and with their obligation[s] under 
Article 3.10 of the  DSU  ".487   
                                                      
483European Communities' appellant's submission, para . 295 (referring to Panel Reports, paras. 7.54-
7.75 and 7.348-7.354).  
484Ibid., para. 316. 
485Ibid., para. 342. 
486Panel Reports, para. 7.54. (emphasis added) 
487Ibid., para. 4.150.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 106 
  
306. Based on its analysis
 488, the Panel concluded that: 
... the Complainants have acted in good faith in the initiation and 
conduct of the present dispute proceedings . ... The Complainants 
were entitled to initiate the present WTO proceedings as they did and at no point in time have they been estopped, through their actions or 
silence, from challenging the EC s ugar regime which they consider 
WTO inconsistent.
489 (emphasis added) 
 
307. We consider in subsection C below the issue wh ether the principle of estoppel applies in the 
context of WTO dispute settlement.  Here, we observe that, to the extent that this concept applies at 
all, it is reasonable for a panel to examine estoppel in the context of determining whether a Member 
has engaged "in these procedures in good faith", as re quired under Article 3.10 of the DSU.  Hence, 
not only do we believe that the Panel's examina tion did not fail to address the European Communities' 
contention on Article 3.10 and good faith, but th e Panel made no error in addressing this issue 
together with the issue of estoppel.  We therefore see no error in the Panel's approach.  Consequently, 
we also find no fault with the Panel's analysis  under Article 7.2 or Article 11 of the DSU. 
308. We turn next to address the European Commun ities' argument that the Complaining Parties 
were estopped from bringing claims against C sugar. 
C. Whether the Complaining Parties were Estopped from Bringing Claims Against 
C Sugar 
309. The Panel cautioned that "it is far from clear whether the principle of estoppel is applicable to 
disputes between WTO Members in relation to their WTO rights and obligations."490  The Panel 
added that "[t]he principle of estoppel has never b een applied by any panel or the Appellate Body."491  
The Panel went on to opine that, assuming, for the sak e of argument, that estoppel could be invoked in 
WTO dispute settlement: 
                                                      
488Panel Reports, paras. 7.61-7.73.  
489Ibid., para. 7.74. 
490Ibid., para. 7.63.  
491Ibid.  The panels in  Argentina – Poultry Anti-Dumping Duties  and  Guatemala – Cement II  did, 
however, refer to the pr inciple of estoppel. (See ibid., paras. 7.71-7.72)  The panel in  EC – Asbestos   also 
referred to estoppel. (Panel Report, EC – Asbestos , para. 8.60)  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 107 
  
Brazil's and Thailand's silence concerning the European Communities' base quantity levels as well as with respect to the ACP/India sugar Footnote does not amount to a clear and 
unambiguous representation upon which the European Communities 
could rely, especially considering that, in the Panel's view, there was no legal duty upon the Complainants to alert the European Communities to its alleged violations.  Furthermore, it is not possible to identify any facts or statements  made by the Complainants where 
they have admitted that the EC measure was WTO consistent or 
where they have promised that they would not take legal action against the European Communities.  In the Panel's view the "silence" 
of some of the Complainants cannot be equated with their consent to the European Communities' violations, if any.
492 
 
310. We agree with the Panel that it is far from cl ear that the estoppel principle applies in the 
context of WTO dispute settlement.  Indeed, on appeal , the participants and third participants have 
advanced highly divergent views on the concept itsel f and its applicability to WTO dispute settlement.   
311. The European Communities argues that estoppel is a general principle of international law, 
which follows from the broader principle of good faith .  As such, estoppel is "one of the principles 
which Members are bound to observe when engaging in dispute settlement procedures, in accordance 
with Article 3.10 of the DSU."493  Regarding the content of estoppel, the European Communities 
argues that "[e]stoppel may arise not only from express statements, but also from various forms of conduct, including silence, where, upon a reaso nable construction, such conduct implies the 
recognition of a certain factual or juridical situation."
494  Australia, in contrast, submits that the 
principle of estoppel is not applicable in WTO dis pute settlement.  With respect to the content of 
estoppel, Australia submits that estoppel cannot "a pply as to a statement of a legal situation".495  
Brazil agrees with the Panel that  the European Communities' claims  regarding estoppel were "without 
merit".496  Similarly, Thailand maintains that the Panel was correct in concluding that the principle of 
"estoppel is not mentioned in the WTO Agreement, or  the DSU, and that it has never been applied by 
any panel or the Appellate Body."497  The United States emphasizes that "[n]owhere in the DSU or the 
other covered agreements is there a reference to 'estoppel'."498  Moreover, according to the United 
                                                      
492Panel Reports, para. 7.73.  
493European Communities' appellant's submission, para. 333. (footnote omitted) 
494Ibid., para. 335. (footnote omitted) 
495Australia's appellee's submission, para. 510.  
496Brazil's appellee's submission, para. 119. 
497Thailand's appellee's submission, para. 186 (referring to Panel Reports, para. 7.63). 
498United States' third participant's submission, para. 5. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 108 
  
States, "'[e]stoppel' is not a defense that Member s have agreed on, and it therefore should not be 
considered by the Appellate Body."
499 
312. The principle of estoppel has never been app lied by the Appellate Body.  Moreover, the 
notion of estoppel, as advanced by the European Co mmunities, would appear to inhibit the ability of 
WTO Members to initiate a WTO dispute settlement  proceeding.  We see little in the DSU that 
explicitly limits the rights of WTO Members to bring an action;  WTO Members must exercise their "judgement as to whether action under these procedures w ould be fruitful", by virtue of Article 3.7 of 
the DSU, and they must engage in dispute se ttlement procedures in good faith, by virtue of 
Article 3.10 of the DSU.  This latter obligation co vers, in our view, the entire spectrum of dispute 
settlement, from the point of initiation of a case through implementation.  Thus, even assuming 
arguendo   that the principle of estoppel could apply in  the WTO, its application would fall within 
these narrow parameters set out in the DSU.   
313. With these considerations in mind, we examin e the arguments of the European Communities 
on this issue.  Even assuming, for the sake of argum ent, that the principle of estoppel has the meaning 
that the European Communities ascribes to it, a nd that such a principle applies in WTO dispute 
settlement, we are not persuaded, in the circumst ances of this case, that the Complaining Parties 
would be estopped from bringing claims against C sugar.   
314. The European Communities argu es that the Complaining Parties are estopped from bringing 
their claims against C sugar because their "lack of r eaction to the non-inclusion of C sugar in the base 
quantity, together with the other undisputed fact s and circumstances ..., clearly represented to the EC 
that the Complainants shared the understanding that the C sugar regime did not provide export 
subsidies."
500  Furthermore, according to the European Communities, it "could legitimately rely upon 
that shared understanding in order not to incl ude exports of C sugar in the base levels."501  
315. We observe, first, that the Panel specifically found that "it is  not  possible to identify  any  
facts or statements made by the Complainants wh ere they have admitted that the EC measure was 
WTO consistent or where they have promised th at they would not take legal action against the 
                                                      
499United States' third participant's submission, para. 9. 
500European Communities' appellant's submission, para. 336. 
501Ibid.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 109 
  
European Communities."
502  We consider this finding to be  based on the Panel's weighing and 
appreciation of the evidence.   
316. Secondly, the European Communities suggests that it "could legitimately rely"503 upon an 
alleged "shared unders tanding" between "all the participants in the Uruguay Round"504 in deciding not 
to include exports of C sugar in the base quantity le vels in its Schedule.  We recall that the Panel 
found no evidence of any such "s hared understanding" in this case.  Thus, as we see it, the European 
Communities has no basis on which to now assert that  it could have legitimately relied upon such 
alleged "shared unders tanding" in deciding not to include expor ts of C sugar in the base quantity 
levels in its Schedule.   
317. For these reasons, we reject, as did the Panel, the European Communities' allegation that the 
Complaining Parties were estopped from br inging their claims against C sugar. 
318. We turn next to the European Communities' contention that the Complaining Parties acted 
inconsistently with Article 3.10 of th e DSU and the principle of good faith. 
D. Whether the Complaining Par ties Acted Inconsistently with Article 3.10 of the DSU 
and the Principle of Good Faith 
319. The European Communities requests the Appellate Body to "rule that, by bringing the claim 
that exports of C sugar breach the EC's commitmen ts, the Complainants acted inconsistently with 
Article 3.10 [of the] DSU and, more generally, with the principle of good faith, to the extent that such 
breach would result from the non-inclusion of C sugar in the base quantity from which the commitments were calculated."
505  We are unable to agree with the European Communities.  We see 
nothing in the Panel record to suggest that th e Complaining Parties acted inconsistently with 
Article 3.10 of the DSU or the principle of good faith.  Accordingly, we agree with the Panel that the 
Complaining Parties acted in good faith. 
320. For all these reasons, we  uphold  the Panel's findings, in paragr aph 7.74 of the Panel Reports, 
that the Complaining Parties acted in good faith, un der Article 3.10 of the DSU, in the initiation and 
conduct of the present dispute settlement proceedi ngs and have not been estopped, through their 
                                                      
502Panel Reports, para. 7.73. (emphasis added)  
503European Communities' appellant's submission, para. 336. 
504European Communities' response to questioning at the oral hearing. 
505European Communities' appellant's submission, para. 364.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 110 
  
actions or silence, from alleging that the European  Communities' exports of C sugar are in excess of 
its export subsidy reduction commitments. 
 
X. Judicial Economy 
A. The Panel's Analysis and the Arguments on Appeal 
321. Having found that the European Communities acted  inconsistently with its obligations under 
Articles 3.3 and 8 of the  Agreement on Agriculture , the Panel found that it could, in principle, "also 
examine the Complainants claims th at the [EC sugar] regime, or pa rts thereof, constitute an export 
subsidy inconsistent w ith Article 3 of the  SCM Agreement , in accordance with the Panel's terms of 
reference".
506  The Panel noted, however, that "[t]he question that arises is whether the Panel  should  
examine these claims, or whether it should rather apply the principle of judicial economy."507 
322. Quoting from the Appellate Body Report in  Australia – Salmon , the Panel took the view that 
it need address only "those claims on which a finding is  necessary in order to enable the DSB to make 
sufficiently precise recommendations and rulings so as to allow for prompt compliance by a Member 
with those recommendations and rulings 'in order to  ensure effective resolution of disputes to the 
benefit of all Members'."508   
323. Turning to the issue before it, the Panel opi ned, first, that, "by fully implementing a 
recommendation by the DSB to bring the European Co mmunities' sugar regime into conformity with 
its obligations under the  Agreement on Agriculture , [the European Communities would] also preclude 
any finding in the context of a review procedure under Article 21.5 of the  DSU  that the regime is 
inconsistent with the export subsidy disciplines of the SCM Agreement ."509  Thus, the Panel 
considered that its findings under the  Agreement on Agriculture  "should be sufficient to fully resolve 
the matter at issue".510  Secondly, the Panel disagreed with the Complaining Parties that it should 
address the claims under Article 3 of the  SCM Agreement  so that it could then recommend that  
the prohibited subsidies be withdrawn "without de lay" within the time period specified by it, as 
required by Article 4.7 of the  SCM Agreement .  The Panel stated that it did not believe that the  
                                                      
506Panel Reports, para. 7.381.  
507Ibid. (original emphasis) 
508Ibid., para. 7.382 (quoting Appellate Body Report, Australia – Salmon , para. 223, in turn quoting 
Article 21.1 of the DSU). 
509Ibid., para. 7.383.  
510Ibid.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 111 
  
Appellate Body's reasoning in  Australia – Salmon   "requires it to decide claims not necessary to the 
full resolution of the matter before the Panel merely  in order to obtain what might – but would not 
necessarily be – more rapid compliance."
511  Referring to findings of the panel in  Canada – Dairy 
(Article 21.5 – New Zealand and US) , the Panel opined that there was, in any event, "some issue"512 as 
to whether it was entitled to make a recommendation under Article 4.7 of the  SCM Agreement .  
Thirdly, the Panel found that the Complaining Parti es had not set forth their claims under Article 3 of 
the SCM Agreement  "in quite as clear and unambiguous a manner as under the Agreement  
on Agriculture ".513  The Panel explained that "the im portant questions presented under the SCM 
Agreement  in this dispute would be best decided in a cas e where they have been further argued by the 
parties."514  The Panel added that many of the Co mplaining Parties' references to the  SCM Agreement 
"were made in the  context  of their claims under the  Agreement on Agriculture ".515  Based on this 
analysis, the Panel exercised judicial economy with respect to the Complaining Parties' claims under 
Article 3 of the  SCM Agreement .516 
324. On appeal, the Complaining Parties submit that the Panel erred in exercising judicial 
economy with respect to their claims under Article 3 of the  SCM Agreement .  The Complaining 
Parties allege that, in exercising judicial economy, the Panel acted inconsistently with Article 11 of 
the DSU.517  They further argue that the Panel erred in exercising judicial economy because it failed to 
consider the remedies that would have been available to the Complaining Parties under the  SCM 
Agreement , had their claims under Article 3 of that Agreement succeeded.  Referring to previous 
WTO jurisprudence on judicial economy, the Complain ing Parties assert that a panel is required to 
examine a claim where "this is n ecessary to shape the course of im plementation through 'sufficiently 
precise' recommendations and rulings of the DSB".518 
                                                      
511Panel Reports, para. 7.384. 
512Ibid. 
513Ibid., para. 7.386.  
514Ibid.  In its assessment of the Complaining Parties' claims, the Panel did not indicate what, in its 
view, were those "important questions", except for the question whether the Panel was entitled to make a 
recommendation under Article 4.7 of the  SCM Agreement . 
515Ibid., para. 7.386. (original emphasis) 
516Ibid., para. 7.387. 
517Australia's other appellant's submission, paras. 5-6;  Thailand's other appellant's submission, 
para. 80.  Brazil does not contend that the Panel act ed inconsistently with Article 11 of the DSU. 
518Brazil's other appellant's submission, para. 22.  S ee also Australia's other appellant's submission, 
paras. 30 and 43;  and Thailand's other appellant's submission, paras. 29-30. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 112 
  
325. The Complaining Parties request, should the A ppellate Body agree that the Panel erred in 
exercising judicial economy, the Appellate Body to complete the legal analysis to determine whether 
the European Communities has acted inconsistent ly with Articles 3.1(a) and 3.2 of the  SCM 
Agreement  by providing prohibited export subsidies to sugar.  The Complaining Parties also request, 
should the Appellate Body find that the Eur opean Communities has acted inconsistently, the 
Appellate Body to recommend that the prohibited s ubsidies be withdrawn without delay, as required 
by Article 4.7 of the  SCM Agreement .
519   
326. The European Communities contends that the Panel did not err in exercising judicial 
economy.520  Quoting the statement of the Appellate Body in  Canada – Wheat Exports and Grain 
Imports   that a panel may "refrain from making mu ltiple findings that th e same measure is 
inconsistent with various provisions  when a single, or a certain number of findings of inconsistency, 
would suffice to resolve the dispute "521, the European Communities asser ts that "judicial economy 
does not concern the manner in which a panel's de cision to exercise its discretion affects eventual 
implementation, but rather whether the findings in  question are sufficient to resolve a dispute  as to 
the consistency of a measure with the covered agreements ."522  Even if the Panel did err in exercising 
judicial economy, the European Communities submits that the Appellate Body should find that the 
export subsidy provisions of the  SCM Agreement  are not applicable to export subsidies maintained 
under the  Agreement on Agriculture .523  In any case, the European Communities contends that the 
Appellate Body is not in a position to complete the analysis of this issue.524 
B. Exercise of Judicial Economy in WTO Dispute Settlement Generally 
327. We begin our analysis by recalling the Appellate Body's observations in  Canada – Wheat 
Exports and Grain Imports , summarizing the circumstances in which panels may exercise judicial 
economy in WTO dispute settlement: 
                                                      
519Australia's other appellant's submission, para. 68;  Brazil's other appellant's submission, para. 11;  
Thailand's other appellant's submission, para. 7.   
520European Communities' appellee's submission, para. 21. 
521Ibid., para. 14 (quoting Appellate Body Report, Canada – Wheat Exports and Grain Imports , 
para. 133). (emphasis added by the European Communities) 
522Ibid., para. 15. (emphasis added) 
523Ibid., para. 75. 
524Ibid., para. 81.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 113 
  
The practice of judicial economy, which was first employed by a number of GATT panels, allows a panel to refrain from making 
multiple findings that the same measure is  inconsistent  with various 
provisions when a single, or a certain number of findings of 
inconsistency, would suffice to resolve the dispute.  Although the doctrine of judicial economy allows  a panel to refrain from 
addressing claims beyond those necessary to resolve the dispute, it does not  compel  a panel to exercise such restraint.  At the same 
time, if a panel fails to make findings on claims where such findings 
are necessary to resolve the dispute, then this would constitute a false 
exercise of judicial economy and an error of law.
525 (original 
emphasis;  footnotes omitted) 
 
328. We also recall the Appellate Body's statement in  Australia – Salmon , that a panel is under a 
duty "to address those claims on whic h a finding is necessary in order to enable the DSB to make 
sufficiently precise recommendations and rulings so as to allow for prompt compliance by a Member 
with those recommendations and rulings".526  
C. Did the Panel Err in Exercising Judicial Economy with Respect to the Claims under 
Article 3 of the SCM Agreement? 
329. With these considerations in mind, we turn to  the question of whether the Panel failed to 
discharge its obligation under Article 11 of the DSU, by declining to rule on the Complaining Parties' 
claims under Article 3 of the  SCM Agreement .  
330. Article 11 of the DSU provides, in relevant part:   
... a panel should 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, 
and make such other findings as will assist the DSB in making the 
recommendations or in giving the rulings provided for in the covered agreements.  
 
331. Thus, in addition to ruling on the matter before it, a panel is required to "make such other 
findings as will assist the DSB in making the recommenda tions or in giving the rulings provided for in 
the covered agreements."  Such "other findings" coul d, for instance, relate to implementation, to the 
                                                     
 
525Appellate Body Report, Canada – Wheat Exports and Grain Imports , para. 133. 
526Appellate Body Report, Australia – Salmon , para. 223 (quoted in Appellate Body Report, US – 
Lamb , para. 191). WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 114 
  
extent that such findings "will assist the DSB in making the recommendations or in giving the rulings 
provided for in the covered agreements".  
332. Under Article 19.1 of the DSU, where a panel "conc ludes that a measure is inconsistent with a 
covered agreement, it shall recommend that the Memb er concerned bring the measure into conformity 
with that agreement". (footnote omitted)  The pane l is not required to make a recommendation as to 
how the Member should implement its obligations or as to the timeframe for implementation.  
However, Article 19.1 also provides that "[a] panel or [the] Appellate Body  may  suggest ways in 
which the Member concerned could implemen t the recommendations." (emphasis added) 
333. Pursuant to Article 1.2 of the DSU
527, the situation is different for disputes brought under 
Part II of the SCM Agreement .  The  SCM Agreement  contains "special rules and additional 
procedures on dispute settlement" in respect of subsidies prohibited under Article 3 of the  SCM 
Agreement .  In particular, Article 4.7 of the  SCM Agreement  provides: 
If the measure in question is found to be a prohibited subsidy, the 
panel shall recommend that the s ubsidizing Member withdraw the 
subsidy without delay. In this rega rd, the panel shall specify in its 
recommendation the time-period within which the measure must be withdrawn. 
 
334. Thus, where a panel finds that a complaining Member has established that the subsidy  
in question is prohibited within the meaning of Article 3 of the  SCM Agreement , it shall  
make an additional recommendation as described in Article 4.7.  Upon adoption, this additional 
recommendation—that the subsidizing Member "wit hdraw the subsidy without delay"—will become 
a recommendation or ruling of the DSB.   
335. In this case, the Panel's findings under Articles 3 and 8  of the  Agreement on Agriculture 
were not sufficient to "fully resolve" the dispute.   This is because, in declining to rule on the 
Complaining Parties' claims under Article 3 of the SCM Agreement , the Panel precluded the 
possibility of a remedy being made available to the Complaining Parties, pursuant to Article 4.7 of the 
SCM Agreement , in the event of the Panel finding in favour of the Complaining Parties with respect to 
                                                     
 
527Article 1.2 of the DSU provides, in relevant part: 
The rules and procedures of this Understanding shall apply subject to  
such special or additional rules and procedures on dispute settlement contained in the covered agreements as are identified in Appendix 2 to this 
Understanding. 
We note that the  SCM Agreement  is contained in Appendix 2 to the DSU.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 115 
  
their claims under Article 3 of the  SCM Agreement .
528  Moreover, in declining to rule on the 
Complaining Parties' claims under Article 3 of the  SCM Agreement , the Panel failed to discharge its 
obligation under Article 11 of the DSU by failing to  make "such other findings as will assist the DSB 
in making the recommendations or in giving the ru lings provided for in th e covered agreements", 
namely, a recommendation or ruling by the DSB pursu ant to Article 4.7.  This constitutes false 
judicial economy and legal error.   
D. Completing the Panel's Legal Analysis 
336. Having found that the Panel exercised false judicial economy by not examining the 
Complaining Parties' claims under the  SCM Agreement , we now consider the Complaining Parties' 
request that the Appellate Body complete the le gal analysis and determine that the European 
Communities has acted inconsistently with Articles 3.1(a) and 3.2 of the SCM Agreement  by 
providing prohibited export subsidies for ACP/Indi a equivalent sugar and C sugar.  Should the 
Appellate Body find that the European Communities has acted inconsistently, the Complaining Parties 
request the Appellate Body to recommend that the prohibited subsidies be withdrawn without delay, 
as required by Article 4.7 of the  SCM Agreement . 529  By contrast, the European Communities argues 
that, in the event that the Appellate Body rever ses the Panel's decision to exercise judicial economy, 
and further concludes that the  SCM Agreement   can be applied cumulatively with the Agreement on 
Agriculture , in the circumstances of this dispute, the Appellate Body would not be in a position to 
complete the analysis in the absence of su fficient factual findings by the Panel.   
337. In several previous disputes, the Appellate  Body examined an issue "not specifically 
addressed by the panel, in order to complete the le gal analysis and resolve the dispute between the 
parties".530  However, the Appellate Body has declined to complete the legal analysis where "the 
factual findings of the panel and the undisputed fact s in the panel record" did not provide a sufficient 
basis for the legal analysis by the Appellate Body.531  Moreover, as Article 17.6 of the DSU limits 
appeals to "issues of law covered in the panel report and legal interp retations develope d by the panel", 
                                                      
528To address the claims of the Complaining Parties under Article 3 of the  SCM Agreement , the Panel 
would have had to examine, as a prelim inary matter, whether Article 3 of the  SCM Agreement  applies to the 
export subsidies in this dispute. 
529Australia's other appellant's submission, para. 68;  Brazil's other appellant's submission, para. 11;  
Thailand's other appellant's submission, para. 7.   
530Appellate Body Report, Australia – Salmon , para. 117 (citing Appellate Body Report, US – 
Gasoline , pp. 19 ff, DSR 1996:I, 3, at 18 ff;  Appellate Body Report, Canada – Periodicals , pp. 23 ff, DSR 
1997:I, 449, at 468 ff ;  Appellate Body Report, EC – Poultry , paras. 154 ff;  and Appellate Body Report, US – 
Shrimp , paras. 123 ff). 
531Appellate Body Report, EC – Asbestos , para. 78. WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 116 
  
the Appellate Body has also prev iously declined to complete the legal analysis of a panel in 
circumstances where that would involve addressing claims "which the panel had not examined at 
all".
532  In addition, the Appellate Body has indicated that it may complete the analysis only if the 
provision that a panel has not examined is " closely related "533 to a provision that the panel has 
examined, and that the two are "part of a  logical continuum ".534 
338. Turning to the specific case before us, we note that the Complaining Parties argue that their 
claims under the SCM Agreement  are closely related to their claims under the Agreement on 
Agriculture .535  We are not persuaded, however, that Articles 3, 8, and 9.1 of the Agreement on 
Agriculture , on the one hand, and Articles 3.1(a), 3.2, and items (a) and (d) of the Illustrative List of 
the  SCM Agreement , on the other hand, are "closely related" , because the issues presented under the 
two Agreements are different in several respects.  
339. Furthermore, in the instant case, we note that the Panel made reference to the limited 
arguments made by the Complaining Parties under the  SCM Agreement : 
[T]he Complainants [had] not set forth their claims under Article 3 of 
the  SCM Agreement   in quite as clear and unambiguous a manner as 
under the  Agreement on Agriculture .  Rather, [they] focused on their 
claims under the  Agreement on Agriculture .536   
 
Although, on appeal, the Complaining Parties did argue their claims under the  SCM Agreement   to 
some extent, they did not address, in a sufficient manner, the question whether Article 3 of the  SCM 
Agreement  applies to export subsidies listed in Article 9.1 of the  Agreement on Agriculture  that are 
provided to  scheduled   agricultural products in excess of a responding Member's commitment levels.  
We believe that, in the light of Article 21 of the Agreement on Agriculture  and the chapeau of 
Article 3 of the  SCM Agreement , the question of the applicability of the  SCM Agreement   to the 
                                                      
532Appellate Body Report, EC – Asbestos , paras. 79 and 82 (cited in Appellate Body Report, US – 
Section 211 Appropriations Act , para. 343).  See also Appellate Body Report,  EC – Poultry , para. 107. 
533Appellate Body Report, EC – Asbestos , para. 79. (original emphasis) 
534Ibid. (citing Appellate body Report, Canada – Periodicals , p. 24, DSR 1997:I, 449, at 469). 
(emphasis added in  EC – Asbestos ) 
535See Brazil's other appellant's submission, para. 49;   and Thailand's other appellant's submission, 
para. 56. 
536Panel reports, para. 7.386.  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 117 
  
export subsidies in this dispute raises a number of complex issues.
537  We also consider that, in the 
absence of a full exploration of these issues, comple ting the analysis might affect the due process 
rights of the participants.   
340. Moreover, we do not have the requisite factual fi ndings to complete the legal analysis.  In 
particular, we do not have sufficient facts before us, as would be necessary to specify the period of 
time for withdrawal, as required by Article 4.7 of the  SCM Agreement .  We note in this respect that, 
when specifying what period would represent "wit hout delay", panels ha ve taken into account, inter 
alia, "the nature of the measures and the difficulties likely to be faced in implementing the 
recommendation".538  Based on our reading of the Panel Repor ts and the Panel record, we fail to see 
any evidence therein regarding the nature of the measures that would be required to "withdraw" the 
subsidy, which would permit us to make a recommendation under Article 4.7.  Hence, even if   we 
were able to examine the Compla ining Parties' claims under the  SCM Agreement   and, even if   we 
were to conclude that the  SCM Agreement  applies in the circumstances of this dispute and that the 
European Communities acted inconsistent ly with its obligations under the  SCM Agreement , we 
                                                      
537These issues include, for instance, whether the Agreement on Agriculture  contains "specific 
provisions dealing specifically with the same matter" (Appellate Body Report, US – Upland Cotton , paras. 532-
533 (quoting Appellate Body Report, EC – Bananas III , para. 155;  and referring to Appellate Body Report, 
Chile – Price Band System , para. 186)); whether the  SCM Agreement  applies to the subsidy as a whole, or 
whether it applies to the subsidy onl y to the extent that the subsidy exceeds the responding Members' 
commitment levels as specified in its Schedule; and whether, in the event the  SCM Agreement  applies, a panel 
could make a recommendation to withdraw the subsidy in whole, or whether that recommendation would apply to the subsidy only to the extent that it exceeds the responding Member's commitment levels. 
538Panel Report, Brazil – Aircraft , para. 8.5.  See also Panel Report, Canada – Aircraft Credits and 
Guarantees , para. 8.4;  Panel Report, Canada – Autos , para. 11.6-11.7;  and Panel Report, US – FSC , paras. 8.6-
8.8.  We further note that the panel in Brazil – Aircraft  determined that: 
... taking into account the nature of th e measures and the procedures which 
may be required to implement our recommendation, on the one hand, and the requirement that Brazil withdraw its subsidies 'without delay' on the 
other, we conclude that Brazil shall w ithdraw the subsidies within 90 days. 
(Panel Report, Brazil – Aircraft , para. 8.5)  Agreeing with the panel's recommendation, the Appellate Body in 
the same case noted that: 
... there is a significant difference between  the relevant rules and procedures 
of the DSU and the special or additional rules and procedures set forth in 
Article 4.7 of the SCM Agreement .  Therefore, the provisions of Article 21.3 
are not relevant in determining the period of time for implementation of a finding of inconsistency with the prohibited subsidies provisions of Part II 
of the SCM Agreement . 
(Appellate Body Report, Brazil – Aircraft , para. 192) WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 118 
  
would not necessarily be in a position to make a recommendation under Article 4.7 as to the time 
period for withdrawal of the subsidy.
539  
341. For all these reasons, we are not in a position, a nd we therefore decline, to complete the legal 
analysis and to examine the Complaining Parties' claims under the  SCM Agreement  left unaddressed 
by the Panel. 
 
XI. The European Communities' Notice of Appeal 
342. Australia contends that the European Commun ities' Notice of Appeal does not satisfy the 
"due process requirements" of Rule 20(2)(d) of the  Working Procedures 540 for four main reasons.  
First, the European Communities does not "quote" 541, in its Notice of Appeal, the specific Panel 
findings or conclusions that it appeals.  Secondl y, with respect to some claims, the European 
Communities fails to distinguish between a conclusion and a finding, or fails to identify the findings 
in question.  Thirdly, the Europ ean Communities does not list, for each claim, the provisions that the 
Panel is alleged to have erred in interpreting or applying.  Finally, the European Communities 
erroneously refers in its Notice of Appeal to a part of its Schedule as "a provision of a covered 
agreement".542  Australia requests the Appellate Body to "rule whether the EC Notice of Appeal 
complies with the due process standard for appellate review".543   
                                                      
539In this respect, we note that the European Communities has stated that: 
... the Complainants never explained why a 90 day period would be 
appropriate and more importantly the Panel never enquired, and 
consequently made no findings on the relevant Community procedures 
which would have to be undertaken to revise the sugar CMO.  Consequently, there are no factual findings on the record permitting the 
Appellate Body to make a recommendation without denying the EC's due 
process rights to justify the most appropriate period of time for implementation.  
(European Communities' appellee's submission, para. 29) 
540Australia's appellee's submission, para. 23.  
541Ibid., para. 24. 
542Ibid. 
543Ibid., para. 625(c).  We note that Australia's appellee's submission does not contain an explicit 
request that the Appellate Body dismiss any of the European Communities' claims on the ground that they fall 
outside the scope of the appeal due to alleged deficiencies in the Notice of Ap peal.  In response to questioning at 
the oral hearing, Australia confirmed that it makes no  request to have the app eal dismissed on "technical 
grounds".  Rather, Australia indicated that its  purpose in asking for a ruling was to obtain  clarification  
regarding Rule 20(2)(d) of the  Working Procedures .  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 119 
  
343. Rule 20(2)(d) of the Working Procedures provides: 
Commencement of Appeal 
... 
(2) A Notice of Appeal shall include the following information: 
... 
(d) a brief statement of the nature of the appeal, 
including:  
(i) identification of the alleged errors in the 
issues of law covered in th e panel report and legal 
interpretations developed by the panel; 
(ii) a list of the legal provision(s) of the covered 
agreements that the panel is  alleged to have erred in 
interpreting or applying;  and 
(iii) without prejudice to the ability of the 
appellant to refer to othe r paragraphs of the panel 
report in the context of its appeal, an indicative list of 
the paragraphs of the panel report containing the 
alleged errors. 
 
344. In its Notice of Appeal, the European Commun ities "seeks review" of six "conclusion[s]" and 
"related legal findings and interpretations" set out in certain specified paragraphs  of the Panel Reports.  
The European Communities summarizes the substance of each contested conclusion and the related 
legal findings and interpretations.  The Notice of App eal also contains a list of the legal provisions of 
the covered agreements that the Pa nel is alleged to have erred in interpreting or applying.  In our 
view, the Notice of Appeal gives adequate notice to the Complaining Parties of the content of its appeal so as to allow them to make a proper defence, as required by Rule 20(2)(d) of the Working 
Procedures . 
345. For these reasons, we  find  that the European Communities' Notice of Appeal satisfies the 
requirements of Rule 20(2)(d) of the  Working Procedures . 
 WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 120 
  
XII. Findings and Conclusions 
346. For the reasons set forth in this Report, the Appellate Body: 
(a) upholds
 the Panel's finding, in paragraph 7.37 of  the Panel Reports, that the alleged 
"payments", within the meaning of Article 9.1(c) of the  Agreement on Agriculture , in 
the form of low-priced sales of C beet to sugar producers, fell within the Panel's terms 
of reference; 
(b) upholds  the Panel's finding, in paragraphs 7.191, 7.198, 7.222, and 8.1(a) of the Panel 
Reports, that Footnote 1 to Section II, Part IV of the European Communities' Schedule does not enlarge or otherwise modify the European Communities' commitment levels specified in that Schedule;   
(c) upholds
 the Panel's finding, in paragraph 7.292 of the Panel Reports, that the alleged 
payments in the form of low-priced sales of C beet to sugar producers are "financed 
by virtue of governmental action", within  the meaning of Article 9.1(c) of the 
Agreement on Agriculture ;  
(d) upholds  the Panel's finding, in paragraph 7. 334 of the Panel Reports, that the 
production of C sugar receives a "payment on the export financed by virtue of 
governmental action", within the meaning of Article 9.1(c) of the  Agreement on 
Agriculture , in the form of transfers of financial resources through cross-subsidization 
resulting from the operation of the Eu ropean Communities' sugar regime; 
(e) upholds , as a result of its findings under (c) and (d) above, the Panel's finding, in 
paragraph 8.1(f) of the Panel Reports, that there is  prima facie   evidence that the 
European Communities has been providing e xport subsidies, within the meaning of 
Article 9.1(c) of the  Agreement on Agriculture , to its exports of C sugar since 1995; 
(f) upholds , as a result of its findings under (b), (c), (d), and (e) above, the Panel's 
finding, in paragraphs 7.340 and 8.3 of  the Panel Reports, that the European 
Communities, through its sugar regime, acted  inconsistently with its obligations 
under Articles 3.3 and 8 of the  Agreement on Agriculture ;  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 121 
  
(g) upholds
 the Panel's finding, in paragraphs 7.374 and 8.4 of the Panel Reports, that the 
European Communities' violations of the Agreement on Agriculture  nullified or 
impaired the benefits accruing to the Complaining Parties under the  Agreement on 
Agriculture ; 
(h) upholds  the Panel's finding, in paragraph 7.74 of the Panel Reports, that the 
Complaining Parties acted in good faith, under Article 3.10 of the DSU, in the initiation and conduct of the present disput e settlement proceedings and, assuming 
arguendo  that estoppel applies, have not been estopped, through their actions or 
silence, from alleging that the European Communities' exports of C sugar are in 
excess of its export subsidy reduction commitments; 
(i) finds
 that the Panel erred, in paragraph 7. 387 of the Panel Reports, in exercising 
judicial economy, and thereby failed to di scharge its obligation under Article 11 of 
the DSU with respect to the Complaining Parties' claims under Article 3 of the  SCM 
Agreement , but is not in a position, and therefore declines , to complete the legal 
analysis and to examine the Complaining Parties' claims under the  SCM Agreement  
left unaddressed by the Panel;  and 
(j) finds  that the European Communities' Notice of Appeal satisfies the requirements of 
Rule 20(2)(d) of the Working Procedures for Appellate Review . 
347. The Appellate Body recommends  that the Dispute Settlement Body request the European 
Communities to bring Council Regulation (EC) No . 1260/2001, as well as all other measures 
implementing or related to the European Communities'  sugar regime, found in this Report, and in the 
Panel Reports as modified by this Repo rt, to be inconsistent with the  Agreement on Agriculture ,  into 
conformity with its obligations under that Agreement. 
 WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 122 
   
Signed in the original at Geneva this 9th day of April 2005 by: 
 
  
 
      
 
    A.V. Ganesan 
    Presiding Member 
 
       
     
  Merit E. Janow    Yasuhei Taniguchi 
  Member    Member 
   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 123 
  
ANNEX 1 
 
 
WORLD TRADE  
ORGANIZATION  WT/DS265/21 
11 July 2003 
 (03-3752) 
 Original:   English 
 
 
EUROPEAN COMMUNITIES – EX PORT SUBSIDIES ON SUGAR 
 
Request for the Establishment of a Panel by Australia  
 
 
 The following communication, dated 9 July 2003,  from the Permanent Mission of Australia to 
the Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the DSU. 
 
_______________ 
  
 My authorities have requested me to submit th e following request for the establishment of a 
panel on behalf of Australia.   On 27 September 2002 Australia requested c onsultations with the European Communities 
(EC) pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of 
Disputes (DSU), Article XXII:1 of the Genera l Agreement on Tariffs and Trade 1994 (GATT 1994), 
Article 19 of the Agreement on Agriculture and Ar ticles 4 and 30 of the Agreement on Subsidies and 
Countervailing Measures (SCM Agreement) with r espect to the EC's Common Organization of the 
Markets in sugar and its application and implementation.  The request was circulated to Members on 1 October 2002 in document number WT/DS265/1.  Consultations were held  on 21 and 22 November 
2002 but unfortunately did not result in resolution of the dispute. 
  Consequently, Australia requests that a Panel be established pursuant  to Article 4.7 and 
Article 6 of the DSU, Article XXIII:2 of GATT 1994,  Article 19 of the Agreement on Agriculture and 
Article 4.4 and Article 30 of the SCM Agreement. 
 
 The measures that are the subject of this re quest are the subsidies provided by the EC in 
excess of its reduction commitment levels on sugar and sugar containing pr oducts including sugar 
cane and sugar beet, processed and unprocessed cane and beet sugar and chemically pure sucrose in 
solid form, molasses resulting from the extraction of refining of sugar, isoglucose, inulin syrup and 
the other products listed in Article 1 of Counc il Regulation (EC) No 1260/2001 of 19 June 2001 on 
the European Communities' Common Organization of th e markets in sugar sector (Official Journal of 
the European Communities, 30 June 2001, L178/1-45).   The above-mentioned subsidies are accorded through the EC sugar regime, which is 
contained in a number of EC regulations including  Council Regulation No 1260/2001 and related EC 
regulations, administrative policies, rules, decisi ons and other instruments including instruments pre-
dating the above regulation, and their implementati on.  These various instruments will be referred to 
as "the EC sugar regime". WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 124 
    In addition to setting down the conditions attachi ng to imports of sugar, the EC sugar regime 
provides conditions attached to the production, supply and exports of sugar, including domestic 
support and export subsidies.  Sugar is classified in to quota and non-quota sugar.  Non-quota sugar is 
known as C sugar.  The sugar regime provides for the reclassification from quota to C sugar and from 
C sugar to quota sugar.  Sugar classified as C s ugar cannot be disposed of in the EC market.  
  Australia is particularly concerned at the subs idies provided by the EC for "C sugar" exports 
under the EC sugar regime.  Under the regime, producers of C sugar are able to sell C sugar on the 
world market at below the total average cost of production through cross-subsidisation of C sugar from quota sugar profits.  By financing payments on the export of C sugar, the EC exceeds its export 
subsidy reduction commitments under the WTO Agreement on Agriculture.    
 Australia is also particularly concerned at the provisions of the EC sugar regime which accord 
direct subsidies contingent on export performance for quantities of approximately 1.6 million tonnes 
of sugar which are additional to the budgetary outlays  and quantities of subsidised exports notified by 
the EC to the Committee on Agriculture under the provisions of Article 18.2 of the Agreement on 
Agriculture.  In the application of those provisi ons, the EC significantly exceeds its budgetary outlays 
and quantity commitments for export subsidi es on sugar under the Agreement on Agriculture. 
 
 By granting export subsidies within the meaning of Articles 1.1(a)(1)(i), 1.1(a)(1)(iv), 1.1(a)(2) and 1.1(b) of the SCM Agreement that are not permitted by the Agreement on Agriculture, 
the EC also acts inconsistently with its obliga tions under Articles 3.1(a) and 3.2 of the SCM 
Agreement.  
 
 Australia considers that the provision of the a bove subsidies and the rele vant elements of the 
EC sugar regime are inconsistent with the EC's obligations under the following provisions: 
 – Articles 3.3, 8, 9.1(a), 9.1(c), and altern atively, 10.1 of the Agreement on Agriculture; 
 
– Articles 3.1(a) and 3.2 of the Agreemen t on Subsidies and Countervailing Measures. 
  Australia therefore requests the establishment of  a Panel in accordance with Article 7 of the 
DSU.   
 I would be grateful if you would place this item on the agenda for the next DSB meeting 
scheduled for 21 July 2003.  
_______________   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 125 
  
ANNEX 2 
 
 
WORLD TRADE  
ORGANIZATION  WT/DS266/21 
11 July 2003 
 (03-3760) 
 Original:   English 
 
 
EUROPEAN COMMUNITIES –EXPORT SUBSIDIES ON SUGAR 
 
Request for the Establishment of a Panel by Brazil  
 
 
 The following communication, dated 9 July 2003, from the Permanent Mission of Brazil to the Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the DSU. 
 
_______________ 
  
 On 27 September 2002, Brazil requested cons ultations with the European Communities 
("EC") pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement 
of Disputes ("DSU"), Article XXII:1 of the Ge neral Agreement on Tariffs and Trade 1994 ("GATT 
1994"), Article 19 of the Agreement on Agriculture , and Articles 4.1 and 30 of the Agreement on 
Subsidies and Countervailing Measures ("SCM Agre ement"), with respect to export subsidies 
provided by the EC to its sugar industry.  That  request was circulated to Members in document 
WT/DS266/1,
 G/L/570,  G/AG/GEN/53,  G/SCM/D48/1, dated 1 October 2002.  Consultations were 
held in Geneva on 21 and 22 N ovember 2002, with a view to reaching a mutually satisfactory 
solution.  Unfortunately, these consulta tions failed to resolve the dispute. 
 
 Therefore, pursuant to Articles 4.7, 6 and 7 of the DSU, Article 19 of the Agreement on 
Agriculture, Articles 4.4 and 30 of the SCM Agreem ent, and Article XXIII:2 of the GATT, Brazil 
hereby requests the establishment of a panel.     The specific measures at issue in this dispute are the subsidies provided and maintained by the 
EC, in excess of the EC's reduction commitment levels for sugar, under Council Regulation (EC) 
No. 1260/2001 of 19 June 2001 on the European Communities' common organi zation of the markets 
in the sugar sector 
1, and pursuant to all other legislation,  regulations, administrative policies and 
other instruments relating to the EC regime for sugar,  including the rules adopted pursuant to the 
procedure referred to in Article 42(2) of Counc il Regulation (EC) No. 1260/2001 of 19 June 2001, 
and any other provision related thereto.  These are re ferred to as the "EC sugar regime".  The products 
at issue are those listed in Article 1 of the Regula tion, including cane or beet sugar and chemically 
pure sucrose in solid form, molasse s resulting from the extraction or refining of sugar, isoglucose and 
inulin syrup.  These products are referred to collectively as "sugar".  
                                                     
 
1 Council Regulation (EC) No. 1260/2001 of 19 June 2001 on the common organization of the markets 
in the sugar sector, OJ L 178/1-45, 30.6.2001, p. 1.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 126 
   The EC provides export subsidies for sugar in excess of its reduction commitment levels 
specified in Section II of Part IV of its Schedule of Concessions (Schedule CXL-European Communities), in violation of the Agreement on Agri culture and the SCM Agreement.  In particular, 
Brazil is concerned with two cate gories of subsidized EC exports: 
 (i) The EC sugar regime guarantees a high price fo r the sugar that is produced within production 
quotas.  This is termed "A and B sugar".  S ugar produced in excess of these quotas is termed 
"C sugar".  Sugar classified as C sugar cannot be sold internally in the year in which it is 
produced, and must, in principle, be exported.  Payments in the form of high prices provided 
to growers and processors by the EC sugar regime finance the production and export of 
C sugar at prices below its total cost of production.   
 (ii) The EC grants export subsidies to an amount  of white sugar ostensib ly equivalent to the 
quantity of raw sugar that the EC imports unde r its preferential arrangements.  This amount, 
reportedly, is approximately 1.6 million tons. 
  The EC unjustifiably excludes these subsidi es from the calculation of its total amount of 
export subsidies that it provides for sugar.  The amount of sugar thus subsidized, alone or in 
combination with other export subsidies for suga r provided by the EC, exceeds the export subsidy 
reduction commitment levels and, as such, constitu tes a violation of the EC's obligations under 
Articles 3.3, 8, 9.1 (a) and (c), or, alternatively,  Article 10.1 of the Agreement on Agriculture.  By 
granting export subsidies within the meaning of Articles 1.1(a)(1)(i) and (iv), 1.1(a)(2), and 1.1(b) of the SCM Agreement, that are not permitted by the Agreement on Agriculture, the EC also acts 
inconsistently with its obligations under Artic les 3.1(a) and 3.2 of the SCM Agreement. 
 
 Brazil asks that this request for the establishm ent of a panel be placed on the agenda of the 
next meeting of the Dispute Settlement Body, wh ich is scheduled to take place on 21 July 2003. 
 
 
_______________ 
 
  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 127 
  
ANNEX 3 
 
 
WORLD TRADE  
ORGANIZATION  WT/DS283/2 
11 July 2003 
 (03-3757) 
 Original:   English 
 
 
EUROPEAN COMMUNITIES – EX PORT SUBSIDIES ON SUGAR 
 
Request for the Establishment of a Panel by Thailand  
 
 
 The following communication, dated 9 July 2003, from the Permanent Mission of Thailand to the Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the DSU. 
 
_______________ 
  
 On 14 March 2003, pursuant to Article 4 of  the Understanding on Rules and Procedures 
Governing the Settlement of Dis putes (the "DSU"), Article XXIII  of the General Agreement on 
Tariffs and Trade 1994 (the "GATT 1994"), Artic le 19 of the Agreement on Agriculture, and 
Articles 4 and 30 of the Agreement on Subsidies and Countervailing Measures (the "SCM 
Agreement") the Kingdom of Thailand ("Thailand") requested consultations with the European 
Communities (the "EC") with respect to export subsid ies provided by the EC in the sugar sector.  The 
request was circulated to Members on 20 Marc h 2003 in document WT/DS283/1.  The EC and 
Thailand held consultations in Geneva on 8 April 2003 with a view to reaching a mutually satisfactory 
resolution of the matter, but failed to resolve the dis pute.  Pursuant to Articles 4.7 and 6 of the DSU, 
Article XXIII:2 of the GATT 1994,  Article 19 of the Agreement on Agriculture and Articles 4.4 and 
30 of the SCM Agreement, Thailand therefore request s the Dispute Settlement Body (the "DSB") to 
establish a panel to examine the following matter.   The measures at issue are the export subs idies for sugar and sugar-containing products 
accorded under Council Regulation (EC) No. 1260/ 2001 of 19 June 2001 on the common organization 
of the markets in the sugar sector published in th e Official Journal of the European Communities on 
30 June 2001 (L 178/1-45) and related legal inst ruments.  The Council Regulation and the related 
legal instruments and administrative actions will be referred to below as the "EC sugar regime".  The 
products at issue  are those listed in Article 1 of the Council Regulation, including cane or beet sugar and chemically pure sucrose in solid form, molasses resulting from the extraction or refining of sugar, 
isoglucose and inulin syrup. These product s will be referred to below as "sugar".  
  Under the EC sugar regime, sugar that is produced within production quotas ("A" and "B" 
quotas) is guaranteed a high intervention price.  Sugar produced in excess of those quotas ("C-sugar") 
must in principle be exported.  By virtue of the EC sugar regime, exporters of C-sugar are able to 
export such sugar at prices below the average cost  of production.  The EC therefore accords export 
subsidies to C-sugar in the form of payments on the export of sugar financed by virtue of 
governmental action.  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 128 
   Furthermore, under its sugar regime, the EC gr ants export refunds to an amount of white 
sugar that the EC claims to be equivalent to the quantity of raw sugar imported under preferential 
import arrangements.  The export re funds cover the difference between the world market price and the 
high prices in the EC for the products in question, thus making it possible for those products to be 
exported.  The export refunds c onstitute direct subsidies contingent on export performance. 
  Under the Agreement on Agriculture, the EC  undertook budgetary outlay and export quantity 
reduction commitments with respect to sugar.  In determining its budgetary outlays for export 
subsidies for sugar and the quantities benefiting fro m such subsidies, the EC does not take into 
account exports of C-sugar and exports  of an amount of white sugar equivalent to the quantity of raw 
sugar imported under preferential import arrangements.   As a result, the EC provides export subsidies 
for sugar in excess of its reduction commitments and consequently acts in consistently with its 
obligations under Articles 3.3, 8, 9.1(a) and 9.1(c) of the Agreement on Agriculture or, alternatively, 
Article 10.1 of the Agreement on Agriculture. By gr anting export subsidies within the meaning of 
Articles 1.1(a)(1)(i) and (iv), 1.1(a)(2), and 1.1(b)  of the SCM Agreement, that are not permitted by 
the Agreement on Agriculture, the EC also acts  inconsistently with its obligations under 
Articles 3.1(a) and 3.2 of the SCM Agreement.    I would appreciate it if this request for the establishment of a panel were placed on the agenda 
for the meeting of the DSB scheduled for 21 July 2003. 
 
_______________ 
  
  
SCHEDULE CXL – EUROPEAN COMMUNITIES 
This Schedule is authentic only in the English language 
PART IV – AGRICULTURAL PRODUCTS:  COMMITMENTS LIMITING SUBSIDIZATION 
(Article 3 of the Agreement on Agriculture) 
SECTION II:  Export Subsidies:  Budgetary Outlay and Quantity Reduction Commitments 
 
Description 
of products 
and tariff 
item numbers 
at HS six 
digit level  
(*) Base 
outlay 
level 
 
Mio 
ECU Calendar/ 
other year 
applied 
(*) Annual and final outlay 
commitment levels 
1995 – 2000 
 
Mio ECU Base 
Quantity 
 
(*) 
000 t Calendar/ 
other year 
applied 
(*) Annual and final quantity 
commitment levels 
1995 – 2000 
 
000 t Relevant 
Supporting 
Tables and 
document 
reference 
1 2 3 4 5 6 7 8 
   1995 1996 1997 1998 1999 2000   1995 1996 1997 1998 1999 2000  
                  
 
  
 
   
 
 
Sugar (1) 779,9  733,1 686,3 639,5 592,7 545,9 499,1 1.612,0  1.555,6 1.499,2 1.442,7 1.386,3 1.329,9 1.273,5  
 
                  
 
  
 
  
 
  
 
(*) See Annex 
(1) Does not include exports of sugar of ACP and Indian origin  on which the Community is not making any reduct ion commitments.  The average of export in the period 1986 to 1990 
amounted to 1,6 mio t. 
 
Note :  For the purpose of this Appellate Body Report, references on this page to products other than sugar have been deleted. 
 WT/DS265/AB/R 
WT/DS266/AB/R 
WT/DS283/AB/R 
Page 129 
 
ANNEX 4 
 WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 130 
  
 ANNEX 5 
 
 
WORLD TRADE  
ORGANIZATION  WT/DS265/25 
WT/DS266/25 WT/DS283/6 
13 January 2005 
 
 
(05-0190) 
 Original:   English 
 
 
EUROPEAN COMMUNITIES – EX PORT SUBSIDIES ON SUGAR 
 
Notification of an Appeal by the European Communities  
under paragraph 4 of Article 16 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes (DSU)  
   The following notification, dated 13 January  2005, from the Permanent Delegation of the 
European Commission, 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 European 
Communities ("EC") hereby notifies its decision to a ppeal to the Appellate Bo dy certain issues of  
law covered in the reports of the Panel established in response to the requests from Australia, Brazil 
and Thailand in the disputes European Communities – Export Subsidies on Sugar  (WT/DS265/R, 
WT/DS266/R and WT/DS283/R). 
 
The European Communities seeks review of:  
 1) The conclusion, and the related legal findings and interpretations, contained in 
paragraphs 7.12-7.16 and 7.24-7.37 of the Panel reports, that the alleged "payments" 
in the form of sales of C beet were within the terms of reference of the Panel. 
 
 2) The conclusion, and the related legal findi ngs and interpretations set out in paragraphs 
7.120 to 7.222, 7.235 to 7.238 and 8.1(a), (b) and (c) of the Panel reports that Footnote 1 to Section II, Part IV of the EC 's Schedule has no legal effect and that, as a 
consequence, the EC's quantity commitment level for exports of  sugar is 1,273,500 
tonnes and the EC's budgetary outlay commi tments is €499.1 million from marketing 
year 2000/2001.  
  This conclusion is based on the following erroneous findings: 
 
-  that Articles 3.3 and 8 of the Agreement on Agriculture require in all 
circumstances that a Member specify both budgetary and quantity 
commitments;  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 131 
  
 -  that Footnote 1 to Section II, Part IV of the EC's Schedule is not a 
commitment limiting subsidisation, and does not cover exports equivalent to 
the volume of ACP/India sugar imported into the EC;  
 
- that even if Footnote 1 to Section II, Part IV of the EC's Schedule is a 
commitment limiting subsidisation it would remain inconsistent with the Agreement on Agriculture ; and 
- that the jurisprudence of US – Sugar Headnote applies to export subsidy 
commitments 
 3) The conclusion, and the related lega l findings and interpretations, set out in 
paragraphs 7.251-7335 and 8.1(f) of the Pane l reports, that exports of C sugar benefit 
from export subsidies falling within Article 9.1(c) of the Agreement on Agriculture . 
 
This conclusion is based on the following erroneous findings: 
 - that so-called "cross-subsidization" constitutes a payment on the exports of C 
sugar, which provides an export subsidy within the meaning of Article 9.1(c); 
 - that the supply of C beet is a paymen t on the exports of C sugar financed by 
virtue of Government action, which provides an export subsidy within the 
meaning of Article 9.1(c). 
 
 4) The overall conclusion, and the related le gal findings and interpretations set out in 
paragraphs 7.336-7.340, 8.2 and 8.3 of the Pa nel reports, that the EC exported sugar 
in excess of its commitment levels in mark eting year 2000/2001 and, therefore, has 
acted inconsistently with Articles 3.3 and 8 of the Agreement on Agriculture. 
 
 This conclusion is based on the erroneous conclusions mentioned above under 1), 2) 
and 3). 
 
 5) The conclusion, and the related lega l findings and interpretations, set out in 
paragraphs 7.61-7.75 and 7.348-7.354 of th e Panel reports, that, by claiming that 
exports of C sugar were in excess of the EC's commitment levels the Complainants 
did not act inconsistently with Article 3.10 DSU and the principle of good faith. 
 
 6) The conclusion, and the related lega l findings and interpretations, set out in 
paragraphs 7.366-7.374 and 8.4 of the Pane l Reports that the alleged violations 
resulting from the exports of C sugar nullif y or impair benefits accrued to the 
Complainants under the Agreement on Agriculture .  
 
The provisions of the covered agreements which th e European Communities consider to have been 
erroneously interpreted or a pplied by the Panel include: 
 
• Section II, Part IV of the EC's Schedule; 
• Articles 3.3,  8  and 9.1 of the Agreement on Agriculture ;  
• Articles 3.7, 3.8, 3.10, 6.2, 7.1, 7.2, 9.2, 11 and 12.7 of the DSU. 
_______________  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 132 
  
 ANNEX 6 
 
 
WORLD TRADE  
ORGANIZATION  WT/DS265/27 
25 January 2005 
 
 
 (05-0314) 
 Original:   English 
 
 
EUROPEAN COMMUNITIES – EX PORT SUBSIDIES ON SUGAR 
 
Notification of an Other Appeal by Australia  
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 January 2 005, from the Delegation of Australia, is being 
circulated to Members. 
 
_______________ 
 
 1. Pursuant to Rule 23 of the Working Procedur es for Appellate Review, as adopted by the 
Appellate Body in accordance with the provisi ons of paragraph 9 of Article 17 of the Understanding 
on Rules and Procedures Governing the Settlement of Disputes  (the " DSU "), Australia hereby notifies 
its decision to appeal to the Appellate Body on the b asis of errors both in certain issues of law covered 
in the report of the Panel on European Communities – Export Subsidies on Sugar  (WT/DS265/R) (the 
"Panel Report") and in certain legal interpretati ons developed by the Panel in the Panel Report. 
 
2. Australia seeks appellate review of:  
 
(a)  the Panel's decision, as set out in paragr aphs 7.380-7.387 and in paragraphs 6.14-6.15 
of the Panel Report, to exercise judi cial economy and to decline to examine 
Australia's claims under Articles 3.1(a) and 3.2 of the Agreement on Subsidies and 
Countervailing Measures  ("SCM Agreement "); and 
(b)  the Panel's consequent failure to ma ke a recommendation in accordance with the 
provisions of Article 4.7 of the SCM Agreement .  
 
3. The Panel's decision was based on the following errors of law and legal interpretation: 
 
(i)  that the Panel's findings under the Agreement on Agriculture  should be sufficient to 
fully resolve the matter at  issue (paragraph 7.383); 
(ii)  that there was some issue whether the Panel was entitled to make a recommendation 
to withdraw the measure and to specify  a time period in accordance with the 
provisions of Article 4.7 of the SCM Agreement  in the circumstances before it 
(paragraph 7.384);  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 133 
  
 (iii)  that the Panel was not required to rule on Australia's claims under the SCM 
Agreement  "merely in order to obtain what might – but would not necessarily be – 
more rapid compliance" (paragraph 7.384); 
(iv)  that the Panel's exercise of judicial economy did not diminish Australia's rights within 
the meaning of Article 19.2 of the DSU  (paragraph 7.385); and 
(v)  the additional considerations in its decisi on to exercise judicial economy, being, in its 
view, that Australia focused on its claims under the Agreement on Agriculture  and 
had not set forth its claims under Article 3 of the SCM Agreement  in quite as clear and 
unambiguous a manner as under the Agreement on Agriculture  (paragraphs 6.15 and 
7.386). 
 4. In deciding to exercise judicial economy in  respect of Australi a's claims under the SCM 
Agreement , the Panel deprived Australia of its rights in regard to: 
 
- a recommendation, in accordance with Article 4.7 of the SCM Agreement , that those export 
subsidies on sugar found inconsistent with the SCM Agreement  be withdrawn without delay; 
- a recommendation, in accordance with Article 4.7 of the SCM Agreement , specifying a time-
period for withdrawal of the export subsidies in question; 
- taking countermeasures in accordance with  the provisions of Article 4.10 of the SCM 
Agreement  in the event that the subsidies in questio n were not withdrawn within the specified 
time-period; and 
- the application of special or additional ru les and procedures, in accordance with the 
provisions of Article 1.2 and Appendix 2 of the DSU . 
 5. The Panel's decision to exercise judicial economy  also serves to diminish Australia's rights 
under, and is inconsistent with, the provisions of Articles 1.2, 3.2, 3.4, 3.7 and 19.2 of the 
DSU .  The Panel's decision is also inconsistent  with the Panel's duty under Article 11 of the 
DSU  to make such findings as will assist th e DSB in making the recommendations or in 
giving the rulings provided for in the covered agreements. 
 6. Australia requests that the Appellate Body reve rse the Panel's legal fi ndings and conclusions 
in respect of the exercise of judicial economy in regard to the provisions of the SCM 
Agreement .  Australia further requests the Appellate Body to preserve Australia's rights under 
Articles 4.7 and 4.10 of the SCM Agreement , in accordance with Articles 1.2, 3.2 and 19.2 of 
the DSU , by ruling - on the basis of factual findings by the Panel and the undisputed facts on 
the Panel record - on Aust ralia's claims under Articles 3.1(a) and 3.2 of the SCM  
Agreement  
and to make the recommendation provided for under Article 4.7 of the SCM Agreement .  
 7. Australia cites paragraphs 6.14-6.15 and 7.380- 7.387 of the Panel Report as an indicative list 
of paragraphs containing relevant  errors in issues of law and legal interpretation developed by 
the Panel.  Australia also cites paragraphs 3.4, 3.8, 4.2-4.3, 4.102-4.121, 4.177, 4.232-4.266, 
7.234, 7.237, 7.375-7.381 and 8.1(e) of the Panel Report as an indicative list of paragraphs 
relevant to its request in paragraph 6 above of this Notice of Other Appeal.  
 8. Australia cites the following legal provisions of the covered agreements as those that the 
Panel erred in interpreting or applying: 
 
- SCM Agreement : Articles 3.1(a) and 3.2, 4.7 and 4.10; 
- Agreement on Agriculture : Article 21.1; and 
- DSU : Article 1.2 and Appendix 2; Articles 3.2, 3.4, 3.7, 11 and 19. 
_______________  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 134 
  
 ANNEX 7 
 
 
WORLD TRADE  
ORGANIZATION  WT/DS266/27 
25 January 2005 
 
 (05-0324) 
 Original:   English 
 
 
EUROPEAN COMMUNITIES – EX PORT SUBSIDIES ON SUGAR 
 
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 January 2005, from the Delegation of Brazil, is being 
circulated to Members. 
 
_______________ 
 
  Pursuant to Articles 16.4 and 17.4 of the U nderstanding 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 le gal interpretation in the Panel Report in European 
Communities – Export Subsidies on Sugar  (WT/DS266/R). 
 1. Brazil claims that the Panel committed legal error in the exercise of the principle of judicial 
economy, in paragraph 7.387 of the Panel Report,  by declining to exam ine Brazil’s claim that 
the regimes for A, B and C sugar, and for ACP/ India equivalent sugar, involve the provision 
of export subsidies prohibited by Articles 3.1(a) and 3.2 of the Agreement on Subsidies and 
Countervailing Measures  (“SCM Agreement ”). 
 2. The Panel’s finding is based on an erroneous in terpretation and applica tion of Article 4.7 of 
the SCM Agreement  and Article 19.1 of the DSU .  The Panel erred in deciding to exercise 
judicial economy on the basis of the implemen tation obligations in Article 19.1 of the DSU .  
These obligations would not apply if Brazil’s claims under Article 3 of the SCM Agreement  
were upheld.  Instead, in that event, the recommendations and rulings of the DSB would be determined pursuant to Article 4.7 of the SCM Agreement . 
 
3. As a result of these errors, the Panel also erred in its interpretation and application of Article 
19.2 of the DSU  by nullifying the right of Brazil to resolve a dispute concerning prohibited 
export subsidies in terms of the implementation obligations available under Article 4.7 of the 
SCM Agreement .  The Panel has also erred under Article 19.2 of the DSU  by nullifying 
Brazil’s right, in the event of a failure by the European Communities to comply with the 
recommendations and rulings of the DSB in this dispute, to avail itself of the remedies and 
procedures foreseen by Article 4.10 of the SCM Agreement . 
  WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 135 
  
 4. Brazil claims, therefore, that the Panel erred in  the exercise of the principle of judicial 
economy and also in the interpretation a nd application of Article 4.7 of the SCM Agreement  
and Articles 19.1 and 19.2 of the DSU .  Brazil intends to argue th at the Panel’s findings in, 
inter alia , paragraphs 7.383 – 7.387 of the Panel Report contains these errors. 
 5. In the event that Appellate Body reverses the Panel’s exercise of judicial economy, Brazil 
requests that the Appellate Body complete the legal analysis by examining Brazil’s claims 
under Articles 3.1(a) and 3.2 of the SCM Agreement  on the basis of Panel’s factual findings 
and the uncontested facts of record. 
 
_______________  WT/DS265/AB/R 
WT/DS266/AB/R WT/DS283/AB/R 
Page 136 
  
 ANNEX 8 
 
 
WORLD TRADE  
ORGANIZATION  WT/DS283/8 
25 January 2005 
 
 (05-0322) 
 Original:   English 
 
 
EUROPEAN COMMUNITIES – EX PORT SUBSIDIES ON SUGAR 
 
Notification of an Other Appeal by Thailand  
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 January 2005,  from the Delegation of Thailand, is being 
circulated to Members. 
 
_______________ 
 
 
Pursuant to Rule 23 of the Appellate Body 's Working Procedures for Appellate Review, 
Thailand hereby notifies its decision to appeal to th e Appellate Body certain issues of law covered in 
the Panel Report European Communities – Export Subsidies on Sugar  (Complaint by Thailand) , 
WT/DS283/R, (the "Panel Report") and certain legal interpretations developed by the Panel in that 
Report. 
 Thailand seeks appellate review of: 
 
(a) the Panel's decision, set out in paragraphs 7. 380-7.387 and in paragraphs 6.14 -6.15 of the 
Panel Report, not to make findings on the claims  of Thailand under Articles 3.1(a) and 3.2 of 
the Agreement on Subsidies and Countervailing Measures (the "SCM Agreement");  and  
 
(b) the Panel's consequent failure to make a r ecommendation in accordance with Article 4.7 of 
the SCM Agreement.    
 The Panel's decision was based on the following erroneous findings:  
- that the Panel's rulings under the Agreement on Agriculture should be sufficient to fully 
resolve the dispute between the parti es (para. 7.383 of the Panel Report); 
- that there was "some issue" as to whether th e Panel was entitled to make a recommendation in 
accordance with Article 4.7 of the SCM Agreemen t in the circumstances before it (para. 7.384 
of the Panel Report); 
- that the Panel was not required to rule on the Complainants' claims under the SCM 
Agreement "merely in order to obtain what might - but would not necessarily be - more rapid compliance" (para. 7.384 of the Panel Report);   WT/DS265/AB/R 
 WT/DS266/AB/R 
 WT/DS283/AB/R 
 Page 137 
  
 - that the Panel's exercise of judicial economy did not diminish the rights of the Complainants 
with the meaning of Article 19.2 of the U nderstanding on Rules and Procedures Governing 
the Settlement of Disputes (the "DSU") (p ara. 7.385 of  the Panel Report); and  
- that an additional consideration relevant to th e Panel's decision to exercise judicial economy 
was that the Complainants focu sed their claims on the Agreement on Agriculture and did not 
set forth their claims under Article 3 of the SCM Agreement in quite as clear and 
unambiguous manner as under the Agreement on Agriculture (paras. 6.15 and 7.386 of the 
Panel Report).  
 
The Panel's decision not to rule on Thailand's claims under the SCM Agreement has deprived 
Thailand of the remedies available under Article 4 of the SCM Agreement, including Thailand's right 
under Article 4.7, first sentence, to a recommendati on that those export subsidies on sugar that are 
inconsistent with the SCM Agreem ent and the Agreement on Agriculture be withdrawn without delay;  
Thailand's right under Article 4.7, second sentence,  that the Panel specify the time-period within 
which those subsidies must be withdrawn; and Tha iland's right to take countermeasures in accordance 
with the criteria and procedures set out in Article 4.10 of the SCM Agreement in the event that the 
European Communities fails to withdraw those subsidies.  
 
The Panel's failure to accord Thailand its right s under Articles 4 of the SCM Agreement is 
inconsistent with Articles 3.2 and 19.2 of the DSU,  which require panels a nd the Appellate Body not 
to "... diminish the rights ... provided in the cove red agreements".  The Panel's failure to provide a 
recommendation under Article 4.7 of the SCM Agreemen t is also inconsistent with a panel's duty 
under Article 11 of the DSU to "make ... findings as will assist the DSB in making the 
recommendations or in giving the rulings provi ded for in the covered agreements".   
 Thailand requests the Appellate Body to reverse the Panel's legal findings and conclusions on 
judicial economy.  It further requests the Appellate  Body to preserve Thailand's rights under Article 
4.7 and 4.10 of the SCM Agreement in accordance w ith Articles 3.2 and 19.2 of the DSU by ruling, 
on the basis of the factual findings by the Panel and the undisputed facts in the Panel record, on the 
claims that Thailand made under Articles 3.1( a) and 3.2 of SCM Agreement and making the 
recommendation provided under Article  4.7 of the SCM Agreement. 
 The provisions of the covered agreements th at Thailand considers the Panel to have 
erroneously interpreted or applied includ e, in addition to those cited above: 
 
- Articles 1.2 and Appendix 2 to the DSU; 
- Articles 3.4, 3.7, and 19.1 of the DSU;  and  
- Articles 13(c)(ii) and 21.1 of the Agreement on Agriculture. 
 
__________