WORLD TRADE  
ORGANIZATION  WT/DS267/AB/R 
3 March 2005 
 (05-0884) 
 Original:   English 
  
 
     
 
    
 
    
UNITED STATES – SUBSIDIES ON UPLAND COTTON  
 
 
  
AB-2004-5 
 
 
    
   
     
 
 
Report of the Appellate Body 
  WT/DS267/AB/R 
 Page i 
 
 
  
I. Introduction................................................................................................................... ..............1  
II. Arguments of the Participants and the Third Participants ..........................................................8  
A. Claims of Error by the United States – Appellant .........................................................8  
1. Domestic Support .............................................................................................8  
2. Serious Prejudice ............................................................................................17  
3. Import Substitution Subsidies and Export Subsidies ......................................21  
B. Arguments of Brazil – Appellee ...................................................................................29  
1. Domestic Support ...........................................................................................29  
2. Serious Prejudice ............................................................................................36  
3. Import Substitution Subsidies and Export Subsidies ......................................40  
C. Claims of Error by Brazil – Appellant .........................................................................47  
1. Domestic Support ...........................................................................................47  
2. Serious Prejudice ............................................................................................49  
3. Import Substitution Subsidies and Export Subsidies ......................................51  
D. Arguments of the United States – Appellee ..................................................................60  
1. Domestic Support ...........................................................................................60  
2. Serious Prejudice ............................................................................................61  
3. Import Substitution Subsidies and Export Subsidies ......................................62  
E. Arguments of the Third Participants ............................................................................67  
1. Argentina ........................................................................................................67  
2. Australia..........................................................................................................69  
3. Benin and Chad...............................................................................................72  
4. Canada ............................................................................................................74  
5. China...............................................................................................................76  
6. European Communities...................................................................................77  
7. India ................................................................................................................80  
8. New Zealand...................................................................................................80  
9. Separate Customs Territory of Ta iwan, Penghu, Kinmen and Matsu ............84  
III. Issues Raised in this Appeal ................................................................................................... ..84 
IV. Preliminary Issues............................................................................................................. ........91  
A. Terms of Reference – Expired Measures .....................................................................91  
1. Introduction.....................................................................................................91  
2. Appeal by the United States............................................................................93  
3. Scope of Consultations under Article 4.2 of the DSU ....................................94  
4. Measure at Issue under Article 6.2 of the DSU ..............................................97  
5. Article 12.7 of the DSU ..................................................................................99  WT/DS267/AB/R 
Page ii  
 
 B.
 Terms of Reference – Export Credit Guarantees .......................................................101  
1. Introduction...................................................................................................101  
2. Arguments on Appeal ...................................................................................102  
3. Did the Panel's Terms of Reference In clude Other Eligible Agricultural 
Commodities? ...............................................................................................103  
C. Statement of Available Evidence – Export Credit Guarantees ..................................109  
1. Introduction...................................................................................................109  
2. Did Brazil's Statement of Available Evidence Include Export Credit 
Guarantees to Other Eligible Agricultural Commodities?............................112  
V. Domestic Support ............................................................................................................... ....116  
A. Article 13(a) of the Agreement on Agriculture – Planting Flexibility 
Limitations .................................................................................................................116  
1. Introduction...................................................................................................116  
2. Appeal by the United States..........................................................................117  
3. Analysis ........................................................................................................119  
4. Conclusion ....................................................................................................128  
B. Article 13(a) of the  Agreement on Agriculture – Base Period Update .....................128  
C. Article 13(b) of the Agreement on Agriculture – Non-Green Box  
Domestic Support .......................................................................................................129  
1. Introduction...................................................................................................129  
2. Appeal by the United States..........................................................................131  
3. Analysis ........................................................................................................133  
VI. Serious Prejudice .............................................................................................................. ......146  
A. Significant Price Suppression under Artic le 6.3(c) of the SCM Agreement ..............146  
1. Introduction...................................................................................................146  
2. Objective Assessment under Article 11 of the DSU.....................................147  
3. Relevant Market under Article 6.3(c) of the SCM Agreement ......................148  
4. Relevant Price under Article 6.3(c) of the  SCM Agreement ........................154  
5. Significant Price Suppression as the Effect of the Price-Contingent 
Subsidies.......................................................................................................155  
6. Serious Prejudice under Article 5(c) of the SCM Agreement .......................183  
7. Basic Rationale under Article 12.7 of the DSU............................................185  
8. Conclusion ....................................................................................................187  
B. World Market Share under Article 6.3(d) of the SCM Agreement .............................187  
1. Introduction...................................................................................................187  
2. Analysis ........................................................................................................191   WT/DS267/AB/R 
 Page iii 
 
 
 VII. Import Substitution Subsidies and Export Subsidies ..............................................................194  
A. Step 2 Payments to Domestic Users ...........................................................................194  
1. Introduction...................................................................................................194  
2. Panel Findings ..............................................................................................196  
3. Arguments on Appeal ...................................................................................199  
4. Does Article 3.1(b) of the  SCM Agreement   Apply to Agricultural 
Products?.......................................................................................................200  
B. Step 2 Payments to Exporters ....................................................................................208  
C. Export Credit Guarantees – Article 10.2 of the Agreement on Agriculture ..............219  
1. United States' Export Credit Guarantee Programs........................................219  
2. Panel Findings ..............................................................................................220  
3. Arguments on Appeal ...................................................................................224  
4. Does Article 10.2 Exempt Export Credit Guarantee Programs from 
Export Subsidy Disciplines?.........................................................................227  
5. Articles 3.1 and 3.2 of the  SCM Agreement .................................................237  
6. Separate Opinion...........................................................................................237  
D. Export Credit Guarantees – Burden of Proof ............................................................241  
E. Export Credit Guarantees – Necessary Findings of Fact ..........................................249  
F. Export Credit Guarantees – Circumvention ..............................................................255  
1. Introduction...................................................................................................255  
2. Actual Circumvention...................................................................................258  
3. Threat of Circumvention...............................................................................262  
G. Export Credit Guarantees – Articles 1.1 and  3.1(a) of the SCM Agreement ............272  
H. ETI Act of 2000 ..........................................................................................................277  
I. Interpretation of Article XVI:3 of the GATT 1994 .....................................................283  
1. Introduction...................................................................................................283  
2. Analysis ........................................................................................................286  
VIII. Findings and Conclusions....................................................................................................... 288 
 
ANNEX 1 Notification of an Appeal by the United States under paragraph 4 
of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") 
 
ANNEX 2 Table 1:  Calculation of support to upland cotton using budgetary outlays 
Table 2:  Calculation of support to up land cotton using price gap methodology   
   for certain price-based measures 
Table 3:  Values attributable to the price-contingent subsidies WT/DS267/AB/R 
Page iv  
 
 TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R, 8 
September 2004 
Argentina – Footwear (EC)  Appellate Body Report, Argentina – Safeguard Measures on Imports of 
Footwear , WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, 515 
Argentina – Textiles and 
Apparel  Panel Report, Argentina – Measures Affecting Imports of Footwear, Textiles, 
Apparel and Other Items , WT/DS56/R, adopted 22 April 1998, as modified by 
the Appellate Body Report, WT/DS56/AB/R, DSR 1998:III, 1033 
Australia – Automotive 
Leather II  Panel Report, Australia – Subsidies Provided to Producers and Exporters of 
Automotive Leather , WT/DS126/R, adopted 16 June 1999, DSR 1999:III, 951 
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  Appellate Body Report, Brazil – Export Financing Programme for Aircraft , 
WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161 
Canada – Aircraft  Appellate Body Report, Can ada – 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 – Autos  Appellate Body Report, Canada – Certain Measures Affecting the Automotive 
Industry , WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000, 
DSR 2000:VI, 2985 
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  Panel Report, Canada – Measures Affecting the Importation of Milk and the 
Exportation of Dairy Products , WT/DS103/R, WT/DS113/R, adopted 
27 October 1999, as modified by the Appellate Body Report, WT/DS103/AB/R, 
WT/DS113/AB/R, DSR 1999:VI, 2097 
Canada – Dairy  (Article 21.5 – New Zealand 
and US)  Appellate Body Report, Canada – Measures Affecting the Importation of Milk 
and the Exportation of Dairy Products – Recourse to Article 21.5 of the DSU by 
New Zealand and the United States , WT/DS103/AB/RW, WT/DS113/AB/RW, 
adopted 18 December 2001, DSR 2001:XIII, 6829 
Canada – Dairy  (Article 21.5 – New Zealand 
and US II)  Appellate Body Report, Canada – Measures Affecting the Importation of Milk 
and the Exportation of Dairy Products – Second Recourse to Article 21.5 of the 
DSU by New Zealand and the United States , WT/DS103/AB/RW2, 
WT/DS113/AB/RW2, adopted 17 January 2003 
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 
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  WT/DS267/AB/R 
 Page v 
 
 
 EC – Asbestos  Appellate Body Report, European Communities – Measures Affecting Asbestos 
and Asbestos-Containing Products , WT/DS135/AB/R, adopted 5 April 2001, 
DSR 2001:VII, 3243 
EC – 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 – Bed Linen  
(Article 21.5 – India)  Appellate Body Report, European Communities – Anti-Dumping Duties on 
Imports of Cotton-Type Bed Linen from I ndia – Recourse to Article 21.5 of the 
DSU by India , WT/DS141/AB/RW, adopted 24 April 2003 
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 – Sardines  Appellate Body Report, European Communities – Trade Description of Sardines , 
WT/DS231/AB/R, adopted 23 October 2002 
EEC – Animal Feed Proteins GATT Panel Report, EEC – Measures on Animal Feed Proteins , adopted 
14 March 1978, BISD 25S/49 
EEC – Apples I (Chile) GATT Panel Report, EEC Restrictions on Imports of Apples from Chile , 
adopted 10 November 1980, BISD 27S/98 
India – Autos  Panel Report, India – Measures Affecting the Automotive Sector , WT/DS146/R, 
WT/DS175/R and Corr.1, adopted 5 April 2002 
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 
Indonesia – Autos  Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry , 
WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R and Corr.1, 2, 3, and 4, adopted 23 July 1998, DSR 1998:VI, 2201 
Italy – Agricultural Machinery GATT Panel Report, Italian Discrimination Against Imported Agricultural 
Machinery , adopted 23 October 1958, BISD 7S/60 
Japan – Alcoholic Beverages II  Appellate Body Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/AB/R, 
WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97  
Japan – Apples  Appellate Body Report, Japan - Measures Affecting the Importation of Apples , 
WT/DS245/AB/R, adopted 10 December 2003 
Korea – Alcoholic Beverages  Panel Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/R, WT/DS84/R, 
adopted 17 February 1999, as modified by the Appellate Body Report, WT/DS75/AB/R, WT/DS84/AB/R, DSR 1999:I, 44 
Korea – Dairy  Appellate Body Report, Korea – Definitive Safeguard Measure on Imports of 
Certain Dairy Products , WT/DS98/AB/R, adopted 12 January 2000, 
DSR 2000:I, 3 
Mexico – Corn Syrup  (Article 21.5 – US)  Appellate Body Report, Mexico – Anti-Dumping Investigation of High Fructose 
Corn Syrup (HFCS) from the United States – Recourse to Article 21.5 of the DSU 
by the United States , WT/DS132/AB/RW, adopted 21 November 2001, DSR 
2001:XIII, 6675 
US – Canadian Tuna GATT Panel Report, United States – Prohibition of Imports of Tuna and Tuna 
Products from Canada , adopted 22 February 1982, BISD 29S/91 
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/DS267/AB/R 
Page vi  
 
 US – Certain EC Products  Appellate Body Report, United States – Import Measures on Certain Products 
from the European Communities , WT/DS165/AB/R, adopted 10 January 2001, 
DSR 2001:I, 373 
US – Certain EC Products  Panel Report, United States – Import Measures on Certain Products from the 
European Communities , WT/DS165/R and Add.1, adopted 10 January 2001, as 
modified by the Appellate Body Report, WT/DS165/AB/R, DSR 2001:II, 413 
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 – Cotton Yarn  Appellate Body Report, United States – Transitional Safeguard Measure on 
Combed Cotton Yarn from Pakistan , WT/DS192/AB/R, adopted 
5 November 2001, DSR 2001:XII, 6027 
US – FSC  Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" , WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, 1619 
US – FSC  
(Article 21.5 – EC)  Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Articl e 21.5 of the DSU by the European 
Communities , WT/DS108/AB/RW, adopted 29 January 2002, DSR 2002:I, 55 
US – FSC  
(Article 21.5 – EC)  Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – 
Recourse to Article 21.5 of the DSU by the European Communities , 
WT/DS108/RW, adopted 29 January 2002, as modified by the Appellate Body 
Report, WT/DS108/AB/RW, DSR 2002:I, 119 
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 – Hot-Rolled Steel  Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot-
Rolled Steel Products from Japan , WT/DS184/AB/R, adopted 23 August 2001, 
DSR 2001:X, 4697 
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 – Line Pipe  Appellate Body Report, United States – Definitive Safeguard Measures on 
Imports of Circular Welded Car bon Quality Line Pipe from Korea , 
WT/DS202/AB/R, adopted 8 March 2002  
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  
(Article 21.5 – Malaysia) Appellate Body Report, United States – Import Prohibition of Certain Shrimp 
and Shrimp Products – Recourse to Article 21.5 of the DSU by Malaysia , 
WT/DS58/AB/RW, adopted 21 November 2001, DSR 2001:XIII, 6481 
US – Softwood Lumber IV  Appellate Body Report, United States – Final Countervailing Duty 
Determination with Respect to Certain Softwood Lumber from Canada , 
WT/DS257/AB/R, adopted 17 February 2004 
US – Steel Safeguards Appellate Body Report, United States – Definitive Safeguard Measures on 
Imports of Certain Steel Products , WT/DS248AB/R, WT/DS249AB/R, 
WT/DS251AB/R, WT/DS252AB/R, WT/DS253AB/R, WT/DS254AB/R, 
WT/DS258AB/R, WT/DS259AB/R, adopted 10 December 2003  WT/DS267/AB/R 
 Page vii 
 
 
 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 
US – Wool Shirts and Blouses Panel Report, United States – Measure Affecting Imports of Woven Wool Shirts 
and Blouses from India , WT/DS33/R, adopted 23 May 1997, as upheld by the 
Appellate Body Report, WT/DS33/AB/R, DSR 1997:I, 343 
 WT/DS267/AB/R 
Page viii  
 
  
TABLE OF ABBREVIATIONS USED IN THIS REPORT 
 
Abbreviation Description 
AMS Aggregate Measurement of Support 
Anti-Dumping Agreement   Agreement on Implementation of Article VI of the General Agreement on 
Tariffs and Trade 1994 
CCC Commodity Credit Corporation 
CCP payments counter-cyclical payments 
DP payments direct payments 
DSB Dispute Settlement Body 
DSU Understanding on Rules and Procedures Governing the Settlement of 
Disputes 
ETI Act FSC Repeal and Extraterritorial Income Exclusion Act of 2000, Public Law 
106-519  
FAIR Act of 1996 Federal Agriculture Improvement and Reform Act of 1996, Public Law  
104-127 
FSRI Act of 2002 Farm Security and Rural Investment Act of 2002, Public Law 107-171 
GATT 1994 General Agreement on Tariffs and Trade 1994 
GSM 102 General Sales Manager 102 
GSM 103 General Sales Manager 103 
MLA payments market loss assistance payments 
peace clause Article 13 of the Agreement on Agriculture 
Panel Report Panel Report, United States – Subsidies on Upland Cotton  ("US – Upland 
Cotton "), WT/DS267/R, and Corr.1, 8 September 2004  
PFC payments production flexibility contract payments 
price-contingent subsidies Marketing loan program payments, Step 2 payments, market loss assistance 
payments, and counter- cyclical payments 
SCGP Supplier Credit Guarantee Program 
SCM Agreement Agreement on Subsidies and Countervailing Measures 
Step 2 payments User marketing (Step 2) payments 
USDA United States Department of Agriculture 
Vienna Convention Vienna Convention on the Law of Treaties , done at Vienna, 23 May 1969, 
1155 U.N.T.S. 331; 8 International Legal Materials 679  
Working Procedures Working Procedures for Appellate Review 
WTO World Trade Organization 
WTO Agreement Marrakesh Agreement Esta blishing the World Trade Organization 
 
  WT/DS267/AB/R 
 Page 1 
 
 
 WORLD TRADE ORGANIZATION  
APPELLATE BODY 
 
 
United States – Subsidies on Upland Cotton 
 
United States,  Appellant/Appellee  
Brazil,  Appellant /Appellee 
 
Argentina, Third Participant   
Australia, Third Participant   
Benin, Third Participant   
Canada, Third Participant   
Chad, Third Participant   
China, Third Participant   
European Communities, Third Participant   
India, Third Participant   
New Zealand, Third Participant   
Pakistan, Third Participant   
Paraguay, Third Participant   
Separate Customs Territory of Taiwan, Penghu,  Kinmen and Matsu, Third Participant   
Venezuela, Third Participant   
  AB-2004-5 
  Present:  
 Janow, Presiding Member 
 Baptista, Member  Ganesan, Member  
 
 
I. Introduction 
1. The United States and Brazil each appeals certain issues of law and legal interpretations 
developed in the Panel Report,  United States – Subsidies on Upland Cotton (the "Panel Report").1  
The Panel was established on 18 March 2003 to consid er claims by Brazil regarding various United 
States measures 2 that Brazil alleged constituted actionable s ubsidies within the meaning of Part III of 
the  Agreement on Subsidies and Countervailing Measures   (the " SCM Agreement "), prohibited 
subsidies within the meaning of Part II of the  SCM Agreement ,  export subsidies within the scope of 
the  Agreement on Agriculture ,  and/or subsidies actionable under Article XVI of the General 
Agreement on Tariffs and Trade 1994 (the "GATT 1994") .  Brazil also alleged  that certain of these 
measures were inconsistent with Article III:4 of the GATT 1994.  The United States argued that some 
                                                      
1WT/DS267/R, 8 September 2004. 
2Brazil made claims in respect of marketing loan program payments, user marketing (Step 2) payments, 
production flexibility contract payments, market loss as sistance payments, direct payments, counter-cyclical 
payments, crop insurance payments, cottonseed payments, export credit guarantees and the FSC Repeal and 
Extraterritorial Income Exclusion Act of 2000 (Public Law 106-519) (the "ETI Act of 2000").  Brazil also made 
claims regarding legislation and regulations underlying certain of these programs.  All of these measures are described more fully in paragraphs 7.200 to 7.250 of th e Panel Report and are discussed further in the relevant 
sections of this Report. WT/DS267/AB/R 
Page 2  
 
 
 of the measures were domestic support measures that were exempt from certain actions by virtue of 
paragraphs (a) and (b) of Article 13 of the  Agreement on Agriculture .  
2. The Panel Report was circulated to Members of the World Trade Organization (the "WTO") 
on 8 September 2004.  In paragra ph 7.194 of its Report, the Panel made the following findings with 
respect to whether certain measures fell within its terms of reference:   
The Panel rules that the followi ng measures, as addressed in 
document WT/DS267/7, are within  its terms of reference: 
(i) export credit guarantees to facilitate the export of United 
States upland cotton, and other eligible agricultural commodities; 
(ii) production flexibility contract payments and market loss 
assistance payments[.]
3 
3. The Panel also ruled, in paragr aph 7.196 of its Report, that:  
... in its request for consultations  in document WT/DS267/1, Brazil 
provided a statement of available evidence with respect to export credit guarantees under the GSM 102, GSM 103 and SCGP programmes relating to upland cotton and eligible agricultural commodities other than upland cotton, as required by Article 4.2 of 
the SCM Agreement . 
4. With respect to the substantive issues raised by  the parties, the Panel set out the following 
conclusions in paragra ph 8.1 of its Report:  
(a) Article 13 of the Agreement on Agriculture is not in the 
nature of an affirmative defence;  
(b) PFC payments
[4], DP payments[5], and the legislative and 
regulatory provisions which establish and maintain the DP programme, do not satisfy the condition in paragraph (a) of Article 13 of the Agreement on Agriculture ; 
                                                     
 
3The Panel also ruled that production flexibility c ontract payments, market loss assistance payments, 
direct payments and counter-cyclical payments to upland cotton producers with respect to non-upland cotton base acres;  cottonseed payments under both Public Law 106-224 and Public Law 107-25 (for the 2000 crop); 
storage payments and interest subsidies that implement the marketing loan program;  and payments under 
programs and provisions within the Panel's terms of reference made after the date on which the Panel was established, were all within its terms of reference. (See Panel Report, para. 7.194(iii)-(vi))  The Panel also ruled 
that certain other measures fell outside of its terms of reference:  see Panel Report, para. 7.195  
4Production flexibility contract payments.  Productio n flexibility contract payments are described by 
the Panel in paras. 7.212 ff of the Panel Report and are discussed further  infra ,  para. 251. 
5Direct payments.  Direct payments are described by the Panel in paras. 7.218 ff of the Panel Report 
and are discussed further  infra ,  para. 312.   WT/DS267/AB/R 
 Page 3 
 
 
 (c) United States domestic support measures considered in 
Section VII:D of this report[6] grant support to a specific 
commodity in excess of that decided during the 1992 marketing year and, therefore, do not satisfy the conditions in paragraph (b) of Article 13 of the Agreement on Agriculture  
and, therefore, are not exempt from actions based on 
paragraph 1 of Article XVI of the GATT 1994 or Articles 5 
and 6 of the SCM Agreement ;   
(d) concerning United States export credit guarantees under the 
GSM 102
[7], GSM 103[8] and SCGP[9] export credit guarantee 
programmes: 
(i) in respect of exports of upland cotton and other 
unscheduled agricultural products supported under the programmes, and in respect of one scheduled product (rice): 
-  United States export credit guarantees under the 
GSM 102, GSM 103 and SCGP export credit guarantee programmes are export subsidies applied in a manner which results in circumvention of United States' export subsidy commitments, within the meaning of Article 10.1 of the Agreement on 
Agriculture  and they are therefore inconsistent with 
Article 8 of the Agreement on Agriculture ; 
- as they do not conform fully to the provisions of 
Part V of the Agreement on Agriculture, they do not satisfy the condition in para graph (c) of Article 13 of 
the Agreement on Agriculture and, therefore, are not 
exempt from actions based on Article XVI of the GATT 1994 or Articles 3, 5 and 6 of the SCM 
Agreement ; 
                                                     
 
6In Section VII:D of the Panel Report, the Panel co nsidered the following meas ures for purposes of 
calculating support during the implementation period in which Article 13 of the  Agreement on Agriculture  
applies: marketing loan program payments, user marketing (Step 2) payments to domestic users (and not to 
exporters), production flexibility contract payments, mark et loss assistance payments, direct payments, counter-
cyclical payments, crop insurance payments, and cottonseed payments for the 1999, 2000, and 2002 crops of cottonseed. (Panel Report, para. 7.537 and footnote 695 thereto)   
7General Sales Manager 102 ("GSM 102").  The United States' export credit guarantee programs, 
including the GSM 102 program, are described by the Panel in paras. 7.236 ff of the Panel Report and are 
discussed further  infra ,  paras. 586-587. 
8General Sales Manager 103 ("GSM 103").  The United States' export credit guarantee programs, 
including the GSM 103 program, are described by the Panel in paras. 7.236 ff of the Panel Report and are 
discussed further  infra ,  paras. 586 and 588. 
9Supplier Credit Guarantee Program ("SCGP").  Th e United States' export credit guarantee programs, 
including the SCGP program, are described by the Panel in paras. 7.236 ff of the Panel Report and are discussed 
further  infra ,  paras. 586 and 589. WT/DS267/AB/R 
Page 4  
 
 
 - United States export credit guarantees under the 
GSM 102, GSM 103 and SCGP export credit guarantee programmes are provided by the United States government at premium rates which are inadequate to cover long-term operating costs and 
losses of the programmes within the meaning of 
item (j) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement , and therefore 
constitute per se export subsidies prohibited by 
Articles 3.1(a) and 3.2 of the SCM Agreement . 
(ii) however, in respect of exports of unscheduled 
agricultural products not supported under the programmes and other scheduled agricultural products:  
- the United States has established that export credit 
guarantees under the GSM 102, GSM 103 and SCGP 
export credit guarantee programmes have not been applied in [a] manner which either results in, or which threatens to lead to, circumvention of United States export subsidy commitments within the meaning of Article 10.1 and that they therefore are 
not inconsistent with Article 8 of the Agreement on 
Agriculture ;   
- in these circumstances, and as Brazil has also not 
made a prima facie case before this Panel that the programmes do not conform fully to the provisions 
of Part V of the Agreement on Agriculture , this Panel 
must treat them as if they are exempt from actions based on Article XVI of the GATT 1994  and 
Article 3 of the SCM Agreement  in this dispute.  
(e) concerning section 1207(a) of the FSRI Act of 2002
[10] 
providing for user marketing (Step 2) payments to exporters 
of upland cotton: 
(i) section 1207(a) of the FSRI Act of 2002 providing 
for user marketing (Step 2) payments to exporters of upland cotton is an export subsidy, listed in Article 9.1(a) of the Agreement on Agriculture , 
provided in respect of upland cotton, an unscheduled 
product.  It is, therefore, inconsistent with the United States' obligations under Articles 3.3 and 8 of the 
Agreement on Agriculture;    
                                                     
 
10Farm Security and Rural Investment Act of 2002 (the "FSRI Act of 2002"); Public Law 107-171.  WT/DS267/AB/R 
 Page 5 
 
 
 (ii) as it does not conform fully to the provisions of 
Part V of the Agreement on Agriculture , it does not 
satisfy the condition in para graph (c) of Article 13 of 
the Agreement on Agriculture and, therefore, is not 
exempt from actions based on Article XVI of the 
GATT 1994 or Articles 3, 5 and 6 of the SCM 
Agreement;  
(iii) section 1207(a) of the FSRI Act of 2002 providing 
for user marketing (Step 2) payments to exporters of upland cotton is an export subsidy prohibited by 
Articles 3.1(a) and 3.2 of the SCM Agreement . 
(f) concerning section 1207(a) of the FSRI Act of 2002 
providing for user marketing (Step 2) payments to domestic users of upland cotton:  it is an import substitution subsidy prohibited by Articles 3.1(b) and 3.2 of the SCM Agreement ; 
(g) concerning serious prejudice to the interests of Brazil:  
(i) the effect of the mandatory price-contingent United 
States subsidy measures – marketing loan programme payments, user marketing (Step 2) payments, MLA payments
[11] and CCP payments[12]  
-- is significant price suppression in the same world 
market within the meaning of Article 6.3(c) of the 
SCM Agreement  constituting serious prejudice to the 
interests of Brazil within the meaning of Article 5(c) of the SCM Agreement ; 
(ii) however, Brazil has not established that: 
- the effect of PFC payments, DP payments and crop 
insurance payments is significant price suppression in the same world market within the meaning of Article 6.3(c) of the SCM Agreement  constituting 
serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the SCM Agreement ; or 
                                                     
 
11Market loss assistance payments.  Market loss assistance payments are described by the Panel in 
paras. 7.216 ff of the Panel Report and are discussed further  infra ,  para. 251 and footnote 368. 
12Counter-cyclical payments.  Counte r-cyclical payments are described by the Panel in paras. 7.223 ff 
of the Panel Report and are discussed further  infra ,  footnote 370. WT/DS267/AB/R 
Page 6  
 
 
 - the effect of the United States subsidy measures 
listed in paragraph 7.1107 of Section VII:G of this report
[13] is an increase in the United States' world 
market share within the meaning of Article 6.3(d) of the SCM Agreement  constituting serious prejudice 
within the meaning of Article 5(c) of the SCM 
Agreement.   
(h) concerning the ETI Act of 2000: 
(i) Brazil has not made a prima facie  case before this 
Panel that the ETI Act of 2000 and alleged export 
subsidies provided thereunder are inconsistent with 
Articles 10.1 and 8 of the Agreement on Agriculture  
in respect of upland cotton;   
(ii) with respect to the condition in Article 13(c)(ii) of 
the Agreement on Agriculture , as Brazil has also not 
made a prima facie case before this Panel that they 
do not conform fully to the provisions of Part V of the Agreement on Agriculture  in respect of upland 
cotton, this Panel must treat them as if they are exempt from actions based on Article XVI of the GATT 1994  and Article 3 of the SCM Agreement  in 
this dispute.  (footnotes omitted) 
5. Based on these conclusions, the Panel recommende d that the United States bring the measures 
listed in paragraphs 8.1(d)(i) and 8.1(e) of the Panel Report into conformity with the  Agreement on 
Agriculture
14;  and withdraw the prohibited subsidies listed  in paragraphs 8.1(d)(i), 8.1(e) and 8.1(f) 
of the Panel Report without delay and, at the latest, within six months of the date of adoption of the 
Panel Report by the Dispute Settlement Body (the  "DSB") or 1 July 2005 (whichever is earlier).15  
With respect to the "mandatory price-continge nt United States subsidy measures" addressed in 
paragraph 8.1(g)(i) of the Panel Report, the Pane l noted that, pursuant to Article 7.8 of the  SCM 
Agreement , "upon adoption of [the Panel Report] the Un ited States is under an obligation to 'take 
appropriate steps to remove the adver se effects or ... withdraw the subsidy'."16 
                                                      
13The Panel listed the following measures in paragraph 7.1107 of its Report:  "(i) user marketing (Step 2) 
payments to domestic users and exporters;  (ii) marketing loan programme payments;  (iii) production flexibility contract payments;  (iv) market loss assistance payments;  (v) direct payments;  (vi) counter-cyclical payments;  
(vii) crop insurance payments;  (viii) cottonseed payments  for the 2000 crop;  and (ix) legislative and regulatory 
provisions currently providing for the payment of measures in (i), (ii), (v), (vi) and (vii) above".  
14Panel Report, para. 8.3(a). 
15Ibid., paras. 8.3(b) and 8.3(c). 
16Ibid., para. 8.3(d).  WT/DS267/AB/R 
 Page 7 
 
 
 6. On 18 October 2004, the United States notified th e DSB of its intention to appeal certain 
issues of law covered in the Panel Report and certa in legal interpretations developed by the Panel, 
pursuant to paragraph 4 of Article 16 of the  Understanding on Rules and Procedures Governing the 
Settlement of Disputes   (the "DSU), and filed a Notice of Appeal17 pursuant to Rule 20 of the  
Working Procedures for Appellate Review  (the " Working Procedures ").18  On 28 October 2004, the 
United States filed its appellant's submission.19  On 2 November 2004, Brazil filed an other appellant's 
submission.20  On 16 November 2004, Brazil and the United States each filed an appellee's 
submission.21   
7. On 16 November 2004, Argentina, Australia, Ca nada, China, the European Communities, and 
New Zealand each filed a third participant's subm ission, and Benin and Chad filed a joint third 
participants' submission.22  India, Pakistan, Paraguay, Venezuela, and the Separate Customs Territory 
of Taiwan, Penghu, Kinmen and Matsu notified the Appellate Body of their intention to appear at the 
oral hearing.23   
8. After consultation with the Appellate Body Secr etariat, Brazil and the United States noted, in 
letters filed on 10 December 2004, that it would not be  possible for the Appellate Body to circulate its 
Report in this appeal within the 90-day time limit re ferred to in Article 17.5 of the DSU.  Brazil and 
the United States agreed that additional time was need ed for several reasons: the issues arising in this 
                                                      
17WT/DS267/17, 18 October 2004, attached as Annex 1 to this Report. 
18WT/AB/WP/4, 1 May 2003.  Revised  Working Procedures   were circulated by the Appellate Body 
during the course of these proceedings (WT/ AB/WP/5, 4 January 2005).  These revised  Working Procedures , 
however, apply only to appeals initiate d after 1 January 2005 and therefore did not apply to this appeal.   
19Pursuant to Rule 21(1) of the  Working Procedures .  In a letter dated 1 November 2004, Brazil, 
without requesting action by the Appellate Body, drew attention to the failure by the United States to submit its appellant's submission in a timely fashion.  Brazil observed that the United States' appellant's submission was 
submitted on 28 October 2004 after the deadline of 5:00 p. m. that had been established by the Division in the  
Working Schedule  issued pursuant to Rule 26 of the  Working Procedures .  
20Pursuant to Rule 23(1) of the  Working Procedures . 
21Pursuant to Rules 22 and 23(3) of the  Working Procedures ,  respectively. 
22Pursuant to Rule 24(1) of the  Working Procedures . 
23Pursuant to Rule 24 of the  Working Procedures .  The notifications were  received on the following 
dates:  India, 16 November 2004;  Pakistan, 17 November 2004;  Paraguay, 17 November 2004;  Venezuela, 17 November 2004;  and the Separate Customs Te rritory of Taiwan, Penghu, Kinmen and Matsu,  
18 November 2004. WT/DS267/AB/R 
Page 8  
 
 
 appeal were particularly numerous and complex compared to prior appeals, which increased the 
burden on the Appellate Body and WTO translation services;  WTO translation services were 
unavailable during the WTO holiday period;  and the Appellate Body was likely to be considering two 
or three other appeals during the same period.  Brazil and the United States accordingly confirmed 
that they would deem the Appellate Body Repo rt in this proceeding, issued no later than 
3 March 2005, to be an Appellate Body Report circulated pursuant to Article 17.5 of the DSU.24 
9. The oral hearing in this appeal was held on 13- 15 December 2004.  The participants and third 
participants presented oral arguments (with the ex ception of Pakistan, Paragua y, and Venezuela) 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 United States – Appellant 
1. Domestic Support  
(a) Terms of Reference – Expired Measures 
10. The United States contends that the Panel was wrong to reject its argument that payments 
under the expired production flexibility contract and ma rket loss assistance programs were outside the 
Panel's terms of reference.  The United States asks the Appellate Body to reverse the Panel's finding 
because these measures had expired before Brazil requested consultations. 
11. Article 4.2 of the DSU provides that consultati ons are to cover "any representations made by 
another Member  concerning measures affecting the operation of any covered agreement   taken 
within the territory of the former".25  The United States submits that measures that have expired 
before a request for consultations  cannot be measures that are "affe cting the operation of any covered 
agreement" at the time th e request is made; consequently, they cannot be measures within the scope of 
the "dispute" referred to in Article 4.7, with resp ect to which a complaining Member can request the 
establishment of a panel.  It was common ground th at the legislation authorizing production flexibility 
contract payments and market loss assistance paymen ts expired before Brazil 's consultation and panel 
requests.  They thus cannot have been within the scope of consultations under Article 4.2.   
                                                      
24On 16 December 2004, the Appellate  Body notified the Chair of the DS B that the expected date of 
circulation of its Report was 3 March 2005. (WT/DS267/18, 20 December 2004)  
25United States' appellant's submission, para. 501. (emphasis added by the United States)  WT/DS267/AB/R 
 Page 9 
 
 
 12. In response to the Panel's concern that the United States' position would mean that subsidy 
payments made in the past might never be the s ubject of challenge in WTO dispute settlement, the 
United States distinguishes between recurring and no n-recurring subsidies.  A non-recurring subsidy 
is a type of subsidy the benefits of which are allo cated to future production.  As such, a non-recurring 
subsidy can be regarded as continuing in existenc e beyond the period during which it is granted, and 
may continue to be actionable even after the auth orizing program or legislation has expired.  A 
recurring subsidy, by contrast, is typically provided year after year and is provided for current rather 
than future production.  Once production has o ccurred and a measure has been replaced or 
superseded, there would no longer be any measure in existence to challenge.  Market loss assistance 
and production flexibility contract payments were both subsidies paid for particular fiscal or crop 
years.  As such, the benefit of these subsidies should have been attributed only to the particular year 
of payment and should not have been attributed to subsequent years.  Thus, by the time of Brazil's 
consultation and panel requests26, the only measure to consult upon and at issue under the DSU was 
the 2002 marketing year production flexibility contr act payments;  the other payments were all 
outside the Panel's terms of reference.   
13. According to the United States, the Panel's conclu sion is also inconsistent with Article 6.2 of 
the DSU, which requires that a panel request "identif y the specific measures at issue".  A measure that 
has expired cannot be a measure that is "at issue" .  This is confirmed by the context provided by 
Article 3.7 of the DSU, which contemplates the with drawal of measures found to be inconsistent with 
the covered agreements, and Article 19.1 of the DSU, which contemplates a measure that "is 
inconsistent" with a covered agreement.   
14. In addition to appealing the Panel's findi ng that payments under the expired production 
flexibility contract and market loss assistance program s were within its terms of reference, the United 
States lists this Panel finding as an example of the Panel's failure to meet the requirements of 
Article 12.7 of the DSU, which requires panels to set out the findings of fact, the applicability of 
relevant provisions, and the basic rationale behind its findings.   
(b) Article 13(a) of the Agreement on Agriculture  – Planting Flexibility 
Limitations 
15. The United States appeals the Panel's finding that production flexibility contract payments, 
direct payments, and the legislative and regulatory provisions that establish and maintain the direct 
payment program27 are not exempt from actions by virtue of  paragraph (a) of Article 13 of the  
                                                      
26Request for Consultations by Brazil, WT/DS267/1, G/L/571, G/SCM/D49/1, G/AG/GEN/54, 
3 October 2002;  Request for the Establishment of a Panel by Brazil, WT/DS267/7, 7 February 2003. 
27Panel Report, para. 7.388. WT/DS267/AB/R 
Page 10  
 
 
 Agreement on Agriculture   (the "peace clause").  The United States  observes that the sole basis for this 
finding was the Panel's conclusion that these measur es do not conform fully to paragraph 6(b) of 
Annex 2 of the  Agreement on Agriculture   (the "green box")28, which conditions green box coverage 
and exemption under the peace clause upon the amount of  payments not being related to the type or 
volume of production.  The United States argues that, to  make this finding, the Panel had to find that 
banning a recipient from producing a certain range of products was the same as conditioning the 
amount of payment on the type of production.  Th e United States submits that paragraph 6(b) of 
Annex 2 permits such a partial ban. 
16. The United States points out that, in order to receive production flexibility contract payments 
or direct payments, a producer is not required to pro duce a particular (or, indeed, any) crop.  Instead, 
payments are based on a farm's historical acreage and yields during a base period.  Farmers may plant 
any commodity or crop, subject to limitations c oncerning the planting of fruits and vegetables (and 
wild rice in the case of direct payments).29  Where fruits, vegetables, or wild rice are produced, 
payments are eliminated or reduced, subject to certain exceptions.    
17. Although the ordinary meaning of the term "related to" implies a relation or connection that 
could be positive or negative, the ordinary meani ng does not identify which type of connection is 
meant under paragraph 6(b) of Anne x 2.  Turning to the context, the United States notes that this 
paragraph speaks of the "amount of such payments " not being related to or based on the type or 
volume of production.  The United States argues that "[t]he Panel assumes that the 'amount of such 
payments' can be related to the current type of pr oduction (that is, of fruits or vegetables) because in 
some circumstances a recipient that produces fruits or vegetables receives less payment than that 
recipient otherwise would have been entitled to."30  However, given that the payment relating to fruits, 
vegetables, or wild rice is zero, the "amount of such  payments" is not related to fruit, vegetable, or 
wild rice production, because for the acres concerned, there is no payment at all.  As regards the 
phrase "production ... undertaken by the producer" in paragraph 6(b), the United States notes that the 
term "undertaken" means,  inter alia ,  to "attempt".  In this case, the planting flexibility limitations 
ban a recipient from producing a certain range of products.  This does not relate to the production 
"attempted";  rather, it relates to the type of production  not  attempted.  Taken together, the ordinary 
meaning of the terms "amount of such payments " and "production ... undertaken" indicate that 
                                                      
28Paragraph 6(b) of Annex 2 to the  Agreement on Agriculture  provides that:  
The amount of such payments in any given year shall not be related to, or 
based on, the type or volume of production (including livestock units) 
undertaken by the producer in any year after the base period. 
29Panel Report, paras. 7.376-7.382. 
30United States' appellant's submission, para. 26 (referring to Panel Report, para. 7.383).  WT/DS267/AB/R 
 Page 11 
 
 
 payments are not "related to" current production within the meaning of paragraph 6(b) when a 
Member conditions payments on a recipi ent not producing certain products.  
18. According to the United States, this interpre tation is consistent with the "fundamental 
requirement" set out in paragraph 1 of Annex 2 of the  Agreement on Agriculture   that measures 
exempted from reduction commitments "have no, or at most minimal, trade-distorting effects or effects on production".  The United States submits th at "a condition that a recipient not produce 
certain products serves the fundamental requirement of Annex 2".
31  The United States further argues 
that the effect of the planting flexibility limitations  at issue is minimal and does not result in increased 
production, pointing to evidence on the record show ing that 47 per cent of farms receiving production 
flexibility contract payments or direct payments  in the 2002 marketing year planted no upland cotton 
at all.  Indeed, in finding that Brazil had not establis hed that the effect of th e United States' decoupled 
income support payments was significant price s uppression, the Panel implicitly found that production 
flexibility contract payments and direct paymen ts do not have more than minimal effects on 
production.  For the United States, an explicit decisi on not to support a particular type of production 
does not relate the amount of payments to the type  of production undertaken by the producer.  Rather, 
such a decision serves the fundame ntal requirement that "green box" measures have no more than 
minimal trade-distorting effects, because a measure that conditions payment on not producing something does not create production inducements.  
19. The United States also submits that the contex t provided by paragraph 6(e) confirms its 
reading of paragraph 6(b).  Paragr aph 6(e) provides:  "[n]o producti on shall be required in order to 
receive such payments";  it does not preclude  a Member from requiring non-production.  A proper 
reading reveals that paragraphs 6(b) and 6(e) ser ve different purposes.  As a Member may, under 
paragraph 6(e), require a recipient not to produce, it would not make sense to then prohibit a Member, 
under paragraph 6(b), from making the amount of pa yment contingent on fulfilling the requirement 
not to produce. 
20. Furthermore, the United States argues that the Pa nel was incorrect to find contextual support 
for its interpretation of paragraph 6(b) in paragraphs 11(b) and 11(e ) of Annex 2.  Paragraphs 6(b) 
and 11(b) contain similar requirements about not relating payments to the type or volume of 
production, but paragraph 11(b) refe rs explicitly to paragraph 11(e) , which permits requirements not 
to produce a particular product.  The United States maintains that the context in which 
paragraphs 6(b) and 11(b) appear is very differe nt.  In the context of paragraph 6, an explicit 
authorization of requirements not to produce is no t required as it is already implicit within the 
                                                     
 
31United States' appellant's submission, para. 22. WT/DS267/AB/R 
Page 12  
 
 
 provisions.  The United States notes that paragraph 11 pertains to payments "to assist the financial or 
physical restructuring of a producer's operations".32  Although such aid is for restructuring of 
operations that will continue to pr oduce, paragraph 11(e) imposes a c onstraint on the degree to which 
a government can interfere in the fo rm that restructuring will take, by requiring that payments must 
not "mandate or in any way designate the agricultura l products to be produced".  A requirement not to 
produce certain products could be understood to fall within the prohibition in paragraph 11(e) against 
"in any way" designating the products to be prod uced.  In order to allow such requirements, 
paragraph 11(e) clarifies that they are permitted.  The United States submits that, in the light of the broad prohibition in paragraph 11(e), the requireme nt in paragraph 11(b) could be understood to  
preclude  conditioning payment on  not  producing certain products, as th is could be understood to be 
designating, in some way, the products to be produced.  According to the United States, this would 
undermine the prohibition in paragraph 11(e).  Th e cross-reference in paragraph 11(b) to the 
exception in paragraph 11(e) thus simply serves to make clear that conditioning payments on  not  
producing does not conflict with th e prohibition under paragraph 11(e)  on designating in any way the 
products to be produced.    
21. In addition, the United States submits that the Pa nel's reading of paragr aph 6(b) would require 
payments even if a recipient's production was illegal.   Therefore, a Member would be prohibited from 
reducing or eliminating payments for prohibite d types of production such as narcotic crops, 
unapproved biotech varieties, or environmentally damaging production. 
(c) Article 13(b) of the  Agreement on Agriculture   
22. The United States appeals the Panel's finding that the United States' non-green box domestic 
support measures are not exempt from actions by virt ue of paragraph (b) of Article 13 of the  
Agreement on Agriculture .  The Panel found that those measures failed to satisfy, for each marketing 
year from 1999-2002, the proviso to Article 13(b)(ii), which reads "provided that such measures do not grant support to a specific commodity in excess of  that decided during the 1992 marketing year".   
(i) Interpretation of "support to a specific commodity" 
23. The United States contends that the Panel erred in interpreting the phrase "support to a 
specific commodity" in Article 13(b)(ii).  The ordinary meaning of this phrase encompasses 
"'assistance' or 'backing' 'specially ... pertaining to a particular' 'agricultural crop' or ... for a 'precise, 
                                                     
 
32United States' appellant's submission, para. 45 (quoting paragraph 11(a) of Annex 2 to the  Agreement 
on Agriculture ).  WT/DS267/AB/R 
 Page 13 
 
 
 exact, definite' 'agricultural crop'".33  The ordinary meaning implies that support to a specific 
commodity excludes support that is not for a precise, exact, definite agricultural crop.   
24. Context for interpreting the phrase "support to a specific commodity" may be found in other 
provisions of the  Agreement on Agriculture   that contain the terms "support", "specific" and 
"commodity".  Annex 3 deals with "Calculation of the Aggregate Measurement of Support" ("AMS").  
Paragraph 1 of that Annex clarifies that two types of support are to be calculated: first, support is 
calculated "on a product-specific basis", and, sec ond, "[s]upport which is non-product specific shall 
be totalled into one non-product-specific AMS in to tal monetary terms".  Article 1(a) of the  
Agreement on Agriculture   contains this same distinction between "support ... provided for an 
agricultural product in favour of the producers of  the basic agricultural product" and a residual 
category of "non-product-specific ... support".  Article 1(h) also makes this distinction by dividing 
total support into "non-product-specific support" an d "support for basic agricultural products".  For 
the United States, the terms "support for basic agri cultural products" in Article 1(h) and "support ... 
provided for an agricultural product in favour of th e producers of the basic agricultural product" in 
Article 1(a) are virtually synonymous with the phrase "support for a specific commodity" in 
Article 13(b)(ii).  The context of these provisions thus suggests that this phrase also means product-
specific support. 
25. The Panel relied on the different choice of speci fic words in Articles 1(a) and 13(b)(ii) in 
finding that the former was not pertinent to the inte rpretation of the latter.  The United States argues, 
however, that the concept of product-specific support is expressed in differe nt terms in different 
places in the  Agreement on Agriculture .  Indeed, nowhere in the Agreement is the precise phrase 
"product-specific support" used, although the Panel had no difficulty in finding that such a concept exists.  Thus, the fact that the phrase "product-sp ecific support" was not used in Article 13 does not 
prevent an interpretation that the concept nevertheless applies.   
26. The United States disagrees with the Panel's r easoning that the categories of product-specific 
and non-product-specific support are not pertinent to the analysis under Article 13(b) because the 
proviso to Article 13(b)(ii) begi ns with the phrase "such measures", which refers to all the domestic 
support measures falling under Article 6 identified in the chapeau to Article 13(b), and not just to 
product-specific and non-product-specific support s ubject to reduction commitments.  The United 
States notes that the Panel itself recognized th at certain domestic support measures falling under 
Article 6 could be excluded from the comparison of support under Article 13(b)(ii): the Panel's 
approach "exclud[es] all other support, which eith er grants support to other specific commodities or 
                                                     
 
33United States' appellant's submission, para. 85 (quoting The New Shorter Oxford English Dictionary , 
L. Brown (ed.) (Clarendon Press, 1993), Vol. 2, pp. 2972 and 3152). WT/DS267/AB/R 
Page 14  
 
 
 does not grant support to any specific commodity".34  The Panel also noted that "Brazil acknowledges 
this implicitly in that it does not challenge very widely available support, such as infrastructure or 
irrigation subsidies, some of which, presumably, deliver support to upland cotton either directly or 
indirectly".35  Thus the mere fact that all domestic  support measures falling under Article 6 are 
identified in the chapeau of Article 13(b) does not resolve the issue of whether a particular measure 
grants "support to a specific commodity". 
27. The United States finds relevant cont ext in Articles 3 and 6 of the  Agreement on Agriculture.  
Under these provisions, a Member must comply w ith its domestic support reduction commitments.  
These commitments, however, are expressed on a tota l aggregate basis with no product-specific caps 
on support.  Because there are no product-specific caps, a Member can comply with its overall 
reduction commitments while increasing support to a pa rticular agricultural commodity.  Article 13(b) 
provides shelter from actions for domestic s upport measures that conform to the reduction 
commitments.  However, Members recognized that  an increase in product-specific support, even 
within overall reduction commitment levels, could pr esent an enhanced risk of production or trade 
effects.  The proviso to Article 13(b)(ii) t hus makes the exemption it provides conditional upon a 
Member not shifting support between commodities such that the level of product-specific support 
exceeds that decided for any one commodi ty in the 1992 marketing year.   
28. Turning to the measures at issue, the United States observes that the Panel's reasoning means 
that payments to producers that do not produce cotton at all are deemed to be "support to upland 
cotton".  The United States contends that the Panel erred in finding that payments based on past 
production during a base period currently grant supp ort to production of that commodity.  Production 
flexibility contract payments, market loss assistance , direct payments, and counter-cyclical payments 
do not specify upland cotton as a commodity to which they grant support, as the Panel implied.  In fact, payments under these programs do not require an y production at all.  Indeed, uncontested facts 
show that 47 per cent of the farms receiving th ese payments did not plant a single acre of upland 
cotton.  The United States asserts that payments cannot be deemed to grant support to a crop the 
recipient does not produce.  Such payments do not gr ant support to a specific commodity.  In the light 
of the context provided by Articles 1(a) , 1(h), and 6.4 and Annex 3 of the  Agreement on Agriculture , 
such payments are properly seen as non-product-specific support to agricultural producers in general.   
                                                     
 
34United States' appellant's submission, para. 96 (quoting Panel Report, para. 7.502). 
35Ibid.  WT/DS267/AB/R 
 Page 15 
 
 
 29. The United States observes that the Panel correctly rejected all six of the methodologies 
proposed by Brazil for allocating decoupled payments  as support to upland cotton.  However, in the 
"Attachment to Section VII:D" the Panel included one allocation methodology that reduced payments 
on base acres to account only for the number of acres  planted with upland cotton.  The United States 
argues that, by including this methodology, the Panel endorsed it as an alternative to its own 
approach, in the event that the Panel's approach was found to be incorrect.  The Panel labelled its 
finding in this regard as factual;  however, the findi ng is patently legal, not  sheltered from appellate 
review.  The United States also contends that any methodology that allocates payments under the 
decoupled programs to upland cotton planted as a result of independent producer decisions beyond 
government control cannot reflect the support to a sp ecific commodity that a Member has "decided", 
and thus is not appropriate  for Article 13(b)(ii).  
(ii) Calculation methodology for price-based measures 
30. The United States submits that the Panel did not compare properly the support current 
measures "grant" to that "decided" during the 1992 ma rketing year.  The ordinary meaning of "grant" 
is to "bestow as a favour" or "[g]ive or confer (a possession, a right, etc.) formally".36  The ordinary 
meaning of "decide" is to "[d]etermine on as a se ttlement, pronounce in judgement" and "[c]ome to a 
determination or resolution  that, to do, whether ".37  Read in their context, as two halves of a 
comparison, these terms must allow the relevant "support" to be compared.  The phrase "grant 
support", read in the light of the verb "decide d", means the support that Members determine to 
"bestow" or "give or confer", and thus the focus of the peace clause comparison is on the support a Member decides.  The United States submits that th e Panel essentially agreed "that the Peace Clause 
proviso compares the support a Member determines  through its measures, not 'support [that] was 
spent due to reasons beyond the control of the government'."
38   
31. Against this background, the United States contends that a proper application of 
Article 13(b)(ii) must reflect the way in which the United States "decided" support in the 1992 and 1999-2002 marketing years.  In those years, th e support "decided" by the United States was a rate 
of support.   
                                                     
 
36United States' appellant's submission, para. 65 (quoting  The New Shorter Oxford English Dictionary , 
L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 1131).  
37Ibid., para. 65 (quoting  The New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon 
Press, 1993), Vol. 1, p. 607). (original emphasis) 
38Ibid., para. 66 (quoting Panel Report, para. 7.487).  WT/DS267/AB/R 
Page 16  
 
 
 32. The United States submits that it was possible for the Panel to have recourse to the rules for 
the calculation of the AMS set out in Annex 3 of the  Agreement on Agriculture ,  so long as the 
appropriate calculation method was used.  In the case of price-b ased measures (such as marketing 
loan program payments in the 1992 marketing year  and the implementation period, and deficiency 
payments in the 1992 marketing year only), pa ragraph 10 of Annex 3 permits two different 
approaches:  budgetary outlays or using "the gap between the fixed reference price and the applied 
administered price multiplied by the quantity of produc tion eligible to receive the administered price" 
("price gap" methodology).  In the context of a comparison under the peace cl ause, only the price gap 
methodology reflects the support "decided" by the Un ited States' price-based measures.  By focusing 
on the gap between an external reference price (her e, the actual price for determining rates for the 
years 1986-1988) and the applied administered price, the price gap methodology eliminates 
movements in market prices as a component of th e measurement of support and focuses solely on 
those elements that a Member can control.  By holding the reference price "fixed", support measured 
using a price gap calculation shows the effect of cha nges in the level of support decided by a Member, 
rather than changes in budgetary outlays that r esult from movements in market prices that Members 
do not control. 
(iii) Recalculation of the peace clause comparison 
33. On the basis of its arguments regarding calcu lation methodology and the interpretation of the 
phrase "support to a specific commodity", the United States recalculates the support to upland cotton in the 1992 marketing year and implementation period support between 1999-2002 using the price 
gap methodology for marketing loan program paymen ts and deficiency payments, on the one hand, 
and excluding production flexibility contract payments , market loss assistance, direct payments, and 
counter-cyclical payments, on the other hand, because they are not "support to a specific commodity".  The result is that the United States' support to upl and cotton does not exceed th at decided in the 1992 
marketing year in any year of the implementation period.  The United States accordingly requests the 
Appellate Body to reverse the Panel's findings regard ing Article 13(b) and to find that it is entitled to 
the protection of the peace clause.    WT/DS267/AB/R 
 Page 17 
 
 
 2. Serious Prejudice  
(a) Significant Price Suppression under Article 6.3(c) of the SCM 
Agreement  
34. The United States appeals the Panel's finding that the effect of the price-contingent subsidies39 
is significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement  
constituting serious prejudice to the interests of Braz il within the meaning of Article 5(c) of the  
SCM Agreement .  The United States asks the Appellate Body to reverse the Panel's finding that the 
effect of the price-contingent subsidies is significant price suppression.  The United States also 
submits that the Panel failed to set out the findings of  fact, the applicability of relevant provisions, and 
the basic rationale behind several aspects of this fi nding, as required by Article 12.7 of the DSU.   
35. First, the United States submits that the Panel erred in interpreting the term "same market" in 
Article 6.3(c) of the  SCM Agreement   as including a "world market".  Under Article 6.3(c), the price 
suppression must occur in a market that includ es the subsidized product and the like product.  
Identifying the relevant market as a world market fails to give meaning to the word "same" in 
Article 6.3(c) because "there is no 'other' world market where the products can be found".40  T h e  
United States relies on Article 6.6 and Annex V of the  SCM Agreement   on "Procedures for 
Developing Information Concerning Serious Prejudice" to substantiate this view.  The United States 
also indicates that, although the subsidized produc t and the like product must be found in the same 
market, the Panel did not make a finding that Un ited States and Brazilian upland cotton compete in 
the world market that it had identified for upland cotton.  In addition, the United States contends that 
the Panel acknowledged that different conditions of  competition would prevail in the markets of 
different Members and that, therefore, each market in which the two products are found would need to 
be examined separately.   
36. The United States submits that the Panel's reading of "same market" in Article 6.3(c) 
contradicts its reasoning in relati on to Article 6.3(d) of the  SCM Agreement ,  which, according to the 
United States, demonstrates that no "world market" price prevails in any "world market" for upland 
cotton.  Moreover, according to the United States, th e Panel should have focused on the effect of the 
challenged subsidies on the  Brazilian   price of upland cotton, rather than their effect on any "world  
                                                      
39The Panel characterized marketing loan program paym ents, user marketing (Step 2) payments, market 
loss assistance payments, and counter-cyclical payments as "price-contingent" subsidies. (Panel Report, para. 8.1(g)(i)) 
40United States' appellant's submission, para. 311. WT/DS267/AB/R 
Page 18  
 
 
 market" price, because only significant suppression of Brazilian prices could lead to serious prejudice 
to the interests of Brazil under Article 5(c) of the  SCM Agreement .   
37. Secondly, the United States argues that, in finding significant price suppression, the Panel 
"prejudged the result of its analysis of 'the effect of the subsidy'".41   According to the United States, 
the Panel used circular logic:  first, assuming causation in finding price suppression, and then, using 
its conclusion on price suppression to support its findi ng of causation.  In addition, the Panel failed to 
take into account the effect of removing the price- contingent subsidies on all participants in the 
relevant market.  Even if removing these subsid ies would lead to lower United States production of 
cotton (which the United States contests), other produ cers could be expected to enter the market to 
increase supply.  These supply changes would need to  be included in assessing the effect on prices of 
removing the price-contingent subsidies.  The United States also claims that, in concluding that the 
price suppression it had found was "significant", the Pa nel should have identified the degree of price 
suppression it had found and should ha ve explained why it regarded this degree as "significant".  The 
United States argues that, in failing to do so, the Pa nel failed to comply with Article 12.7 of the DSU. 
38. Thirdly, the United States contends that the Pa nel erred in finding that "the effect of" the 
price-contingent subsidies is significant pr ice suppression under Article 6.3(c) of the  SCM 
Agreement .  The United States refers to the Panel's conclusion that the price-contingent subsidies are 
linked to world prices for upland cotton, "thereby numbing the response of United States producers to 
production adjustment decisions when prices are low".42  However, according to the United States, the 
"relevant economic decision"43 for a farmer is what to plant and, at the time of planting, the relevant 
price is what the farmer expects to receive when the crop is subsequently harvested, not the current 
price.  Therefore, the Panel should have examined whether the price-contingent subsidies stimulate  
planting   of upland cotton, rather than whether they stimulate  production   or harvesting.  The United 
States submits that the Panel failed to set out the basi c rationale for its analysis of the "effect of the 
subsidy" as required by Article 12.7. 
39. The United States also suggests that the Panel failed to examine evidence showing that the 
price-contingent subsidies did not suppress upland cotton prices:  United States planting of cotton acreage corresponded with expected market prices of  cotton and competing crops;  changes in United 
States cotton acreage corresponded with changes by cotton farmers throughout the world;  and the 
United States' share of world cotton production was stab le during the relevant period.  In addition, the 
                                                     
 
41United States' appellant's submission, para. 158. 
42Ibid., para. 162 (quoting Panel Report, para. 7.1308). 
43Ibid., para. 161.  WT/DS267/AB/R 
 Page 19 
 
 
 Panel's identification of the relative shares of worl d cotton exports cannot demonstrate the effect of 
the subsidy in the absence of an analysis of co mpetition between United States cotton and cotton from 
other sources.  Moreover, according to the United States, the Panel's finding of a "discernible 
temporal coincidence"44 between suppressed market prices and the price-contingent subsidies is 
flawed and, in any case, could involve  only correlation and not causation.   
40. The United States further disputes, in relation to the Panel's reasoning in determining the 
"effect" of the subsidy, the Panel's conclusion that  a comparison between the average total cost of 
production and market revenue in the United Stat es demonstrates that the effect of the price-
contingent subsidies is significant price suppression.   As reflected in economics literature, farmers 
make planting decisions based on  variable   rather than  total  costs of production.  The Appellate 
Body's decision in  Canada – Dairy (Article 21.5 – New Zealand and US)   is not relevant to this issue.  
Had the Panel examined variable costs, it would have seen that United States upland cotton producers 
more than covered their variable costs from 1997 to  2002, apart from in 2001.  In addition, even if 
average total costs were not covered, the eviden ce before the Panel demonstrates that farmers had 
other sources of income to cover the shortfall.   
41. Fourthly, the United States argues that the Panel erred in finding that Brazil need not 
demonstrate, and that the Panel need not find, th e amount of the challenged subsidies that benefits 
upland cotton in establishing serious prejudice under Articles 5(c) and 6.3(c) of the  SCM Agreement .  
The United States contends that the Panel "misunderstood"45 the United States' argument as requiring 
the transposition of methodologies from Part V to Part III of the  SCM Agreement .  Instead, it is the 
text of Articles 5(c) and 6.3(c) that requires a quantifi cation of benefit.  Articles 5(c) and 6.3(c) of the  
SCM Agreement   both use the word "subsidy", which is define d in Article 1 as involving the conferral 
of a benefit, as confirmed by Article 14 of the  SCM Agreement .  Article 6.3(c) refers to a "subsidized 
product".  Therefore, what is at issue is the amount of the subsidy that benefits a particular product.  
This reading is supported by Article 6.8 of the  SCM Agreement ,  which provides for panels to 
determine serious prejudice on the basis of, inter alia ,  information submitted under Annex V of the  
SCM Agreement .  According to the United States, this includes information necessary to establish the 
amount of subsidization (paragra ph 2 of Annex V) and information concerning the amount of the 
subsidy (paragraph 5 of Annex V).   
42. For Brazil's claims to succeed, therefore, the United States maintains that the challenged 
subsidies would have to subsidize upland cotton an d confer a benefit on United States "producers, 
                                                      
44United States' appellant's submission, para. 208 (referring to Panel Report, paras. 7.1351-7.1352). 
45Ibid., para. 258. WT/DS267/AB/R 
Page 20  
 
 
 users, and/or exporters of upland cotton".46  In addition, any benefit conferred by the challenged 
subsidies on products other than upland cotton cannot be included in determining the effect of the 
subsidies.  However, the Panel attributed all count er-cyclical and market loss assistance payments to 
upland cotton.  In fact, counter-cyclical and market  loss assistance payments to recipients who did not 
produce upland cotton did not benefit upland cotton at all and therefore could not have caused serious 
prejudice and, in fact, fell outside the Panel's terms of reference altogether.  As for counter-cyclical 
and market loss assistance payments to reci pients who produced both upland cotton and other 
products, the Panel should have allocated the paymen ts across the different products in assessing the 
effects of the payments in respect of upland cotton.  Annex IV of the  SCM Agreement 47 provides an 
"economically neutral" allocation methodology48, and paragraphs 2 and 5 of Annex V of the 
SCM Agreement   provide support for the argument that it may be necessary to allocate subsidies 
across the total value of the recipient's sales.  As the Panel did not identify the amount of counter-
cyclical and market loss assistance payments be nefiting upland cotton, its serious prejudice finding 
regarding those payments is invalid.  In addition, the United States submits that this amounted to a 
failure by the Panel to set out the basic rati onale behind its findings and recommendations in 
accordance with Article 12.7 of the DSU.  
43. Along similar lines, the United States contends that the Panel should have determined the 
extent to which subsidies provided with respect to raw cotton benefit  processed   cotton.  Instead, the 
Panel "improperly assumed"49 that subsidies provided to producers of raw cotton flowed to producers 
of processed cotton.  The United States maintains that the Appellate Body's conclusion in  US – 
Softwood Lumber IV  that a subsidy bestowed on an input ca nnot be presumed to have passed through 
to the processed product is based on the definition of a subsidy, which applies to both Part III and 
Part V of the  SCM Agreement .50  Therefore, according to the United States, the Panel erred in finding 
that "pass-through" principles do not apply to Part III of the  SCM Agreement .   
44. Finally, the United States asserts that the Pa nel erred in making serious prejudice findings 
with respect to the price-continge nt subsidies for marketing years 199 9 to 2001.  Even if the Panel 
was not required to determine the amount of the benef it flowing from the price-contingent subsidies to 
the subsidized product, the Panel had to determin e whether the benefit from these subsidies continued 
                                                      
46United States' appellant's submission, para. 245 (quoting Brazil's request for establishment of a panel, 
supra , footnote 26,  p. 1). 
47"Calculation of the Total Ad Valorem Subsid ization (Paragraph 1(a) of Article 6)". 
48United States' appellant's submission, para. 269. 
49Ibid., para. 303. 
50Ibid., paras. 304 and 305 (referring to Appellate Body Report, US – Softwood Lumber IV , paras. 140 
and 142).  WT/DS267/AB/R 
 Page 21 
 
 
 when the Panel was established in 2002.  This is because, under Article 11 of the DSU, the Panel 
could make findings only with respect to subsid ies that could "form part of Brazil's claims"51 and, 
under Article 19.1 of the DSU, the Panel could ma ke recommendations only with respect to measures 
that still exist.  In addition, the United States mainta ins that the Panel "failed to adequately set out the 
legal basis for its examination of subsidies that no longer existed at the time  of panel establishment" 
as required by Article 12.7 of the DSU.52   
45. According to the United States, an annually recurring subsidy should be "allocated" or 
"expensed"53 to the year to which it relates, whereas a non-recurring subsidy, such as an investment 
subsidy or equity infusion, should be allocated ove r time.  In the United States' view, a payment no 
longer confers a benefit after the year to which it is  allocated, and therefore it is no longer a "subsidy" 
under Article 1 of the  SCM Agreement .  Price-contingent subsidies for marketing years 1999 to 2001 
were annually recurring subsidies that the Panel sh ould have allocated to those years.  The United 
States argues that the Panel did not find that these subsidies had "continuing effects" when the Panel 
was established and, therefore, that the Panel coul d not have found that these subsidies were "causing 
present serious prejudice".54   
46. For these reasons, the United States requests the A ppellate Body to reverse the Panel's finding 
that the effect of the price-contingent subsidies is significant price suppression within the meaning of 
Article 6.3(c) of the  SCM Agreement   constituting serious prejudice to the interests of Brazil within 
the meaning of Article 5(c) of the  SCM Agreement . 
3. Import Substitution Subsidies and Export Subsidies  
(a) Step 2 Payments  
(i) To domestic users 
47. The United States claims that the Panel erred in  concluding that user marketing (Step 2) 
payments ("Step 2 payments") provided to domest ic users of United States upland cotton, under 
Section 1207(a) of the FSRI Act of 2002, constitute import substitution subsidies that are inconsistent 
with Articles 3.1(b) and 3.2 of the  SCM Agreement . 
                                                      
51United States' appellant's submission, para. 296. 
52Ibid., para. 327.   
53Ibid., para. 283. 
54Ibid., para. 292. WT/DS267/AB/R 
Page 22  
 
 
 48. In the United States' view, the Panel's conclusi on fails to give meaning to the introductory 
phrase "Except as provided in the Agreemen t on Agriculture" in Article 3 of the  SCM Agreement .  
This phrase applies not only to export subsid ies covered by Article 3.1(a) of the  SCM Agreement ,  but 
also to import substitution subsidies covered by Article  3.1(b).  The United States contends that giving 
proper meaning to the introductory phrase of Article 3 of the  SCM Agreement   requires treating 
Step 2 payments to domestic users as domestic  support subject to reduction commitments under 
Article 6 of the  Agreement on Agriculture . 
49. The United States points out that paragraph 7 of Annex 3 of the  Agreement on Agriculture   
requires that "[m]easures directed at agricultu ral processors shall be included [within a WTO 
Member's AMS] to the extent that such measure s benefit the producers of the basic agricultural 
products".  This is consistent  with the objective of the  Agreement on Agriculture   of providing for 
substantial progressive reductions in agricultura l support and protection sustained over an agreed 
period of time.  The United States submits that it has regularly reported Step 2 payments among the 
domestic support measures it provides to agricultura l producers and includes them in the calculation 
of total AMS.  Thus, the United States asserts, provided that they are within its domestic support 
reduction commitments, Step 2 payments to domestic  users are not inconsistent with the United 
States' WTO obligations.  
50. The United States explains that the lack of an y reference to domestic content subsidies in 
Article 13(b) of the Agreement on Agriculture  does not support the Panel's interpretation.  
Article 13(b) does not refer to Article 3 of the  SCM Agreement   because the substantive obligation of 
Article 3.1(b) does not apply to domestic content subsidies in favour of agricultural producers. 
51. Consequently, the United States requests that th e Appellate Body reverse the Panel's finding 
that Step 2 payments to domestic users of United States upland cotton are import substitution 
subsidies that are inconsistent with Articles 3.1(b) and 3.2 of the  SCM Agreement . 
(ii) To exporters 
52. The United States claims that the Panel erred in concluding that Step 2 payments provided to 
exporters of United States upland cotton, under S ection 1207(a) of the FSRI Act of 2002, are export 
subsidies covered by Article 9.1(a) of the  Agreement on Agriculture   and, therefore, inconsistent with 
Articles 3.3 and 8 of that Agreement.  The Unite d States also asserts that the Panel erroneously 
concluded that Step 2 payments to exporters are inconsistent with Articles 3.1(a) and 3.2 of the 
SCM Agreement , because they are not exempted from action by Article 13(c) of the  Agreement on 
Agriculture .   WT/DS267/AB/R 
 Page 23 
 
 
 53. The United States argues that Step 2 payments  are not contingent on export performance 
because upland cotton does not need to be exported to trigger eligibility;  domestic users are also 
eligible.  The program under which Step 2 payments  are granted is indifferent as to whether the 
recipient of the payment is an exporter or a domestic  user.  Step 2 payments to exporters and domestic 
users are governed by a single legislative provision and a single set of regulations.  The form and payment rate to domestic users and exporters are identical, and payments are made from a unified 
fund.  Rather than being an expor t-contingent subsidy, the United St ates reports Step 2 payments as 
product-specific amber box domestic support for cotton within its AMS. 
54. The United States submits that the facts in this case are similar to those before the panel in  
Canada – Dairy ,  where the panel found that payments conti ngent on use, without re gard to the nature 
of the use, do not involve an export subsidy for purposes of Articles 9 and 10 of the  Agreement on 
Agriculture .
55  The distinctions drawn by the Panel betw een the circumstances in this case and those 
in  Canada – Dairy   are based on a mischaracterization by the Panel of facts in the latter case.56  
Finally, the United States contends that the Panel' s finding in respect of Step 2 payments to  exporters   
seems to be based on the Panel's determina tion to find that Step 2 payments to  domestic users   are a 
prohibited import substitution subsidy.   
55. The United States therefore requests that the Appellate Body reverse the Panel's finding that 
Step 2 payments to exporters are an export subsidy list ed in Article 9.1(a) that is inconsistent with the 
United States' obligations under Articles 3.3 and 8 of the  Agreement on Agriculture .  The United 
States also requests that the Appellate Body rever se the Panel's findings that Step 2 payments to 
exporters are not exempt from action under Article 13(c) of the  Agreement on Agriculture   and are 
inconsistent with Articles 3.1(a) and 3.2 of the  SCM Agreement . 
(b) Export Credit Guarantees 
(i) Panel's terms of reference 
56. The United States asserts that the Panel erred in concluding that export credit guarantees57 to 
facilitate the export of United States agricultural co mmodities other than upland cotton were within its  
                                                      
55United States' appellant's submission, paras. 444-445 (referring to Panel Report, Canada – Dairy , 
para. 7.41 and footnote 496 to para. 7.124). 
56Ibid., paras. 447-452 (referring to Panel Report, paras. 7.718 and 7.725). 
57The export credit guarantees at issue are the General Sales Manager 102 and 103 programs and the 
Supplier Credit Guarantee Prog ram, which are described  infra , paras. 586-589.  See also Panel Report, 
paras. 7.236-7.244. WT/DS267/AB/R 
Page 24  
 
 
 terms of reference.  According to the United Stat es, there is a clear progression between the measures 
included in the request for consultations under Article  4 of the DSU and the measures identified in the 
request for the establishment of a panel, which fo rms the basis for a panel's terms of reference.58  The 
United States contends that a measure that is not  included in the request for consultations may not 
form part of a panel's terms of reference. 
57. In this case, the United States argues, the Pane l erred in finding that Brazil's request for 
consultations identified export credit guarantees to agricultural commodities other than upland cotton 
as challenged measures.  A plain reading of Braz il's request for consultations does not support the 
Panel's conclusion.  The request identified the challenged measures as "subsidies provided to US 
producers, users and/or exporters of upland cotton".59  Although footnote 1 to this sentence reads 
"Except with respect to export credit guarantee progr ams as explained below", none of the subsequent 
references to export credit guarantees in the request  for consultations identified other United States 
agricultural commodities.  Moreover,  the statement of evidence a ttached to Brazil's request for 
consultations, pursuant to Article 4 of the  SCM Agreement ,  did not mention commodities other than 
upland cotton, providing further proof that the re quest for consultations did not extend beyond export 
credit guarantees for upland cotton.  That the request  for consultations did not include export credit 
guarantees to other agricultural commodities is c onfirmed by the fact that Brazil included new 
language in its request for the establishment of a panel.  
58. According to the United States, the Panel also erred in finding that "actual" consultations 
included export credit guarantees to agricultural comm odities other than upland cotton.  The fact that 
Brazil posed written questions to the United States about export credit guarantees for other 
commodities does not mean that Brazil and the United St ates held consultations about the topic.  Were 
it otherwise, a complaining party could unilaterally a lter the scope of consulta tions without regard to 
the requirements of Article 4.4 of the DSU, the tim e-frames, and the impact on third parties seeking to 
determine whether to join the consultations.  The Panel also ignored the fact that, at the first 
consultations meeting, the United States expressed the view that Brazil's request with respect to export credit guarantees was clearly limited to upland cotton, and that no discussion of export credit 
guarantees for any commodity other than upland co tton took place during th e consultations.  The 
United States also argues that what is determinative of  the scope of consultations is the text of Brazil's 
request for consultations and not the text of Brazil's written questions.  
                                                     
 
58United States' appellant's submission, para. 466 (referring to Appellate Body Report,  Brazil – 
Aircraft ,  para. 131). 
59Ibid., para. 457 (quoting the Request for Consultations by Brazil, supra , footnote 26).  WT/DS267/AB/R 
 Page 25 
 
 
 59. The United States contends that the facts in  this case are similar to those in  US – Certain EC 
Products .  In that case, the Appellate Body found that a particular measure was not part of the panel's 
terms of reference because it was not the subject of consultations.60  Similarly, in this case, export 
credit guarantees to other agricultural commodities may no t form part of the Panel's terms of reference 
because they were not the subject of consultations. 
60. The United States therefore requests that the A ppellate Body reverse the Panel's conclusion 
that export credit guarantees to United States agricu ltural commodities other than upland cotton were 
within the Panel's terms of reference.  The Unite d States adds that, because the Panel had no authority 
to make findings with respect to export cred it guarantees for agricultural commodities other than 
upland cotton, all of the Panel's findings with resp ect to such commodities must also be reversed. 
(ii) Statement of available evidence 
61. The United States submits that the Panel e rroneously concluded that Brazil provided a 
statement of available evidence with respect to  export credit guarantee measures relating to United 
States agricultural commodities other than upland cotton, as required by Article 4.2 of the SCM Agreement . 
62. The United States explains that the statement of  evidence that was annexed to Brazil's request 
for consultations contains two paragraphs specifi cally referring to the United States' export credit 
guarantee programs.  The Panel correctly noted that the first paragraph is textually limited to upland 
cotton.
61  The United States submits, however, that the Panel failed to draw the proper conclusion 
about the second paragraph.  Although the second paragraph does not refer to upland cotton, it 
contains no suggestion that it expands on the prog rams described in the pr eceding paragraph, which 
refers to export credit guarantee programs that alle gedly provide certain benefits to United States 
upland cotton.  In the context of the paragraph that precedes it, the second paragraph must be understood to refer to the same pr ograms—that is, to export credit guarantee programs that allegedly 
provide certain benefits to upla nd cotton.  In addition, the Unite d States points out that the second 
paragraph in Brazil's request for consultations does not refer to any commodity.  Consequently, even 
if the second paragraph is construe d to refer to programs that provide  benefits to products other than 
cotton, it is difficult to see how that paragraph meets the requirements of Article 4.2 of the  
                                                     
 
60United States' appellant's submission, para. 485 (referring to Appellate Body Report,  US – Certain 
EC Products , para. 70). 
61Ibid., para. 495 (referring to Panel Report, para. 7.84). WT/DS267/AB/R 
Page 26  
 
 
 SCM Agreement ,  as it does not provide information about the "existence" or "nature" of the subsidies 
allegedly provided by the export credit guarantee programs to products other than upland cotton. 
63. The United States therefore requests that the Appellate Body reverse the Panel's finding and 
that it find, instead, that Brazil did not provide a st atement of available evidence with respect to the 
United States' export credit guarantee programs as they  relate to agricultural commodities other than 
upland cotton. 
(iii) Article 10.2 of the Agreement on Agriculture  
64. The United States alleges that the Panel erred in  finding that the United States' export credit 
guarantee programs in respect of exports of upl and cotton and other unscheduled agricultural 
products, and in respect of one scheduled product (i .e., rice), are export subsidies applied in a manner 
that results in circumvention of the United States ' export subsidy commitments within the meaning of 
Article 10 of the  Agreement on Agriculture   and are therefore inconsistent with Article 8 of that 
Agreement .  In addition, the United States submits that , although the Panel did not find that the 
United States had circumvented such commitments with respect to scheduled commodities other than 
rice, it nevertheless erred in concluding that the programs as applied to these scheduled agricultural 
products constitute export subsidies within the meaning of the  Agreement on Agriculture .   
65. The United States contends that the Panel e rroneously analyzed whether export credit 
guarantees are export subsidies subject to the discip lines of Article 10.1 solely by reference to the   
SCM Agreement , ignoring important context in Article 10 of the Agreement on Agriculture .  
According to the United States, the proper context in which to analyze the meaning of Article 10.1 
with respect to export credit guarantees is Article 10.2 of the  Agreement on Agriculture ,  the only 
provision that explicitly addresses these specific kinds of measures.  Article 10.2 reflects the fact that, 
during the Uruguay Round, WTO Members did not ag ree on disciplines applicable to agricultural 
export credits, export credit guarantees, or insurance programs.  Unable to reach agreement on such 
disciplines within the Uruguay Round, WTO Member s opted to continue discussions, deferring the 
imposition of substantive disciplines until a consensus was achieved. 
66. According to the United States, this interpretati on of Article 10.2 is cons istent with Article 10 
as a whole.  Article 10.2 contributes to the prevention of circumvention of export subsidy commitments by imposing two obligations on Members:   first, they must undertake to work toward 
the development of internationally agreed discip lines on export credit guarantees;  and, second, "after 
agreement on such disciplines", they must provide  export credit guarantees "only in conformity  WT/DS267/AB/R 
 Page 27 
 
 
 therewith".62  Moreover, excluding export credit guarant ees from the application of Article 10.1 is 
consistent with the treatment of food aid transac tions under Article 10.  Because Article 10.4 of the  
Agreement on Agriculture   does not explicitly exempt food aid transactions from the applicability of 
Article 10.1, the Panel's interpretative approach w ould mean that all food aid transactions constitute 
export subsidies under Article 10.1. 
67. The United States submits that the negotiating history confirms its interpretation that 
Article 10.2 excludes export credit guarantees from the export subsidy disciplines in Article 10.1.  
The negotiating history reflects that WTO Members initially included export credit guarantees as a subject for negotiation but later specifically elected not to include those practic es as exports subsidies 
in respect of goods covered by the Agreement on Agriculture .  The Panel's explanation that the 
negotiators deleted the language on export credits from a 1991 draft of Article 9 because it was "mere 
surplusage"
63 is inconsistent with the fact that other pr actices included in the Illustrative List of Export 
Subsidies of the  SCM Agreement   were also listed in Article 9.1 of the  Agreement on Agriculture ,  
such as direct subsidies contingent upon export performance, or transport and freight charges 
provided at more favourable rates. 
68. The United States argues that reliance on the negot iating history in this case is appropriate, 
under Article 32 of the  Vienna Convention on the Law of Treaties   (the " Vienna Convention "64), 
because the Panel's interpretation leads to a manif estly unreasonable result.  Had export credit 
guarantees remained in Article 9, then the United States and other providers of export credit 
guarantees would have been expressly permitted to in clude such measures in their respective export 
subsidy reduction commitments.  In the absence of a reference in Article 9, the United States was 
foreclosed from including them.  It defies l ogic, as well as the object and purpose of the  Agreement 
on Agriculture ,  to take the view of the Panel whereby such measures would be treated as already 
disciplined export subsidies, yet such measures w ould not be permitted to be included within the 
applicable reduction commitments expressly contemplated by the text.   
69. The United States also requests that the Appellate  Body reverse the Panel's finding that export 
credit guarantees for agricultural commodities ar e subject to Articles 3.1 and 3.2 of the 
SCM Agreement .  The United States explains that export credit guarantees are not listed in Article 9.1 
of the  Agreement on Agriculture   and are exempt, through the operation of Article 10.2, from the 
export subsidy disciplines in Article 10.1.  Because export credit guarantees are not subject to export 
subsidy disciplines under the  Agreement of Agriculture ,  the export subsidy disciplines of the  
                                                      
62Quoting from Article 10.2 of the  Agreement on Agriculture . 
63United States' appellant's submission, para. 379 (quoting Panel Report, para. 7.940). 
64Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331; 8 International Legal Materials 679.  WT/DS267/AB/R 
Page 28  
 
 
 SCM Agreement   are also inapplicable to these measures pursuant to Article 21.1 of the  Agreement on 
Agriculture   and the introductory language of Article 3.1 of the  SCM Agreement .  
(iv) Burden of proof  
70. The United States submits that the Panel erred in three different ways in respect of the 
application of the burden of proof in assessing the United States' export credit guarantee programs 
under item (j) of the Illustrative List of Export Subsidies annexed to the  SCM Agreement . 
71. First, the United States asserts that the Panel e rred by applying the "special rules" on burden 
of proof provided in Article 10.3 of the  Agreement on Agriculture   in its examination of Brazil's 
claim under the  SCM Agreement .  The United States argues that the special rules in Article 10.3 of 
the  Agreement on Agriculture   do not apply in the context of the  SCM Agreement . 
72. In addition, the United States submits that the Panel erred by applying the special rules on 
burden of proof in Article 10.3 of the  Agreement on Agriculture   in examining whether the United 
States circumvented its export subsidy commitments w ith respect to upland cotton and certain other  
unscheduled   agricultural products.  According to the Un ited States, Article 10.3 does not apply at all 
in respect of export subsidies to an agricultu ral good for which the respondent has no reduction 
commitments.   
73. Finally, the United States refers to three speci fic instances in which the Panel allegedly erred 
in applying the burden of proof.  The first example is the Panel's statement that the premiums charged 
by the Commodity Credit Corporation (the "CCC") for the export credit guarantees "are not geared 
toward  ensuring   adequacy to cover long-term operating costs and losses for the purposes of 
item (j)".65  The United States asserts that this is a much higher threshold than that provided in the text 
of item (j) of the Illustrative List of Export Subsidies annexed to the  SCM Agreement .  Next, the 
United States takes issue with the Panel's statements that "[i]n terms of the structure, design and operation of the ... programmes [we] believe that th e programmes are not designe d to avoid a net cost 
to government"
66 and that the Panel was entitled to inquire whether revenue "would be likely to cover 
the total of all operating costs and losses under the programme".67  According to the United States, 
"[t]o 'avoid a net cost' prospectively is simply not the requirement of item (j)", and the "'likelihood'  
                                                      
65United States' appellant's submission, para. 406 (quoting Panel Report, para. 7.859). (emphasis added 
by the United States) 
66Ibid., para. 407 (quoting Panel Report, para. 7.857).  
67Ibid., para. 407 (quoting Panel Report, para. 7.805).  WT/DS267/AB/R 
 Page 29 
 
 
 standard of performance" imposed by the Pane l is higher than that found in item (j).68  The third 
example cited by the United States is the Panel's st atement that "[w]e have not been persuaded that 
cohort re-estimates over time, will  necessarily   not give rise to a net cost to the United States 
government."69  The United States contends, however, that under the applicable burden of proof it is 
not for the United States to make such incont rovertible demonstrations to the Panel. 
(v) Necessary findings of fact  
74. The United States asserts that the Panel erred by failing to make certain factual findings that 
were necessary for the Panel's analysis of whether premiums are adequate to cover the long-term costs 
and losses of the United States' export credit guarantee programs, under item (j) of the Illustrative List 
of Export Subsidies.  According to the United Stat es, the Panel made no findings "on the basis for and 
monetary extent to which the United States has a llegedly not covered its long-term operating costs 
and losses for the CCC export credit guarantee programs".70  
75.  In particular, the United States asserts that th e Panel should have made  a specific finding on 
the treatment of rescheduled debt.  The United Stat es explains that the Pane l did not conclude that 
rescheduled debt was an operating cost or loss.  In stead, the Panel "stated only vaguely" that it shared 
Brazil's concern that the United States' treatment of  rescheduled debt understates the net cost to the 
United States government associated with the export credit guarantee programs. 71     
76. The United States argues that the Panel's failure  to make these factual findings compels the 
reversal of the Panel's determination in respect of ite m (j) of the Illustrative List of Export Subsidies. 
B. Arguments of Brazil – Appellee 
1. Domestic Support  
(a) Terms of Reference – Expired Measures 
77. Brazil submits that the Appellate Body should re ject the United States' request to reverse the 
Panel's finding that expired production flexibility co ntract and market loss assistance payments were 
                                                      
68United States' appellant's submission, para. 407. 
69Ibid., para. 408 (quoting Panel Report, para. 7.853). (emphasis added by the United States)  In the 
same paragraph, the United States mentions the following statement by the Panel:  "[w]hile there may be a possibility (based on the experience of certain of other cohorts) that this figure may diminish over the lifetime of 
the cohort concerned, there is no  assurance that this figure will necessarily evolve towards, and conclude as, 
zero or a negative figure." (Panel Report, footnote 1028 to para. 7.853) (emphasis added by the United States) 
70United States' appellant's submission, para. 419. 
71Ibid., para. 416. WT/DS267/AB/R 
Page 30  
 
 
 outside the Panel's terms of refere nce.  Brazil argues that neither Article 4.2 nor Article 6.2 of the 
DSU precludes a panel from analyzing payments made in  the past in the context of serious prejudice 
claims.  Brazil focuses on the context provided by Ar ticle 3.3 of the DSU, which states that a purpose 
of dispute settlement is the "prompt settlement of situations in which a Member considers that any 
benefits accruing to it ... are being impaired by me asures taken by another Member".  For Brazil, as 
long as the impairment is current, then the status in domestic law of the measure causing impairment 
is irrelevant.   
78. Brazil notes that the current case involves allegations of "adverse effects" and "serious 
prejudice" under the provisions of the  SCM Agreement  and the GATT 1994.  A breach of these 
provisions does not necessarily arise when an actiona ble subsidy is granted,  but only when adverse 
effects occur, and the breach continues for the entire period during which the adverse effects continue.  
The effects of an actionable subsidy, which "affect[] the operation of" the  SCM Agreement  in the 
sense of Article 4.2 of the DSU, may well linger even after the measure providing for the subsidy expires.  There is thus no basis for the United Stat es' claim that the subsidies in question "cannot" be 
measures affecting the operation of an y covered agreement.  In particul ar, there is no justification in 
this context for the distinction, drawn by th e United States, between recurring and non-recurring 
subsidies.  The inquiry as to whether a subsidy cont inues to cause adverse effects beyond the year in 
which it was granted is a substantive judgment, a nd cannot be treated as a "jurisdictional hurdle".
72  
Brazil finds support for its position in  the view of the panel in  Indonesia – Autos ,  which found that 
past, present, and future subsidies can be the subj ect of dispute settlement, as the effect of such 
measures may cause serious prejudice to the interests of a Member.   
79. Brazil also disputes the United States' claims re garding Article 12.7 of the DSU.  In Brazil's 
view, the Panel fulfilled the requirements of Article 12.7 in its Report.  Many of the United States' 
claims under Article 12.7 are, in reality, allegations  of error concerning the Panel's exercise of its 
discretion under Article 11 of the DSU and should be  dismissed for want of specification of a claim 
under that provision. 
(b) Article 13(a) of the Agreement on Agriculture  – Planting Flexibility 
Limitations 
80. Brazil considers that production flexibility contract and direct payment programs are not 
green box measures falling under Annex 2 of the  Agreement on Agriculture   and are thus not exempt 
from actions pursuant to Article 13(a) of that Agreement .  Brazil requests the Appellate Body to  
                                                      
72Brazil's appellee's submission, para. 255.  WT/DS267/AB/R 
 Page 31 
 
 
 uphold the Panel's finding, under paragraph 6(b) of  Annex 2, that production flexibility contract 
payments under the FAIR Act of 199673 and direct payments under the FSRI Act of 2002 relate the 
amount of the payment to the type of production unde rtaken by recipients b ecause these payments are 
made solely if a producer grows crops other than fruits and vegetables (and, in the case of direct payments, wild rice as well).   
81. Brazil relies upon the Panel's finding that paragr aph 6(b) of Annex 2 addresses both positive 
requirements that certain products be produced and negative requirements that certain products not be 
produced.  Brazil submits that the Panel correctly held that the words "related to," in paragraph 6(b) of 
Annex 2, preclude the establishment of any kind of relationship between the amount of a payment and 
the type of production undertaken.  Accordingly, the text requires that the amount of a decoupled 
payment not be affected, influenced, or dependent, in  any way, upon the type of crop planted.  Brazil 
contends that the United States inappropriately seek s to read into paragraph 6(b) an exception for 
planting restrictions.  Brazil observes that where th e drafters intended to provide such an exception, 
they did so explicitly, as is evidenced by paragraphs  11(b) and 11(e) of Annex 2.  For Brazil, Annex 2 
cannot simply be reduced to the proposition that a measure is exempt if it is consistent with the 
fundamental requirement established in paragraph 1 that such measures have no, or at most minimal, 
trade-distorting effects or effects on production.  Such an interpretation would overlook the policy-
specific criteria in the other paragraphs of Annex 2. 
82. Brazil nevertheless agrees with the United St ates that the expression in paragraph 6(b) 
"related to ... the type ... of production" does not preclude a Member from making decoupled 
payments conditional upon producers undertaking no pr oduction at all.  Brazil highlights, however, 
that a total ban on production is different from a partial ban, because payment is conditional upon the 
planting of certain crops as opposed to others.  Th e Panel's factual findings support this view: the 
Panel found that the planting flexibility limitations  impose a "significant constraint" on production 
decisions.
74  Brazil argues that, under the production flexib ility contract and direct payment measures, 
the amount of payment is always "related to" th e type of production undertaken.  If permitted crop 
"types" are produced exclusively, a full payment is ma de.  If a small quantity of "prohibited" crops is 
produced, the amount of payment is reduced.  If a larg er quantity of prohibited crops is produced, no 
payment is made.    
83. Furthermore, the various findings by the Pane l contradict the United States' basic assertion 
that "a condition that a recipient not produce certain products serves the fundamental requirement of 
                                                      
73Federal Agriculture Improvement and Reform Act of  1996 (the "FAIR Act of 1996"); Public Law 
104-127.  
74Brazil's appellee's submission, para. 287 (quoting Panel Report, para. 7.386).  WT/DS267/AB/R 
Page 32  
 
 
 Annex 2, that measures have no more than mi nimal trade-distorting effects and effects on 
production."75   Rather, a partial prohibition creates incentives for the production of certain crops, and 
disincentives for the production of prohibited crop s.  In essence, the Panel found that planting 
flexibility limitations  did  channel production away  from fruits, vegetables (and wild rice) and 
towards other commodities, such as upland cotton.  Br azil thus disputes the distinction put forward by 
the United States between measures that make paym ent contingent upon the production of "permitted" 
crops and those that make payment contingent upon the non-production of "prohibited" crops.  As the 
Panel found on the facts of this case, their effects are the same.  The Panel found that "the planting 
flexibility limitations provide a monetary incenti ve for payment recipients not to produce the 
prohibited crops"76, and that production flexibility contract payments and direct payments have 
positive production effects by restricting producti on choices and keeping land dedicated to the 
production of the permitted crops.  Thus, providing income support, whilst also excluding income 
support when certain types of crop are produced, rela tes the amount of the income support to the type 
of production undertaken within th e meaning of paragraph 6(b).  
84. Finally, Brazil takes issue with the United St ates' assertion that the Panel's interpretation 
would require a Member to make decoupled income support payments even if the recipient produced 
illegal crops or crops damaging to the environment.  There was no basis for the Panel to address this 
issue because the planting flexibility limitations at i ssue do not pertain to the production of illegal or 
environmentally-damaging crops.  In any event, nothing in the  Agreement on Agriculture   suggests 
that the word "production" means anything other than  lawful   production.  The Panel properly 
declined to consider the hypothetical situations not  created by the United States' measures at issue in 
the dispute. 
(c) Article 13(b) of the  Agreement on Agriculture   
85. Brazil submits that the United States' non-green box domestic support measures are not 
exempt from actions by virtue of Article 13(b)(ii) of the  Agreement on Agriculture , and asks the 
Appellate Body to uphold the Panel's finding that  the United States granted implementation period 
support to upland cotton in excess of that decided in the 1992 marketing year, within the meaning of 
that provision.  Brazil argues that the Panel's interpre tation of Article 13(b)(ii) was consistent with its 
ordinary meaning, context and object and purpose, and that the methodological choices made by the Panel in undertaking the comparison required by Ar ticle 13(b)(ii) were reasonable and within the 
bounds of its discretion as the trier of fact.   
                                                     
 
75Brazil's appellee's submission, para. 291 (quoting the United States' appellant's submission, para. 22).   
76Ibid., para. 320 (quoting Panel Report, para. 7.386).  WT/DS267/AB/R 
 Page 33 
 
 
 (i) Interpretation of "support to a specific commodity" 
86. Brazil contends that the Panel correctly in terpreted the phrase "support to a specific 
commodity" in Article 13(b)(ii) of the  Agreement on Agriculture   to mean "all non-green box support 
measures that clearly or explicitly define a commodity as one to which they bestow or confer 
support".77  This includes crop insurance and the three subsidies described by the United States as 
"product-specific" domestic support (marketing lo an program payments, Step 2 payments, and 
cottonseed payments), as well as the four measures characterized by the Unite d States as "decoupled" 
payments (production flexibility contract payments , direct payments, market loss assistance, and 
counter-cyclical payments). 
87. Brazil submits that the United States' interpretation of the phrase "support to a specific 
commodity" in Article 13(b)(ii) of the  Agreement on Agriculture  is that support falling within the 
proviso to Article 13(b)(ii) must require production of only one specific crop.  Brazil observes that 
this argument was rejected by the Panel, which conc luded that nothing in the text of Article 13(b)(ii) 
suggests that relevant measures must provide support only to a single commodity, and noted that a single measure could provide support to multiple spec ific commodities.  Brazil agrees with the Panel 
that "[i]f a measure specifies more than one co mmodity, it would be appropriate to measure the 
amount of support granted to each of them in a ccordance with the terms of the measure itself."
78  The 
practical effect of the extremely narrow United States reading of Article 13(b)(ii) is to erase US $4.2 
billion in production flexibility contract payments , direct payments, market loss assistance, and 
counter-cyclical payments to recipients who act ually grew upland cotton in the 1999-2002 marketing 
years, even though these four subsidies covered a si gnificant portion of upland cotton producers' costs 
of production during this period.  Brazil contends that the crucial conclusion drawn by the Panel from 
this data was a clear linkage between historic  upland cotton producers and present  upland cotton 
producers.  The Panel found that "the overwhelmi ng majority of farms enrolled in the programmes 
which plant upland cotton also hold upland cotton base", specifica lly, 96.1 per cent in the 2002 
marketing year.79  For Brazil, the evidence on record and the Panel's findings contradict the United 
States' factual assertions that there is no conn ection between current payments under the production 
flexibility contract, direct payment, market loss a ssistance, and counter-cyclical payment programs on 
the one hand, and current upland cotton production on the other. 
88. Brazil agrees with the Panel's conclusion that  the deliberate decision of the drafters  not  to 
use in Article 13(b)(ii) readily available terms, such as "product-specific" and "non-product-specific" 
                                                      
77Brazil's appellee's submission, para. 358 (quoting Panel Report, para. 7.494).  
78Ibid., para. 371 (quoting Panel Report, para. 7.483). 
79Ibid., para. 383 (quoting Panel Report, para. 7.636). WT/DS267/AB/R 
Page 34  
 
 
 (and the definitions in Articles 1(a) and (h) of the  Agreement on Agriculture )  means that the drafters 
intended the term "support to a specific commodity" to  have a unique meaning.  The Panel properly 
found that this unique phrase does not mean "produc t-specific domestic support" because "the class of 
measures which is covered by paragraph (b) [of Article  13] is broader than either" that term or the 
phrase "support … provided for an agricultural product in favour of the producers".80  The Panel 
correctly focused on the fact that the term "support to  a specific commodity" in Article 13(b)(ii) refers 
to  all  measures set out in the chapeau  to Article 13(b).  There was therefore no basis in the text to 
limit the measures covered by Article 13(b)(ii) solely to measures requiring production of a single 
commodity.  Brazil adds that such an interpretation would be contrary to the object and purpose of the  
Agreement on Agriculture ,  creating a new category of trade-distorting domestic support that would 
evade the limits set by the Memb ers for exempting domestic support measures from actions under the  
SCM Agreement   and the GATT 1994.  Under the United Stat es' interpretation, as long as measures do 
not require production of a  single   commodity, they would  never   be counted as implementation 
period support for purposes of the peace clause compar ison, effectively insulating such measures from 
serious prejudice actions.  
89. In addressing the manner in which the value of support under the production flexibility 
contract, market loss assistance, direct payment, and counter-cyclical payment programs should be calculated, Brazil submits that the Appellate Body should be wary of setting the evidentiary bar too 
high for complaining Members seeking to demons trate precise amounts of support to a specific 
commodity for purposes of Article 13(b)(ii).  Brazil contends that the Appellate Body should affirm 
the Panel's use of the total budgetary outlays to upland cotton base acres.  Brazil observes, however, 
that the Panel endorsed in the "Attachment to S ection VII:D" two other approaches for allocating 
implementation period support unde r these programs to upland cotton:  the "cotton-to-cotton" 
methodology and "Brazil's methodology".   Brazil ma intains that, under any of these approaches, the 
United States granted support to upland cotton in  the years 1999, 2000, 2001, and 2002 in excess of 
that decided during the 1992 marketing year.  
(ii) Calculation methodology for price-based measures 
90. In addressing the United States' arguments regarding the appropriate methodology for 
calculating the value of certain United States pri ce-based measures (the marketing loan program 
payments and deficiency payments), Brazil agrees w ith the Panel that "the use of the verb 'decided' 
stands in contrast to the use of the verb 'grant ' in relation to the same noun 'support' in the same 
                                                     
 
80Brazil's appellee's submission, para. 390 (quoting Panel Report, para. 7.491).  WT/DS267/AB/R 
 Page 35 
 
 
 proviso."81  The Panel found that "despite the contrast, the proviso calls for a comparison which 
necessarily requires the two halves of the comparison to be expressed in the same units of 
measurement."82  The Panel further noted that "[a] diffe rence between the support that a government 
decides and the support that its measures grant is  that one is expressed in terms of prior 
determinations of leve ls of support and the other in term s of subsequent support provided ."83  The 
Panel concluded by stating that "' [d]ecided' refers to what the g overnment determines, but 'grant' 
refers to what its measures provide."84  Brazil submits that the Panel' s explanation and reasoning for 
its interpretation are consistent with the ordinary me aning of the term in its context, and are supported 
by the Appellate Body's decision in  Brazil – Aircraft . 
91. Brazil contends that the United States incorrec tly implies that the Panel agreed with the 
United States that the peace clause proviso "com pares the support a Member determines through its 
measures, not 'support [that] was spent due to reasons beyond the control of the government'''.85  
Brazil argues that the Panel explicitly rejected this  contention and concluded that "the text indicates 
that implementation period support mu st be measured in terms of suppor t that measures 'grant', rather 
than what was budgeted or  estimated ."86   
92. Against this background, Brazil argues that the pl ain text of paragraph 10 of Annex 3 to the  
Agreement on Agriculture  permits the use of  either   a budgetary outlay  or  a price gap methodology 
for calculating the value of price-based payments.  There is no textual basis for concluding, for 
purposes of the peace clause, that only price gap methodology may be used.  Brazil also notes the 
Panel's factual finding that the United States adopted a budgetary  outlay  methodology in accounting 
for marketing loan program payments in its AMS no tifications.  Brazil observes that when the United 
States agreed with other WTO Members on its base level AMS, the United States chose to calculate 
marketing loan program payments using a budgeta ry outlay methodology.  Brazil argues that the 
United States' decision to use budgetary outlays in stead of price gap methodology for notifying the 
value of marketing loan program payments is lega lly binding on the United States.  This conclusion 
follows from the text of Articles 6.3 and  3.2 of the  Agreement on Agriculture .  Nothing in Article 6 or 
any other provision of the  Agreement on Agriculture   permits a Member to change the methodology  
                                                      
81Brazil's appellee's submission, para. 340 (quoting Panel Report, para. 7.435).  
82Panel Report, para. 7.435. 
83Ibid., para. 7.436.  
84Ibid., para. 7.476. 
85Brazil's appellee's submission, para. 346 (quoting the United States' appellant's submission, para. 66).  
86Ibid., para. 346 (quoting Panel Report, para. 7.557). (emphasis added by Brazil) WT/DS267/AB/R 
Page 36  
 
 
 used to calculate the value of price-based meas ures, once that methodology has been used in AMS 
notifications. 
93. Brazil also notes that, although the Panel prim arily relied on a budgetary outlay methodology, 
it also made alternative factual findings regarding the use of price gap methodology for the calculation 
of marketing loan program payments in the implementation period and for the 1992 benchmark 
period, as well as for deficiency payments in the 1992 benchmark period only.  Brazil highlights the 
Panel's finding that under  either   approach the United States grants support to upland cotton in excess 
of that decided in the 1992 marketing year;  the Panel found that "both methodologies lead to the same result."
87  As a result, even if the legal grounds for the United States' appeal were valid, the facts 
on record would require the Appellate Body to uphol d the Panel's conclusions that the United States 
granted support in each of the 1999-2002 marketi ng years that exceeded the "support decided during 
the 1992 marketing year". 
2. Serious Prejudice  
(a) Significant Price Suppression under Article 6.3(c) of the  SCM 
Agreement  
94. Brazil submits that the Panel properly found that th e effect of the price-contingent subsidies is 
significant price suppression within the meaning of Article 6.3(c) of the  SCM Agreement   constituting 
serious prejudice to the interests of Brazil w ithin the meaning of Article 5(c) of the  SCM Agreement .  
Brazil asks the Appellate Body to uphold this finding, and to find that the Panel set out the findings of 
fact, the applicability of relevant provisions, and th e basic rationale behind this finding, as required by 
Article 12.7 of the DSU.  Brazil argues that many of the United States' arguments88, and particularly 
those concerning serious prejudice, involve allegati ons that the Panel failed to "make an objective 
assessment of the matter before it, including an objec tive assessment of the facts of the case" pursuant 
to Article 11 of the DSU.  Brazil requests the A ppellate Body to ignore these arguments because the 
United States has not made a proper claim of error under Article 11 of the DSU.   
95. First, in response to the United States' argume nt that the market in which a panel assesses 
significant price suppression under Article 6.3(c) cannot be a "world market", Brazil maintains that the subsidized and like products must be present in  the market examined.  Brazil submits that the 
ordinary meaning of the text of Article 6.3(c) of the  SCM Agreement   indicates that this provision  
                                                     
 
87Panel Report, para. 7.555. 
88Brazil lists the relevant arguments in Annex A of its appellee's submission.  WT/DS267/AB/R 
 Page 37 
 
 
 "may apply to  any  'market,' from local to global, and everything in between".89  This contrasts with 
paragraphs (a), (b), and (d) of Article 6.3, which e xpressly qualify the type of market at issue.  It is 
also consistent with the object and purpose of the  Marrakesh Agreement Establishing the World 
Trade Organization   (the " WTO Agreement ") (which addresses barriers to "world trade") and the  
Agreement on Agriculture   (which addresses "world agricultural markets").90  Brazil maintains that the 
Panel found, as a matter of fact, that a world market exists for upland cotton.91  In addition, contrary 
to the assertion of the United States, Brazil contends  that the Panel did find that United States and 
Brazilian cotton are present in the world market.92  However, Brazil agrees with the Panel that the 
existence of a world market does not preclude the possibility of other markets, and that a world 
market does not necessarily exist for all products.  Br azil refutes the United States' suggestion that the 
Panel did not find that  Brazilian   prices in the world market for upland cotton were significantly 
suppressed.93  In Brazil's view, the Pane l found that "Brazilian prices, i.e., prices in Brazil and prices 
received for Brazilian exports, are significantly suppressed".94 
96. Secondly, in relation to the United States' allegation that the Panel used circular reasoning to 
find "significant price suppression", Brazil emphasizes that  several factors relate to both the "effect of 
the subsidy" and "significant price suppression", a nd the Panel gave separate explanations of these 
factors in terms of the "effect" and the "suppression" .  Brazil states that the Panel did take into 
account supply responses from third countries that woul d flow from removal of the price-contingent 
subsidies, in taking into account econometric mode ls that incorporated such supply responses.95  
Brazil also states that the Panel examined the ordi nary meaning of the word "significant", properly 
concluded that it is the degree of price suppression th at matters rather than the degree of significance, 
and provided substantial reasons for its conclusion that the degree of price suppression it had found in 
the present dispute was significant.  
97. Thirdly, in relation to the United States' challenge  to the Panel's finding of the "effect" of the 
price-contingent subsidies, Brazil points out that the Panel did examine the United States' arguments 
regarding the "farmer's planting decision" and the responsiveness of United States producers to price 
                                                      
89Brazil's appellee's submission, para. 628. (original emphasis) 
90Ibid., para. 633. (emphasis omitted) 
91Ibid., paras. 619 and 622 (referring to Panel Report, paras. 7.1274 and 7.1311). 
92Ibid., paras. 644 and 808 (referring to Panel Report, paras. 7.1266, 7.1282-7.1284 and 7.1313). 
93Ibid., paras. 799-801 (referring to Panel Report, paras 7.1311 and 7.1313). 
94Ibid., para. 802. 
95Ibid., paras. 793-798 (referring to Panel Report, paras. 7.1205, 7.1209, and 7.1215). WT/DS267/AB/R 
Page 38  
 
 
 signals.96  Brazil explains that United States upland cotton farmers base planting decisions on 
expected net returns, meaning expected market pr ices together with expect ed government support.  
According to Brazil, the record contains ample ev idence to support the Panel's view that the United 
States exercises a significant influence on the worl d market price for upland cotton.  Even if 
movements in planted upland cotton acreage of United States producers correspond with those of 
other producers (which Brazil disputes), this woul d not detract from the Panel's finding that the 
overall level of upland cotton production by United States producers would be significantly lower in 
the absence of the price-contingent  subsidies.  The Panel properly assessed the nature of the price-
contingent subsidies and properly found a tempor al coincidence between those payments and 
suppressed upland cotton prices, based not merely on  the end points of the 1998-2001 marketing year 
period, but on more detailed data.  Finally, Brazil maintains that the Panel properly found that United 
States upland cotton producers were able to continue to produce upland cotton by virtue of the price-
contingent subsidies.  Although variable costs may be  most relevant in the short term, the Panel found 
that upland cotton producers must cover their total costs of production in the mid- to long-term.  
According to Brazil, the fact that United States prod ucers might have been able to cover the costs of 
upland cotton production through other agricu ltural production as well as "off-farm income"97 is 
irrelevant to the question of the effect of the pr ice-contingent subsidies on the United States industry 
producing upland cotton. 
98. Fourthly, in response to the United States' arguments regarding the quantification of 
subsidies, Brazil states that neither the text nor the context of Articles 5(c) and 6.3 of the  
SCM Agreement   imposes a "preliminary requirement to qua ntify exactly the amount of each subsidy 
prior to examining whether it causes adverse effects".98  Brazil supports its interpretation by reference 
to Article 6.1(a) and Annex IV of the  SCM Agreement ,  which, unlike Article 6.3, impose 
quantification methodologies.  Brazil also distinguish es the analysis required under Part III of the  
SCM Agreement   from that required under Part V of that Agreement.  Under Part V, it is necessary to 
calculate the exact amount of subsidization in or der to avoid imposing excess countervailing duties.  
However, the remedy under Part III focuses on the eff ects of the subsidy, rather than the imposition of 
duties, and, according to Brazil, the size of a s ubsidy does not necessarily determine its effects.  
Finally, Brazil contests the United States' reliance on Annex V of the  SCM Agreement .  In Brazil's 
view, Annex V sets out procedures for the collection of information and does not require the Panel to 
                                                      
96Brazil's appellee's submission, para. 168 (referring to the United States' appellant's submission, 
para. 324). 
97Ibid., para. 788 (referring to the United States' appellant's submission, para. 224). 
98Ibid., para. 467.  WT/DS267/AB/R 
 Page 39 
 
 
 use such information, and the references to an "amount" in paragraphs 2 and 5 of Annex V are 
directed towards Article 6.1(a) rather than Article 6.3 of the  SCM Agreement . 
99. In response to the United States' arguments regarding the allocation of counter-cyclical 
payments and market loss assistance payments to upland cotton, Brazil argues that the methodology in 
Annex IV of the  SCM Agreement   applies only to Article 6.1 and not to Article 6.3(c), and that 
Annex IV has now expired.  In any case, the Panel did find a "strongly pos itive relationship" between 
those payments and the production of upland cotton.99   
100. Brazil contends that the United States' arguments distinguishing between "raw" and 
"processed" cotton improperly raise new factual and legal issues not before the Panel, including a suggestion that raw cotton is a pr oduct distinct from processed cotton.  Brazil submits that the Panel 
found, and the parties agreed, that upland cotton lint is the only subsidized product at issue in this 
dispute.  Moreover, according to Brazil, the Panel found that all price-contingent subsidies benefited 
the subsidized product (upland cotton), regardless of  the stage at which they were provided.  Brazil 
rejects the United States' reliance on the Appellate Body Report in  US – Softwood Lumber IV .  
101. Finally, Brazil responds to the United States' arguments as to the allocation of recurring 
subsidies to a particular year as follows.  Articles 5(c) and 6.3 of the  SCM Agreement   do not 
explicitly exempt consideration of effects of a nnually recurring subsidies beyond the year in which 
they are paid.  Furthermore, the United States' interpretation would create a new category of non-
actionable subsidies.  For example, according to Brazil, the United States' argument would exclude all 
the subsidies challenged by Brazil because they would be deemed to have no effects after 1 August 
2003, well before the Panel circulated its Report.   The possibility of making an "as such" claim 
against the subsidy programs as a whole would pr ovide little comfort because these types of claims 
can be difficult to prove.  Brazil also suggests that "WTO Members provide agricultural subsidies 
largely on a 'recurring' annual basis"
100 and, therefore, one would have expected an explicit exclusion 
of such subsidies from the disciplines of particularly Part III of the  SCM Agreement   and the  
Agreement on Agriculture   if this were the intention of the drafters.  The United States' contrary 
assertion improperly excludes the possibility for Member s to seek the removal of adverse effects of 
any subsidies (whether recurring or otherwise), as reflected in Article 7.8 of the  SCM Agreement . 
102. In relation to the findings that the Panel made re garding the subsidies at issue in this dispute, 
Brazil challenges the United States' contention that the Panel made no findings regarding the effects 
in marketing year 2002 of subsidies paid in mark eting years 1999 to 2001.  The Panel explained its 
                                                      
99Brazil's appellee's submission, para. 523 (quoting Panel Report, para. 7.1226). 
100Ibid., para. 559. WT/DS267/AB/R 
Page 40  
 
 
 decision to examine serious prejudice over a period including marketing year 2002, and its findings 
indicate that it regarded the effects of certain subsid ies as continuing in that year.  In addition, Brazil 
submits that no "bright lines"101 can be drawn between upland cott on subsidies paid in different 
marketing years, because the marketing year r uns from 1 August to 31 July, and upland cotton is 
planted in one marketing year and harvested in the next. 
3. Import Substitution Subsidies and Export Subsidies  
(a) Step 2 Payments  
(i) To domestic users 
103. Brazil requests that the Appellate Body uphold the Panel's conclusion that Step 2 payments to 
domestic users of United States upland cotton, prov ided under Section 1207(a) of the FSRI Act 
of 2002, are inconsistent with Articles 3.1(b) and 3.2 of the SCM Agreement .  Brazil submits that the 
Panel correctly held that the  Agreement on Agriculture   and the  SCM Agreement   apply 
cumulatively, unless there is an exception or a conf lict.  Such an exception must be explicitly 
stated.102  According to Brazil, in  EC – Bananas III ,  the Appellate Body found that the  Agreement 
on Agriculture   permits inconsistencies with obligations in other covered ag reements solely if this is 
"explicitly" stated in the text.103   Similarly, an explicit exception would be required for the  
Agreement on Agriculture   to exempt certain measures from the prohibition in Article 3.1(b) of the  
SCM Agreement . 
104. Brazil contends that no such exception is provided in the  Agreement on Agriculture   or in the  
SCM Agreement .  The introductory phrase in Article 3.1 of the  SCM Agreement   ("[e]xcept as 
provided in the Agreement on Agriculture") does not mean that Article 3.1 does not apply to domestic 
support measures conforming to the  Agreement on Agriculture ;  instead, it confirms that Article 3.1 
of the  SCM Agreement   applies unless it conflicts with specific provisions of the  Agreement on 
Agriculture .  This interpretation is confirmed by Article 21.1 of the  Agreement on Agriculture   and by 
the absence of any exception in Article 13 of the  Agreement on Agriculture   regarding Article 3.1(b).  
105. Brazil asserts that, under the  Agreement on Agriculture ,  WTO Members are entitled to grant 
domestic support in favour of agricultural producers.  However, this does not create a conflict with 
Article 3.1(b) of the  SCM Agreement ,  because it is perfectly possible for Members to grant domestic  
                                                      
101Brazil's appellee's submission, para. 570. 
102Ibid., para. 832 (referring to Appellate Body Report,  US – Cotton Yarn ,  para. 120). 
103Ibid., para. 833 (referring to Appellate Body Report,  EC – Bananas III ,  para. 157).  WT/DS267/AB/R 
 Page 41 
 
 
 support without making payments c ontingent on domestic content.  In other words, Members can 
fully enjoy their right to grant domestic support and still comply with Article 3.1(b) of the  SCM 
Agreement .  This interpretation is consistent with a primary objective of the WTO agreements, 
namely, avoiding discrimination under the national treat ment rule.  It is also consistent with an 
adopted GATT panel report regardi ng a domestic support measure to agricultural producers that was 
contingent on the purchase of domestic goods.  Th at panel recognized that the GATT contracting 
parties were entitled to grant support to agricultura l producers but found that this could be done 
without granting domestic content subsidies.104  The panel held that a domestic content subsidy in 
favour of agricultural producers was inconsistent with Article III:4 of the GATT 1947.  Therefore, 
Brazil contends that  domestic support under the  Agreement on Agriculture   can and must be granted 
consistently with Article 3.1(b) of the  SCM Agreement . 
(ii) To exporters 
106. Brazil requests the Appellate Body to uphold the Panel's findings that Step 2 payments to 
exporters of United States upland cotton are con tingent upon export performance and, consequently, 
are inconsistent with Articles 3.3 and 8 of the  Agreement on Agriculture   and are prohibited under 
Articles 3.1(a) and 3.2 of the  SCM Agreement . 
107. Brazil agrees with the Panel that the prin ciples set out by the Appellate Body in  US – FSC 
(Article 21.5 – EC)   apply to Step 2 payments to exporters.105  In one situation under the Step 2 
measure, proof of exportation is required as a conditi on of payment.  This export contingency is not 
dissolved because the payment can also be made  in another situation, on other conditions. 
108. Brazil adds that, contrary to the United States' argument on appeal, this is not a measure that 
establishes a single set of conditions applying to all upland cotton produced in the United States.106  
On its own terms, the measure does not apply to  all United States production of upland cotton.  
Instead, the measure carves out of that overall pr oduction two classes of upland cotton that may, on 
certain conditions, receive subsidies.  In so doing, the measure targets two well-defined classes of  
                                                      
104Brazil's appellee's submission, para. 860 (referring to GATT Panel Report,  Italy – Agricultural 
Machinery ,  para. 16). 
105Ibid., paras. 881-884 (referring to Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 113 
and 119 and Appellate Body Report, Canada – Aircraft , para. 179). 
106Ibid., para. 890 (referring to the United States' appellant's submission, para. 444). WT/DS267/AB/R 
Page 42  
 
 
 recipients and does not address either all United St ates production of upland cotton, or all "uses" of 
United States upland cotton. 
109. Brazil also takes issue with the United States' as sertion that Step 2 payments are contingent 
on use and not exportation.  According to Brazil, Step 2 payments are not contingent on "use" in any meaningful sense.  The measure is indifferent as to whether, how or when the upland cotton is "used."  
The criterion is not "use", but simply "exportation".  Provided that the upland cotton is "shipped" from 
the United States, it would not matter if the upland cotton were never used, for instance, because its 
quality deteriorated during shipping or even because the ship carrying it sank.  A subsidy would still 
be paid because of "exportation" from the United States. 
110. Finally, Brazil distinguishes the facts in the present dispute from those before the panel in  
Canada – Dairy .  In that case, a single regulatory class  applied to all Canadian production of milk 
destined for a particular end-use.
 107  In contrast, in the present cas e, the measure under which Step 2 
payments are made explicitly establishes two mutua lly exclusive regulatory categories that apply to 
some, but not all, United States production of upland cotton. 
111. Brazil requests, therefore, that the Appellate Bo dy reject the United States' appeal and uphold 
the Panel's finding that Step 2 payments to expor ters of United States upland cotton are contingent 
upon export performance and, consequently, are in consistent with Articles 3.3 and 8 of the  
Agreement on Agriculture  and are prohibited under Articles 3.1(a) and 3.2 of the  SCM Agreement .  
(b) Export Credit Guarantees 
(i) Panel's terms of reference 
112. Brazil asks the Appellate Body to uphold the Panel's conclusion that export credit guarantees 
to facilitate the export of United States agricultura l commodities other than upland cotton were within 
the Panel's terms of reference.   
113. Brazil asserts that the measures included in its  request for consultations, as well as in its 
request for establishment of a panel, were the General Sales Manager 102 ("GSM 102") program, the 
General Sales Manager 103 ("GSM 103") program , and the Supplier Credit Guarantee Program 
(the "SCGP").  Under Unites States law, each of these measures applies to a ll eligible agricultural 
products.  Adding a particular pr oduct or products to Brazil's request for establishment would not, 
therefore, have constituted the addition of  measures .  In any event, Brazil argues that its request for 
                                                      
107Brazil's appellee's submission, paras. 894-899 (referring to Panel Report, Canada – Dairy , 
paras. 2.39 and 7.41).  WT/DS267/AB/R 
 Page 43 
 
 
 consultations, in fact, identified the United Stat es' export credit guarantee measures in connection 
with all eligible commodities, without any limitation to upland cotton.   
114. Additionally, Brazil asserts that, irrespective of  the measures identified in Brazil's request for 
consultations, the Panel found, as a matter of fact, that "consultations were held" on the export credit 
guarantee measures in connection with all eligible  commodities, as required by Article 6.2 of the 
DSU.108  Brazil explains that the Appellate Body has he ld that as long as consultations were held on a 
measure included in a request for establishment of a panel, that measure is properly within a panel's 
terms of reference, irrespective of whether the measure was included in the request for 
consultations.109  This is consistent with the purpose of consultations, which is to offer Members the 
opportunity to engage in good faith discussions with a view to resolving a trade dispute.  The process 
necessarily involves collecting information that will  shape the substance and scope of the dispute, 
should consultations fail. 
(ii) Statement of available evidence 
115. Brazil asks the Appellate Body to deny the Un ited States' claim that the Panel erred in 
concluding that Brazil provided a statement of availa ble evidence with respect to the United States' 
export credit guarantee programs as they relate to agricultural commodities other than upland cotton, 
as required by Article 4.2 of the  SCM Agreement .  
116. According to Brazil, its statement of availa ble evidence not only identified the measures at 
issue—the export credit guarantee measures—but also indicated the characteristics of those measures 
that had led Brazil to suspect that they constitute d export subsidies.  Brazil argues that this is 
consistent with the Appellate B ody's interpretation of the requirements of Article 4.2 of the 
SCM Agreement .110  Specifically, Brazil's statement describes the failure of the United States' export 
credit guarantee programs to establish premium rates that cover long-term ope rating costs and losses, 
which are central elements in determining whet her a program constitutes an export subsidy under 
item (j) of the Illustrative List of Expo rt Subsidies included as Annex I to the  SCM Agreement .  
Further, the Panel found that the documentary eviden ce cited by Brazil to suppo rt its preliminary view 
was a link to a United States government website w ith data showing that revenues for the export 
credit guarantee programs do not cover long-term operating costs and losses.111  The evidence 
                                                      
108Brazil's appellee's submission, para. 211 (quoting Panel Report, para. 7.61). 
109Ibid., para. 213 (refering to Appellate Body Report, Brazil – Aircraft , paras. 132-133).  
110Ibid., paras. 228-229 (referring to Appellate Body Report, US – FSC , para. 161). 
111Ibid., para. 226 (referring to Panel Report, paras. 7.92-7.93). WT/DS267/AB/R 
Page 44  
 
 
 addressed the failure of the export credit guarantee programs to cover long-term operating costs and 
losses overall, rather than in connection with upland cotton alone.   
117. Thus, Brazil asserts, its statement of available evidence meets the requirements of Article 4.2, 
by identifying the export credit guarantee programs,  and providing and descr ibing available evidence 
of the character of those measures as export subsidies, across all eligible commodities. 
(iii) Article 10.2 of the Agreement on Agriculture 
118. Brazil requests that the Appellate Body reject th e United States' appeal of the Panel's finding 
that export credit guarantees are subject to the e xport subsidy disciplines in Article 10.1 of the  
Agreement on Agriculture .  
119. Brazil asserts that subsidized export credit guara ntees are covered by the general definition of 
"export subsidies" under Article 1(e) of the  Agreement on Agriculture .  These measures are, 
therefore, subject to Article 10.1 of the  Agreement on Agriculture ,  unless an express exception is 
provided in Article 10.2.  The text of Article 10. 2 establishes two obligations, but does not provide an 
exception.  It requires WTO Members to negotiate  multilateral rules to regulate agricultural export 
credit measures specifically, and to apply those rules once they are agreed.  The text of Article 10.2 
may be contrasted with several other WTO provisions  that also require negotiations, but that state 
explicitly that the existing disciplines do not apply in the meantime.112  The inclusion of such 
exceptions in other provisions highlights the lack of an exception in Article 10.2. 
120. Brazil argues that the Panel's interpretation is  consistent with the context and object and 
purpose of Article 10.2.  Each of the paragra phs in Article 10 pursues the aim of preventing 
circumvention of export subsidy commitments and, thereby, contributes to the purpose of the  
Agreement on Agriculture   of establishing specific binding commitments on export competition.  
Article 10.1 does so by disciplining export subs idies not listed in Article 9.1, as well as non-
commercial transactions.  Article 10.3 does so by reversing the usual rules on the burden of proof 
where Members have exported products in excess of  their quantity reduction commitment levels.  
Article 10.4 does so by providing specific disciplines on food aid that ensure it  is used for legitimate 
purposes and not to circumvent export subsidy co mmitments.  Therefore, Article 10.2 must be 
interpreted in a manner that ensures that it contri butes to the purpose of preventing circumvention of 
commitments on export competition.  The United States' interpretation of Article 10.2 would leave 
                                                      
112Brazil's appellee's submission, paras. 916-917 (referring to footnote 15 to Article 6.1(a) and 
footnote 24 to Article 8.2(a) of the  SCM Agreement , and Article XIII of the  General Agreement on Trade in 
Services ).  WT/DS267/AB/R 
 Page 45 
 
 
 Members free to grant unlimited export subsidies in  the form of export credit guarantees and would 
permit wholesale circumvention of commitments. 
121. Brazil takes issue with the United States' asser tion that the Panel's interpretation is an 
"assault" on international food aid.113  According to Brazil, food aid is subject to the specific 
disciplines in Article 10.4 of the  Agreement on Agriculture ,  as well as the general disciplines in 
Article 10.1.  Article 10.4 pursues the aim of preven ting circumvention by ensuring that, consistently 
with the international regulation of food aid, such transactions do not result in "harmful interference" 
with trade.114  Further, Article 10.4(a) adds to the disciplines by prohibiting food aid that is "tied" to or 
contingent upon "commercial exports " of agricultural products.  This is not an "assault" on food aid;  
rather, it ensures that food aid is used for le gitimate humanitarian purposes and not for illegitimate 
trade-distortion. 
122. Brazil, moreover, disagrees with the conclusions drawn by the United States from the 
negotiating history of the  Agreement on Agriculture .  Brazil explains that the negotiating history 
confirms that export credit guarantees are, indeed , subject to Article 10.1.  Members had known 
since 1960 that subsidized export credit guarantees we re covered by the term "export subsidies".  
During the negotiations, Members repeatedly expre ssed the intention to su bject these measures to 
export subsidy disciplines, and they never once ex pressed the intention to exclude them from such 
disciplines.  In addition, Brazil rejects the Unite d States' contention that the Panel's reading of 
Article 10.2 gives rise to a result that is "manifestly unreasonable".115  At the close of the Uruguay 
Round, Members agreed that they would calculate their respective export subsidy commitment levels 
exclusively on the basis of the expor t subsidies listed in Article 9.1.  They chose to leave out of that 
calculation the export subsidies in Article 10.1.116  This is not an unjust implementation of the 
Uruguay Round, but the logical consequence of th e bargain Members struck.  Brazil emphasizes that 
the Panel's interpretation does not mean that Memb ers cannot grant export credit guarantees.  Instead, 
it means that  subsidized   export credit guarantees are subject to discipline as trade-distorting 
measures, and cannot be used to override export subsidy commitments.  
                                                      
113Brazil's appellee's submission, para. 940 (quoting the United States' appellant's submission, 
para. 350). 
114Ibid., para. 940 (quoting paragraph 3, FAO "Principles of Surplus Disposal and Consultative 
Obligations", and Article IX(d) of the Food Aid Convention).   
115Ibid., para. 926 (quoting the United States' appellant's submission, para. 384). 
116Ibid., para. 927. WT/DS267/AB/R 
Page 46  
 
 
 123. Finally, Brazil asserts that, even if Article 10. 2 were to exempt export credit guarantees for 
agricultural commodities from  the disciplines in the  Agreement on Agriculture ,  these measures 
would still be subject to Article 3 of the  SCM Agreement .117 
(iv) Burden of proof 
124. Brazil submits that, even if correct, none of th e United States' arguments in respect of the 
Panel's application of the burden of  proof would lead to a reversal of the Panel's conclusion that the 
United States' export credit guarantee program s constitute export subsidies under the  Agreement on 
Agriculture   and the  SCM Agreement .  Irrespective of which party bore the burden of proof and the 
role of Article 10.3 of the  Agreement on Agriculture ,  the Panel explicitly found that Brazil had 
established that the premiums charged under the Un ited States' export credit guarantee programs were 
inadequate to cover long-term operating costs a nd losses for purposes of item (j) of the Illustrative 
List of Export Subsidies annexed to the  SCM Agreement .118  Having concluded that Brazil had 
successfully demonstrated that th e United States' export credit guarantee programs constitute export 
subsidies under item (j) as context for the interpreta tion of the term "export subsidies" in Articles 10.1 
and 8 of the  Agreement on Agriculture , the Panel similarly concluded that the export credit guarantee 
programs constitute prohibited export subsidies unde r item (j) of the Illustrative List of Export 
Subsidies and Articles 3.1(a) and 3.2 of the  SCM Agreement .119 
125. Brazil also takes issue with the United States ' assertion that the Panel required the United 
States to offer "incontrovertible demonstrations to the Panel" that, under the net present value 
accounting methodology, data trends indicated profits for the programs.120  Brazil explains that, as the 
party asserting that these trends existed, the United St ates bore the burden of proving their existence.  
In the statement challenged by the United States, the Panel simply found that the United States had 
not met this burden.  The Panel made this findi ng based on data submitted by the United States.  
Given that the United States has not alleged that th e Panel failed to make an objective assessment of 
the facts under Article 11 of the DSU, Brazil argues th at the United States' appeal should be denied on 
these grounds alone.   
                                                      
117At the oral hearing, however, Brazil clarified th at if Article 10.2 were to exempt export credit 
guarantees for agricultural commodities from the disciplines in the  Agreement on Agriculture , Article 3 of the  
SCM Agreement   would not be applicab le to such measures.  
118Brazil's appellee's submission, paras. 1023-1024 (referring to Panel Report, para. 7.867). 
119Ibid., para. 1024 (referring to Panel Report, paras. 7.946-7.948). 
120Ibid., para. 1025 (quoting the United States' appellant's submission, para. 408).  WT/DS267/AB/R 
 Page 47 
 
 
 (v) Necessary findings of fact 
126. Brazil asserts that the United States' claim that  the Panel did not make the necessary findings 
of fact should have been brought under Article 11 of  the DSU and that, having failed to bring such a 
claim, the United States is precluded from challengi ng the Panel's appreciation of the facts.   
127. In any event, Brazil submits that neither ite m (j), nor Articles 3.1(a) and 3.2 of the 
SCM Agreement ,  nor Articles 10.1 and 8 of the  Agreement on Agriculture ,  required the Panel to 
make specific factual findings on the "monetary exte nt to which" premium rates are inadequate to 
cover the long-term operating costs and losses of the United States' export credit guarantee 
programs.121  It was sufficient for the Panel to have f ound that, under any and all methodologies that it 
reviewed and accepted, premium rates are  inadequate   to cover the long-term operating costs and 
losses of the export credit guarantee programs. 
128. In addition, Brazil asserts that the Panel made  sufficient factual findings for its conclusion 
that premium rates are inadequate to cover the long-term operating costs and losses of the export 
credit guarantee programs.  Specifically, the Pa nel assessed the performance of the export credit 
guarantee programs under the elements of item (j) in various ways.  In its assessment of the  past  
performance of the export credit guarantee programs during the period 1992-2002, the Panel used two 
accounting methodologies—net present value accoun ting and cash basis accounting—to determine 
whether premium rates are inadequate to cove r the long-term operating costs and losses of the 
programs.  
129. Brazil therefore requests that the Appellate B ody uphold the Panel's finding that the United 
States' export credit guarantee programs constitute expor t subsidies within the meaning of item (j) of 
the Illustrative List of Export Subsidies and Articles 3.1 and 3.2 of the  SCM Agreement . 
C. Claims of Error by Brazil – Appellant  
1. Domestic Support  
(a) Article 13(a) of the Agreement on Agriculture  – Base Period Update  
130. Brazil conditionally appeals the Panel's exercise of judicial economy with respect to Brazil's 
claim that the "updating" of base acreage for direct payments under the FSRI Act of 2002 renders that 
program inconsistent with paragr aph 6(a) of Annex 2 of the  Agreement on Agriculture .  Brazil's 
appeal is conditional on the Appellate Body revers ing the Panel's finding that production flexibility 
                                                      
121Brazil's appellee's submission, para. 1046 (quoting the United States' appellant's submission, 
para. 419). WT/DS267/AB/R 
Page 48  
 
 
 contract payments and direct payments are not decoupled income support under paragraph 6(b) of 
Annex 2 and thus not entitled to peace clause protection by virtue of Article 13(a) of the  Agreement 
on Agriculture .  
131. Brazil argues that the Panel made factual findi ngs to the effect that the FSRI Act of 2002 
created a new "base period" of time (marketing years 1998-2001) according to which upland cotton producers' eligibility for direct payments could be calculated.  This new base period could replace the 
base period that had prevailed under the FAIR Act of  1996 (i.e., 1993-1995) for the calculation of 
production flexibility contract payments.  In prac tical terms, the FSRI Act of 2002 gave producers 
who planted more upland cotton during 1998-2001 th e chance to "update", that is, increase, the 
quantity of base acres for which they received direct payments.   
132. Brazil recalls that paragraph 6(a) of Annex 2 st ates that "[e]ligibility for such payments shall 
be determined by clearly -defined criteria   such as income, status as a producer or landowner,  factor 
use or production level in a defined and fixed base period ".
122  "Factor use" encompasses quantities of 
eligible farmland used in a historical period, such  as the "base acres" used in the production flexibility 
contract and direct payment programs.  Simila rly, "production level" encompasses quantities of 
production based on historical acreage and yields, such as those used under the production flexibility 
contract and direct payment programs to calculate payments.  If either the historical acreage or yields are updated, the result is a change in one of the "cl early-defined criteria".  Yet paragraph 6(a) requires 
that both the "factor use" and "production level" cr iteria be set out in "a" single "fixed" base period. 
133. Brazil notes that the ordinary meaning of the term  "fixed" in relation to a base period is that 
the defined base period cannot be ch anged or updated.  Accordingly, there can be only one period of 
time to establish these values;  there can be no "updati ng" of the base period.  Brazil contends that the 
context supports its interpretation.  Moreover, the ob ject and purpose of paragraph 6 of Annex 2 is to 
ensure that decoupled payments "have no, or at mo st minimal, trade-distorting effects or effects on 
production".
123  Paragraphs 5 and 6 of Annex 2 make cl ear that the purpose of "decoupled income 
support" is to break the link between production deci sions and the amount of support.  If that link is 
maintained, then domestic support is not entitled to the exemption from reduction commitments.  
Brazil submits that the United States' interpretation would effectively allow a Member to re-link last 
year's production to this year's payment.  This would void paragraph 6(a) of any  effet utile .  
                                                      
122Brazil's other appellant's submission, para. 246. (emphasis added by Brazil) 
123Ibid., para. 251 (quoting para. 1 of Annex 2 of the  Agreement on Agriculture ).  WT/DS267/AB/R 
 Page 49 
 
 
 134. Brazil submits that the undisputed facts on th e record reveal that production flexibility 
contract payments and direct payments were made  to the same persons, on the same land, based on 
the same yield and payment formula, under the same conditions, and with the sa me limitations.  Given 
these similarities, the option for a producer to select a new "fixed base period" other than the original 
"fixed base period" means that the direct paymen ts are not green box measures under paragraph 6(a) 
of Annex 2.  Brazil requests the Appella te Body to find accordingly.    
2. Serious Prejudice  
(a) World Market Share under Article 6.3(d) of the  SCM Agreement  
135. Brazil appeals the Panel's finding that Brazil failed to establish a  prima facie   case of 
inconsistency with Articles 5(c) and 6.3(d) of the  SCM Agreement .  Brazil asks the Appellate Body to 
reverse the Panel's finding that the words "world mark et share" in Article 6.3(d) mean "the portion of 
the world's supply that is satisfied by the subsidizing Member's producers"124 and to find instead that 
"world market share" means "world market share of  exports ".125  In addition, if the Appellate Body 
reverses the Panel's finding that the effect of th e price-contingent subsidies is significant price 
suppression within the meaning of Article 6.3(c) of the  SCM Agreement ,  Brazil calls on the 
Appellate Body to complete the analysis under Arti cle 6.3(d) and to find that the effect of these 
subsidies is an increase in the Un ited States' world market share of exports within the meaning of 
Article 6.3(d), thereby constituting serious prejudice to  the interests of Brazil within the meaning of 
Article 5(c) of the  SCM Agreement . 
136. As regards the interpretation of the term "world  market share" in Article 6.3(d) of the  SCM 
Agreement ,  Brazil first draws support from the text of that provision.  Article 6.3(d) does not specify 
whether "world market share" refers to world ma rket share of production or world market share of 
something else.  However, the use of the word "trade"  in footnote 17 to Article 6.3(d) suggests that 
Article 6.3(d) is directed towards a Member's shar e of world trade in a product, which requires a focus 
on  exports   rather than  production .  
137. Secondly, Brazil refers to the context of Article  6.3(d).  Brazil argues that Article XVI:3 of 
the GATT 1994 addresses a Member's "share of world export trade" and that similarities between 
Article XVI:3 and Article 6.3(d) require the phrase "w orld market share" in the latter provision to be 
read in the same way.  Brazil also points to th e context provided by paragraphs (a) and (b) of 
Article 6.3, as well as Articles 6.4 and 6.7, and argues that the focus of a serious prejudice analysis 
                                                      
124Brazil's other appellant's submission, para. 269 (quoting Panel Report, para. 7.1434). 
125Ibid., para. 380(9). (original emphasis) WT/DS267/AB/R 
Page 50  
 
 
 under Article 6.3 is on the effects of the subsid ies on like products from the complaining Member.  
According to Brazil, "[t]hese effects are either mani fest in aggregated volume effects on the exports of 
a complaining Member under Articles 6.3(a), 6.3(b) and 6.3(d), or in price effects on the like product 
of the complaining Member in the 'same market' under Article 6.3(c)".126   
138. Thirdly, Brazil relies on the object and purpose of Articles 5(c) and 6.3 of the  SCM 
Agreement ,  which it characterizes as being to disciplin e subsidies causing serious prejudice to the 
interests of another Member.  As stated in Article XVI:1 of the GATT 1994 (to which footnote 13 to 
Article 5(c) of the  SCM Agreement   refers), serious prejudice is reflected in trade effects, namely 
decreased imports or increased exports.  Increased  production is taken into account in a serious 
prejudice analysis, because it may have trade effects.   However, by focusing solely on the United 
States' share of world upland cotton production, the Panel disregarded the significant increase in the 
United States' share of world upland cotton exports from 1999 to 2002, which caused serious 
prejudice to other Members' producers who were co mpeting against the subsidized exports.  The 
Panel's interpretation means that the subsidizing Me mber's world market share may be significantly 
affected by unrelated increases in production in thir d countries, even if this additional production is 
consumed domestically.  Brazil suggests that this  would render Article 6.3(d) "largely inutile"127 in 
disciplining the use of subsid ies to increase market share. 
139. For these reasons, Brazil asks the Appellate Body  to reverse the Panel's interpretation of 
"world market share" under Article 6.3(d) of the  SCM Agreement   and to find instead that "world 
market share" means world market share of  exports .  Should it do so, and if the Appellate Body 
reverses the Panel's finding of significant pr ice suppression under Article 6.3(c) of the  SCM 
Agreement ,  Brazil asks the Appellate Body to comple te the analysis under Article 6.3(d).   
140. According to Brazil, factual findings by the Pa nel and undisputed facts on the record would 
allow the Appellate Body to complete the analysis under Article 6.3(d).  The Panel's findings show 
that the United States' world market share of exports in marketing year 2002 was 39.9 percent, 
representing an increase over the previous  three-year average of 28.4 percent.128  Moreover, the 
Panel's assessment of the effects of the subsidies in its analysis under Article 6.3(c) confirms that the 
subsidies in question result in an increase in worl d market share, stimulate exports, and enhance the 
competitiveness of United States producers in world trad e.  Brazil submits that the Panel's causation 
and non-attribution analyses under Article 6.3(c) ar e also relevant for the causation analysis under 
                                                      
126Brazil's other appellant's submission, para. 287. 
127Ibid., para. 295. 
128Ibid., para. 301.  WT/DS267/AB/R 
 Page 51 
 
 
 Article 6.3(d).  It is appropriate for the Appellate Body to complete the anal ysis in this way because 
the Panel did address all the elements of Brazil's claim under Article 6.3(d) and, even if it had not, 
Articles 6.3(c) and 6.3(d) claims are "closel y related" and "part of a logical continuum".129  According 
to Brazil, both claims relate to the adverse effects of and serious prejudice caused by actionable subsidies pursuant to Article 5(c) of the  SCM Agreement ,  and Articles 6.3(c) and 6.3(d) are "closely-
linked steps in determining the consistency of"
130 actionable subsidies under the  SCM Agreement . 
3. Import Substitution Subsidies and Export Subsidies  
(a) Share of World Export Trade under Article XVI:3 of the GATT 1994 
141. Brazil appeals the Panel's finding that the second sentence of Article XVI:3 of the 
GATT 1994 applies only to export subsidies as defined in the  Agreement on Agriculture   and the  
SCM Agreement .  Brazil asks the Appellate Body to reve rse the Panel's finding that this sentence 
applies only to export subsidies and to find instead that it applies to " any form of subsidy   which 
operates to increase the export of any primary product".131  In addition, if the Appellate Body reverses 
the Panel's finding that the effect of the price-c ontingent subsidies is significant price suppression 
within the meaning of Article 6.3(c) of the  SCM Agreement ,  and if the Appellate Body does not find 
that the effect of these subsidies is an increase in  the United States' world market share of exports 
within the meaning of Article 6.3(d) constituting ser ious prejudice within the meaning of Article 5(c) 
of the  SCM Agreement ,  Brazil calls on the Appellate Body to complete the analysis and to find that 
these subsidies are applied in a manner that r esults in the United States having "more than an 
equitable share of world export trade in" uplan d cotton, contrary to the second sentence of 
Article XVI:3 of the GATT 1994. 
142. In relation to the subsidies subject to the second sentence of Article XVI:3 of the GATT 1994, 
Brazil first refers to the text of this sentence and, in particular, the words "any form of subsidy".  The 
ordinary meaning of these words suggests that Article  XVI:3 applies to every subsidy, no matter what 
kind or how many.  In addition, the second senten ce specifies that it does not matter whether the 
subsidy is granted "directly or indi rectly".  Brazil points out that, in contrast to the first sentence of 
Article XVI:3, which is concerned with subsidies  on the export   of primary products, the second 
sentence is concerned with any subsidies that have export-enhancing effects.   
                                                      
129Brazil's other appellant's submission, paras. 313 and 314 (quoting Appellate Body Report, Canada – 
Periodicals , p. 24, DSR 1997:1, 449 at 469;  Appellate Body Report, EC – Asbestos , para. 79). 
130Ibid., para. 314 (quoting Appellate Body Report, Canada – Periodicals , p. 24, DSR 1997:1, 449 
at 469). 
131Ibid., para. 317 (quoting the GATT 1994, Article XVI:3). (emphasis added by Brazil) WT/DS267/AB/R 
Page 52  
 
 
 143. Secondly, turning to the broader context of Ar ticle XVI:3, Brazil contends that Part A of 
Article XVI disciplines subsidies in general, and Pa rt B of Article XVI disciplines "Export Subsidies" 
(as specified in the heading to Part B) in particul ar.  The wording of the provisions in Part B shows 
that "export subsidies" in this context means "subs idies on the export" of a primary product (under the 
first sentence of Article XVI:3) and subsidies th at operate "to increase the export of any primary 
product" (under the second sentence of Article XVI: 3).  Brazil argues that, in contrast, the export 
subsidy disciplines in the  SCM Agreement   and the  Agreement on Agriculture   are concerned with 
the narrower concept of "subsidies contingent upon export performance".132   
144. Brazil also refers, for contextual support, to Article 13 of the  Agreement on Agriculture .  
Article 13(c)(ii) provides a limited exemption for agricultural export subsid ies from Article XVI of 
the GATT 1994, suggesting that Article XVI:3 could ot herwise apply to such subsidies.  Similarly, 
Brazil contends that the conditional exemption in Ar ticle 13(a)(ii) suggests that, in principle, green 
box domestic support is subject to challenge under the second sentence of Article XVI:3.   
145. Thirdly, with respect to the object and purpose of Article XVI of the GATT 1994 and 
Articles 5 and 6 of the  SCM Agreement ,  Brazil suggests that these provisions are intended to prevent 
subsidies granted by Members from having certain adverse outcomes or effects.  The purpose of 
disciplining adverse effects of subsidies in th e second sentence of Article XVI:3 of the GATT 1994 
would be frustrated if this sentence was interprete d to apply only to subsidies contingent on export 
performance.  This interpretation would depriv e the second sentence of Article XVI:3 of  effet utile ,  
because the disciplines in that sen tence would no longer apply to many subsidies having export-
enhancing effects. 
146. Brazil adds that Article XVI:3 of the GATT 1994 continues to apply despite the disciplines in 
the  SCM Agreement   and the  Agreement on Agriculture .133  In interpreting the covered agreements 
harmoniously and giving effect to all of them, th e second sentence of Article XVI:3 must apply to 
measures that are also subject to the  SCM Agreement   and the  Agreement on Agriculture .  The rules 
in Article 21.1 of the  Agreement on Agriculture   and the General Interpretativ e Note to Annex 1A of 
the  WTO Agreement   do not apply, because no conflict exists between the second sentence of 
Article XVI:3 of the GATT 1994 and the disciplines in the  Agreement on Agriculture   and the  SCM 
Agreement .   
                                                      
132Brazil's other appellant's submission, para. 333 (quoting Article 1(e) of the  Agreement on 
Agriculture   and referring to Article 3.1(a) of the  SCM Agreement ).  
133Ibid., para. 345 (referring to Appellate Body Report, Korea – Dairy , para. 75;  and Appellate Body 
Report, Argentina – Footwear (EC) , para. 81).  WT/DS267/AB/R 
 Page 53 
 
 
 147. For these reasons, Brazil asks the Appellate Body to reverse the Panel's finding that the 
second sentence of Article XVI:3 of the GATT 1994 appli es only to export subsidies as defined in the  
Agreement on Agriculture   and the  SCM Agreement   and to find instead that this sentence applies to 
any form of subsidy  that operates to increase the export of any primary product.  Should it do so, and 
if the Appellate Body reverses the Panel's finding of significant price suppression under Article 6.3(c) 
of the  SCM Agreement   and does not find serious prejudice pursuant to Articles 5(c) and 6.3(d) of the  
SCM Agreement ,  Brazil asks the Appellate Body to comple te the analysis under Article XVI:3 of the 
GATT 1994. 
148. Brazil contends that the Panel's factual findings  and the undisputed facts on the panel record 
are sufficient for the Appellate Body to find that the price-contingent subsidies caused the United 
States to have "more than an equitable share of wo rld export trade", contrary to Article XVI:3 of the 
GATT 1994.  The Panel made f actual findings, pursuant to Article 6.3(c) of the  SCM Agreement ,  
regarding the United States' share of world export trad e and the effect of the subsidies on that share.  
Brazil also submits that the Panel's non-attribut ion analysis would allow the Appellate Body to 
conclude that it was the subsidies in question th at led to the United States' world market share 
reaching a level that is more than equitable, at th e expense of other, more efficient producers.   
(b) Export Credit Guarantees 
(i) Threat of circumvention 
149. Brazil asserts that the Panel erred in the interp retation and application of Article 10.1 of the  
Agreement on Agriculture   by finding that "threat" of circumvention of export subsidy commitments 
would arise only if beneficiaries had an "absolute"  or "unconditional statutory legal entitlement" to 
receive the subsidies such that the United Stat es would "necessarily" be required to grant subsidies 
after the commitment level had been reached.134  Brazil also takes issue with the Panel's statement that  
a "threat" could not arise if circumvention was just a  possibility .135   
150. According to Brazil, by its very nature, an oblig ation that covers the "threat" of circumvention 
deals with a future event whose actual occurrence is merely a possibility that cannot be assured with 
certainty.136  Brazil adds that, even though the ordinary  meaning of the term "threat" can encompass 
events that are a possibility or that appear likely,  it can also include ev ents whose occurrence is 
indicated or portended by circumstances.  Furtherm ore, the meaning of the term "threatens" is 
                                                      
134Brazil's other appellant's submission, paras. 85-89 (quoting Panel Report, paras. 7.883 and 7.892). 
135Ibid., paras. 89 and 114 (referring to Panel Report, para. 7.893). 
136Ibid., para. 94 (referring to Appellate Body Report, US – Lamb , para. 125). WT/DS267/AB/R 
Page 54  
 
 
 clarified by its immediate context, particularly the word "[p]revention" in the title of Article 10.  
Brazil thus contends that, to give proper meani ng to the aim of prevention, the threat obligation 
should be read so as to thwart, forestall, or stop circumvention from occurring by requiring a Member 
to take appropriate precautionary action.  If, on the contrary, the degree of likelihood necessary to 
trigger the threat obligation were set too high , the threat obligation would fail to prevent 
circumvention, contrary to the express aim of the provision. 
151. Brazil distinguishes the meaning of "threatens" in the context of Article 10.1 of the  
Agreement on Agriculture   from the connotation of that term in other covered agreemen ts.  It explains 
that the  Agreement on Safeguards   and the  Agreement on Implementation of Article VI of the 
General Agreement on Tariffs and Trade 1994   (the " Anti-Dumping Agreement ") require a higher 
degree of likelihood because, under both Agreements, the demonstration of "threat" triggers the right 
of a WTO Member to apply trade remedy measures involving suspension or modification of WTO 
commitments.  In contrast, Article 10.1 of the Agreement on Agriculture  aims at the effective 
enforcement of a Member's export subsidy obligati ons.  Brazil submits that the Panel's reading of 
Article 10.1 runs counter to the Appellate Body's decision in  US – FSC ,  where the Appellate Body 
held that Article 10.1 applies if a measure "allows for" circumvention137, whereas the Panel insisted 
that circumvention must be required by legal en titlement.  Brazil submits th at the assessment of 
whether a threat exists under Article 10.1 must be done on a case-by-case basis and suggests a list of factors that could be considered as part of the assessment.
138 
152. Brazil also contends that the Panel erred by  confining its examination of threat of 
circumvention to scheduled agricultural products ot her than rice and to unscheduled products "not 
supported"139 under the United States' export credit guarantee programs.140  Brazil explains that, in 
addition to alleging actual circumvention in respect of  rice, it also included this product in its claim of 
threat of circumvention.  Brazil observes, furtherm ore, that it drew no distinctions between supported 
and unsupported products.  Thus, the Panel's analysis of threat of circumvention should have included 
rice and all unscheduled products eligible to receive support under the export credit guarantee 
programs, regardless of whether they were in fact supported by such programs in the past. 
                                                      
137Brazil's other appellant's submission, paras. 126-129 (quoting Appellate Body Report, US – FSC , 
para. 152). 
138Ibid., para. 105. 
139When the Panel refers to products supported under the export credit guarantee programs, the Panel is 
referring to products for which there was evidence in the record showing that they were not only eligible under 
the programs, but that  export credit guarantees were in fact r eceived in connection with exports of those 
products. (Panel Report, para. 6.32) 
140Brazil's other appellant's submission, para. 132 (quoting Panel Report, para. 7.882).  WT/DS267/AB/R 
 Page 55 
 
 
 153. Brazil argues that the Panel should have made  a finding of threat of circumvention 
notwithstanding its conclusion on actual circumventi on in respect of rice and unscheduled products 
supported under the United States' export credit gua rantee programs.  The prohibitions on actual and 
threatened circumvention are two separat e obligations under Article 10.1 of the Agreement on 
Agriculture .  The concepts of actual and threatened circ umvention in Article 10.1 are different from 
the notions of injury and threat of injury in the trade remedies context.  Article 10.1 does not confer 
rights, but imposes obligations.  Accordingly, to hol d that a Member has actually circumvented its 
export subsidy commitments in the past does not ma ke it irrelevant to conclude that the Member 
continues to threaten circ umvention in the future. 
154. If the Appellate Body agrees with Brazil a nd modifies the Panel's interpretation of 
Article 10.1, Brazil requests that the Appellate B ody complete the analysis of its claims.  Brazil 
argues that the United States maintains export cred it guarantees for a very wide range of scheduled 
and unscheduled agricultural products.  These measur es are subject to special budgetary rules that 
provide permanent and unlimited budget authority to the CCC to grant export credit guarantees.  
Therefore, Brazil asserts, no budgetary limits are im posed on the value of the subsidies that can be 
granted.   
155. Brazil states that, even though the United States a lleged before the Panel that the export credit 
guarantee programs are not unlimited because they impose certain conditions on the grant of subsidies, these conditions have no rational relationship whatsoever to ensuring respect for the United 
States' export subsidy commitments.  There is no evidence on the record, according to Brazil, to 
demonstrate that any of the applicable conditions has ever been applied with a view to ensuring 
respect for the United States' export subsidy commi tments.  Moreover, none of these conditions has 
prevented the United States from consistently granting export credit guarantees for both scheduled 
and unscheduled products in violation of these comm itments.  Brazil contends that the authority that 
the United States enjoys to grant export credit guarantees in violation of its export subsidy 
commitments, coupled with the consistent pattern  of granting behaviour in violation of those 
commitments, establishes that the United States' e xport credit guarantees are applied in a manner that 
threatens to lead to circumvention of the United States' export subsidy commitments for all eligible 
products, under Article 10.1 of the  Agreement on Agriculture .  WT/DS267/AB/R 
Page 56  
 
 
 (ii) Actual circumvention 
156. Brazil claims that the Panel erred in the application of Article 10.1 of the  Agreement on 
Agriculture ,  and did not discharge its duties under Article 11 of the DSU, by finding that the United 
States' export credit guarantees are applied in a manne r that results in circumvention of the United 
States' export subsidy commitments for only one scheduled product, namely rice.   
157. Brazil submits that, according to uncontested ev idence on the record, supplied by the United 
States, actual circumvention also occurred for pig meat and poultry meat in 2001.141  According to 
figures supplied by the United States, in fiscal year  2001, the volume of pig meat and poultry meat 
benefiting from export credit guarantees exceeded the United States' reduction commitment levels for 
these products.  The Panel took explicit cognizance of th is information, but nonetheless failed to apply 
a proper interpretation of Article 10.1 to the admitte d facts.  Likewise, the Panel failed to make an 
objective assessment of the matter, including of ad mitted and uncontested facts supplied by the United 
States, as required by Article 11 of the DSU.  
158. Therefore, Brazil requests that the Appellate B ody modify the Panel's finding that the United 
States' export credit guarantees are applied in a ma nner that results in actual circumvention with 
respect to only one scheduled product, namely, rice, and that it find, based on the undisputed facts on 
the record, that export credit guarantees are applied in a manner that also results in actual 
circumvention with respect to pig meat and poultry meat. 
(iii) Articles 1.1 and 3.1(a) of the SCM Agreement 
159. Brazil appeals the Panel's finding that, having found that the United States' export credit 
guarantee programs are export subsidies under item (j) of the Illustrative List of Export Subsidies 
annexed to the  SCM Agreement , it was unnecessary to address Brazil's claim that these programs 
constitute export subsidies under the terms of Articles 1.1 and 3.1(a) of the  SCM Agreement .  In 
declining to make a finding under these two Articl es, the Panel erred in the interpretation and 
application of Article 3.1(a) of the SCM  Agreement ,  as well as of Article 3.7 of the DSU.  
160. According to Brazil, the Panel failed to rec ognize that Article 3.1(a) includes multiple and 
distinct obligations that differ from those deriving from item (j) of the Illustrative List of Export Subsidies.  Most importantly, while a measure may no longer constitute an  export subsidy under 
                                                     
 
141In its other appellant's submission, Brazil also clai med that the Panel erred by failing to find actual 
circumvention of the United States' export subsidy reduction commitments for vegetable oil in 2002. (Brazil's 
other appellant's submission, paras. 208-209)  At the oral hearing, however, Brazil indicated that it was no 
longer pursuing this claim in respect of vegetable oil.   WT/DS267/AB/R 
 Page 57 
 
 
 item (j), the same measure can s till constitute an export s ubsidy under Articles 1. 1 and 3.1(a) of the 
SCM Agreement .  In the present dispute, a claim under item (j) of the Illustrative List of Export 
Subsides requires a determination whether the progra ms involved a "net cost" to the United States 
government.  In contrast, a claim under Articles 3.1(a)  and 1.1 necessitates a determination of whether 
the programs constitute "financial contributions" th at confer a "benefit" (within the meaning of 
Article 1.1 of the SCM Agreement ) on recipients of export credit guarantees142 and are "contingent … 
upon export performance" (within the mean ing of Article 3.1(a) of the  SCM Agreement ).  These are 
two separate claims regarding two separate obliga tions imposed upon the United States.  The first 
obligation of the United States is to refrain from maintaining export credit guarantee programs that 
entail financial contributions, confer benefits, a nd are contingent upon export performance, while its 
second obligation is to refrain from maintaining expo rt credit guarantee programs that incur a net cost 
to the United States government.  
161. Brazil submits that, by failing to examine these distinct claims, the Panel misapplied the 
principle of judicial economy143 and failed to provide for a "prompt settlement" and "positive 
solution" of the dispute as required by Articles 3.3 and 3.7 of the DSU.  The Panel's misapplication of 
the principle of judicial economy means that the recommendations and rulings of the DSB may not be 
sufficiently precise to resolve the di spute.  The Panel left unresolved  the dispute between the parties 
as to whether the export credit guarantee programs i nvolve a "benefit", and the steps that the United 
States must take to implement its obligations under the  SCM Agreement   will therefore be unclear. 
162. If the Appellate Body were to reverse the Pane l's finding, Brazil requests that the Appellate 
Body complete the analysis and find that the United States' export credit guarantee programs 
constitute export subsidies under Ar ticles 1.1 and 3.1(a) of the SCM Agreement .  Brazil submits that it 
is undisputed that export credit guarantees constitute "financial contributions" and that the programs 
are "contingent … upon export performance".  Regard ing the third element, i.e. whether the export 
credit guarantee programs confer a benefit within  the meaning of Article 1.1(b) of the  SCM 
Agreement ,  Brazil notes that the Appellate Body has sufficient factual findings and undisputed facts 
on the record to complete the analysis.  Brazil expl ains that the record demonstrates that the United 
States' export credit guarantee programs confer a benef it because they:  (i) are not risk-based;  (ii) are 
below relevant benchmarks, including the fees charged by the United States Export-Import Bank for 
its own guarantees; and (iii) enable non-creditworth y purchasers of United States agricultural exports 
to secure loans they would otherwise be unable to secure.  
                                                      
142Brazil's other appellant's submission, paras. 29-30 (referring to Appellate Body Report, Canada – 
Aircraft , paras. 154, 157). 
143Ibid., paras. 33-34 (referring to Appellate Body Report, Australia – Salmon , paras. 222-224). WT/DS267/AB/R 
Page 58  
 
 
 (iv) ETI Act of 2000 
163. Brazil appeals the finding of the Panel that Brazil did not establish a  prima facie   case of 
inconsistency of the FSC Repeal and Extraterrito rial Income Exclusion Act of 2000 (the "ETI Act 
of 2000"), and export subsidies granted thereunder in respect of upland cotton, with Articles 8 
and 10.1 of the  Agreement on Agriculture .  Brazil acknowledges that the United States enacted 
legislation, on 25 October 2004, that "seems to re peal most of the illegal aspects of the ETI Act 
of 2000"144 and, consequently, Brazil does not ask the Appe llate Body to complete the analysis and to 
find that ETI Act export subsidies provided with resp ect to upland cotton exports are inconsistent with 
Articles 8 and 10.1 of the  Agreement on Agriculture  and Articles 3.1(a) and 3.2 of the  SCM 
Agreement . 
164. Brazil contends that it challenged before the Panel exactly the same measure that the panel 
and the Appellate Body in  US – FSC (Article 21.5 – EC)   held to be inconsistent with the  Agreement 
on Agriculture   and the  SCM Agreement .  Except for the fact that Brazil challenges only the ETI Act 
export subsidies to upland cotton (and not with r espect to all products), the "measure" and the 
"claims" in the present case are identical to those in  US – FSC (Article 21.5 – EC) .  According to 
Brazil, the United States has never challenged this identity.  
165. Brazil alleges that the United States "effectivel y admitted" the inconsistency of the ETI Act 
of 2000 with Articles 10.1 and 8 of the Agreement on Agriculture  and Articles 3.1(a) and 3.2 of the 
SCM Agreement  and never contested Brazil's claims on their merits.145  Brazil explains that it 
presented to the Panel all the evidence and argumen tation that had been before the panel and the 
Appellate Body in the earlier dispute relating to the ETI Act of 2000.  Brazil incorporated by 
reference into its submissions (i) the panel report in  US – FSC (Article 21.5 – EC) ,  (ii) the Appellate 
Body Report in  US – FSC (Article 21.5 – EC) ,  and (iii) all submissions of the European 
Communities in that case.  Brazil contends that an approach whereby the complaining Member 
incorporates by reference the reasoning of another panel, as modified by the Appellate Body, is 
consistent with the Appella te Body's reasoning in  Mexico – Corn Syrup  (Article 21.5 – US).146 
                                                      
144Brazil's other appellant's submission, para. 214. 
145Ibid., para. 222. 
146Ibid., para. 224 (referring to Appellate Body Report,  Mexico – Corn Syrup (Article 21.5 – US) ,  
para. 109).  WT/DS267/AB/R 
 Page 59 
 
 
 166. Brazil asserts that, in addition to referenc ing the European Communities' claims and 
arguments in  US – FSC (Article 21.5 – EC) ,  it presented arguments and evidence that addressed the 
specific nature of its claims, in particular with respect to Article 13(c)(ii) of the  Agreement on 
Agriculture .  Brazil submits that it identified the relevant portions of the  US – FSC (Article 21.5 – 
EC)  panel report that determined that the ETI Act of  2000 provides export subsidies.  Specifically, 
that panel found that the ETI Act of 2000 (i) provid es financial contributions within the meaning of 
Article 1.1(a)(ii) of the  SCM Agreement ,  (ii) confers benefits within the meaning of Article 1.1(b), 
and thus (iii) bestows subsidies within the meaning of the  SCM Agreement   that (iv) are contingent 
upon export performance within the meaning of Article 3.1(a) of the  SCM Agreement .  Based on 
these arguments and findings, the Panel had more th an sufficient evidence and arguments before it to 
conduct an objective examination of the c onsistency of the measure with the  Agreement on 
Agriculture  and the  SCM Agreement .  According to Brazil, the di stinctions drawn by the Panel 
between the present dispute and the claims in  US – FSC (Article 21.5 – EC)   have no basis. 
167. Brazil adds that, under Article 17.14 of the DS U, the parties to a dispute are unconditionally 
bound by adopted panel and Appellate Body reports.147  Therefore, the United States is bound by the 
decision of the DSB to adopt the panel and Appellate Body Reports in  US – FSC (Article 21.5 – EC)   
and the recommendation by the DSB that the United States bring the ETI Act of 2000 into conformity with the  Agreement on Agriculture   and the  SCM Agreement .  Despite the legal impossibility of the 
United States arguing that an identical measure subj ect to identical claims is WTO-consistent, the 
Panel nevertheless refused to take this into account in its assessment of the facts of the case and the 
matter before it. 
168. Brazil states, moreover, that the ETI  Act of 2000 is a measure that  all  WTO Members,  
including the respondent ,  have decided, through the adoption by the DSB of the relevant panel and 
Appellate Body reports, is incons istent with the obligations of the United States under a covered 
agreement.  The general rules on the burden of proof under the DSU, in essence,  presume   that a 
Member is in compliance with its obligations unde r WTO law and require a complaining Member to 
make a  prima facie   case that this presumption is misplaced.  However, where the Members have 
decided in the DSB that a measure does not confor m to a covered agreement, there is no basis for 
presuming that the same measure is in compliance with WTO law in another dispute.  Any such 
presumption contradicts a formal DSB decision of the Members of the WTO.  
                                                     
 
147Brazil's other appellant's submission, para. 234 (referring to Appellate Body Report, US – Shrimp 
(Article 21.5 – Malaysia) ,  para. 97 and Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , 
paras. 90-96).   WT/DS267/AB/R 
Page 60  
 
 
 169. Accordingly, Brazil requests the Appellate Bo dy to find that the Panel erred in the 
interpretation and application of the burden of proof when finding that Brazil had not established  
prima facie   that the ETI Act of 2000 violates Articles 8 and 10.1 of the  Agreement on Agriculture   
and Article 3.1(a) and 3.2 of the  SCM Agreement . 
D. Arguments of the United States – Appellee  
1. Domestic Support  
(a) Article 13(a) of the  Agreement on Agriculture  – Base Period Update 
170. The United States submits that the  Appellate Body should reject  Brazil's conditional appeal 
that direct payments under the FSRI Act of 2002 are not in conformity with the green box criteria set 
forth in paragraph 6(a) of Annex 2 to the  Agreement on Agriculture ,  because the program uses a 
"defined and fixed base period" different from that established for the produc tion flexibility contract 
program under the FAIR Act of 1996.  The United St ates argues that the direct payment program 
employs "a defined and fixed base period" within th e meaning of paragraph 6( a) and Brazil's appeal 
relies on an erroneous reading of that paragraph, such that once one type of green box payment to 
producers is made,  all  subsequent measures providing such support must be made with respect to the 
same base period.   
171. The United States argues that the ordinary mean ing of the terms "defined and fixed base 
period", as used in paragraph 6(a), requires a base pe riod to be "set out precisely" and to be kept 
"stationary or unchanging in relative position."148  Direct payments under the FSRI Act of 2002 
satisfy this requirement because eligibility is determ ined by historical production of any of a number 
of crops (including upland cotton) in a base period th at is "definite" (set out in the FSRI Act of 2002) 
and "stationary or unchanging in a relative position" (that is, does not change for the duration of the 
FSRI Act of 2002).  There is no textual requirement in paragraph 6(a) that new decoupled income 
support measures must utilize the  same   "defined and fixed base period" as any prior measures.  
Furthermore, the use of "a" defined and fixed base period contrasts with the use of the phrase " the  
base period" in other provisions  of Annexes 2 and 3 of the  Agreement on Agriculture .  The United 
States emphasizes that the direct payment and prod uction flexibility contract programs are different 
measures.  There is thus no legal requirement that  they use the same base peri od, so long as they each 
make use of a "defined and fixed" base period. 
                                                      
148United States' appellee's submission, para. 128 (quoting  The New Shorter Oxford English 
Dictionary , L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, pp. 618 and 962).  WT/DS267/AB/R 
 Page 61 
 
 
 172. The United States argues that Brazil's interpre tation would foreclose reform options to 
Members with past green-box support programs, contrary to the object and purpose of the  WTO 
Agreement .  In addition, Brazil's interpretation of para graph 6(a) would render direct payments under 
the FSRI Act of 2002 non-green box, even though the Panel implicitly found that such payments had no more than minimal trade-distorting effects or effects on production.   
2. Serious Prejudice
 
(a) World Market Share under Article 6.3(d) of the  SCM Agreement  
173. The United States maintains that the Panel corr ectly found that Brazil did not establish a  
prima facie   case of inconsistency with Articles 5(c) and 6.3(d) of the  SCM Agreement .  The United 
States requests the Appellate Body to uphold this fi nding.  In particular, the United States requests the 
Appellate Body to dismiss Brazil's argument that th e words "world market share" in Article 6.3(d) 
refer to "world market share of  exports ".149  Even if the Appellate Body accepts this argument by 
Brazil, the United States requests the Appellate Body to dismiss the conditional request of Brazil that 
the Appellate Body complete the analysis and find that  the effect of the price-contingent subsidies is 
an increase in the United States' wo rld market share within the meaning of Article 6.3(d), thereby 
constituting serious prejudice to the interests of Br azil within the meaning of Article 5(c) of the 
SCM Agreement .  
174. According to the United States, Brazil's reading of "world market share" as meaning "world 
market share of export trade" is erroneous.  First,  the United States endorses the Panel's finding that, 
by using the term "market", Members intended a meaning broader than the share of "exports" or 
"trade".  The United States contests Brazil's view th at the Panel's interpretation of Article 6.3(d) 
reduces the provision to inutility.  The United States ag rees with the Panel that Article 6.3(d) calls for 
an examination of the portion of the world  market   that is satisfied by the subsidizing Member's 
producers.  Nevertheless, the United States stre sses that the Panel erroneously equated this 
examination with an examination of only that portion of the world's  supply   that is satisfied by the 
subsidizing Member's producers.  The United States c ontends that the Panel should have looked at the 
level of world  sales   or  consumption   of cotton, rather than simply the world supply.   
175. Secondly, as to the context of Article 6.3(d) , the United States submits that the Panel was 
correct to conclude that the use of the phrase "wor ld market share" (as opposed to the different 
formulations found in Article XVI:3 of the GATT 1994 and Article 27.6 of the  SCM Agreement ) 
                                                      
149United States' appellee's submission, para. 145 (quoting Brazil's other appellant's submission, 
para. 271). (original emphasis) WT/DS267/AB/R 
Page 62  
 
 
  implies that Members did not want to restrict "wor ld market share" to a Member's share of "world 
export trade" or "world trade".  Similarly, unlike pa ragraphs (a) and (b) of Article 6.3, paragraph (d) 
of Article 6.3 is not explicitly rest ricted to any particular exports or  imports or geogra phical area.  The 
United States contends that the use of the word "tra de" in footnote 17 to Article 6.3(d), but not in the 
text of the Article itself, implies that "world mark et share" does not include merely shares in world 
"trade".   
176. Even if Brazil's interpretation of the words "w orld market share" in Article 6.3(d) were 
correct, the United States submits that the Appellate  Body would not have sufficient factual findings 
and uncontroverted facts before it to complete the analysis under Article 6.3(d). The United States 
emphasizes that the Panel made no analysis with respect to causation and market share under Article 6.3(d).  In the United States' submission, the Panel's "flawed"
150 analysis regarding the effect 
of the subsidy under Article 6.3(c) is not relevant to Brazil's request that the Appellate Body complete 
the analysis under Article 6.3(d) of the  SCM Agreement . 
3. Import Substitution Subsidies and Export Subsidies  
(a) Share of World Export Trade under Article XVI:3 of the GATT 1994 
177. The United States submits that the Panel properly found that Article XVI:3 of the GATT 1994 
applies only to export subsidies as defined in the  Agreement on Agriculture   and the  SCM 
Agreement .  However, if the Appellate Body finds that Article XVI:3 applies to subsidies other than 
export subsidies, the United States asks the Appellate Body to find that Brazil has not established that 
the United States acted inconsistently with Article XVI:3 of the GATT 1994. 
178. Beginning with the scope of Article XVI of the GATT 1994, the United States emphasizes 
that the text of Article XVI distinguishes between  "Subsidies in General" (Part A) and "Additional 
Provisions on Export Subsidies" (Part B).  By locatin g Article XVI:3 in Part B, Members agreed that 
Article XVI:3 is an additional provision on expor t subsidies.  The term "export subsidy" is now 
defined in the  SCM Agreement  and the  Agreement on Agriculture   as referring to subsidies that are 
contingent on export performance.  Both the contex t provided by these Agreements, as well as their 
drafting history, confirm that the export subsidies referred to in Article XVI:3 are also subsidies 
contingent on export performance.  According to th e United States, the Panel was correct to rely on 
Article 3.1(a) of the  SCM Agreement ,  item (l) of the Illustrative List of Export Subsidies in Annex I  
                                                      
150United States' appellee's submission, para. 164.  WT/DS267/AB/R 
 Page 63 
 
 
 of the  SCM Agreement ,  and the drafting history of the  Tokyo Round Subsidies Code   in concluding 
that Article XVI:3 of the GATT 1994 is concerned w ith certain export subsidies on primary products.   
179. The United States contends that, even if the A ppellate Body reverses the Panel's interpretation 
of the scope of Article XVI:3, there would be insu fficient undisputed facts on the record or factual 
findings by the Panel for the Appellate Body to co mplete the analysis.  The United States observes 
that the Panel made no findings on causation relative to trade share.  As the "causation"151 requirement 
under Article XVI:3 of the GATT 1994 differs from that under Article 6.3(c) of the  SCM Agreement ,  
and as the United States has appealed the Panel's anal ysis under Article 6.3(c), that analysis cannot 
support a finding of inconsistency under Article XVI:3 .  Regarding the standard for determining what 
is "more than an equitable share" of world export trade under Article XVI:3, the United States 
understands Brazil to argue that the demonstration of  "any causal relationship between an increase in 
exports and the subsidies provided" would suffice.152  However, the United States regards this 
standard as inadequate, because it renders the language  "more than an equitable share" inutile, and it 
would transform Article XVI:3 into an outright  prohibition on export-enhancing subsidies.   
(b) Export Credit Guarantees 
(i) Threat of circumvention 
180. The United States requests that the Appellate Body uphold the Panel's finding that no threat 
of circumvention exists under Article 10.1 of the Agreement on Agriculture  with respect to 
"unsupported" agricultural products for which no export credit guarantees have been provided. 
181. The United States asserts that, contrary to Brazil's argument, the Panel's finding that the 
export credit guarantee programs do not threaten circ umvention of export subsidy commitments is not 
an articulation of a broad standard that circum vention of export subsid y commitments would be 
"threatened" only "if beneficiaries had an 'absolute'  or 'unconditional ... lega l entitlement' to receive 
the subsidies such that the United States would 'neces sarily' be [']required' to grant subsidies after the 
commitment level had been reached".153  Rather, in concluding that the programs did not pose a threat 
of circumvention, the Panel was simply respondi ng to and declining to adopt Brazil's erroneous 
factual and legal characterizations of the program. 
182. The United States submits, furthermore, that th e Panel rightly distinguished these programs 
from the mandatory subsidies at issue in  US – FSC ,  and that the Panel's decision presents no conflict 
                                                      
151United States' appellee's submission, para. 182. 
152Ibid., para. 183 (quoting Brazil's other appellant's submission, para. 373). 
153Ibid., para. 6 (quoting Brazil's other appellant's submission, para. 3). WT/DS267/AB/R 
Page 64  
 
 
 with that Appellate Body Report.  Brazil effectiv ely argued that a mere possibility of issuance of 
export credit guarantees presented a threat of circumve ntion, and the Panel simply did not adopt this 
theory in the context of the export credit guarantee programs. 
183. In addition, the United States asserts that the A ppellate Body need not complete the analysis 
regarding threat of circumvention as requested by Brazil.   First, the Panel did not err in its analysis of 
threat of circumvention.  Secondly, the Panel appr opriately exercised judicial economy in declining to 
examine threat of circumvention with respect to those agricultural products for which it found actual 
circumvention.  Further analysis was not necessary to resolve the matter in dispute as it would not affect implementation of the obligation to apply ex port subsidies only in conformity with applicable 
WTO commitments. 
(ii) Actual circumvention 
184. The United States asserts that the Appellate Body  should reject Brazil's request for additional 
findings of actual circumvention of export subs idy commitments for pig meat and poultry meat.
154  
According to the United States, Brazil has not asserted a proper claim under Article 11 of the DSU.  The United States points out that Brazil does not appeal the Panel's findings that the facts did not demonstrate that subsidized exports exceeded th e United States' quantitative reduction commitments 
for poultry meat and pig meat.  Therefore, Brazil's appeal pursuant to Article 11 of the DSU is 
improper as it does not "stand by itself" and is no t "substantiated with respect to the challenged 
findings".
155   
185. The United States submits that, in any event, the data do not support the conclusions that 
Brazil advances.  Brazil's allegation of actual circum vention related to the period July 2001 through 
June 2002.  In contrast, quantita tive data on exports under the Unite d States' export credit guarantee 
programs are maintained on a fiscal year basis, wh ich extends from 1 October to 30 September.  Even 
if this difference between periods can be overcome,  the United States argues that the actual data also 
support the Panel's finding that Brazil did not dem onstrate actual circumvention for these products.   
(iii) Articles 1.1 and 3.1(a) of the SCM Agreement 
186. The United States asserts that the Appellate B ody should reject Brazil's request for further 
findings under Article 3.1(a) of the  SCM Agreement   in addition to the finding the Panel made in 
                                                      
154The United States also rejected the allegations in re spect of vegetable oil made by Brazil in its other 
appellant's submission. 
155United States' appellee's submission, para. 50 (referring to Appellate Body Report, US – Steel 
Safeguards ,  para. 498).   WT/DS267/AB/R 
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 respect of item (j) of the Illustrative List of Expor t Subsidies.  The United States submits that, in the 
light of the Panel's finding that the United States' export credit guarantee programs constitute a 
prohibited export subsidy because the premium rat es were inadequate to cover the long-term 
operating costs and losses of the program, any a dditional findings by the Panel would have been 
redundant.  Neither item (j) nor the Illustrative List of Export Subsidies imposes obligations per se ; 
instead, the obligation regarding export subsidies is found in Articles 3.1(a) and 3.2 of the SCM 
Agreement .  Furthermore, Brazil's interpretation would re nder the Illustrative List of Export Subsidies 
meaningless.  In the United States' view, a practice that does not constitute a prohibited export subsidy 
under the standard set forth in a particular item of the Illustrative List, such as item (j), cannot 
constitute a prohibited export subsidy under some ot her standard.  This was the approach advocated 
by Brazil in the  Brazil – Aircraft   dispute.  Moreover, the United  States argues that an additional 
finding by the Panel would have had no effect on implementation.  Whether or not a separate finding 
of "benefit" were made under Article 1.1, the Panel's recommendations would remain precisely the 
same.   
187. The United States also observes that Brazil misc onstrues what the Panel decided.  The Panel 
did not decline to address a claim raised by Brazil.   Instead, the Panel declined to make additional  
factual findings   that Brazil requested.  In any event,  the United States contends that Brazil 
misinterprets the concept of judicial economy and that, even if Brazil made a separate claim, the Panel was within the bounds of its discretion in exercising j udicial economy with respect to that claim.   
188. Finally, the United States disagrees with Brazil' s assertion that there are sufficient undisputed 
facts in the record that would enable the Appellate Body to complete the analysis.  According to the 
United States, it vigorously contested Brazil's allega tions of fact in this regard and affirmatively 
demonstrated that the export credit guarantee programs do not  confer such a benefit.  The United 
States explains that no benefit is conferred because identical financial instruments are available in the 
marketplace in the form of "forfaiting"
156;  there is no correlation between the issuance of the export 
credit guarantee and the ability of an importer to  secure a loan;  and the CCC conducts a risk 
assessment with respect to the foreign banks to whose risk it is exposed. 
(iv) ETI Act of 2000 
189. The United States submits that the Appellate B ody should reject Brazil's request that it find 
that the Panel erred in concluding that Brazil did not make a  prima facie   case that the ETI Act of 
2000 is inconsistent with the United States' WTO obligations.  
                                                      
156United States' appellee's submission, para. 93. WT/DS267/AB/R 
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 190. According to the United States, the Appellate B ody should not rule on Brazil's appeal because 
Brazil acknowledges that the appeal is not necessary to resolve the dispute between the parties.  Brazil 
states that it does not ask the Appellate Body to comp lete the analysis with respect to its claims.  
Brazil, therefore, is not asking the Appellate Body to make findings that would result in DSB rulings and recommendations with respect to the ETI Act of 2000.
157  For that reason alone, the Appellate 
Body should decline to decide Brazil's appeal. 
191. The United States contends that, in any event, Brazil did not make a  prima facie   case with 
respect to the ETI Act of 2000.  Brazil simply di d not present any evidence at all regarding the ETI 
Act of 2000 itself.  In its submission, Brazil gave  a brief description of the proceedings in the  
US – FSC (Article 21.5 – EC)   dispute and then asked the Pane l "to apply the reasoning as developed 
by the panel and as modified by the Appellate Body in that case  mutatis mutandis ".158  In essence, 
therefore, Brazil was not asking the Panel to make  an objective assessment of the ETI Act of 2000, 
but merely to adopt findings from a previous proceeding.  The Panel acted properly under the DSU, including Article 11, by declining to find that the "short shrift" that Brazil gave to the ETI Act of 2000 
satisfied Brazil's burden to make its  prima facie   case concerning that Act.
159 
192. The United States asserts that the rules of bur den of proof in the WTO are well settled.  
Contrary to Brazil's arguments, a finding of incons istency in one dispute does not establish a finding 
of inconsistency in another dispute between different  parties.  Such an approach would in effect 
impose the concept of  stare decisis   on the WTO dispute settlement system.   The United States also 
disagrees with Brazil's assumption that it is legally impossible for a party to argue that an identical 
measure subject to identical claims that were  successful in a previous WTO dispute is WTO-
consistent.  The reasoning of a panel or the Appella te Body in one dispute is not binding on another 
panel or the Appellate Body in a separate dispute.   Furthermore, while the measure may remain the 
same, the circumstances may change.  Thus, irrespec tive of the ruling in the previous dispute, Brazil 
had the burden of establishing a  prima facie   case.  
193. Finally, the United States argues that the Appellate Body's reasoning in  Mexico – Corn Syrup 
(Article 21.5 – US)   does not support Brazil's approach.  Brazil exaggerates the Appellate Body's 
statements in that Report and does not explai n why a complainant's obligation to make a  prima facie   
                                                      
157United States' appellee's submission, paras. 101-104 (referring to Appellate Body Report,  US – Steel 
Safeguards ,  para. 483 and Appellate Body Report,  US – Wool Shirts and Blouses ,  p. 19, DSR 1997:I, 323 
at 340). 
158Ibid., para. 106 (quoting Brazil's written submission to the Panel, paras. 315-327). 
159Ibid., para. 12.  WT/DS267/AB/R 
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 case should be interpreted similarly to a panel's oblig ation to set forth its basic rationale pursuant to 
Article 12.7 of the DSU.   
E. Arguments of the Third Participants 
1. Argentina  
(a) Article 13(a) of the  Agreement on Agriculture  
194. Argentina considers that green box measures must  respect the "fundamental requirement" of 
paragraph 1 of Annex 2 of avoiding trade-distorting or production effects.  Argentina submits that this 
requirement is additional to compliance with the policy-specific criteria of paragraph 6. 
(i) Article 13(a) of the  Agreement on Agriculture – Planting 
Flexibility Limitations 
195. Argentina submits that production flexibility cont ract payments and direct payments do not 
comply with paragraph 6(b) of Annex 2 of the  Agreement on Agriculture   because the amount of 
these payments is related to the type of production af ter the base period.  Argentina disagrees with the 
United States' view that paragraph 6(b) does not  prevent the conditioning of payment upon fulfilling 
the requirement not to produce certain crops.  Argent ina considers that the Panel rightly affirmed that 
"the planting flexibility limitations provide a monetary incentive for payment recipients not to 
produce the prohibited crops".160  For Argentina, there is effectively little difference between a 
"positive" and a "negative" list of permitted crops .  The context provided by paragraphs 11(b) 
and 11(e) of Annex 2 supports this  view.  Although Argentina agr ees with the United States that 
paragraph 6(b) ensures that the amount of payments must not be used to induce a recipient to produce 
a particular type of crop, the production flexibility contract and direct payments fail to meet this 
requirement.  Argentina considers that the flexibilit y enjoyed by producers to plant different crops is 
illusory.  The amount of the payments depends on the type of production.  The growing of fruits and 
vegetables is prohibited under these programs, w ith the effect of channelling production towards 
other, permitted crops.   
(ii) Article 13(a) of the  Agreement on Agriculture – Base Period 
Update 
196. Argentina agrees with Brazil that the option un der the FSRI Act of 2002 to update base acres 
is inconsistent with paragra ph 6(a) of Annex 2 of the  Agreement on Agriculture .  Argentina submits  
                                                      
160Argentina's third participant's submi ssion, para. 15 (quoting Panel Report , para. 7.386). WT/DS267/AB/R 
Page 68  
 
 
 that the term "defined" in paragraph 6(a) refers  to the need for the base period to be clearly 
determined.  Likewise, the term "fixed" refers to the need for the base period to be defined in terms 
that prevent it from being shifted or modified  a posteriori .  The term "fixed" indicates that payments 
made in accordance with the criteri a stipulated in paragraph 6(a) must always rely on the same base 
period, and no change is possible.  Paragraph 6(a)  thus allows Members to identify their own base 
period; however, once that period is determined, the period must remain fixed.  Otherwise, the choice 
of the word "a" in paragraph 6(a) would be difficult to explain.  Argentina thus agrees with Brazil that 
if the structure, design, and eligibility criteria of an original measure containing a "fixed base period" 
and the structure, design, and eligibility criteria of  its successor have not b een significantly modified, 
then it is not legitimate to update the "fixed base period" under the successor measure.  Accordingly, 
the terms of the direct payment program under the FSRI Act of 2002 are inconsistent with the 
requirements set forth in paragraph 6(a) of Annex 2.  
(b) Significant Price Suppression under Article 6.3(c) of the SCM 
Agreement  
197. Argentina agrees with Brazil that the mark et examined in assessing significant price 
suppression under Article 6.3(c) of the  SCM Agreement   may be a world market, and that a panel 
need not quantify precisely the amount of a subsidy in conducting such an assessment.161   
(c) World Market Share under Article 6.3(d) of the  SCM Agreement  
198. Argentina agrees with Brazil that the words "wor ld market share" in Article 6.3(d) of the 
SCM Agreement   refer to the subsidizing Member's share of the world export market. 162 
(d) Step 2 Payments to Domestic Users 
199. Argentina agrees with the Panel's conclusion th at Step 2 payments to domestic users of 
upland cotton constitute a subsidy contingent upon the use of domest ic over imported goods that is 
prohibited by Articles 3.1(b) and 3.2 of the  SCM Agreement , and that WTO Members are not 
authorized by the  Agreement on Agriculture   to provide such subsidies. 
                                                      
161Argentina's statement at the oral hearing. 
162Ibid.  WT/DS267/AB/R 
 Page 69 
 
 
 (e) Export Credit Guarantees – Articles 10.1 and 10.2 of the  Agreement 
on Agriculture  
200. Argentina submits that the United States' e xport credit guarantee programs constitute export 
subsidies in breach of the anti-circumvention provision contained in Article 10.1 of the  Agreement on 
Agriculture   and, consequently, they are inconsistent with Article 8 and are not exempt from action 
under Article 13(c) of that Agreement.  Argentin a disagrees with the United States' view that no 
disciplines apply to export credit guarantee prog rams.  On the contrary, under the terms of 
Article 10.1 of the Agreement on Agriculture , export credit guarantee programs constituting export 
subsidies should not be applied in a manner that resu lts in, or threatens to lead to, circumvention of 
export subsidy commitments. 
(f) Export Credit Guarantees – Articles 1 and 3.1(a) of the SCM 
Agreement  
201. According to Argentina, the Panel's findings in  respect of the United States' export credit 
guarantee programs are not complete.  In not findi ng that such programs are also subsidies in 
accordance with the definition cont ained in Article 1 of the  SCM Agreement   and the prohibition in 
Article 3.1(a) of the same Agreement, the Panel di d not bear in mind that different obligations stem 
from those Articles and that, similarly, the course of  implementation adopted by a Member in respect 
of a finding of inconsistency only on the basis of ite m (j) of the Illustrative List of Export Subsidies 
may be different.  Accordingly, Argentina contends that a finding of inconsistency in respect of the 
United States' export credit guarantees programs is also possible and should be made on the basis of Articles 1 and 3.1(a) of the  SCM Agreement . 
2. Australia
 
(a) Article 13(a) of the  Agreement on Agriculture – Planting Flexibility 
Limitations 
202. Australia requests that the Appellate Body uphold the Panel's conclusion that production 
flexibility contract payments, direct payments, a nd the legislative and regulatory provisions that 
establish and maintain the direct payment program, do not fully conform to paragraph 6(b) of Annex 2 
of the  Agreement on Agriculture.   Australia submits that making a payment conditional upon the non-
production of a particular product is one way in which a Member can relate the "amount of ... 
payment[]" to the current "type or volume of pr oduction".  Australia contends that the argument 
advanced by the United States would introduce an ex ception into paragraph 6(b)  of Annex 2 that has 
no textual basis.  Australia submits that the Panel's interpretation does not prevent payments from 
being disallowed in the case of illegal production because reducing the payment to zero would be WT/DS267/AB/R 
Page 70  
 
 
 based on the illegality of the activity, not "the type or volume of production".  In addition, a Member 
could otherwise justify such a measure pursuant to Article XX of the GATT 1994.  
(b) Article 13(a) of the  Agreement on Agriculture – Base Period Update 
203. Australia submits that the updating of base acres by the FSRI Act of 2002 means that the 
direct payments are not green box measures.  Australia argues that the meaning of paragraph 6(b) of Annex 2 of the  Agreement on Agriculture   is that, once a base period has been "defined and fixed" 
pursuant to paragraph 6(a), decoupled income su pport payments may not be "connected" to or 
"[f]ound[ed], buil[t] or construct[ed]" on the type of production or the volume of production 
undertaken by a producer in a later period.
163  Australia says that the Panel found that the direct 
payments program is the successor to the productio n flexibility contract program and that the two 
programs are identical in a number of important respects.  The option under the FSRI Act of 2002 for 
producers to update their base acres is not consistent with the requirement of paragraph 6(a) that there 
be one "defined and fixed base period". 
(c) Significant Price Suppression under Article 6.3(c) of the SCM 
Agreement  
204. Australia refers to the United States' argument that the Panel failed to set out the findings of 
fact, the applicability of relevant provisions, and th e basic rationale behind certain of its findings and 
recommendations regarding Article 6.3(c) of the  SCM Agreement ,  as required by Article 12.7 of the 
DSU.164  According to Australia, this argument sugge sts that the Panel failed to make an objective 
assessment of the matter before it, as required by Article 11 of the DSU.  Australia notes that the 
Appellate Body has recognized the discretion of a panel in choosing the evidence on which it relies.165 
(d) Step 2 Payments to Domestic Users and Exporters 
205. Australia requests that the Appellate Body uphold the Panel's conclusions that Step 2 
payments to domestic users constitute subsidies th at are inconsistent with the requirements of 
Article 3.1(b) of the  SCM Agreement .  
                                                      
163Australia's third participant's submission, para. 42 (quoting The New Shorter Oxford English 
Dictionary , L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 187 and Vol. 2, p. 2534 in relation to the words 
"based on" and, "related to" in paragraph 6(b) of Annex 2 to the  Agreement on Agriculture ).  
164Ibid., para. 19 (referring to the United States' appellant's submission, paras. 150 and 322-331). 
165Ibid., para. 21 (referring to Appellate Body Report, EC – Hormones , para. 135).  WT/DS267/AB/R 
 Page 71 
 
 
 206. Australia submits that the Appellate Body sh ould also uphold the Panel's conclusions that 
Step 2 payments to exporters are incons istent with Articles 3.3 and 8 of the  Agreement on Agriculture   
and Articles 3.1(a) and 3.2 of the   SCM Agreement .  In the event that the Appellate Body determines 
that the Step 2 program is not export-contingent, Au stralia requests that the Appellate Body find that 
the Step 2 program  as a whole   is contingent upon the use of domestic over imported goods within 
the meaning of Article 3.1(b) of the  SCM Agreement .  Furthermore, in that case, the Appellate Body 
should find that the chapeau to Article 3.1 of the  SCM Agreement   does not serve to exempt such 
local content subsidies from the application of Article 3.1(b) of that Agreement. 
(e) Export Credit Guarantees – Articles 10.1 and 10.2 of the Agreement 
on Agriculture  
207. Australia disagrees with the United States' argument that export credit guarantees are  
excluded from the application of Article 10.1 of the  Agreement on Agriculture   and Article 3.1(a) of 
the  SCM Agreement .  According to Australia, the United St ates has incorrectly applied Articles 31 
and 32 of the  Vienna Convention   to the interpretation of Article 10.1 of the  Agreement on 
Agriculture .  Article 10.1 applies to all "[e]xport subsidies not listed in paragraph 1 of Article 9".  The 
meaning of this provision is clearly discernibl e from its text and it does not provide for any 
exceptions.  The context of Article 10.2 does not suppor t an interpretation that would be contrary to 
its plain words, particularly because it is not cons tructed as an exception provision.  The object and 
purpose of Article 10.1 relate to the prevention of  circumvention of commitments, in relation to  all  
export subsidies other than those listed in Article 9.1 of the  Agreement on Agriculture .  Furthermore, 
the application of Article 10.1 to export credit gua rantees defined as export subsidies does not lead to 
a result that is manifestly unreasonable because not all export credit guarantees are export subsidies within the meaning of the  Agreement on Agriculture   and the  SCM Agreement .  It is open to the 
United States, within the existing WTO framework, to  design and maintain measures that fall outside 
the definition of an export subsidy, which is, in f act, what the United States asserts it has done.  In 
contrast, acceptance of the United States' arguments coul d lead to a result that is manifestly absurd or 
unreasonable by encouraging other WTO Members to seek to avoid the anti-circumvention obligations of Article 10.1 of the  Agreement on Agriculture . 
208. Australia also rejects the United States' contention that Article 21.1 of the  Agreement on 
Agriculture   and the chapeau to Article 3.1 of the  SCM Agreement   render Article 3.1(a) of the  SCM 
Agreement   inapplicable to export credit guarantee programs. WT/DS267/AB/R 
Page 72  
 
 
 3. Benin and Chad  
(a) Significant Price Suppression under Article 6.3(c) of the SCM 
Agreement  
209. Benin and Chad agree with Brazil that the Panel correctly found that the effect of the price-
contingent subsidies is significant price suppression within the meaning of Article 6.3(c) of the 
SCM Agreement .  Benin and Chad contend that many of  the United States' arguments regarding 
Article 6.3(c) relate to factual findings by the Pane l that are not subject to appellate review in the 
absence of a claim by the United States that the Pa nel failed to comply with Article 11 of the DSU. 
210. Benin and Chad agree with the Panel's finding th at it was not required to quantify precisely 
the amount of the subsidy in assessing Brazil's claim under Article 6.3(c) of the  SCM Agreement ,  
and that the amount of a subsidy is not necessarily determinative in such an  assessment.  This is 
consistent with the different purposes of Parts III and V of the  SCM Agreement .   
(b) World Market Share under Article 6.3(d) of the  SCM Agreement  
211. Benin and Chad support the request by Brazil th at the Appellate Body reverse the Panel's 
interpretation of the term "world market share" in Article 6.3(d) of the  SCM Agreement .  Benin and 
Chad agree with Brazil that "world market  share" means world market share of  exports .  If the 
Appellate Body adopts this interpre tation, Benin and Chad request the Appellate Body to complete the 
analysis under Article 6.3(d) and to find that the effect of the price-contingent subsidies was an 
increase in the world market share of the United States contrary to Article 6.3(d).  In turn, Benin and 
Chad ask the Appellate Body to find that th ey have also suffered serious prejudice under 
Article 6.3(d) as a result of the increase in the United States' world market share of exports. 
212. According to Benin and Chad, the Panel's interp retation of "world market share" as world 
market share of  production   inappropriately shifts the inquiry away from the  effect   of the subsidy 
towards unrelated factors, such as production levels in  third country markets.  A subsidy may have the 
effect of increasing significantly the exports of a Member, even though the Member's world share of 
production remains stable or diminishes.  Therefore,  in the submission of Benin and Chad, the Panel's 
interpretation could lead to a situation where ch anges in the supply by a third country determine 
whether a subsidizing Member's world ma rket share increases or decreases.   
213. Benin and Chad state that, if the Appellate Body  rejects the Panel's interpretation of "world 
market share" under Article 6.3(d), there are suff icient undisputed facts on the record for the 
Appellate Body to complete the analysis and to fi nd that the United States acted inconsistently with  WT/DS267/AB/R 
 Page 73 
 
 
 Article 6.3(d).  The evidence before the Panel indi cates that those Members that have lost market 
share as a result of the price-contingent subsid ies include, at least, Brazil and the "Francophone 
African nations of Benin and Chad".166  Benin and Chad disagree with the Panel's finding that "the 
serious prejudice under examination by a WTO panel is the serious prejudice experienced by the 
complaining Member".167  
214. Benin and Chad argue that the Appellate Body should take into account the impact of United 
States upland cotton subsidies on the "fragile  economies of West and Central Africa"168, as reflected 
in the Panel's findings and evidence on the record.  Benin and Chad point out that Article 24.1 of the DSU, which requires particular consideration to be  given to the special situation of least-developed 
country Members, would be given meaning if th e Appellate Body acknowledged that the increase in 
the United States' world market sh are caused serious prejudice to Benin and Chad by reducing their 
market share.  Furthermore, nothing in the text of Article 6.3(d) limits a finding of serious prejudice to 
the complaining party.  Therefore, Benin and Chad  urge the Appellate Body to draw conclusions 
under Article 6.3(d) that would require the United States to withdraw the subsidy or remove the 
adverse effects, not only with respect to Braz il, but also with respect to Benin and Chad. 
(c) Export Credit Guarantees – Articles 1 and 3.1(a) of the SCM 
Agreement  
215. Benin and Chad support Brazil's position that the Panel improperly exercised judicial 
economy by refusing to address Brazil's claim that the United States violated Articles 1.1 and 3.1(a) 
of the  SCM Agreement   with respect to export credit guarantees.  Benin and Chad also support 
Brazil's request that the Appellate Body complete the analysis as it has sufficient factual findings 
before it to do so.   
216. Benin and Chad explain that, under item (j) of the Illustrative List of Export Subsidies, 
Brazil's claim is that the export credit guarantee prog rams operate at a loss or below the cost to the 
government.  In contrast, under Article 3.1(a), Br azil's claim is that the programs are financial 
contributions that confer a benefit on recipien ts within the meaning of Article 1.1 of the  SCM 
Agreement   and that they are contingent upon export performance.  Thus, Brazil's claims under 
item (j) of the Illustrative List of Export Subsidies and Article 3.1(a) were distinct, and the Panel's 
                                                     
 
166Benin and Chad's third participants' submission, para. 85. (emphasis omitted) 
167Ibid., para. 6 (quoting Panel Report, para. 7.1403). 
168Ibid., para. 9. WT/DS267/AB/R 
Page 74  
 
 
 refusal to address Brazil's claim under Article 3.1( a) leaves an important and distinct claim 
unresolved.  Accordingly, it was improper for the Panel to have exercised judicial economy.169   
4. Canada  
(a) Article 13(a) of the  Agreement on Agriculture – Planting Flexibility 
Limitations  
217. Canada considers that the Panel was correct in  finding that production flexibility contract 
payments and direct payments do not meet the requi rements of paragraph 6(b) of Annex 2 of the  
Agreement on Agriculture .  For Canada, nothing in the text of pa ragraph 6(b) supports the distinction 
the United States seeks to draw be tween "positive" and "negative" e ffects on production.  If payments 
are conditioned on a recipient not undertaking a type of  production, then the payment is related to the 
type of production.   Canada thus agrees with the Panel's in terpretation that paragraph 6(b) excludes 
any "typ[e] of relationship between the amount of su ch payments and the type of production after the 
base period".170  Canada argues that this approach is supported by the object and purpose of Annex 2 
and the context provided by the fundamental requi rement set out in paragraph 1 of Annex 2.   
218. Canada agrees with the United States that th e fundamental requirement in paragraph 1 of 
Annex 2 is relevant context in understanding the criterion in paragra ph 6(b) that the measure not be 
related to the type or volume of production.  Howe ver, a Member does not ha ve an independent basis 
for claiming that the measure qualifies as a "gr een box" measure because it has minimal trade-
distorting effects.  Canada disagrees with the Unite d States' conclusion, based on its interpretation of 
paragraph 6(e), that a Member is not prohibited under paragraph 6(b) from conditioning payment on 
non-production of a particular product.   Canada considers that paragr aph 6(e) is a prohibition against 
requiring production as a condition of payment, but does not necessarily authorize a Member to impose a requirement not to produce a particular crop.  With regard to the planting flexibility 
limitations under the production flexibility contract  payment and direct payment programs, Canada 
disagrees with the United States that the amount of pa yments "does not relate to fruit or vegetable 
production since for that base acre there would be  no payment at all ".
171  For Canada, this 
interpretation is contrary to the ordinary mean ing of the term "related to" and leads to the 
unreasonable result that a Member could circumve nt the requirement in paragraph 6(b) by 
                                                      
169Benin and Chad's third participants' submission, pa ras. 105-108 (referring to Appellate Body Report, 
Australia – Salmon ,  para. 223 and Appellate Body Report,  Canada – Wheat Exports and Grain Imports , 
para. 133). 
170Canada's third participant's submission, para. 13 (quoting Panel Report, para. 7.366). 
171Ibid., para. 20 (quoting the United States' appellant's submission, para. 26). (original emphasis)  WT/DS267/AB/R 
 Page 75 
 
 
 encouraging certain types of production as long as it does so through a negative list by excluding 
certain other types of production.   
(b) Article 13(a) of the  Agreement on Agriculture – Base Period Update  
219. Canada argues that the direct payments do not fu lly conform to paragraph 6(a) of Annex 2 of 
the  Agreement on Agriculture   because of the base period update in the FSRI Act of 2002.  Canada 
submits that the ordinary meaning of the terms "d efined and fixed base period" in paragraph 6(a) 
indicates that the base period cannot vary or change.  This is confirmed by the context provided by 
paragraphs 6(b) and (d), which re fer to "any year after the base period", as well as the object and 
purpose of paragraph 6, which is to identify the types of payments that are minimally trade-distorting.  
Canada contends that, as the Panel found that dir ect payments under the FSRI Act of 2002 are closely 
related to and a successor to the production flexibili ty contract payments, the base period for direct 
payments should not be different from the base peri od for production flexibility contract payments.  
The fact that payments are provided under new legislation does not in itself allow a modification to 
the base period under the predecessor program.  Otherwi se, the requirement that there be a "fixed base 
period" would become meaningless.  By allowing  updating of base acreage, the United States is 
altering the base period contrary to paragraph 6(a).   
(c) Export Credit Guarantees – Articles 10.1 and 10.2 of the Agreement 
on Agriculture  
220. Canada submits that the Panel correctly found th at, to the extent that export credit guarantees 
meet the definition of export subsidies, they will be subject to the anti-circumvention disciplines of 
Article 10.1 of the  Agreement on Agriculture .  The United States' argument that Article 10.2 of the  
Agreement on Agriculture   exempts export credit guarantees from the subsidy disciplines under that 
Agreement has no basis in the text, context, objec t and purpose, or negotiating history.  Canada 
asserts that the text of Article 10.2 does not explicitl y indicate an intention to exclude the application 
of other, existing disciplines.  Indeed, such an in terpretation would contradict the stated object and 
purpose of Article 10 as a whole, which is the "P revention of Circumvention of Export Subsidy 
Commitments".  Furthermore, the fact that export credit guarantee programs may not be subject to the 
notification requirement of the  Agreement on Agriculture   does not lead to the conclusion that they 
are not subject to the other disciplines of that Agreement. WT/DS267/AB/R 
Page 76  
 
 
 221. Canada also agrees with the Panel's conclusi on that the United States violated Articles 3.3 
and 8 of the  Agreement on Agriculture   by providing export subsidies otherwise than in conformity 
with that Agreement with respect to upland cotton and other unscheduled comm odities.  In addition, 
Canada states that the Panel's interpretation of Article 10.1 with respect to scheduled products is 
consistent with the Appellate Body's analysis in  US – FSC .172   
(d) Export Credit Guarantees – Articles 1 and 3.1(a) of the SCM 
Agreement  
222. Canada asserts that, if the Appellate Body reverses the Panel's finding that the United States' 
export credit guarantee programs constitute  per se   prohibited export subsidies under item (j) of the 
Illustrative List of Export Subsidies, it will still be necessary to consider whether the export credit 
guarantee programs constitute export subsidi es under Articles 1 and 3.1(a) of the  SCM Agreement .  
Even if the United States' export credit programs charge adequate fees under the item (j) standard, 
they may still confer an export subsidy.  If they  did, the export credit guarantees would have to be 
provided in a manner consistent  with Article 10.1 of the  Agreement on Agriculture . 
5. China  
(a) Terms of Reference – Expired Measures 
223. China submits that the Panel was correct to fi nd that expired production flexibility contract 
and market loss assistance payments were within the Panel's terms of reference.  The Panel's 
interpretation of Articles 4.2 and 6.2 of the DSU is  in accordance with the text, context, and object 
and purpose of the DSU, as well as the intention of the drafters.  China recalls that Article 4.2 of the 
DSU indicates that consultations are to cover "any representations made by another Member 
concerning measures affecting the operation of any c overed agreement taken within the territory of 
the former".  China "agrees with the Panel that b ased on the analysis of the context and the object of 
Article 4.2, the term 'affecting' in Article 4.2 is  used as a gerund, describin g the way in which they 
relate to a covered agreement, and has no temporal significance".173  China notes that Brazil's claims 
in this case relate to serious prejudice under the provisions of the  SCM Agreement  and the 
GATT 1994.  China agrees with the panel in  Indonesia – Autos  that, "[i]f ...past subsidies were not 
relevant to [a] serious prejudice analysis as they were 'expired measures'..., it is hard to imagine any 
situation where a panel would be able to dete rmine the existence of actual serious prejudice".174  
                                                      
172Canada's third participant's submission, para. 40 (referring to Appellate Body Report, US – FSC , 
para. 152). 
173China's third participant' s submission, para. 19. 
174Ibid., para. 26 (quoting Panel Report,  Indonesia – Autos , para. 14.206).  WT/DS267/AB/R 
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 China submits that neither the context cited by th e United States nor the decisions of the panel and 
Appellate Body in  US – Certain EC Products   support the view that expired measures may not fall 
within the terms of reference of a panel.    
(b) Article 13(b) of the Agreement on Agriculture - Interpretation of 
"support to a specific commodity" 
224. China supports the Panel's finding that the phrase "support to a specific commodity" in 
Article 13(b) of the  Agreement on Agriculture   does not mean "product-specific domestic support".  
China submits that the word "specific" in Article 13( b)(ii) is inserted to avoid lump-sum treatment of 
measures generally applicable to a number of commodities. Unlike the ph rase "product-specific 
support", the phrase "support to a specific commodity" refers to the level of  support delivered to a 
specific commodity, thus combining both product-specific support and the portion of support 
attributable to upland cotton under a program that is available to a number of products.  
(c) Terms of Reference – Export Credit Guarantees  
225. China submits that the Appellate Body should up hold the Panel's conclusion that export credit 
guarantees to facilitate the export of United States agricultural commodities other than upland cotton 
were within the Panel's terms of reference.  Acco rding to China, the Panel correctly concluded that 
Brazil identified export credit guarantees to agricultu ral commodities other than upland cotton in its 
request for consultations.  During the consultations, Brazil also posed questions to the United States 
on the export credit guarantees that related to agri cultural commodities other than upland cotton.  
These questions did not expand the scope of the consulta tions request, but merely clarified its content.  
In addition, China states that Brazil's recognition that the United States objected to the questions 
relating to agricultural commodities other than upl and cotton does not lead to the conclusion that 
consultations were not held on the subject.  Finally , China asserts that a WTO Member cannot refuse 
to respond to questions during consultations on the basis of its own uncertainty as to the scope of the 
consultations. 
6. European Communities  
(a) Article 13(a) of the Agreement on Agriculture  – Planting Flexibility 
Limitations 
226. The European Communities supports the United St ates' appeal of the Panel's finding that 
planting flexibility limitations disqua lify a measure from the coverage of paragraph 6 of Annex 2 of 
the  Agreement on Agriculture .  The European Communities notes that the United States has placed 
limitations on the crops that may be grown by fa rmers receiving production flexibility contract WT/DS267/AB/R 
Page 78  
 
 
 payments and direct payments.  In doing so, the United States ensures fair competition domestically 
and limits distortions internationally.  If upheld, th e Panel's findings would have the perverse effect of 
increasing subsidization and the lik elihood of trade distortions. 
227. The European Communities observes that paragraph 6(b) prevents the amount of the 
payments from being related to the type of production;  it does not address eligibility for payments.  With this in mind, the European Communities subm its that "the fact of making ineligible for 
payments the land used to produce a certain commo dity is not incompatible with paragraph 6(b)".
175  
Furthermore, the Panel correctly noted that paragr aphs 6(b) and 6(e) lay down distinct requirements 
and that each of them must be given meaning.  The European Communities c onsiders that the Panel's 
interpretation of paragraph 6(b) would render redundant paragraph 6(e) .  The Panel's reading is that 
any payment conditional upon a production requireme nt (which, as such, is incompatible with 
paragraph 6(e)) would be deemed to be "related to" the "volume" of production and would therefore 
be incompatible with paragraph 6(b).  The Eur opean Communities argues that the Panel should not 
have relied upon paragraph 11 of Annex 2 because that provision appears in a context very different 
from that of the provisions of paragraph 6. 
(b) Article 13(a) of the Agreement on Agriculture  – Base Period Update 
228. With regard to Brazil's conditional cross-app eal regarding base period updates, the European 
Communities notes that the Panel made factual findi ngs that there was no ev idence to suggest that 
farmers expected further updates in future years.  The European Communities does not consider that 
paragraph 6(a) of Annex 2 of the  Agreement on Agriculture   precludes adjustments to base periods, 
although it agrees with Brazil that a "defined and fi xed" base period cannot be determined from the 
perspective of five-yearly subsidization legislati on, but rather should be viewed in a longer-term 
perspective.  The European Comm unities considers that it cannot be open to a Member to resort to 
wholesale updating of base periods by linking the criteria of "defined and fixed" to specific legislative packages. 
(c) Article 13(b) of the  Agreement on Agriculture   
229. The European Communities supports the Unites St ates' request for the Appellate Body to 
reverse the Panel's interpretation of Article 13(b) of the  Agreement on Agriculture ,  particularly in 
respect to the methodology for calculating support and the meaning of "support to a specific 
commodity".  With regard to the methodology, the European Communities agrees with the United 
States that the Panel should not have used budgetary outlays to calculate support "decided" in respect 
                                                     
 
175European Communities' third participant's submission, para. 15.  WT/DS267/AB/R 
 Page 79 
 
 
 of price-based measures, but rather should have  used price gap methodology.  The European 
Communities contends that this approach is cruc ial for the interpretation of the specific term 
"decided", in contrast to the term "granted".  The European Communities al so agrees with the United 
States that the Panel was incorrect in finding that support under schemes based on historical 
production of specific crops could be consider ed "support to a specific commodity" in the 
implementation period in the sense of Article 13(b)(ii).  
(d) Significant Price Suppression under Article 6.3(c) of the SCM 
Agreement  
230. In relation to the United States' arguments re garding the quantification of subsidies, the 
European Communities agrees with Brazil that , in assessing significant price suppression under 
Article 6.3(c) of the  SCM Agreement ,  it is not necessary to determine the precise amount of the 
subsidy or the amount of the benefit conferred on the subsidized product.  This is consistent with the 
differences between Parts III and V of the  SCM Agreement .  Paragraph 7 of Annex IV of the 
SCM Agreement ,  to which the United States refers, is an exception to the general rule that a panel 
need not quantify or allocate a subsidy (other th an a pre-WTO subsidy) to the products concerned. 
231. The European Communities contests the United St ates' arguments regarding past "recurring" 
subsidies.  Article 6.3(c) is drafted in the present tense and therefore should apply to the past, present, 
and future.  The European Communities asserts th at a subsidy comprises an act (a financial 
contribution) and that it may have an effect on the re cipient (a benefit) and an effect on the market and 
other Members (adverse effects).  However, the Un ited States erroneously equates the concepts of 
"benefit" and "adverse effects".  The subsidies ch allenged in the present dispute are programs that 
continue and that therefore may have adverse effects in  the future, even if they confer a benefit in only 
one particular year.  Therefore, the European Co mmunities considers that the Panel correctly included 
past recurring subsidies in its analysis under Artic le 6.3(c).  However, the European Communities 
maintains that it would have been "desirable"176 for the Panel to distinguish between programs that 
had expired and programs that were still in  force when the Panel was established.  
(e) Relationship between the  Agreement on Agriculture   and the SCM 
Agreement  
232. The European Communities raises an issue concerning the Panel's jurisdiction that it 
considers the Appellate Body should take up on its own motion.  According to the European 
Communities, the  SCM Agreement   does not apply to domestic support and export subsidies in 
                                                      
176European Communities' third participant's submission, para. 61. WT/DS267/AB/R 
Page 80  
 
 
 respect of agricultural products because the  Agreement on Agriculture   contains "provisions dealing 
specifically with the same matter".177 
(f) Step 2 Payments to Domestic Users 
233. The European Communities agrees with the Unite d States' claim that the Panel erred in 
finding that Step 2 payments to domestic users ar e inconsistent with Article 3.1(b) of the  SCM 
Agreement .  In addition to endorsing the arguments put forward by the United States, the European 
Communities argues that the Panel incorrectly sought  an explicit carve out from Article 6.3 of the  
Agreement on Agriculture   for import substitution subsidies, wh en such a carve out is unnecessary in 
the light of Article 21.1 of that Agreement and the introductory phrase of Article 3.1 of the  SCM 
Agreement .  The European Communities submits that paragraph 7 of Annex 3 of the  Agreement on 
Agriculture   recognizes that WTO Members have a right to provide import substitution subsidies.  
The Panel's interpretation to the contrary renders th e language of paragraph 7 of Annex 3 redundant.   
7. India  
234. Pursuant to Rule 24 of the  Working Procedures , India chose not to submit a third 
participant's submission.  In its statement at the or al hearing, India disagreed with the United States 
that Brazil had to establish the amount of the price- contingent subsidies that benefit upland cotton in 
making its claim of serious prejudice under Articles 5(c) and 6.3 of the  SCM Agreement .   
8. New Zealand  
(a) Article 13(a) of the  Agreement on Agriculture  – Base Period Update 
235. New Zealand supports Brazil's contention that the direct payments under the FSRI Act 
of 2002 do not meet the criteria set out in paragraph 6(a) of Annex 2 of the  Agreement on 
Agriculture .  According to New Zealand, the factual findi ngs made by the Panel establish that direct 
payments cannot be green box payments because fa rmers had an opportunity to update base acreage, 
contrary to this provision.  New Zealand notes th at the language and context of paragraph 6(a) 
contemplate a single base period that is fixed and unc hanging to ensure that such support is clearly de-
linked from production.  To conclude otherwise would create an internal  inconsistency in paragraph 6, 
because a Member could avoid obligat ions under paragraphs 6(b), 6(c), and 6(d) not to link payments 
to production, prices, or factors of production em ployed in subsequent years, by establishing a new 
base period from time to time.  New Zealand observ es that the Panel found that the direct payment 
                                                      
177European Communities' third participant's submission, para. 6 (quoting Appellate Body Report, EC – 
Bananas III , para. 155).  WT/DS267/AB/R 
 Page 81 
 
 
 program is a successor to the production flexibility contract program and that the base period update 
had the effect of increasing the level of payments under the program. 
(b) Article 13(b) of the Agreement on Agriculture   
236. New Zealand contests the United States' appeal of the Panel's finding that the United States' 
measures at issue are not exempt from action pursuant to Article 13(b)(ii) of the  Agreement on 
Agriculture .  New Zealand argues that Members drafting th e proviso to Article 13(b) were principally 
concerned with limiting the effect of domestic s upport measures on trade.  New Zealand argues that 
the manner in which "support" is identified an d calculated in the comparison required by 
Article 13(b)(ii) must reflect Members' intentions to limit the effects of such measures to those that 
existed in the 1992 marketing year and to ensure  that measures are not exempt from actions when 
their effect is a significantly higher level of trade distortion in the implementation period than in the 
1992 marketing year. 
(i) Calculation methodology for price-based measures 
237. New Zealand considers that the Appellate B ody should uphold the Panel's finding that, on the 
facts of this case, budgetary outlays provide an a ppropriate measurement of support for the purposes 
of the comparison required by Article 13(b)(ii).  Ne w Zealand argues that a Member may not justify a 
failure to meet its obligations under the  Agreement on Agriculture   on the ground that it has adopted 
measures that rely on factors beyond the government 's control.  If a Member adopts a non-green box 
domestic support measure that determines the amount of support provided on the basis of factors the 
government cannot control, then the Member mu st accept the risk that support granted in the 
implementation period may be in excess of that decided in the 1992 marketing year.  Furthermore, New Zealand disagrees with the argument advan ced by the United States that only a price gap 
calculation can reflect support "decided" by the Un ited States' price-based measures. New Zealand 
argues that this argument would read the term "grant" out of Article 13(b)(ii) altogether.  
(ii) Interpretation of "support to a specific commodity" 
238. New Zealand argues that the Appellate Body sh ould reject the United States' argument that 
Article 13(b)(ii) of the  Agreement on Agriculture   requires a comparison of only "product-specific" 
support.  For New Zealand, the chapeau of Article 13(b) makes it clear that the measures subject to 
the proviso of Article 13(b)(ii) are all "domestic support measures that conform fully to the provisions 
of Article 6" of the  Agreement on Agriculture   (that is, both product-specific and non-product-
specific support to upland cotton).  The use of the wo rd "specific" in Article 13(b)(ii) refers only to 
the fact that the comparison is to be made on a commodity-by-commodity basis.  In New Zealand's WT/DS267/AB/R 
Page 82  
 
 
 view, the Panel correctly found that "support to a specific commodity" means all support to a 
commodity, whether product-specific or not.  New Z ealand also agrees with the Panel's finding that 
measures that "identify and allocate support based  on an express linkage to specific commodities"178 
provide support to those commodities within the mean ing of Article 13(b)(ii).  Accordingly, even a 
measure that provides support to a number of different commodities also provides support to those specific commodities individually.  New Zealand a dds that not only do the words "product-specific 
support" not appear in Article 13(b)(ii), but the c oncept of product-specific support is not relevant to 
the comparison under this provision because Artic le 13(b)(ii) requires an analysis that is 
fundamentally different from that required under those provisions of the  Agreement on Agriculture   
that distinguish between product-specific and non-product-specific support. 
239. Finally, New Zealand disagrees with the United States' assertion that counter-cyclical 
payments and market loss assistan ce payments are "decoupled".  As the Panel recognized, the amount 
of payment under these programs is clearly linked to current prices, which means that they cannot be 
green box measures in terms of Annex 2 of the  Agreement on Agriculture . 
(c) Significant Price Suppression under Article 6.3(c) of the SCM 
Agreement  
240. New Zealand agrees with Brazil that the Panel correctly found that the effect of the price-
contingent subsidies is significant price suppression within the meaning of Article 6.3(c), constituting 
serious prejudice to the interests of Brazil w ithin the meaning of Article 5(c) of the  SCM Agreement .   
241. New Zealand agrees with Brazil that the term "in the same market" in Article 6.3(c) can 
include a world market, although this does not pr eclude the possibility of other markets.  New 
Zealand also agrees that, although a world mark et does not necessarily exist for every product, a 
world market and a world price do exist for upland cotton. 
242. New Zealand submits that the Panel was correct in rejecting the United States' argument that 
the price-contingent subsidies did not suppress prices  because, in the absence of these subsidies, new 
suppliers would have increased supply and maintained  the world price.  In response to the United 
States' arguments regarding the effect of the su bsidies on the planting decisions of farmers, New 
Zealand argues that this effect is a key aspect of th e Panel's analysis under Article 6.3(c), which led it 
to conclude that the subsidies insulated United St ates cotton producers from declines in world prices.  
Moreover, the Panel correctly found that the gap between total production costs and market revenue 
                                                     
 
178New Zealand's third participant's submission, para. 3.16 (quoting Panel Report, para. 7.484).   WT/DS267/AB/R 
 Page 83 
 
 
 constituted evidence that the price-contingent s ubsidies enabled United States upland cotton producers 
to increase supply, leading to price suppression in the world market.   
243. New Zealand agrees with Brazil that a panel is not required, in assessing significant price 
suppression under Article 6.3(c), to quantify precisely th e amount of the subsidy.  As the Panel found, 
claims under Parts III and V of the  SCM Agreement   differ, and the quantitative and pass-through 
methodologies applicable under Part V are not necessarily transferable to Part III.  Although the 
magnitude of a subsidy may be relevant in some cas es, it is not necessarily determinative of the nature 
or extent of the effects of the subsidy.  
244. New Zealand disagrees with the United States' arguments regarding past recurring subsidies, 
which would effectively preclude Members from bringing claims of serious prejudice against recurring subsidies, even though payments under su bsidy programs over an extended period can have 
effects in later years.  
(d) World Market Share under Article 6.3(d) of the  SCM Agreement  
245. New Zealand supports Brazil's appeal of the Pane l's finding that the "world market share" of 
the subsidizing Member under Article 6.3(d) refers to the share of the world market supplied by the 
subsidizing Member.  Defining "world market sh are" as including all production, instead of only 
exports, distracts from the trade focus of the  SCM Agreement   and subverts the underlying rationale 
of Article 6.3(d).  New Zealand supports Brazil's request for the Appellate Body to complete the 
analysis under Article 6.3(d). 
(e) Export Credit Guarantees – Articles 10.1 and 10.2 of the Agreement 
on Agriculture  
246. New Zealand asserts that the Panel was correct in finding that export credit guarantee 
programs are subject to the non-circumventi on obligation under Article 10.1 of the  Agreement on 
Agriculture ,  and that the United States' export credit guarantee programs provide export subsidies 
that breach Article 10.1 and are not exempt from action under the  SCM Agreement .  In New 
Zealand's view, Article 10.1 clearly applies to export credit guarantee programs that involve the 
granting of export subsidies.  Article 10.2 does not  create any exception that may contradict the clear 
meaning of Article 10.1.  The United States' interpretation would create a loophole for WTO Members to circumvent their export subsidy re duction commitments through export credit guarantee 
programs.  In such a case, New Zealand observes th at Article 10.2 would, itself, circumvent the anti-
circumvention provisions. WT/DS267/AB/R 
Page 84  
 
 
 (f) Export Credit Guarantees – Articles 1 and 3.1(a) of the SCM 
Agreement  
247. New Zealand agrees with Brazil that the Panel erred in exercising judicial economy by 
refusing to make a finding relating to the Un ited States' export credit guarantee programs under 
Articles 1.1 and 3.1(a) of the  SCM Agreement .  In New Zealand's view, a measure that no longer 
constitutes an export subsidy under item (j) of the Illustrative List of Export Subsidies may still 
constitute an export subsidy under Articles 1.1 and 3.1(a) of the  SCM Agreement .  Therefore, 
New Zealand requests the Appellate Body to complete  the analysis and find that the United States' 
export credit guarantee programs are export subsid ies under Articles 1.1 and 3.1(a) of the  SCM 
Agreement . 
9. Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu  
248. Pursuant to Rule 24 of the  Working Procedures ,  the Separate Customs Territory of Taiwan, 
Penghu, Kinmen and Matsu chose not to submit a third participant's submission.  In its statement at 
the oral hearing, the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu agreed with 
the United States that using planting flexibility lim itations in association with production flexibility 
contract payments and direct payments do es not render these measures inconsistent with 
paragraph 6(b) of Annex 2 to the  Agreement on Agriculture . 
III. Issues Raised in this Appeal 
249. The following issues are ra ised in this appeal: 
(a) as regards procedural matters: 
(i) in relation to production flexibility contract payments and market loss 
assistance payments: 
- whether the Panel erred in finding, in  paragraphs 7.118, 7.122, 7.128, 
and 7.194(ii) of the Panel Report, that Articles 4.2 and 6.2 of the  
Understanding on Rules and Procedures Governing the Settlement of 
Disputes  (the "DSU") do not exclude expired measures from the 
potential scope of consultations or a request for establishment of a 
panel and, therefore, that produc tion flexibility contract payments 
and market loss assistance payments fell within the Panel's terms of reference;  and  WT/DS267/AB/R 
 Page 85 
 
 
 - whether the Panel, contrary to Article 12.7 of the DSU, failed to set 
out the findings of fact, the applicability of relevant provisions, or the 
basic rationale behind this finding;  and 
(ii) in relation to export credit guarantee programs: 
- whether the Panel erred in finding , in paragraph 7.69 of the Panel 
Report, that the United States' export credit guarantees relating to 
eligible United States agricultural commodities other than upland 
cotton were within its terms of reference;  and 
- whether the Panel erred in finding,  in paragraph 7.103 of the Panel 
Report, that Brazil provided a statement of available evidence with respect to export credit guarantees re lating to eligible United States 
agricultural commodities other than  upland cotton, as required by 
Article 4.2 of the Agreement on Subsidies and Countervailing 
Measures  (the " SCM Agreement "); 
(b) as regards the application of Article 13 of the  Agreement on Agriculture  to this 
dispute: 
(i) in relation to Article 13(a)(ii): 
- whether the Panel erred in finding, in  paragraphs 7.388, 7.413, 7.414, 
and 8.1(b) of the Panel Report, that production flexibility contract 
payments and direct payments are not green box measures that fully 
conform to paragraph 6(b) of Annex 2 of the  Agreement on 
Agriculture  based on its finding, in pa ragraph 7.385 of the Panel 
Report, that the amount of production flexibility payments and direct payments is related to the type  of production undertaken by a 
producer after the base period;  and, therefore, that these measures 
are not exempt from actions based on Article XVI of the General 
Agreement on Tariffs and Trade 1994  (the "GATT 1994") and 
Part III of the  SCM Agreement   by virtue of Article 13(a)(ii) of the  
Agreement on Agriculture ;  and 
- whether the updating of base acres for direct payments under the 
FSRI Act of 2002 means that direct payments are not green box WT/DS267/AB/R 
Page 86  
 
 
 measures that fully conform to para graph 6(a) of Annex 2 of the  
Agreement on Agriculture   and, therefore, that these measures are not 
exempt from actions based on Article XVI of the GATT 1994 and 
Part III of the  SCM Agreement   by virtue of Article 13(a)(ii) of the  
Agreement on Agriculture , because they are not determined by 
clearly-defined criteria in a  defined and fixed base period179;  and 
(ii) in relation to Article 13(b)(ii), whet her the Panel erred in finding, in 
paragraphs 7.608 and 8.1(c) of the Panel Report, that user marketing (Step 2) 
payments ("Step 2 payments") to dom estic users, marketing loan program 
payments, production flexibility contract payments, market loss assistance payments, direct payments, counter -cyclical payments, crop insurance 
payments, and cottonseed payments (the "challenge d domestic support 
measures") granted, in the years 1999, 2000, 2001, and 2002, support to a specific commodity, namely, upland cotton,  in excess of that decided during 
the 1992 marketing year and, therefore, that these measures are not exempt 
from actions based on Articles 5 and 6 of the  SCM Agreement   and 
Article XVI:1 of the GATT 1994 by virtue of Article 13(b)(ii) of  Agreement 
on Agriculture ,  based on its findings: 
- in paragraph 7.494 of the Panel Re port, that the phrase "grant support 
to a specific commodity" in Article 13(b)(ii) refers to all non-green 
box support measures that clearly or explicitly define a commodity as one to which they bestow or confer support and does not mean "product-specific domestic support";   
- in paragraphs 7.518 and 7.520 of the Panel Report, that the 
challenged domestic support measu res are non-green box support 
measures that clearly or explicitly define a commodity, namely, upland cotton, as one to which they bestow or confer support;  and 
- in paragraphs 7.561 and 7.562 of the Panel Report, that an 
appropriate comparison between the level at which measures "grant 
                                                     
 
179Brazil's appeal is conditional  on the Appellate Body reversing  the finding of the Panel that "direct 
payments, production flexibility contract payments, and the legislative and regulatory provisions that establish 
and maintain the direct payment program" do not fully conform to paragraph 6(b) of Annex 2 and, 
consequently, do not satisfy the condition in paragraph (a) of Article 13 of the  Agreement on Agriculture .   WT/DS267/AB/R 
 Page 87 
 
 
 support" in the implementation period and that "decided during 
the 1992 marketing year" may be achie ved, with respect to marketing 
loan program payments and deficiency payments, through the use of 
a methodology other than the price gap methodology described in paragraph 10 of Annex 3 of the  Agreement on Agriculture ; 
(c) as regards serious prejudice:  
(i) in relation to Article 6.3(c) of the  SCM Agreement : 
- whether the Panel erred in finding, in paragraphs 7.1416 and 8.1(g)(i) 
of the Panel Report, that the effect of the marketing loan program payments, Step 2 payments, market loss assistance payments, and counter-cyclical payments (the "p rice-contingent subsidies") is 
significant price suppression within the meaning of Article 6.3(c) of 
the  SCM Agreement ,  based on its findings: 
(A) regarding the "market" and "price" in assessing whether "the 
effect of the subsidy is ... significant price suppression ... in 
the same market" within the meaning of Article 6.3(c) of the  
SCM Agreement :  
- in paragraphs 7.1238-7.1240 of the Panel Report, 
that the "same market" may be a "world market"; 
- in paragraph 7.1247 of the Panel Report, that a 
"world market" for upland cotton exists;  and 
- in paragraph 7.1274 of the Panel Report, that "the  
A-Index can be taken to reflect a world price in the world market for upland cotton";  and 
(B) regarding the "effect" of the price-contingent subsidies under 
Article 6.3(c) of the  SCM Agreement : 
- in paragraphs 7.1312 and 7.1333 of the Panel Report, 
that "significant price suppression" occurred within 
the meaning of Article 6.3(c); WT/DS267/AB/R 
Page 88  
 
 
 - in paragraphs 7.1355 and 7.1363 of the Panel Report, 
that "a causal link exists" between the price-
contingent subsidies and the significant price 
suppression found by the Panel under Article 6.3(c) and that this link is not attenuated by other factors raised by the United States; 
- in paragraphs 7.1173, 7.1186, and 7.1226 of the 
Panel Report, that it was not required to quantify precisely the benefit conferred on upland cotton by the price-contingent subsidies and, consequently, not identifying the precise amount of counter-cyclical 
payments and market loss assistance payments that 
benefited upland cotton;  and 
- in paragraph 7.1416 of the Panel Report, that the 
effect of the price-contingent subsidies for marketing 
years 1999 to 2002 "is significant price suppression 
... in the period MY 1999-2002";  and 
- whether the Panel, contrary to Article 12.7 of the DSU, failed to set 
out the findings of fact, the applicability of relevant provisions, or the 
basic rationale behind its finding, in  paragraphs 7.1416 and 8.1(g)(i) 
of the Panel Report, that the effect of the price-contingent subsidies is significant price suppression within the meaning of Article 6.3(c) of the  SCM Agreement ;  and 
(ii) in relation to Article 6.3(d) of the  SCM Agreement :    
- whether the Panel erred in finding, in paragraph 7.1464 of the Panel 
Report, that the words "world market share" in Article 6.3(d) of the  SCM Agreement   refer to the "share of the world market supplied by 
the subsidizing Member of th e product concerned";  and  
- whether the Appellate Body should complete the analysis of whether 
the effect of the price-contingent  subsidies is an increase in the  WT/DS267/AB/R 
 Page 89 
 
 
 United States' world market share of exports in upland cotton within 
the meaning of Article 6.3(d) of the  SCM Agreement180;  
(d) as regards user marketing (Step 2) pa yments, whether the Panel erred:  
(i) in finding, in paragraphs 7.1088, 7. 1097-7.1098, and 8.1(f) of the Panel 
Report, that Step 2 payments to  domestic users   of United States upland 
cotton, under Section 1207(a) of the FSRI Act of 2002, are subsidies 
contingent upon the use of domestic over imported goods that are 
inconsistent with Articles 3.1(b) and 3.2 of the  SCM Agreement ;  and 
(ii) in finding, in paragraphs 7.748-7.749, 7.760-7.761, and 8.1(e) of the Panel 
Report, that Step 2 payments to  exporters   of United States upland cotton, 
pursuant to Section 1207(a) of the FSRI Act of 2002, are subsidies contingent 
upon export performance within the meaning of Article 9.1(a) of the  
Agreement on Agriculture   that are inconsistent with Articles 3.3 and 8 of that 
Agreement and Articles 3.1(a) and 3.2 of the  SCM Agreement ; 
(e) as regards export credit guarantee programs, whether the Panel erred:  
(i) in finding, in paragraphs 7.901, 7.91 1, and 7.932 of the Panel Report, that 
Article 10.2 of the  Agreement on Agriculture   does not exempt export credit 
guarantees from the export subsidy disciplines in Article 10.1 of that Agreement;  
(ii) in the manner that it applied the burden of proof in finding that the United 
States' export credit guarantee programs are prohibited export subsidies under 
Articles 3.1(a) and 3.2 of the  SCM Agreement ; 
(iii) by failing to make the necessary findings of fact in assessing whether the 
United States' export credit guarantee programs are provided at premium 
rates that are inadequate to cover lo ng-term operating costs and losses within 
the meaning of item (j) of the Illustrative List of Export Subsidies annexed to the  SCM Agreement ; 
                                                     
 
180Brazil's request for the Appellate Body to complete the analysis of this issue is conditional  on the 
Appellate Body reversing  the finding of the Panel that the effect  of the price-contingent subsidies was 
significant price suppression in terms of Article 6.3(c) of the  SCM Agreement .   WT/DS267/AB/R 
Page 90  
 
 
 (iv) in finding, in paragraphs 7.947 and 7.94 8 of the Panel Report, that the United 
States' export credit guarantee programs are prohibited export subsidies under 
Article 3.1(a) of the  SCM Agreement   and are consequently inconsistent with 
Article 3.2 of that Agreement;  and 
(v) by exercising judicial economy, as noted in paragraph 6.31 of the Panel 
Report, in respect of Brazil's claim that the United States' export credit 
guarantee programs are export subsidies within the meaning of Articles 1.1 
and 3.1(a) of the  SCM Agreement ,  having already found that these measures 
were export subsidies covered by item (j ) of the Illustrative List of Export 
Subsidies and, therefore, were inconsiste nt with Articles 3.1(a) and 3.2 of the  
SCM Agreement ;   
(f) as regards circumvention of export subsidy commitments, whether the Panel erred:  
(i) in the application of Article 10.1 of the  Agreement on Agriculture  and by 
failing to meet the requirements of Article 11 of the DSU, in finding, in paragraph 7.881 of the Panel Report, th at Brazil did not establish that the 
United States' export credit guarantees are "applied in a manner that results 
in … circumvention" of the United States' export subsidy commitments with respect to pig meat and poultry meat in 2001
181; 
(ii) in paragraphs 7.882-7.883 and 7.896 of the Panel Report, in interpreting and 
applying the phrase "threatens to lead to ... circumvention" in Article 10.1 of 
the  Agreement on Agriculture ;  and 
(iii) in paragraph 7.882 and footnote 1061 of  the Panel Report, by confining its 
examination of threat of circumvention to scheduled products other than rice and unsupported unscheduled products; 
(g) as regards the FSC Repeal and Extrate rritorial Income Exclusion Act of 2000 
(the "ETI Act of 2000"), whether the Panel erred in finding that Brazil did not 
establish a  
prima facie   case that the ETI Act of 2000 and the subsidies granted  
                                                      
181At the oral hearing, Brazil indicated that it was not pursuing this claim in respect of vegetable oil.  WT/DS267/AB/R 
 Page 91 
 
 
 thereunder are inconsistent with Articles 8 and 10.1 of the  Agreement on 
Agriculture   and Articles 3.1 and 3.2 of the  SCM Agreement ,  in respect of upland 
cotton;  and 
(h) as regards Article XVI:3 of the GATT 1994:  
(i) whether the Panel erred in finding, in paragraph 7.1016 of the Panel Report, 
that Article XVI:3 of the GATT 1994 "app lies only to export subsidies as that 
term is now defined in the  Agreement on Agriculture   and the  SCM 
Agreement ";  and 
(ii) whether the Appellate Body should comp lete the analysis of whether the 
price-contingent subsidies caused the Un ited States to have "more than an 
equitable share of world export trade" in upland cotton, in violation of the second sentence of Article XVI:3 of the GATT 1994.
182 
IV. Preliminary Issues 
A. Terms of Reference – Expired Measures 
1. Introduction  
250. The United States appeals the Panel's finding that two subsidy measures, namely, production 
flexibility contract payments with the exception of those made in the 2002 marketing year and market 
loss assistance payments, can be the subject of cons ultations under the DSU a nd hence fell within the 
Panel's terms of reference, notwithstanding the fact  that the legislative basis for these payments had 
expired at the time those terms of reference were set.183   
251. Production flexibility contract payments were a form of income support under the Federal 
Agriculture Improvement and Reform Act of 1996 (the  "FAIR Act of 1996");  they were discontinued 
with the passage of the Farm Security and Rural In vestment Act of 2002 (the "FSRI Act of 2002") in 
May 2002.  The last production flexibility contract payments were scheduled to be made "not later 
                                                      
182Brazil's request for the Appellate Body to complete the analysis of this issue is conditional  on two 
events:  (i) the Appellate Body reversing  the finding of the Panel that the effect of the price-contingent subsidies 
was significant price suppression in terms of Article 6.3(c) of the  SCM Agreement ;  and, (ii) the Appellate Body 
declining  Brazil's request for a ruling that the United States' measures at issu e resulted in an increase in the 
United States' world market shar e in upland cotton in terms of Article 6.3(d) of the  SCM Agreement .   
183Notwithstanding paragraph 9 of the United States' Notice of Appeal, the United States explained 
during the oral hearing that it does not appeal the Panel's finding, in paragraph 7.132 of the Panel Report, that 
payments with respect to non-upland cotton base  acres were within its terms of reference. WT/DS267/AB/R 
Page 92  
 
 
 than" 30 September 2002184, in connection with the 2002 crop.  Market loss assistance payments were  
ad hoc   annual payments made through legislation enacted by the United States Congress between 
1998 and 2001.  Each such payment was made through a separate piece of legislation, the last of 
which was enacted on 13 August 2001, for the marketing year 2001 (1 August 2001 – 31 July 2002) crop.
185   
252. Before the Panel, the United States  argued that production flexib ility contract payments and 
market loss assistance payments could not be within  the terms of reference because they had expired 
prior to Brazil's request for consultations.  The United States argued that Article 4.2 of the DSU 
provides that consultations may cover only "mea sures affecting" the operation of a covered 
agreement, and that expired measures are not "m easures affecting" the operation of a covered 
agreement.186  Brazil  asked the Panel to reject the United States' request, submitting that a panel is 
required to examine the effects flowing from expi red measures in order to conduct an objective 
assessment of a serious prejudice claim.187   
253. The Panel noted that Brazil had not pursued claims  with respect to the legislation underlying 
the programs;  instead, Brazil's claim was limited to the WTO-consistency of the payments made 
under those programs. 188  In its reasoning, the Panel said it did:  
... not consider that Article 4.2 [of the DSU] supports an 
interpretation that a request for consultations cannot concern 
measures that have expired, or payments made under programmes 
that are no longer in effect, where the Member requesting consultations represents that bene fits accruing to it directly or 
indirectly under the covered agreem ents are being impaired by those 
measures.
189 
254. It added that "the Panel's terms of reference refer to Brazil's request for establishment of a 
panel, not its request for consultations."190  The Panel also recalled that "Article 6.2 of the DSU   
provides that a request for establishment of a panel should identify the 'specific measures at issue' and 
                                                      
184See Panel Report, paras. 7.107 and 7.212-7.215.  See also "Answers of the United States to the 
Panel's Questions Posed Following the First Session of the First Substantive Panel Meeting"  (11 August 2003), 
Panel Report, p. I-84, para. 35. 
185For further discussion of the nature of production flexibility contract payments and market loss 
assistance payments, insofar as they are relevant to this issue, see Panel Report, paras. 7.107 and 7.212-7.217.  
186See Panel Report, paras. 7.104 and 7.113. 
187See Panel Report, para. 7.105.  
188Ibid., para. 7.108. 
189Ibid., para. 7.118. 
190Ibid., para. 7.121.  WT/DS267/AB/R 
 Page 93 
 
 
 does not address the issue of the status of the measures at all."191  On this basis, the Panel indicated 
that it did not believe that: 
Article 4.2, and hence Article 6.2, of the DSU  excludes expired 
measures from the potential scope of a request for establishment of a 
panel.192 
255. In the light of this finding (and having rejected a further claim by the United States that 
market loss assistance payments were not identified with adequate specificity in Brazil's request for 
establishment of a panel193), the Panel concluded:  
Therefore, in light of our conclusi on at paragraph 7.122, ... the Panel 
rules that PFC and MLA payments, as addressed in document 
WT/DS267/7, fall within its terms of reference.194 
2. Appeal by the United States  
256. The United States claims that the Panel erred in reaching this conclusion and requests the 
Appellate Body to reverse the Panel's finding th at Articles 4.2 and 6.2 of the DSU do not exclude 
expired measures from the potential scope of consulta tions or a request for establishment of a panel.195  
It also asserts that the Panel failed to set out th e findings of fact, the ap plicability of relevant 
provisions, and the basic rationale behind this finding, as required by Article 12.7 of the DSU.196  The 
United States submits that it was undisputed that th e legislation authorizing both of these types of 
payments had expired before Brazil su bmitted its request for consultations.197   
257. The United States observes that Article 4.2 of the DSU provides that consultations may cover 
"any representations made by another Member  concerning measures  affecting  the operation of any 
covered agreement   taken within the territory of the former".198  The United States focuses on the 
present tense of the verb "affecting" in this Artic le and contends that e xpired measures cannot be 
measures "affecting", in the present, the operation of a covered agreement.199  Thus, according to the 
                                                      
191Panel Report, para. 7.121. 
192Ibid., para. 7.122. 
193Ibid., para. 7.127.  This finding has not been appealed. 
194Ibid., para. 7.128.  This final finding was reiterated in paragraph 7.194(ii) of the Panel Report. 
195United States' Notice of Appeal, supra , footnote 17, para. 14;  United States' appellant's submission, 
para. 515. 
196United States' appellant's submission, para. 150. 
197Ibid., para. 500. 
198United States' appellant's submission, para. 501 (quoting Article 4.2 of the DSU). (emphasis added 
by the United States) 
199Ibid., para. 501. WT/DS267/AB/R 
Page 94  
 
 
 United States, production flexibility contract and market  loss assistance payments cannot be said to be 
currently "affecting" the operation of any covered ag reement.  Consequently, they cannot be measures 
falling within the scope of "specific measures at  issue" in terms of Article 6.2 of the DSU.200 
258. Brazil responds that neither Article 4.2 nor Article 6.2 of the DSU precludes a panel from 
analyzing payments made in the past in the contex t of serious prejudice claims.  Brazil focuses on the 
context provided by Article 3.3 of the DSU, which states that a purpose of dispute settlement is the 
"prompt settlement of situations in which a Member  considers that any benefits accruing to it ... are 
being impaired by measures taken by another Member".  For Brazil, as long as the impairment is  current , the status in domestic law of the measure causi ng that impairment is irrelevant.  Brazil notes 
that the present dispute involves allegations of "adverse effects" and "serious prejudice" under the 
provisions of the  SCM Agreement  and the GATT 1994.  A breach of the relevant provisions of these 
Agreements does not occur when an actionable subsidy is granted, but rather when the adverse effects 
arise.  Brazil finds support for its pos ition in the view of the panel in  Indonesia – Autos , which found 
that past, present, and future subsidies can be the subject of dispute settlement, as the effect of such 
measures may be serious prejudice to the interests of a Member.
201  
3. Scope of Consultations under Article 4.2 of the DSU  
259. Article 4.2 of the DSU governs what measures may be the subject of consultations and 
provides as follows:  
Each Member undertakes to accord sympathetic consideration to and 
afford adequate opportunity fo r consultation regarding any 
representations made by another Member concerning measures 
affecting the operation of any cove red agreement taken within the 
territory of the former. (footnote omitted) 
260. It is clear from Article 4.2 that, although a requ ested Member is under an obligation to engage 
in "consultation" on "any" representations made by another Member, such representations must 
pertain to "measures affecting the operation of any covered agreement".  The United States argues that 
Article 4.2 of the DSU limits the obligation of the requested Member to representations concerning 
measures that are actually " affecting " the operation of any covered agreement.  The United States 
stresses the temporal significance of the present tense of the word "affecting" and asserts that 
                                                      
200United States' appellant's submission, paras. 502 and 512. 
201Brazil's appellee's submission, para. 256 (referring to Panel Report, Indonesia – Autos , para. 14.206).  WT/DS267/AB/R 
 Page 95 
 
 
 "[m]easures that have expired befo re a request for consultations  cannot  be measures 'affecting the 
operation of any covered agreement' at the time the request is made".202 
261. We agree with the Panel that the word "affec ting" refers primarily to "the way in which 
[measures] relate to a covered agreement".203  As the Appellate Body stated in  EC – Bananas III , 
"[t]he ordinary meaning of the word 'affecting' im plies a measure that has 'an effect on'" something 
else.204  At the same time, we also concur with th e United States that the ordinary meaning of the 
word "affecting" suggests a temporal connotation.  As the United States submit s, the present tense of 
the phrase "affecting the operation of any covered agreement" denotes that the effects of such 
measures must relate to the present impact of those measures on the operation of a covered agreement.  It is not sufficient that a Member alleges that challenged measures affected the operation of a covered agreement in the past;  the representations of the Member requesting consultations must indicate that 
the effects are occurring in the present.
205   
262. Whether or not a measure is still in force is not dispositive of whether that measure is 
currently affecting the operation of  any covered agreement.  Therefore, we disagree with the United 
States' argument that measures whose legislative basis has expired are incapable of affecting the 
operation of a covered agreement in the presen t and that, accordingly, expired measures  cannot  be 
the subject of consultations under the DSU.206  In our view, the question of whether measures whose 
legislative basis has expired affect the operation of a covered agreement currently is an issue that must 
be resolved on the facts of each case.  The outcome  of such an analysis cannot be prejudged by 
excluding it from consultations and disp ute settlement proceedings altogether. 
263. We consider that requesting Members should enjo y a degree of discretion to identify, in their 
request for consultations under Article 4.2, matter s relating to the covered agreements for discussion 
in consultations.  As the Appellate Body observed in  Mexico – Corn Syrup (Article 21.5 – US) , 
consultations present an opportunity for clarifying factual and legal issues, and for narrowing the 
scope of a dispute, and for resolv ing differences between WTO Members. 207  We do not think it 
would advance the purpose of consultations if  Article 4.2 were interpreted as excluding  a priori  
measures whose legislative basis may have expired, but whose effects are alleged to be impairing the 
benefits accruing to the requesting Member under a covered agreement.  Nor, indeed, do we find 
                                                      
202United States' appellant's submission, para. 501.  (emphasis added) 
203Panel Report, para. 7.115. 
204Appellate Body Report, EC – Bananas III , para. 220.  
205This does not exclude the possibility that the effects of a measure may occur in future. 
206United States appellant's submission, para. 501. 
207Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 54.     WT/DS267/AB/R 
Page 96  
 
 
 textual support in the provision itself for doing so.  Thus, we do not read Article 4.2 of the DSU as 
precluding a Member from making representations on measures whose legislative basis has expired, 
where that Member has reason to believe that such  measures are still "affecting" the operation of a 
covered agreement. 
264. We find contextual support for this in terpretation in Article 3.3 of the DSU208, which 
underscores the importance of the "prompt settlement" of certain situations that, in the absence of 
settlement, could undermine the effective functioni ng of the WTO and the maintenance of a proper 
balance between the rights and obligations of Member s.  We note, first, that Article 3.3 focuses not 
upon "existing" measures, or measures that are "curre ntly in force" but, rather, upon "measures taken" 
by a Member, which includes measures taken in the past.209  We also observe that Article 3.3 
envisages that disputes arise when a Member "consi ders" that benefits accruing to it are being 
impaired by measures taken by another Member.  By  using the word "considers", Article 3.3 focuses 
on the perception or understanding of an aggrieved Member.  This does not exclude the possibility 
that a Member requesting consultations may have r eason to believe that a measure is still impairing 
benefits even though its legislative basis has expired.210   
265. We recall that the Panel observed that:   
Brazil's request for consultations alleges that the use of the measures 
specified in the request "causes adverse effects, i.e. serious prejudice" 
to its interests.  We note the present tense of this allegation.  The 
request concerns the way in which measures were affecting the operation of a covered agreement at the time of consultations, and it 
states that Brazil had reason to believe that these subsidies were resulting in serious prejudice at that time.
211   
                                                      
208Article 3.3 of the DSU provides:  
The prompt settlement of situations in which a Member considers that any 
benefits accruing to it directly or indi rectly under the covered agreements 
are being impaired by measures taken by another Member is essential to the 
effective functioning of the WTO and the maintenance of a proper balance 
between the rights and obligations of Members.  
209Indeed, as the Panel noted, in the sense that "PFC  and MLA payments had already been made at the 
date of the establishment of the Panel", "they had not expired, but had simply occurred in the past". (Panel Report, para. 7.110)  
210Whether the Member's belief proves  to be correct is a substantive matter to be addressed in the 
consultations, or—if consultations fail—before a panel.  We note that Brazil's request for consultations in regard 
to this matter was based not only on Article 4 of the DSU, but also on Article 7.1 of the  SCM Agreement    
(as well as Article XXII of the GATT 1994).  (See Re quest for Consultations by Brazil, WT/DS267/1,  
3 October 2002, p. 1)  Article 7.1 authorizes a Member to request consultations whenever it "has reason to 
believe" that any subsidy referred to in Article 1 "results in" certain effects listed in that provision.  Article 7.1 
thus recognizes that questions regarding the results of  subsidization are potentially contentious matters.   
211Panel Report, para. 7.119.  WT/DS267/AB/R 
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 266. For the Panel, these aspects of the request for c onsultations were sufficient for Brazil to meet 
the requirements of Article 4.2 of the DSU.  We see no error in the Panel's approach to this question.  
Whether or not a subsidy program is still in force at the time consultations were requested does not 
answer the question whether any payments prev iously made under that program are currently 
affecting the operation of a covered agreement in the sense of Article 4.2.  Brazil, in these 
proceedings, represented in its request for consulta tions that payments under the production flexibility 
contract and market loss assistance programs continued to affect its rights under the  SCM Agreement .  
In our view, this was sufficient to meet the requirements of Article 4.2 of the DSU.  
4. Measure at Issue under Article 6.2 of the DSU  
267. In addition to its arguments under Article 4.2 of the DSU, the United States contends that an 
expired measure cannot be a measure th at is "at issue" in terms of Ar ticle 6.2 of the DSU.  The United 
States also argues that a finding to the contrary would be difficult to reconcile with the terms of 
Articles 3.7 and 19.1 of the DSU, which contempl ate the "withdrawal" of a measure found to be 
inconsistent with the covered agreements, or a recommendation that a measure found to be 
inconsistent with a covered agreem ent be brought into conformity.  The United States argues that the 
remedies described in Articles 3.7 and 19.1 are essentially prospective in nature.   
268. We understand these arguments by the United States to be largely dependent upon its 
arguments regarding Article 4.2 of the DSU: if, as  the United States contends, a measure may not be 
the subject of consultations then,  ipso facto ,  it may not be a measure "at issue" in the sense of 
Article 6.2.  Having rejected the United States' ar guments regarding Article 4.2, we do not find the 
United States' additional arguments under Article 6.2 compelling.   
269. The only temporal connotation contained in the ordinary meaning of the expression "at issue", 
as used in Article 6.2 of the DSU, is expressed by its present tense:  measures must be "at issue"—or, 
putting it another way, "in dispute"—at the time the request is made.  Certainly, nothing inherent in 
the term "at issue" sheds light on whether measures at  issue must be currently in force, or whether 
they may be measures whose legislative basis has expired.   
270. The relevant context for Article 6.2 in this re gard includes Articles 3.3 and 4.2 of the DSU.  
As we have concluded above, those provisions do not preclude a Member from making representations with respect to measures whose le gislative basis has expired, if that Member 
considers, with reason, that benefits accruing to  it under the covered agreements are still being 
impaired by those measures.  If the effect of  such measures remains in dispute following 
consultations, the complaining party may, accord ing to Article 4.7 of the DSU, request the WT/DS267/AB/R 
Page 98  
 
 
 establishment of a panel, and the text of Article 6. 2 does not suggest that such measures could not be 
the subject of a panel request as "specific measures at issue".    
271. The United States purports to find support for its position in the ruling of the Appellate Body 
in  US – Certain EC Products , where the Appellate Body reversed  the panel's decision to make a 
recommendation under Article 19.1 of the DSU that th e United States bring th e measure at issue in 
that case (the "3 March Measure") into conformity with the covered agreements, on the grounds that 
the panel had already found that the measure had e xpired.  However, that case involved a situation 
different from the present one.  There, the 3 March Measure had been the subject of consultations, but 
had expired.  The expiry of the 3 March Measure did not prevent it being a "measure at issue" for 
purposes of Article 6.2 of the DSU.  Indeed, neither  the panel nor the Appellate Body found that the 
3 March Measure was outside the pa nel's terms of reference, and both the panel and Appellate Body 
addressed that measure in their rulings.212   
272. The question whether an expired measure is susceptible to a recommendation under 
Article 19.1 of the DSU is a different  matter.  The Appellate Body in  US – Certain EC Products  
confirmed that the 3 March Measure had ceased to exist.  It noted that there was an obvious 
inconsistency between the finding of  the panel that "the 3 March M easure is no longer in existence" 
and the panel's subsequent recommendation that the Dispute Settlement Body (the "DSB") request the 
United States to bring the 3 March Measure into conformity with its WTO obligations.213  Thus, the 
fact that a measure has expired may affect what recommendation a panel may make.  It is not, 
however, dispositive of the preliminary question of whether a panel can address claims in respect of 
that measure.214   
                                                      
212This contrasts with the treatment of the other m easure raised in that pr oceeding (the "19 April 
action").  It was in force, but had not been the subject of consultations.  The panel and Appellate Body both 
ruled that the absence of consultations on the 19 April ac tion required its exclusion from the terms of reference. 
(Appellate Body Report, US – Certain EC Products , para. 82;  Panel Report, US – Certain EC Products , 
paras. 6.89 and 6.128) 
213Appellate Body Report, US – Certain EC Products , paras. 81-82. 
214This conclusion is consistent with the approach taken by GATT and WTO panels to questions 
relating to the expiry of measures after the initiation of dispute settlement proceedings, but before those 
proceedings have been completed.  See, for example, GATT Panel Report, EEC – Apples I (Chile) , paras. 2.4 
and 4.1 ff;  Panel Report, India – Autos , para. 7.29.  GATT and WTO panels have frequently made findings with 
respect to measures withdrawn after the establishment of the panel.  See, for example, GATT Panel Report, 
EEC – Animal Feed Proteins , para. 2.4;  GATT Panel Report,  US – Canadian Tuna , para. 4.3;  Panel Report, 
US – Wool Shirts and Blouses , para. 6.2;  and Panel Report, Indonesia – Autos , para. 14.9.  Even in cases where a 
panel has chosen not to rule on measur es that had been terminated during the course of proceedings, panels have 
recognized that "[o]n several occasions , panels have considered measures th at were no longer in force". (Panel 
Report, Argentina – Textiles and Apparel , para. 6.12. (footnote omitted))  In none of these cases has a panel or 
the Appellate Body premised its decision on the view that,  a priori ,  an expired measure could not be within a 
panel's terms of reference.   WT/DS267/AB/R 
 Page 99 
 
 
 273. It is important to recognize the particular characteristics of  subsidies  and the nature of 
Brazil's claims against the production flexibility contract and market loss assistance subsidy 
payments.  Article 7.8 of the  SCM Agreement   provides that, where it has been determined that "any 
subsidy has  resulted   in adverse effects to the interests of another Member", the subsidizing Member 
must "take appropriate steps  to remove the adverse effects  or ... withdraw the subsidy". (emphasis 
added)  The use of the word "resulted" suggests that  there could be a time-lag between the payment of 
a subsidy and any consequential adverse effects.215  If expired measures underlying past payments 
could not be challenged in WTO dispute settleme nt proceedings, it would be difficult to seek a 
remedy for such adverse effects.  Further—in c ontrast to Articles 3.7 and 19.1 of the DSU—the 
remedies under Article 7.8 of the  SCM Agreement  for adverse effects of a subsidy are (i) the 
withdrawal of the subsidy  or  (ii) the removal of adverse effects.  Removal of adverse effects through 
actions other than the withdrawal of a subsidy co uld not occur if the expiration of a measure would 
automatically exclude it from a panel's terms of reference.  
274. For these reasons, we find the United States' re liance upon the prospective character of the 
remedies described in Articles 3.7 and 19.1 of the DSU unconvincing.  We therefore  reject   the 
United States' argument that production flexibility contract payments and market loss assistance 
payments were outside the Panel's terms of refe rence by virtue of Article 6.2 of the DSU. 
5. Article 12.7 of the DSU  
275. The United States also alleges that, contrary to Article 12.7 of the DSU, the Panel failed to set 
out the findings of fact, the applicability of rele vant provisions, and the basic rationale behind its 
finding that Articles 4.2 and 6.2 of the DSU do not exclude expired measures from the potential scope 
of a request for the establishment of a panel. 
276. The Appellate Body stated in  Mexico – Corn Syrup (Article 21.5 – US) : 
                                                      
215We observe, in this regard, that the Un ited States concedes that at least  some  subsidies can have 
effects for years after the date on which they are paid .  Thus, the United States distinguishes between "non-
recurring" subsidies and "recurring" subsidies. Although the United States believes that the effects of recurring 
subsidies are limited to the year for which they are paid, the United States  accepts  that the effects of non-
recurring subsidies may spread out well into the future. (United States' appellant's submission, para. 508)  WT/DS267/AB/R 
Page 100  
 
 
 Article 12.7 establishes a minimum standard for the reasoning that 
panels must provide in support of their findings and recommendations.  Panels must set forth explanations and reasons 
sufficient to disclose the essential, or fundamental, justification for those findings and recommendations.
216 
The Appellate Body clarified:  
[w]hether a panel has articulated ad equately the "basic rationale" for 
its findings and recommendations must be determined on a case-by-
case basis, taking into account the f acts of the case, the specific legal 
provisions at issue, and the particular findings and recommendations made by a panel.  Panels must identify the relevant facts and the 
applicable legal norms.  In applying those legal norms to the relevant 
facts, the reasoning of the panel must reveal how and why the law 
applies to the facts.  In this way, panels will, in their reports, disclose the essential or fundamental justification for their findings and recommendations.
217 
The Appellate Body also explained that this "do es not, however, necessarily imply that Article 12.7 
requires panels to expound at length on the reasons for their findings and recommendations."218 
277. We note that compliance with Article 12.7 of the DSU is to be determined on a case-by-case 
basis.  With regard to the current proceedings , as discussed above, we see no error in the Panel's 
conclusion regarding its ability to ma ke findings with respect to subs idies whose legislative basis had 
expired at the time of panel establishment.  Although  the Panel's reasoning with respect to this issue 
may be brief, the Panel set out the necessary finding s of fact, the applicability of relevant provisions, 
and the basic rationale behind its findings.  The Pane l noted that the parties agreed on the key factual 
element that was relevant to this part of its analysis, namely, that the legislation under which 
production flexibility contract and market loss assistan ce payments were made had expired, and went 
                                                      
216Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 106.  It also noted that: 
... the duty of panels under Article 12 .7 of the DSU to provide a "basic 
rationale" reflects and conforms with the principles of fundamental fairness and due process that underlie and inform the provisions of the DSU.  In 
particular, in cases where a Member has been found to have acted 
inconsistently with its obligations under the covered agreements, that Member is entitled to know the reasons for such finding as a matter of due 
process.  In addition, the requirement to set out a "basic rationale" in the 
panel report assists such Member to understand the nature of its obligations and to make informed decisions about:  (i) what must be done in order to 
implement the eventual rulings and recommendations made by the DSB;  
and (ii) whether and what to appeal.  
(Ibid., para. 107) (footnote omitted) 
217Ibid., para. 108. 
218Ibid., para. 109.  WT/DS267/AB/R 
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 on to discuss relevant factual aspects.219  The Panel cited and discussed Ar ticle 4.2, in particular the 
meaning and significance of the term "affecting" in that provision.220  As we have done, the Panel 
interpreted Article 4.2 in the light of the context provided by Article 3.3 of the DSU.221  It addressed 
Article 6.2 of the DSU222, and also situated the question of "expired measures" in the context of the 
actionable subsidies claims made by Brazil in this case.223  Given these inquiries and considerations 
by the Panel, we see no reason to find that the Pane l failed to meet the requirements of Article 12.7 of 
the DSU in relation to whether the expired productio n flexibility contract and market loss assistance 
payments fell within its terms of reference.  
B. Terms of Reference – Export Credit Guarantees 
1. Introduction  
278. We turn now to the United States' claim that  the Panel erred in finding that its terms of 
reference were not limited to export credit guarantees to upland cotton, but also included export credit 
guarantees to other eligible Unite d States agricultural commodities.224 
279. The United States requested the Panel to "rule that export credit guarantee measures relating 
to eligible United States agricultural commodities (oth er than upland cotton) are not within its terms 
of reference because this 'measure' was not the subject of Brazil's request for consultations".225  Brazil 
responded that "both its request for consultations  and the accompanying statement of available 
evidence, as well as the questions it po sed to the United States during c onsultations, revealed that they 
covered export credit guarantee measures relating to all eligible United States agricultural 
commodities".226 
                                                      
219Panel Report, para. 7.108.   
220Ibid., paras. 7.112-7.115.  
221Ibid., para. 7.116-7.117.  
222Ibid., para. 7.121. 
223Ibid., paras. 7.109-7.110.  
224We note that, during the interim review, Brazil requested the Panel "to conclude that GSM 102, 
GSM 103 and SCGP also constitute prohibited export subsid ies within the meaning of item (j) and Article 3.1(a) 
of the SCM Agreement , for all products not covered by the Agreement on Agriculture ".  The Panel rejected 
Brazil's request, explaining that its "terms of reference include[d] export credit guarante es to facilitate the export 
of United States upland cotton and other eligible agricultural commodities as addressed in document 
WT/DS267/7". (Panel Report, para. 6.37. (original emphasis)) 
225Panel Report, para. 7.55. (footnote omitted) 
226Ibid., para. 7.57. (footnote omitted;  emphasis added) WT/DS267/AB/R 
Page 102  
 
 
 280. The Panel found that "the  actual   consultations did include e xport credit guarantee measures 
relating to all  eligible agricultural commodities".227  The Panel then examined the text of Brazil's 
request for consultations, "[a]ssuming  arguendo   that the scope of the written request for 
consultations is determinative, rather th an the scope of the actual consultations".228  It found "that 
export credit guarantee measures relating to all e ligible agricultural commodities were included in 
Brazil's request for consultations, based on its reading of the text of the request itself".229  
Accordingly, the Panel made the following ruli ng in response to the United States' request: 
[T]he Panel rules that export credit guarantees to facilitate the export 
of United States upland cotton, and other eligible agricultural 
commodities as addressed in document WT/DS267/7, are within its 
terms of reference.230  
2. Arguments on Appeal  
281. On appeal, the United States asse rts that the Panel erred in finding that export credit guarantee 
measures relating to all eligible agricultural co mmodities were included in Brazil's request for 
consultations.231  In addition, the United States takes issue with the Panel's finding that consultations 
were  actually   held on the export credit guarantee programs relating to agricultural commodities 
including, but not limited to, upland cotton.232  The United States argues, in this regard, that the fact 
that Brazil posed written questions on the export credit guarantees relating to agricultural commodities including, but not limited to, upland co tton does not mean that consultations were 
actually   held on all those products, especially considering that the United States objected to 
discussing them during the consultations on the basis that they were not included in the request for 
consultations.
233 
282. Brazil requests that we reject the United States ' appeal.  It contends that its request for 
consultations identified three United States expor t credit programs, namely, the General Sales 
Manager 102 ("GSM 102") and Gene ral Sales Manager 103 ("GSM 103") programs and the Supplier 
                                                      
227Panel Report, para. 7.61. (original italics;  underlining added) 
228Ibid., para. 7.62.  
229Ibid., para. 7.65.  The Panel explained that the title of this dispute, "United States – Subsidies on 
Upland Cotton", "did not appear in the original communication sent from the Permanent Mission of Brazil to the 
Permanent Mission of the United States",  but rather "was added by the [WTO ] Secretariat when it circulated a 
copy of the request for consultations to Members".  Cons equently, the Panel did not consider the title to be "a 
legally relevant consideration here". ( Ibid., footnote 131 to para. 7.64) 
230Panel Report, para. 7.69. (footnote omitted)  
231United States' appellant's submission, para. 474. 
232Ibid., para. 471. 
233Ibid., paras. 471-472.  WT/DS267/AB/R 
 Page 103 
 
 
 Credit Guarantee Program (the "SCGP").234  By their own terms, each of these measures applies to all 
eligible products.235  Therefore, there was no need to sp ecify the product scope of these measures.236  
Brazil submits that, in any event, its request for consultations in fact identified the export credit 
guarantee programs in connection with all eligib le commodities, without any limitation to upland 
cotton.237  Finally, Brazil asserts that, irrespective of the measures identified in Brazil's request for 
consultations, the Panel found, as a matter of fact, that "consultations were held" on the export credit 
guarantee programs in connection with all eligible  commodities, as required by Article 6.2 of the 
DSU.238   
3. Did the Panel's Terms of Reference Include Other Eligible Agricultural 
Commodities?  
283. The United States claims on appeal that the Pane l's terms of reference were limited to export 
credit guarantees to upland cotton, and did not in clude export credit guarantees to other eligible 
agricultural commodities.  This claim is premised  on the allegation that, in its request for the 
establishment of a panel, Brazil expanded the produ ct scope in respect of which it challenges the 
United States' export credit guarantee programs to in clude other eligible agricultural products in 
addition to upland cotton.  The United States subm its that the request for consultations and the 
consultations themselves, however, were limited to export credit guarantees to upland cotton.  Brazil 
contends that its request for consultati ons and the consultati ons held covered  all  agricultural products 
eligible for export credit guarantees.239 
284. Before addressing the question of whether Brazil expanded, in its panel request, the scope of 
products in respect of which it challenged the Un ited States' export credit guarantee programs, we 
note that the Appellate Body has explained previously that, "pursuant to Article 7 of the DSU, a 
                                                      
234These programs are described  infra , paras. 586-589. 
235See Panel Report, footnote 1056 to para. 7.875. 
236Brazil's appellee's submission, para. 195. 
237Ibid., para. 202. 
238Brazil's appellee's submission, paras. 208-209.  Brazil reads the Appellate Body Report in Brazil – 
Aircraft  as meaning that as long as "consultations we re held" on a measure included in a request for 
establishment of a panel, that measure is properly within  a panel's terms of reference, irrespective of whether the 
measure was included in the request for consultations. ( Ibid., para. 213 (referring to Appellate Body Report, 
Brazil – Aircraft , paras. 132-134))  Brazil adds that this is consistent with the purpose of consultations. ( Ibid., 
para. 214) 
239In addition, Brazil submits that the Panel's terms of  reference are de termined by the panel request, 
and that its panel request referred to all agricultural products eligible for the United States' export credit 
guarantees. WT/DS267/AB/R 
Page 104  
 
 
 panel's terms of reference are governed by the request for establishment of a panel".240  However, the 
Appellate Body has also explained that "as a genera l matter, consultations are a prerequisite to panel 
proceedings"241 and has underscored the importance and benefits of consultations: 
We agree ... on the importance of consultations.  Through 
consultations, parties exchange information, assess the strengths and weaknesses of their respective cases, narrow the scope of the 
differences between them and, in many cases, reach a mutually 
agreed solution in accordance with the explicit preference expressed 
in Article 3.7 of the DSU.  More over, even where no such agreed 
solution is reached, consultations provide the parties an opportunity to define and delimit the scope of the dispute between them.  Clearly, 
consultations afford many benef its to complaining and responding 
parties, as well as to third parties and to the dispute settlement system as a whole.
242 
285. The requirements that apply to a request for c onsultations are set out in Article 4.4 of the 
DSU, which provides, in relevant part: 
Any request for consultations sha ll be submitted in writing and shall 
give the reasons for the request, including identification of the measures at issue and an indication of the legal basis for the complaint. 
The Appellate Body has stated that "Articles 4 and 6 of the DSU ... set forth a process by which a 
complaining party must request consultations, and co nsultations must be held, before a matter may be 
referred to the DSB for the establishment of a panel".
243  At the same time, however, the Appellate 
Body has said that it does not believe that "Articles 4 and 6 of the DSU ... require a  precise and exact 
identity   between the specific measures that were th e subject of consultations and the specific 
                                                      
240Appellate Body Report, US – Carbon Steel , para. 124.  Article 7.1 of the DSU provides: 
Panels shall have the following terms of reference unless the parties to the 
dispute agree otherwise within 20 days from the establishment of the panel: 
To examine, in the light of the relevant provisions in 
(name of the covered agreement( s) cited by the parties to 
the dispute), the matter referred to the DSB by (name of 
party) in document ... and to  make such findings as will 
assist the DSB in making the recommendations or in giving the rulings provided for in that/those agreement(s). 
The United States does not dispute that Brazil's request for the establishment of a panel included export 
credit guarantees to eligible agricultural commodities including, but not limited to, upland cotton. 
241Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 58.   
242Ibid., para. 54. 
243Appellate Body Report, Brazil – Aircraft , para. 131.    WT/DS267/AB/R 
 Page 105 
 
 
 measures identified in the request for the establishment of a panel".244  We need not elaborate further 
on the relationship between a panel's terms of refere nce and the requirement that "consultations were 
held", because, as we explain below, we are satisfi ed that, in this case, the Panel had a reasonable 
basis to conclude that the request for consulta tions included export credit guarantees to eligible 
agricultural commodities including, but not limited to, upland cotton.   
286. In reviewing the Panel's analysis, we are faced  with the question whether the scope of the 
consultations is determined by the written request fo r consultations or by what actually happens in the 
consultations.  The Panel looked first at what actua lly happened during the consultations.  It observed 
that Brazil submitted in writing to the United Stat es 21 questions regarding export credit guarantee 
programs, seeking information on,  inter alia ,  the total volume and value of exports of United States 
agricultural goods guaranteed by these programs.245  According to the Panel, "[t]his shows that the 
actual  consultations did include export credit guarantee me asures relating to all eligible agricultural 
commodities".246  The  Panel then examined the text of Br azil's request for consultations, "[a]ssuming  
arguendo   that the scope of the written request for consu ltations is determinative, rather than the scope 
of the actual consultations".247    
287. We believe that the Panel should have limited its analysis to the request for consultations 
because we are inclined to agree with the panel in  Korea – Alcoholic Beverages ,  which stated that 
"[t]he only requirement under the DSU is that consulta tions were in fact held ... [w]hat takes place in 
those consultations is not the concern of a panel".248  Examining what took place in the consultations 
would seem contrary to Article 4.6 of the DSU,  which provides that "[c]onsultations shall be 
confidential, and without prejudice to the rights of any Member in any further proceedings."  
Moreover, it would seem at odds with the requirement s in Article 4.4 of the DSU that the request for 
                                                      
244Appellate Body Report, Brazil – Aircraft , para. 132. (original emphasis)  The Appellate Body found, 
in that case, that certain measures th at came into effect after consultations  were held were nevertheless within 
the Panel's terms of reference, emphasizing that the me asures did not change the essence of the challenged 
export subsidies.  In US – Certain EC Products , the Appellate Body found that one of the measures challenged 
by the European Communities was not properly before the Panel.  The Appellate Body explained that, although 
the panel request referred to the measure, it was not possible for it to conclude "on this basis alone " that the 
measure was within the Panel's terms of reference.  It noted that the European Communities' request for 
consultations did not refer to the measure and that the European Communities acknowledged that the measure 
was not the subject of the consultations.  In its ruling, the Appellate Body also emphasized that the particular 
measure was "separate" and "legally distinct" from another measure challenged by the European Communities. 
(Appellate Body Report, US – Certain EC Products , paras. 69-75) (original emphasis) 
245The United States acknowledged that Brazil posed questions during the consultations that went 
beyond upland cotton. (Panel Report, para. 7.61)  According to the Panel, the United States declined to respond 
to these questions during the consultations. (Panel Report, 7.67) 
246Panel Report, para. 7.61. (original emphasis)   
247Ibid., para. 7.62.  
248Panel Report, Korea – Alcoholic Beverages , para. 10.19. WT/DS267/AB/R 
Page 106  
 
 
 consultations be made in writing and that it be notif ied to the DSB.  In addition, there is no public 
record of what actually transpires during consulta tions and parties will often disagree about what, 
precisely, was discussed.  Ultimately, however, it is not  necessary for us to inquire into this part of the 
Panel's analysis because the Panel also found "t hat export credit guarantee measures relating to all 
eligible agricultural commodities were included in Brazil's request for consultations, based on its 
reading of the text of the request itself".249  We turn, therefore, to examin e whether there is a sufficient 
basis for the Panel's conclusion in this regard. 
288. Brazil's request for consultations states, in relevant part250: 
The measures that are the subject of this request are prohibited and 
actionable subsidies provided to US producers, users and/or exporters of upland cotton
1, as well as legislation, regulations, statutory 
instruments and amendments ther eto providing such subsidies 
(including export credits), grants, and any other assistance to the US producers, users and exporters of upland cotton ("US upland cotton industry").  The measures include the following: 
... 
- Export subsidies, exporter assistance, export credit 
guarantees, export and market access enhancement to 
facilitate the export of US upl and cotton provided under the 
Agricultural Trade Act of 1978, as amended, and other measures such as the GSM-102, GSM-103, and SCGP programs ... 
... 
Regarding export credit guarantees, export and market access 
enhancement provided under the Agricultural Trade Act of 1978, as amended, and other measures such as the GSM-102, GSM-103, and SCGP programs, Brazil is of the view that these programs, as applied and as such, violate Articles 3.3, 8, 9.1, and 10.1 of the Agreement 
on Agriculture and are prohibited export subsidies under 
Article 3.1(a) and item (j) of the Illustrative List of Export Subsidies included as Annex I to the SCM Agreement.  Subsidies provided under these programs are also actionable subsidies for the purpose of Brazil's claims under Article 6.3 of the SCM Agreement. 
  
 
 1 Except with respect to export cr edit guarantee programs as explained 
below. 
                                                      
249Panel Report, para. 7.65. 
250Request for Consultations by Brazil, supra , footnote 26, pp. 1-2 and 4.    WT/DS267/AB/R 
 Page 107 
 
 
 289. According to the Panel, footnote 1 to Brazil's request for consultations "should have indicated 
to the careful reader that the subject of the requ est for consultations, with respect to export credit 
guarantee measures only, was different from those 'pr ovided to US producers, users and/or exporters 
of upland cotton'".251  The Panel also observed that the s econd paragraph after the footnote dealing 
with export credit guarantee programs referred to the programs as applied and as such, and it did not 
refer specifically to upland cotton.  The Panel therefore concluded that "export credit guarantee 
measures relating to all eligible agricultural co mmodities were included in Brazil's request for 
consultations, based on its reading of the text of the request itself."252   
290. The United States contends that the Panel ignored  the first paragraph after the footnote and 
drew the wrong conclusion from the second paragraph.  According to the United States, "it is simply 
not the case that a 'plain reading' of the [sec ond] paragraph 'includes all eligible agricultural 
commodities'."  Rather, it "shows that  the [second] paragraph mentions  no  commodities at all".253  
The United States also asserts that the Panel " overlooked the context that th[e] first paragraph 
provided for the second".254  The first paragraph, the United States points out, refers to exports 
subsidies, exporter assistance, and export cr edit guarantees to facilitate the export of  upland cotton   
under a series of listed measures.  A comparison of the first and second paragraphs shows that "the 
second did not describe measures, but, rather, described the  legal basis   for Brazil's complaint".255  
The United States submits that the Panel should ther efore have concluded that  "the two paragraphs 
complemented one another" and, "[ t]hat being the case, there is no reason to believe (and certainly the 
Panel gave none) that the product scope of the second paragraph was broader than the 'upland cotton' 
mentioned in the first paragraph".256  Finally, the United States argues that, "[e]ven assuming that the 
omission of the words 'upland cotton' from the second paragraph had some significance", the Panel 
gave no explanation as to "why the omission of those words should extend the product scope to 'all 
eligible agricultural commodities' ra ther than some other product scope".257 
                                                      
251Panel Report, para. 7.63. 
252Ibid., para. 7.65. 
253United States' appellant's submission, para. 476 (quoting Panel Report, para. 7.64). (original 
emphasis) 
254Ibid., para. 477. 
255Ibid., (original emphasis) 
256Ibid., para. 477. 
257Ibid., para. 479. WT/DS267/AB/R 
Page 108  
 
 
 291. We have examined carefully Brazil's request fo r consultations and we find that it provides a 
sufficient basis for the Panel to have concluded that the request included export credit guarantees to 
eligible agricultural commodities including, but not limited to, upland cotton.  Footnote 1 of the 
request for consultations, which states "Except w ith respect to export credit guarantee programs as 
provided below", alerts the reader that there is some thing different about Brazil's claims relating to the 
United States' export credit guarantee programs.  Fu rthermore, the fact that the footnote follows 
immediately after the term "upland cotton" suggests that this difference relates to the product scope.  
It was not unreasonable, therefore, for the Panel to conclude that footnote 1 "should have indicated to 
the careful reader that the subject of consultati ons, with respect to export credit guarantee measures 
only, was different from those 'provided to US producer, users and/or exporters of upland cotton'".258  
In addition, in the second paragraph dealing with  export credit guarantees after the footnote, Brazil 
refers to the programs "as such", which suggests a broad challenge, rather than one limited to a 
specific agricultural commodity.  In our view, therefor e, the footnote, together with the reference to 
the programs "as such" in the second paragraph, prov ide a reasonable basis for the Panel's conclusion 
"that export credit guarantee measures relating to a ll eligible agricultural commodities were included 
in Brazil's request for consultations, based on its  reading of the text of the request itself."259 
292. The United States also cites the lack of any re ference to agricultural commodities other than 
upland cotton in the statement of available evid ence that is annexed to Brazil's request for 
consultations as "further proof that the request  did not extend beyond export credit guarantees for 
upland cotton".260  The United States raised this point as a separate claim on appeal and, therefore, we 
deal with this allegation in the next section of this Report.  Below we uphold the Panel's finding that 
Brazil provided a statement of available evidence w ith respect to the Unite d States' export credit 
guarantee programs as they relate to eligible agricultural products including, but not limited to, upland 
cotton261 and, consequently, this argument does not sup port the United States' position on this issue. 
                                                      
258Panel Report, para. 7.63. 
259Ibid., para. 7.65.  The facts of this case differ from those in US – Certain EC Products , on which the 
United States relies.  In that case, the measure was not mentioned in the request for consultations because it was not even in existence at the time.  (Appellate Body Report, US – Certain EC Products , para. 70) 
260United States' appellant's submission, para. 461. 
261See  infra ,  para. 309.  WT/DS267/AB/R 
 Page 109 
 
 
 293. We emphasize that consultations are but the firs t step in the WTO dispute settlement process.  
They are intended to "provide the parties an opportun ity to define and delimit the scope of the dispute 
between them".262  We also note that Article 4.2 of the DSU calls on a WTO Member that receives a 
request for consultations to "accord sympathetic cons ideration to and afford adequate opportunity for 
consultation regarding any represen tations made by another Member".  As long as the complaining 
party does not expand the scope of the dispute, we hesitate to impose too rigid a standard for the 
"precise and exact identity"263 between the scope of consultations and the request for the 
establishment of a panel, as this would substitute th e request for consultations for the panel request.  
According to Article 7 of the DSU, it is the request  for the establishment of a panel that governs its 
terms of reference, unless the parties agree otherwise. 264   
294. For these reasons, we uphold the Panel's ruling, in  paragraph 7.69 of the Panel Report, that 
"export credit guarantees to facilitate the export of United States upland cotton, and other eligible 
agricultural commodities ... are within its terms of reference". 
C. Statement of Available Evidence – Export Credit Guarantees  
1. Introduction  
295. We now examine the United States' claim that the Panel erred in finding that Brazil's 
statement of available evidence was not limited to the United States' export credit guarantees to 
upland cotton, but also included export credit gua rantee measures relating to other eligible United 
States agricultural products, as required by Article 4.2 of the  SCM Agreement .   
296. The United States requested the Panel to rule that Brazil "could not advance claims under ... 
Article 4 ... of the  SCM Agreement   with respect to export credit guarantee measures on eligible 
agricultural commodities other than upland cotton becau se it did not include a statement of available  
                                                      
262Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 54. 
263Appellate Body Report,  Brazil – Aircraft ,  para. 132. (emphasis omitted) 
264Appellate Body Report, US – Carbon Steel , para. 124.   WT/DS267/AB/R 
Page 110  
 
 
 evidence with respect to such export credit guarant ees in accordance with Articl[e] 4.2 ... of that 
Agreement".265 
297. In examining the United States' request, the Panel noted that Brazil's statement of available 
evidence contained two paragraphs specifically refe rring to the United States' export credit guarantee 
programs266, and observed that the first paragraph is "t extually limited to upland cotton", while the 
second paragraph "is not so limited".267  The Panel then rejected the United States' contention that the 
lack of a reference to upland cotton in the second paragraph could not expand the scope of the 
statement of available evidence.268  According to the Panel, when the second "paragraph is read in 
light of footnote 1 of the request for consultations, a careful reader should have been alerted to the fact 
that this paragraph referred to alleged subsidies arising from export credit guarantees under the 
challenged programmes, without any limitation to up land cotton or any other particular product or 
products".269  Furthermore, the Panel stated that Brazil's statement of evidence referred to a website of 
the United States Congressional Budget Office, which includes data pertaining to the spending and  
                                                      
265Panel Report, para. 7.70.  The Pa nel explained that the United States initially argued that Brazil's 
statement of available evidence as regards export credit guarantees was limited to upland cotton and did not extend to other eligible agricultural commodities, demonstrating that Brazil's request for consultations was 
limited to export credit guarantees relating to upland co tton.  The request for a sp ecific ruling on the adequacy 
of the statement of available evidence was made by the United States in its submission of 30 September 2003. 
(Panel Report, para. 7.71) 
In addition, the Panel noted that the United States had made allegations under both Articles 4.2 and 7.2 
of the  SCM Agreement .  The Panel observed that Article 4.2 rela tes to prohibited subsidies and Article 7.2 
relates to claims against actionable subsidies.  Then, the Panel stated that it was not necessary for it to rule on 
the United States' claim relating to Article 7.2 because:  (i) Brazil challenged only one United States export 
credit guarantee program—GS M 102—as an actionable subsidy that caused serious prejudice;  (ii) this 
allegation was limited to upland cotton;  and (iii) the Pa nel had exercised judicial economy with respect to the 
claim.  Thus, the Panel limited its examination to "whether Brazil included a statement of available evidence 
with respect to export credit gua rantees on other eligible agricultu ral products in acco rdance with the 
requirement pertaining to its  export   subsidy allegations in Article 4.2 of the  SCM Agreement ". (Panel Report, 
paras. 7.73-7.74, 7.76, and 7.78-7.79) (original emphasis) 
In its Notice of Appeal, the United States asserted that, in the event that Brazil appealed the Panel's 
exercise of judicial economy with respect to Brazil's claims concerning the compatibility of the United States' 
export credit guarant ee measures with Part III of the  SCM Agreement , the United States would conditionally 
request the Appellate Body to find that Brazil also failed to provide a statement of available evidence as 
required by Article 7.2 of the  SCM Agreement   and, accordingly, Brazil's cl aims concerning these measures 
were not within the Panel's terms of reference.  (Notice of Appeal, supra , footnote 17, para. 13)  The United 
States did not pursue this claim further in its appellant's submission.  In any event, the condition on which the 
United States' appeal was based was not met, as Brazil di d not appeal the Panel's exer cise of judicial economy 
concerning the compatibility of the United States' export credit guarantee measures with Part III of the  SCM 
Agreement . 
266Panel Report, para. 7.83. 
267Ibid., para. 7.84. 
268Ibid., para. 7.84. 
269Ibid., para. 7.85. (footnoted omitted)  Footnote 1 of Brazil's request for consultations reads: "Except 
with respect to export cred it guarantee programs as explained below".  See  supra , para. 288.  WT/DS267/AB/R 
 Page 111 
 
 
 offsetting receipts of the Commodity Credit Corpora tion (the "CCC").  Neither the reference to the 
website nor the data on the website "contain any indication of limitation of Brazil's allegations 
concerning the export credit guarantee programmes to any specific product, such as, for example, 
upland cotton".270 
298. Therefore, the Panel found: 
[A]ssuming  arguendo   that the United States' request was timely[271], 
the Panel rules that Brazil provided a statement of available evidence with respect to export credit gua rantee measures relating to upland 
cotton and eligible United States ag ricultural products other than 
upland cotton, as required by Article 4.2 of the  SCM Agreement .
272 
299. On appeal, the United States argues that the Pa nel's ruling is erroneous.  The United States 
submits that Brazil's statement of evidence contai ns two paragraphs specifically referring to the 
United States' export credit guarantee programs.273  The first paragraph is textually limited to upland 
cotton, as the Panel correctly found.  Although the second paragraph does not refer to upland cotton, it 
contains no suggestion that it expands on the programs described in the preceding paragraph.274  The 
United States further submits that, even if the second paragraph were construed to refer to programs 
that provide benefits to products other than upland cotton, it is "di fficult to see" how that paragraph 
meets the requirements of Article 4.2 of the  SCM Agreement ,  as it does not provide information 
about the "existence" or "nature" of the subsidi es allegedly provided by the export credit guarantee 
programs to products in addition to upland cotton.275 
300. Brazil submits that its statement of availabl e evidence not only identifies the measures at 
issue—the United States' export credit guarantee progr ams—but also indicates the characteristics of 
those measures that had led Brazil to  suspect that they constituted expor t subsidies, as required by the 
Appellate Body in  US – FSC .276  Specifically, Brazil's statement describes the failure of the export 
credit guarantee programs to establish premium rates that cover long-term ope rating costs and losses, 
which are central elements in a determination of  whether a program constitutes an export subsidy 
                                                      
270Panel Report, paras. 7.92-7.93. 
271Brazil had argued that the United States' request was untimely.  The Panel found it unnecessary to 
rule on the timeliness of the United States' request, in th e light of its ruling on the substantive question. (Panel 
Report, footnote 160 to para. 7.103) 
272Panel Report, para. 7.103. (footnotes omitted) 
273United States' appellant's submission, para. 494. 
274Ibid., paras. 495-496. 
275United States' appellant's submission, para. 497. 
276Brazil's appellee's submission, paras. 228-229 (referring to Appellate Body Report, US – FSC , 
para. 161). WT/DS267/AB/R 
Page 112  
 
 
 under item (j) of the Illustrative List of Export Subsidies included as Annex I to the  SCM 
Agreement .277  Furthermore, the Panel made a factual finding that the documentary evidence cited by 
Brazil to support its preliminary view included a li nk to a United States government website with data 
showing that revenues for the export credit gua rantee programs do not c over long-term operating 
costs and losses, which addressed the programs overall,  rather than in connection with only upland 
cotton.278  Thus, according to Brazil, its statement of  available evidence met the requirements of 
Article 4.2, by identifying the export credit guarantee measures, and providing and describing 
available evidence of "the charact er of" those measures, across a ll eligible commodities, as export 
subsidies.279 
2. Did Brazil's Statement of Available Evidence Include Export Credit 
Guarantees to Other Eligib le Agricultural Commodities?  
301. The issue raised on appeal is whether the Panel correctly concluded that Brazil's statement of 
available evidence was not limited to export cred it guarantees to upland cotton and included export 
credit guarantees to other elig ible agricultural commodities.280  The requirement that a party 
challenging a prohibited subsidy provide a statement of  available evidence is set out in Article 4.2 of 
the  SCM Agreement ,  which provides: 
A request for consultations unde r paragraph 1 shall include a 
statement of available evidence w ith regard to the existence and 
nature of the subsidy in question. 
Article 4.2 is included in Appendix 2 of the DSU as a special or additional rule on dispute settlement. 
302. The Appellate Body has stated that Article 4.2 of the  SCM Agreement   must be read and 
applied together with Article 4.4 of the DSU, which sets out the requirements for the request for 
consultations, "so that a request for consultations  relating to a prohibited subsidy claim under the  
SCM Agreement   must satisfy the requirements of both provisions".281  It has also explained that the  
                                                      
277Brazil's appellee's submission, para. 230. 
278Ibid., paras. 231-232 (referring to Panel Report, paras. 7.92-7.93). 
279Ibid., para. 233. 
280The United States does not contest that Brazil s ubmitted a statement of available evidence together 
with its request for consultations.  Nor does the Unite d States contest that Brazil's statement of available 
evidence referred to the United St ates' export credit guarantees as  they relate to upland cotton. 
281Appellate Body Report, US – FSC , para. 159.  WT/DS267/AB/R 
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 "additional requirement of 'a statement of available evidence' under Article 4.2 of the  SCM 
Agreement   is distinct from—and not satisfied by comp liance with—the requirements of Article 4.4 of 
the DSU".282   
303. Brazil's statement of available evidence is anne xed to its request for consultations.  As the 
Panel noted283, the statement contains the following tw o paragraphs referring specifically to the 
United States' export credit guarantee programs: 
US export credit guarantee programs have caused serious prejudice 
to Brazilian upland cotton producers by providing below-market 
financing benefits for the export of competing US upland cotton; 
US export credit guarantee programs, since their origin in 1980 and 
up [to] the present, provide premium rates that are inadequate to cover the long-term operating costs and losses of the programs; in 
particular there were losses caused by large-scale defaults totalling 
billions of dollars that have not b een reflected in increased premiums 
to cover such losses[.]
284 
304. The United States asserts that Brazil's statement of evidence does not mention any agricultural 
commodity other than upland cotton when it refers  to the United States' export credit guarantee 
programs.  This is correct.  At the same time, how ever, we observe that the second paragraph is not 
expressly limited to upland cotton.  Rather, that pa ragraph refers to the United States' export credit 
guarantee programs in a general way, suggesting that the reference is to the programs as a whole and 
not just as they relate to one specific agricultural co mmodity.  The allegation in that paragraph that the 
premium rates are inadequate to cover the long- term operating costs and losses of the programs is 
equally broad and does not suggest that it is only with respect to upland cotton that premiums are 
insufficient to offset costs and losses.  As the Pane l explained, when the second "paragraph is read in 
light of footnote 1 of the request for consultations, a careful reader should have been alerted to the fact 
that this paragraph referred to alleged subsidies arising from export credit guarantees under the 
challenged programmes, without any limitation to up land cotton or any other particular product or 
products".285  Thus, we do not find that it was unreasona ble for the Panel to have "read Brazil's 
statement of available evidence, insofar as Brazil's export subsidy claims are concerned, to refer to 
                                                      
282Appellate Body Report, US – FSC , para. 161. 
283Panel Report, para. 7.83. 
284Statement of available evidence annexed to the Request for Consultations by Brazil, supra , 
footnote 26, para. 3. 
285Panel Report, para. 7.85. (footnote omitted)  The text of footnote 1 is reproduced, supra , 
footnote 269. WT/DS267/AB/R 
Page 114  
 
 
 each of the three challenged United States export subs idy programmes as they relate to upland cotton 
and other eligible agricultural products".286  
305. The United States submits that, even if the sec ond paragraph were c onstrued to refer to 
programs that provide benefits to  products in addition to upland cotton, it is "difficult to see"287 how 
that paragraph meets the requirements of Article 4.2 of the  SCM Agreement , as it does not provide 
information about the "existence" or "nature" of th e subsidies allegedly provided by the export credit 
guarantee programs to products in addition to upland cotton.  The Panel rejected the United States' 
argument because it considered that: 
Brazil's statement of available ev idence indicates Brazil's view that 
the character of the alleged subsidy lay in the provision of export credit guarantees under programmes "at premium rates that are 
inadequate to cover the long-term  operating costs and losses of the 
programs; in particular there were losses caused by large-scale defaults totalling billions of dollars that have not been reflected in 
increased premiums to cover such losses."
288  
From this, the Panel concluded that Brazil "had evid ence available to it at that time which led it to 
conclude that the United States was providing a proh ibited export subsidy of this nature and character 
under the three identified export subsidy programmes, without any limitation to a particular product or 
products".289   
306. We recall that Article 4.2 requires that the requ est for consultations "include a statement of 
available evidence with regard to the existence and nature of the subsidy in question".  In  US – FSC ,  
the Appellate Body explained that this means that "it is available evidence of the character of the 
measure as a 'subsidy' that must be indicated, an d not merely evidence of the existence of the 
measure".290  We observe that, in Brazil's statement of available evidence, the second paragraph that 
deals specifically with the United States' export credit guarantee programs does not simply refer to 
their existence.  In that paragraph, Brazil i ndicates that the export credit guarantees have the 
                                                      
286Panel Report, para. 7.86. 
287United States' appellant's submission, para. 497. 
288Panel Report, para. 7.89 (quoting statement of available evidence, supra , footnote 284, para. 3). 
289Ibid., para. 7.90. 
290Appellate Body Report, US – FSC , para. 161.  In that case, the European Communities did not 
provide a separate statement of availa ble evidence, but argued that such a statement was contained in the request 
for consultations itself.  The Panel found that the consultations request may have contained a statement of available evidence.  The Appellate Body noted that it "would have preferred that the Panel give less relaxed 
treatment to this important distinction" between the exis tence and the character of th e measure as a subsidy, but 
it ultimately ruled that the United States' objection to the request for consultations had been untimely and therefore it did not rule on whether the consultations request included a statement of available evidence. ( Ibid., 
paras. 155, 161, and 165)  WT/DS267/AB/R 
 Page 115 
 
 
 "character" of a subsidy because the premiums ch arged are insufficient to cover the long-term 
operating costs and losses.  Brazil goes further by stating that this situation is especially due to the fact 
that the premiums have not increased despite "lar ge-scale defaults tota lling billions of dollars".291 
307. In addition, as the Panel pointed out, Brazil re ferred to a website of the United States 
Congressional Budget Office.  This website includes projections of the mandatory spending of the 
United States federal government.  One of the tabl es provided on the website contains a line-item that 
specifically refers to spending by the CCC, which, acco rding to the title of the table, already takes into 
account offsetting receipts.  Thus, by referring to th is website, Brazil's statement of evidence was also 
indicating that the export credit guarantees have the "character" of a subsidy because the premiums 
charged are insufficient to cover the long-term opera ting costs and losses.  Therefore, the Panel had a 
reasonable basis to conclude that Brazil's statement of evidence met the requirements of Article 4.2 of 
the  SCM Agreement . 
308. We recognize that the statement of availabl e evidence plays an important role in WTO 
dispute settlement.  The adequacy of the statement of available evidence must be determined on a case 
by case basis.  As the Panel stated, moreover, the "statement of available evidence ... is the starting 
point for consultations, and for the emergence of more evidence concerning the measures by reason of 
the clarification of the 'situation'".292  It is, therefore, important to bear in mind that the requirement to 
submit a statement of available evidence applies in  the earliest stages of WTO dispute settlement, and 
that the requirement is to provide a "stateme nt" of the evidence and not the evidence itself.293   
309. For these reasons, we  uphold   the Panel's ruling, in paragra ph 7.103 of the Panel Report, that 
"Brazil provided a statement of available eviden ce with respect to export credit guarantee measures 
relating to upland cotton and eligible United States agricultural products other than upland cotton, as 
required by Article 4.2 of the  SCM Agreement ". (footnote omitted)  
                                                      
291Statement of available evidence annexed to the Request for Consultations by Brazil, supra , 
footnote 26, para. 3.  
292Panel Report, para. 7.100. 
293Panel Report, Australia – Automotive Leather II , para. 9.19. WT/DS267/AB/R 
Page 116  
 
 
 V. Domestic Support 
A. Article 13(a) of the Agreement on Agricu lture – Planting Flexibility Limitations 
1. Introduction  
310. We turn now to consider appeals by the Unite d States and Brazil regarding the application of 
Article 13 of the  Agreement on Agriculture   (often referred to as th e "peace clause").  We first 
address the issue of whether two types of payment—production flexibility contract payments and direct payments—are entitled to the exemption from action established by paragraph (a) of Article 13.  
311. Production flexibility contract payments were introduced by the FAIR Act of 1996 for the 
1996-2002 marketing years, and were made to cer tain historical producers of seven eligible 
commodities, including upland cotton.  Historical producers could enroll acres upon which upland cotton had been grown during a base period and were allocated upland cotton "base acres" (as well as a farm-specific yield per acre), for which payment would be made at a rate specified each year for 
upland cotton.  The production flexibility contract program dispensed with the requirement that 
producers continue to plant upland cotton in order to receive payments;  instead, payments would 
generally be made regardless of what the producer  chose to grow, and whether or not the producer 
chose to produce anything at all.  However, there were  limits to this planting flexibility.  Specifically, 
payments were reduced or eliminated if fruits and vegetables (other than lentils, mung beans, and dry 
peas) were planted on upland cotton base acres, subject to certain other exceptions.
 294 
312. Direct payments were introduced by the FSRI Act of 2002 for the 2002-2007 marketing 
years.  They essentially replaced production flexib ility contract payments under the FAIR Act of 
1996, while also expanding the program to take in historical production of some additional 
commodities.295  Both production flexibility contract paymen ts and direct payments were available for 
the 2002 crop, but production flexibility contract pa yments made for that crop were deducted from 
direct payments made for that crop.296  Like production flexibility contract payments for upland 
cotton, direct payments for upland cotton were dependent on base acres allocated by reference to the 
                                                      
294Panel Report, paras. 7.212-7.215 and 7.376-7. 378.  The exceptions from planting flexibility 
limitations related to regions with a history of double cropping or farms with a history of planting fruits or 
vegetables on contract acreage.  ( Ibid., para. 7.378) 
295Ibid., paras. 7.218-7.219 and 7.397.  The Panel di scusses similarities and differences between the 
production flexibility contract program and the direct payment program in paragraphs. 7.398-7.399.   
296Ibid., para. 7.220.  WT/DS267/AB/R 
 Page 117 
 
 
 production of upland cotton dur ing certain base periods.297  The payments were made each year at a 
rate fixed for the entire 2002-2007 period at 6.67 ce nts per pound of upland cotton.  As was the case 
under the production flexibility contract program, produ cers were not required to grow any particular 
crop in order to receive direct payments, and could ch oose to grow nothing at all.  In addition to fruits 
and vegetables (other than lentils, mung beans, a nd dry peas), wild rice was added to the planting 
flexibility limitations.298  
313. The Panel found that the amount of payments  under the production flexibility contract 
program and the direct payment program is "related to the type of production undertaken by the producer after the base period."
299  On this basis, the Panel found that these payments and "the 
legislative and regulatory provisions that provide for the planting flexibility limitations in the DP programme" do not fully conform to pa ragraph 6(b) of Annex 2 of the Agreement on Agriculture .
300  
The Panel concluded that these measures are thus not green box measures301, and added that these 
measures "do not comply with the condition in paragraph (a) of Article 13 of the Agreement on 
Agriculture " and are therefore "non-green box measures covered by paragraph (b) of Article 13."302  
2. Appeal by the United States  
314. The United States appeals the Panel's finding that direct payments, production flexibility 
contract payments, and the legisla tive and regulatory provisions that establish and maintain the direct 
payments program, are not green box measures sheltere d from challenge by virtue of Article 13(a) of 
the  Agreement on Agriculture .  The United States does not dispute that the amount of payments under 
the production flexibility contract and direct paym ent programs depended upon a formula that centred 
on "base acres" tied to the historical production of upland cotton.303  Nor does the United States 
dispute that there are limitations on producers' ability  to plant any product, if those producers wish to 
receive production flexibility or direct payments with respect to upland cotton base acres.304  In the 
                                                      
297There was a limited opportunity for producers to el ect a different base peri od for the calculation of 
upland cotton base acres for direct payments under th e FSRI Act of 2002 from that prevailing for production 
flexibility contract payments under the FAIR Act of 19 96. (Panel Report, paras. 7.220-7.221)  Brazil has 
conditionally appealed the Panel's exerci se of judicial economy in respect of Brazil's claim that this "updating" 
of base acres contravenes paragraph 6(a) of Annex 2 of the  Agreement on Agriculture .  We address this 
conditional appeal below at section V.B of this Report.  
298Panel Report, paras. 7.220, 7.222, and 7.379-7.38 1.  As was the case under the production flexibility 
contract program, there were limited excep tions to the planting flexibility limitations. 
299Ibid., para. 7.385. 
300Ibid., para. 7.388. 
301Ibid., para. 7.413. 
302Ibid., para. 7.414.  
303United States' appellant's submission, para. 17.  
304See, for example, United States' appellant's submission, paras. 17 ff. WT/DS267/AB/R 
Page 118  
 
 
 case of production flexibility contract payments, these limitations related to the growing of fruits and 
vegetables.  In the case of direct payments, the limitations extended to wild rice as well.305  Beyond 
these limitations, however, the United States stresses that a producer can receive production flexibility 
contract payments or direct payments regardless of  the agricultural products that the producer chooses 
to grow and irrespective of whether it chooses to produce any product at all.306  
315. The United States takes issue with the Panel's finding that the planting flexibility limitations 
mean that the "amount of payments" under the pr oduction flexibility contract and direct payment 
programs is "related to the type of production und ertaken by the producer after the base period", 
within the meaning of paragraph 6(b) of Annex 2 to the  Agreement on Agriculture .307  According to 
the United States, a  negative  direction in respect of production of certain goods—that is, 
conditioning payment on a producer's  non-production  of certain goods—does not make the amount of 
payments "related to the type of production".  Th e United States submits that this interpretation serves 
the "fundamental requirement" fou nd in paragraph 1 of Annex 2 that  green box measures "have no, or 
at most minimal, trade-distorting effects or effects on production".    
316. Brazil requests that the Appellate Body uphold th e Panel's finding, under paragraph 6(b) of 
Annex 2 of the Agreement on Agriculture , that production flexibility contract and direct payments 
relate "the amount of" the payment to "the type of production undertaken" by recipients.308  T h e  
grounds for the Panel's finding are that production fl exibility contract and direct payments are made 
solely if production is undertaken of crops other th an fruits and vegetables (and, in the case of direct 
payments, wild rice as well).  Brazil agrees with the Panel that this relates the amount of payments to 
production of the "permitted" crops.  As the Panel found, if "permitted" crops alone are produced, a 
full payment is made.  If a small quantity of "prohi bited" crops is produced, the "amount of payment" 
is reduced.  If a larger quantity of "prohib ited" crops is produced, no payment is made.309   
317. Brazil submits that the distinction drawn by  the United States between "permitted" (or 
positive) and "prohibited" (or negative) categories of  crops is artificial because the effect of both 
categories is identical: in both cases, production is channelled away  from  certain "prohibited" crops 
                                                      
305United States' appellant's submission, para. 18. 
306Ibid. 
307Panel Report, para. 7.385;  United States' appellant's submission, paras. 22 ff . 
308Panel Report, para. 7.385;  Brazil's appellee's submission, paras. 260 ff .  
309Brazil's appellee's submission, para. 285 (referring to Panel Report, paras. 7.382-7.383).  The 
participants, like the Panel, refer to "permitted" and "pr ohibited" crops, in the sense that crops not subject to 
planting flexibility limitations are eligib le to receive payments, while fruits  and vegetables (and wild rice) are 
not eligible to receive payments.  We generally prefer to refer to these categories as "covered" or "eligible" 
crops, on the one hand, and "excluded" crops on the other.  WT/DS267/AB/R 
 Page 119 
 
 
 (for which no payments are made) and  towards  other "permitted" crops (for which payments are 
made).  Thus, the incentives and disincentives are precisely the same.  In both cases, "the amount of" 
the payment is intrinsically "related to" undertak ing production of the "permitted" crops, and not 
undertaking production of the "prohibited" crops.  A ccording to Brazil, the Panel's factual findings 
support this view because it found that the prohibi tion on fruits and vegetables (and wild rice in 
respect of direct payments) imposes "significan t constraints" on production decisions and creates 
incentives for the production of eligible crops rather than those crops that are prohibited.310  
3. Analysis  
318. Article 13 of the  Agreement on Agriculture , entitled "Due Restraint", provides in relevant 
part that:  
 During the implementation period, notwithstanding the 
provisions of GATT 1994 and the Agreement on Subsidies and Countervailing Measures (referred to in  this Article as the "Subsidies 
Agreement"): 
(a) domestic support measures that conform fully to the 
provisions of Annex 2 to th is Agreement shall be: ... 
(ii) exempt from actions based on Article XVI 
of GATT 1994 and Part III of the Subsidies Agreement;  ... 
319. Accordingly, domestic support that conforms fully to the provisions of Annex 2—that is 
"green box" support, which is exempt from the domestic support reduction obligations of the  
Agreement on Agriculture —is also exempt, during the implementation period
311, from actions based 
on Article XVI of GATT 1994 and the actionable subsidies provisions of Part III of the  SCM 
Agreement .  
320. The United States claims that production flexibilit y contract payments and direct payments 
are domestic support that conforms fully to the provisions of Annex 2 because they are "[d]ecoupled income support" within the meaning of paragraph 6 of that Annex.  Annex 2 is entitled "Domestic 
Support:  The Basis for Exemption from the Reduction Commitments" and provides, in relevant part, 
as follows:    
                                                     
 
310Brazil's appellee's submission, paras. 285-286 (quoting Panel Report, para. 7.386). 
311The "implementation period" during which Article 13 applies is defined in Article 1(f) of the  
Agreement on Agriculture  as  "the nine-year period commencing in 1995".  "Year", for purposes of Article 1(f) 
"and in relation to the specific commitments of a Member " is defined in Article 1(i) and is "the calendar, 
financial or marketing year specified in the Schedule relating to that Member". WT/DS267/AB/R 
Page 120  
 
 
 1. Domestic support measures for which exemption from the 
reduction commitments is claimed shall meet the fundamental 
requirement  that they have no, or at most minimal, trade-distorting 
effects or effects on production .  Accordingly, all measures for which 
exemption is claimed shall conform to the following basic criteria: 
(a) the support in question shall be provided through a 
publicly-funded government programme (including government revenue foregone) not involving transfers from consumers;  and, 
(b) the support in question shall not have the effect of 
providing price support to producers; 
plus policy-specific criteria and conditions as set out below.   
... 
5. Direct payments to producers  
 Support provided through direct payments (or revenue 
foregone, including payments in kind) to producers for which 
exemption from reduction commitments is claimed shall meet the basic criteria set out in paragraph 1 above, plus specific criteria applying to individual types of direct payment as set out in paragraphs 6 through 13 below.  ... 
6. Decoupled income support  
(a) Eligibility for such payments shall be determined by 
clearly-defined criteria  such as income, status as a 
producer or landowner, factor use or production level in a defined and fixed base period . 
(b) The amount of such payments in any given year shall 
not be related to, or based on, the type or volume of 
production  (including livestock units) undertaken by 
the producer in any year after  the base period. 
... 
(e) No production shall be required  in order to receive 
such payments. (emphasis added) 
321. Paragraph 6, entitled, "[d]ecoupled income support"  applies to one type of "direct payment" 
to producers that may benefit from exemption from reduction commitments and protection under the 
peace clause.  Paragraph 6(a) sets forth that e ligibility for payments under a decoupled income 
support program must be determined by reference to certain "clearly-defined criteria" in a "defined 
and fixed base period".  Paragr aph 6(b) requires the severing of any link between the  amount 
of payments  under such a program and the  type or volume of production  undertaken by recipients of  WT/DS267/AB/R 
 Page 121 
 
 
 payments under that program in any year after the base period.  Paragraphs 6(c) and 6(d) serve to 
require that payments are also decoupled from  prices  and  factors of production employed  after the 
base period.  Paragraph 6(e) makes it clear that "[ n]o production shall be requi red in order to receive 
... payments" under a decoupled income support program.   
322. As we noted above312, there is no disagreement between the participants that the amount of 
payments under the production flexibility contr act and direct payment programs depended upon a 
formula that centred on "base acres", which were est ablished on the basis of the historical production 
of upland cotton.  Nor does the United States dispute that there are limitations on producers' ability to produce certain products, while also receiving produc tion flexibility contract payments or direct 
payments with respect to upland cotton base acres.  Therefore, the question before us regarding the 
consistency of production flexibility contract payments and direct pa yments with paragraph 6(b) of 
Annex 2 is a limited one.  It does not concern a measure  requiring  producers to grow certain crops in 
order to receive payments; it also does not concern a measure with complete planting  flexibility  that 
provides payments without regard whatsoever to the crops that are grown.  Indeed, it does not concern 
a measure that requires the production of any crop at all;  nor does it involve a measure that totally 
 prohibits  the growing of any crops as a condition for payments.  The question before us in this 
appeal thus concerns a measure with a  partial  exclusion combining planting flexibility and payments 
with the reduction or elimination of the paymen ts when the excluded crops are produced, while 
providing payments even when no crops are produced at all.   
323. In addressing the question of the consistency of such a measure with paragraph 6(b), we note 
that under this provision, for income support to be  decoupled ,  the "amount of such payments ... shall 
not be related to ... the type or volume of productio n ... undertaken by the producer in any year after 
the base period".  It is uncontested that the amount of payments under the production flexibility 
contract and direct payment programs may be affe cted, depending upon whether a producer plants a 
crop that is permitted under the production flexibility contract or direct payment programs, or a crop 
that is covered by the planting flexibility limitations.
313  The United States focuses on the term 
"related to" and contends that the amount of pa yments under the production flexibility contract and 
direct payment programs is not "related to" the t ype of production as proscribed by paragraph 6(b).  
                                                      
312Supra , para. 314. 
313United States' appellant's submission, para. 18. WT/DS267/AB/R 
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 324. The ordinary meaning of the term "related to " in paragraph 6(b) of Annex 2 denotes some 
degree of  relationship  or  connection  between two things314, here the amount of payment, on the one 
hand, and the type or volume of production, on the othe r.  It covers a broader set of connections than 
"based on", which term is also used to describ e the relationship between two things covered by 
paragraph 6(b).315  Nothing in the ordinary meaning of the term "related to " suggests that the 
connections covered by this expression may not enco mpass connections of either a "positive" nature 
(including directions or requirements to do somethi ng) or a "negative" nature (including prohibitions 
or requirements not to do something) or a combination of both.  As the Panel indicated, the ordinary meaning of the term "related to" conveys "a very general notion".
316  Indeed, the United States agrees 
that, as far as its ordinary meaning in the abstract is concerned, the term "related to" may be broad 
enough to capture both positive and negative conn ections, but argues that the context of 
paragraph 6(b) requires a more limited interp retation of the term, namely, only as covering a 
"positive" connection  between the "amount of ... payments" and the "type ... of production".317  Like 
the Panel, however, we are of the view that, in th e context of paragraph 6(b), the term "related to" 
covers both positive and negative connections betw een the amount of payment and the type of 
production.  
325. Paragraph 6 of Annex 2, entitled "[d]ecoupled income support", seeks to decouple or de-link 
direct payments to producers from various aspects of  their production decisions and thus aims at 
neutrality in this regard.  Subpa ragraph (b) decouples the payments  from production; subparagraph (c) 
decouples payments from prices; and subparagr aph (d) decouples payments from factors of 
production.  Subparagraph (e) completes the proce ss by making it clear that no production shall be 
required in order to receive such payments.  Decoupling of payments from production under 
paragraph 6(b) can only be ensured if the payments are not relate d to, or based upon, either a positive 
                                                      
314See Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.), (Oxford 
University Press, 2002), Vol. 2, p. 2520; see also  Panel Report, para. 7.366; United States' appellant's 
submission, para. 25; and Brazil's appellee's submission, para. 282. 
315The Panel noted that "base" in this context may be defined as to "found, build, or construct (up)on a 
given base, build up around  a base (chiefly fig.)": Panel Report, para. 7.366 (quoting The New Shorter Oxford 
English Dictionary , L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 187).  Like the expression "related to", 
the expression "based on" also requir es a connection between two or more things.  However, even though 
"based on" does not require a strict relationship betw een two things (see, e.g., Appellate Body Report, EC – 
Hormones , paras. 165-166 and 171), the meaning of "based on" indicates a relatively close connection between 
the things being linked.  By contrast, the meaning of "related to" can apply to connections more general in nature than situations in which one thing is "based on" another (see, e.g., Appellate Body Report, US – Softwood 
Lumber IV , para. 89, where the Appellate Body interpreted broadly the phrase "in relation to" in Article 14(d) of 
the  SCM Agreement ).  Accordingly, the meaning of the term "rel ated to" cannot be entir ely subsumed into the 
meaning of "based on".   
316Panel Report, para. 7.366. 
317United States' appellant's submission, para. 25.  WT/DS267/AB/R 
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 requirement to produce certain crops or a negativ e requirement not to produce certain crops or a 
combination of both positive and negative  requirements on production of crops.   
326. In contrast to the other subparagraphs of paragraph 6, paragra ph 6(e) does explicitly 
distinguish between positive and ne gative production requirements,  because it prohibits positive 
requirements to produce.  The Panel reasoned that "[ i]f paragraph 6(b) could be satisfied by ensuring 
that no production was required to receive pa yments, paragraph 6(e) would be redundant".318  W e  
agree with the Panel that the context provided by  paragraph 6(e) indicates that a measure that 
provided payments, even if a producer undertook no  production at all, would not, for that reason 
alone, necessarily comply with paragraph 6(b).  This is because other elements of that measure might 
still relate the amount of payments to the type or volume of production, contrary to the requirement of 
paragraph 6(b). 
327. The United States seems to argue that the Pane l's interpretation of th e relationship between 
paragraphs 6(b) and 6(e) would s ubsume paragraph 6(e) within the scope of paragraph 6(b), thereby 
rendering it redundant.319  In our view, however, paragraph 6(e)  continues to serve a purpose distinct 
from that of paragraph 6(b).  It highlights a di fferent aspect of decoupling income support.  In 
prohibiting Members from making green-box measures contingent on production, paragraph 6(e) 
implies that Members are allowed, in principle,  to require no production at all.  Accordingly, 
payments conditioned on a total ban on any pr oduction may qualify as decoupled income support 
under paragraph 6(e).  Even assuming that payments  contingent on a total production ban could be 
seen to relate the amount of the payment to the  volume   of production within the meaning of 
paragraph 6(b)—the volume of production be ing nil—giving meaning and effect to both 
paragraphs 6(b) and 6(e) suggests a reading of paragraph 6(b) that  would not disallow a total ban on 
any production.   
328. In addressing the United States' argument on this po int, we recall that the measures at issue in 
this appeal do not provide for payments contingent on a  total ban  on production of  any  crops.  The 
measures at issue here combine payments and planti ng flexibility in respect of certain covered crops 
with the reduction or elimination of such payments  when certain other excluded crops are produced.  
The United States argues that, if paragraph 6(e) means that a Member may require a producer not to 
produce a particular product, "it would not make sense to then prohibit a Member, under 
paragraph 6(b), from making the amount of paym ent contingent on fulfilling that requirement".320  
However, in our view, the mere fact that under pa ragraph 6(e) "[n]o productio n shall be required in 
                                                      
318Panel Report, para. 7.368. 
319United States' appellant's submission, paras. 38-42.    
320Ibid., para. 38. (emphasis omitted) WT/DS267/AB/R 
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 order to receive such payments" does not mean that a partial exclusion of certain crops from 
payments, coupled with production flexibility rega rding other crops, must be consistent with 
paragraph 6(b).   
329. We agree with the Panel that a partial excl usion of some crops from payments has the 
potential to channel production towards the production of crops that remain eligible for payments.321  
In contrast to a total production ban, the cha nnelling of production that may follow from a partial 
exclusion of some crops from payments will have  positive  production effects as regards crops 
eligible for payments.  The extent of this will depe nd on the scope of the exclusion.  We note in this 
regard that the Panel found, as a matter of fact, that  planting flexibility limitations at issue in this case 
"significantly constrain production choices availa ble to PFC and DP payment recipients and 
effectively eliminate a significant proportion of them".322  The fact that farmers may continue to 
receive payments if they produce nothing at a ll does not detract from this assessment because, 
according to the Panel, it is not the option preferre d by the "overwhelming majority" of farmers, who 
continue to produce some type of permitted crop.323  In the light of these findings by the Panel, we are 
unable to agree with the United States' argument that the planting flexibility limitations only 
negatively affect the production of crops that are excluded.   
330. We are not persuaded otherwise by the Unite d States' reliance upon the terms "amount of 
such payments" and "undertaken" in the text of paragraph 6(b).  According to the United States, the Panel assumes that the "amount of such payments" in  paragraph 6(b) can be related to the current  type 
of production because, in some circumstances, a reci pient that produces fruits, vegetables or wild rice 
"receives less payment than that recipien t otherwise would have been entitled to".
324  However, for the 
United States, in that case, the only "amount" of pa yment that is even arguably "related to" current 
production is "zero"325, because those crops are excluded from pa yment eligibility.  The United States 
further argues, with respect to the phrase "production ... undertaken by the producer", that the ordinary 
meaning of the term "undertake" includes to "attempt" .  In this case, the planting flexibility limitations 
on a certain range of products, with respect to base acreage, would not relate the amount of payments 
                                                      
321Panel Report, para. 7.367.  Indeed, as Brazil su bmits, this will tend to be the case where the 
prohibition prevents a producer, intent on maximizing profit, from growing the best alternative crop.  In that 
case, the producer will tend to choose  the next best alternative from am ongst the permitted crops.  (Brazil's 
appellee's submission, para. 321, citing evidence, referred to in footnote 511 of the Panel Report, from Brazil's 
expert, Professor Sumner) 
322Panel Report, para. 7.386.  
323Ibid., para. 7.386. 
324United States' appellant's submission, para. 26.  
325Ibid.  WT/DS267/AB/R 
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 to production "attempted" by the recipient;  rather, the amount of payment is related to or based on the 
type of production  not  "attempted".326   
331. In our view, the concepts of "type or volume of production ... undertaken by the producer" 
and the "amount of ... payments" are linked in paragr aph 6(b) by the requirement that one "not be 
related to" the other.  This requires a consideration of  the relationship  between the type or volume of 
production and the amount of payment under a program after the base period.  A program that 
disallows payments when certain crops are produced relates the amount of the payment to the type of 
production undertaken.  The flexibility to produce a nd receive payment for certain crops covered by a 
program, combined with the reduction or eliminat ion of such payments when excluded crops are 
produced, creates a link with the type of production unde rtaken contrary to paragraph 6(b).  This is so 
because the opportunity for farmers to receive paym ents for producing covered crops, while less or no 
such payments are made to farmers who produce ex cluded crops, provides an incentive to switch from 
producing excluded crops to producing crops eligible for payments.   
332. The United States also contends that its measures, which condition payment on the non-
production of certain products, "further the fundament al requirement [in paragraph 1 of Annex 2 to 
the  Agreement on Agriculture ] that such measures 'have no, or at most minimal, trade-distorting 
effects or effects on production'"327, because their only effects are to reduce production of the 
prohibited crops.328  It follows, for the United States, that paragraph 6(b) should not address 
"negative" prohibitions on the pro duction of certain crops, such as the United States' measures, given 
that they comply, inherently, with the fundamental requirement.329  Brazil argues that if 
paragraph 6(b) is violated, this  ipso facto  violates the fundamental requirement of paragraph 1 of 
Annex 2 and further analysis is not required.330  
333. We note that the first sentence of paragra ph 1 of Annex 2 lays down a "fundamental 
requirement" for green box measures, such that they  must have "no, or at most minimal, trade-
distorting effects or effects on production".  Th e second sentence of paragraph 1 provides that, 
"[a]ccordingly", green box measures must conform to th e basic criteria stated in  that sentence, "plus" 
                                                      
326United States' appellant's submission, para. 27. 
327Paragraph 1 of Annex 2 to the  Agreement on Agriculture .  
328United States' appellant's submission, para. 36.   
329See  ibid., paras. 32-35. 
330Brazil's responses to questioni ng at the oral hearing.  WT/DS267/AB/R 
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 the policy-specific criteria and conditions set out in  the remaining paragraphs of Annex 2, including 
those in paragraph 6.331  
334. As we have noted, the Panel found that the planting flexibility limitations in this case 
"significantly constrain" production decisions.332  However one reads the "fundamental requirement" 
in paragraph 1 of Annex 2,  given the factual findings of the Panel, the facts of this case do not present 
a situation in which the planting flexibility limitations  demonstrably have "no, or at most minimal," 
trade-distorting effects or effects on production.   
335. We find further support for our interpretation of paragraph 6(b) in the context provided by 
paragraph 11 of Annex 2, entitle d "Structural adjustment assistance provided through investment 
aids".  Several of the subparagr aphs of paragraph 11 are phrased in similar terms to those of 
paragraph 6.  Indeed, like paragra ph 6(b), paragraph 11(b) requires that  the "amount of ... payments ... 
shall not be related to ... the type or volume of production ... undertaken by the producer in any year 
after the base period."  However, unlike paragraph 6(b), paragraph 11(b) ends with the phrase "other 
than as provided for under criterion (e) below".  Crit erion 11(e) specifically envisages that "payments 
shall not mandate or in any way designate the agri cultural products to be produced by the recipients 
except to require them not to produce a particular product". 
336. We note that the exception provided by paragra ph 11(e) and the link to paragraph 11(e) in 
paragraph 11(b) explicitly  authorize   the type of "negative" requirements not to produce that the 
United States argues is implicitly  permitted   by the terms of paragraph 6(b).  In the light of the 
similarity of the language chosen in paragraphs 6( b) and 11(b), like the Panel, we attach significance 
to the fact that the drafters saw as necessary an e xplicit authorization of nega tive requirements not to 
produce under paragraph 11(b).  In our view, this indicates that the ordinary meaning of the terms in paragraph 11(b) would otherwise ex clude an interpretation allowing su ch negative requirements.  The 
use of identical language in paragraphs 6(b) and 11( b), except for the reference in paragraph 11(b) to 
paragraph 11(e), suggests that the meaning of the te rms in paragraph 6(b) must be the same as in 
paragraph 11(b).  Accordingly, a comparison of  these provisions confirms that the terms of 
paragraph 6(b) encompass both positive as well as negative connections between the amount of 
payments under a program and the type of production undertaken. 
                                                     
 
331We note in this regard that the Panel's exercise of  judicial economy regardin g Brazil's claim that the 
United States measures at issue fail to conform with the "fundamental requirement" of paragraph 1 of Annex 2 
has not been appealed. (See Panel Report, para. 7.412) 
332Ibid., para. 7.386.   WT/DS267/AB/R 
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 337. We note that the United States argues that the context in which paragraphs 11(b) and 6(b) 
appear is very different.  The United States notes that  paragraph 11 pertains to payments "to assist the 
financial or physical restructuring of a producer's operations"333 and paragraph 6(e) imposes a 
constraint on the degree to which a government can inte rfere in the form that restructuring will take.  
As a requirement not to produce certain products c ould be understood to fall w ithin the prohibition in 
paragraph 11(e) against "in any way" designating the products to be produced, it clarifies that negative 
requirements are permitted.  The United States submits that, in the light of the broad prohibition in 
paragraph 11(e), "the requirement in paragraph 11(b) … could be understood to preclude conditioning 
payment on not producing certain products since this could be understood as in some way designating the products to be produced".
334  This required the explicit cro ss-reference to paragraph 11(e).  
According to the United States, because the same  considerations do not apply in the case of 
paragraph 6(b), no specific authorization of par tial prohibitions on production is required, as it 
remains implicit in the text of the provision.335 
338. We are not persuaded by this argument.  Like  Brazil, we believe that a more compelling 
reason for the specific authorization of negative re quirements not to produce a particular crop may be 
found in the fact that paragraph 11 addresses "struc tural adjustment", which may be achieved only by 
providing financial incentives to shift production away from certain products.  In our view, the 
considerations submitted by the United States do not render the meaning of the terms used in 
paragraph 11(b) different from the meaning of th e same terms as used in paragraph 6(b).   
339. Finally, we note that the United States has also  argued that the Panel's interpretation, with 
which we agree, would require a Member to con tinue to make decoupled income support payments, 
even if a producer's production is  illegal , for example involving the production of opium poppy, 
unapproved biotech varieties or e nvironmentally-damaging production.336  According to the United 
States, this is a logical consequence of a finding th at, to comply with paragraph 6(b) of Annex 2, a 
measure may not condition payments upon the n on-production of certain products, while permitting 
production of others.  
340. In our view, questions regarding the problem of illegal production contrast starkly with the 
situation addressed in the present case.  It remains perfectly  legal   for a holder of upland cotton base 
acres to grow fruits, vegetables or wild rice in the United States.  The consequence of growing such 
crops is simply the reduction or elim ination of production flexibility contract or direct payments to the 
                                                      
333Paragraph 11(a) of Annex 2 to the  Agreement on Agriculture .  
334United States' appellant's submission, paras. 45-47. 
335Ibid., para. 47. 
336Ibid., paras. 53-55 and footnote 45. WT/DS267/AB/R 
Page 128  
 
 
 holders of upland cotton base acres.  Our interpreta tion of paragraph 6(b) would not prevent a WTO 
Member from making illegal the production of certain crops.  Nor would it prevent a Member from 
providing decoupled income support while at the sa me time making the production of certain crops 
illegal.  As Brazil states, there is nothing in the  Agreement on Agriculture   to suggest that the term 
"production" in paragraph 6 of Annex 2 refers to anything other than  lawful   production.337  I n  
addition, we observe that specific provisions of the  Agreement on Agriculture   recognize, and exempt 
from reduction commitments, domestic support programs  that address the problem of production of 
illicit narcotic crops in developing countries338 or payments under certain environmental programs.339   
4. Conclusion  
341. For all these reasons, we  uphold   the Panel's finding in paragraphs 7.388, 7.413, 7.414 
and 8.1(b) of the Panel Report that conditioning pr oduction flexibility contract payments and direct 
payments on a producer's compliance with planting flexibility limitations regarding certain products, 
coupled with the flexibility to produce certain ot her products, means that the amount of payments 
under those measures is related to the type of pr oduction undertaken by a producer after the base 
period, within the meaning of paragraph 6(b) of Annex 2 of the  Agreement on Agriculture .   
342. Accordingly, we also  uphold   the Panel's finding, in paragr aphs 7.413 and 7.414 of the Panel 
Report, that production flexibility contract payments  and direct payments are not "decoupled income 
support" within the meaning of paragraph 6, ar e not green box measures exempt from the reduction 
commitments by virtue of Annex 2 of the  Agreement on Agriculture , and are not, therefore, sheltered 
from challenge by virtue of paragraph (a) of Article 13 of the  Agreement on Agriculture .  Rather, 
these measures are support covered by the chapeau to pa ragraph (b) of Article 13, and are to be taken 
into account in the analysis of that provision.  
B. Article 13(a) of the  Agreement on Agriculture – Base Period Update 
343. The Panel indicated that it had "already found that [direct] payments fail to conform to the 
provisions of paragraph 6 of Annex 2 due to the pl anting flexibility limitations".  For this reason, it 
indicated that it was "therefore unnecessary for the purposes of this dispute to make findings on their 
conformity with paragraph 6 due to the updating" of base acres.340  Brazil conditionally appeals the 
                                                      
337Brazil's appellee's submission, para. 315. 
338Article 6.2 of the Agreement on Agriculture  exempts from domestic support reduction commitments 
that would otherwise be applicable "domestic support to producers in developing country Members to encourage diversification from growing illicit narcotic crops".  
339See paragraph 12 of Annex 2 to the  Agreement on Agriculture . 
340Panel Report, para. 7.393.  WT/DS267/AB/R 
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 Panel's exercise of judicial economy on the issue of whether the base period update under the direct 
payments program is consistent with paragraph 6(a) of Annex 2.341  Brazil's appeal is conditional on 
the Appellate Body reversing the Panel's finding that  direct payments, the legislative and regulatory 
provisions that establish and maintain the direct payments program, as well as payments under the 
production flexibility contract program , do not fall within the terms of  paragraph (a) of Article 13 
because they are not consistent with  paragraph 6(b) of Annex 2.  
344. Having upheld the Panel's finding under paragraph 6(b) of Annex 2 of the  Agreement on 
Agriculture , the condition upon which Brazil's appeal regarding the updating of base acres under 
paragraph 6(a) rests is not fulfilled.  It is ther efore unnecessary for us to address this issue further. 
C. Article 13(b) of the Agreement on Agricu lture – Non-Green Box Domestic Support  
1. Introduction  
345. Having rejected the United States' appeal of the Panel's finding that production flexibility 
contract payments under the FAIR Act of 1996 an d direct payments under the FSRI Act of 2002 are 
not green box measures sheltered from challenge by the provisions of Article 13(a) of the  Agreement 
on Agriculture , we now turn to consider the United St ates' appeal regarding the application of 
Article 13(b) of the  Agreement on Agriculture .   
346. Article 13 of the  Agreement on Agriculture  is entitled "Due Restraint" and applies during the 
implementation period.342  Article 13(b) of the  Agreement on Agriculture  provides, in relevant part:  
[D]omestic support measures that conform fully to the provisions of 
Article 6 of this Agreement includi ng direct payments that conform 
to the requirements of paragraph 5 thereof, as reflected in each Member's Schedule, as well as domestic support within de minimis  
levels and in conformity with para graph 2 of Article 6, shall be:  
... 
(ii) exempt from actions based on paragraph 1 of 
Article XVI of GATT 1994 or Articles 5 and 6 of the Subsidies Agreement, provided that such measures do not grant support to a specific commodity in excess of that decided during the 1992 marketing year; ... 
                                                     
 
341Brazil's other appellant's submission, paras. 237 ff. 
342The "implementation period" during which Article 13 applies is defined in Article 1(f) of the 
 Agreement on Agriculture  as  "the nine-year period commencing in 1995".  "Year", for purposes of Article 1(f) 
"and in relation to the specific commitmen ts of a Member" is defined in Article 1(i) and "refers to the calendar, 
financial or marketing year specified in the Schedule relating to that Member".  WT/DS267/AB/R 
Page 130  
 
 
 347. Subparagraph (ii) to Article 13(b) exempts non-green box domestic support measures 
described in the chapeau from ac tions based on Article XVI:1 of GATT 1994 and Articles 5 and 6 of 
the  SCM Agreement .  This exemption is, however, subject to  a proviso and is thus made conditional 
upon a requirement that "such measures do not grant support to a specific commodity in excess of that 
decided during the 1992 marketing year".  The dispute in the present appeal relates to the 
interpretation and application of  this proviso to certain United States domestic support measures.343  
348. Before the Panel, the United States claimed that  its non-green box domestic support measures 
did not "grant support to a specific commodity in  excess of that decided during the 1992 marketing 
year" and thus were consistent with the proviso to subparagraph (ii) of Article 13(b) of the  Agreement 
on Agriculture .  Hence, they were entitled to the exemp tion from action provided by Article 13(b).344   
349. The Panel rejected the United States' argument that its measures did not "grant support to a 
specific commodity in excess of that decided durin g the 1992 marketing year".  The Panel calculated 
values of support that were "decided during the 1992 marketing year" (the "1992 benchmark") as well 
as values of support by which the measures at issue "grant[ed] support to a specific commodity"—namely, upland cotton—in each of the years 1999, 2000, 2001, and 20 02 ("implementation period 
support").  The Panel tabulated support attributable to upland cotton under the relevant United States 
domestic support measures and concluded that the support granted in each relevant year of the 
implementation period exceeded the 1992 benchmark.
345  Accordingly, the Panel found that:  
Brazil has discharged its burden to show that the United States 
domestic support measures at issue grant support to a specific commodity in excess of that decided during the 1992 marketing year.
346 
                                                      
343Step 2 payments to domestic users;  marketing loan program payments;  production flexibility 
contract payments;  market loss assistance payments;  direct payments; counter-cyclical payments;  crop 
insurance payments;  and, cottonseed payments for the 2000 crop. (Panel Report, para. 7.337) 
344The Panel noted that Brazil did no t claim that the United States' domestic support measures do not 
comply with the conditions set out in the chapeau of Article 13(b).  (Panel Re port, paras. 7.415-7.416) 
345Ibid., paras. 7.596-7.597.  The Panel indicated that  the United States' implementation period support 
exceeded the 1992 benchmark regardless of whether, for certain price-based support measures, budgetary 
outlays or price gap methodology was used.  ( Ibid., para. 7.597) 
346Ibid., para. 7.598.   WT/DS267/AB/R 
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 350. After finding that evidence and arguments presented by the United States did not rebut 
Brazil's case347, the Panel concluded: 
[i]n light of the above findings, ... that the [relevant] United States 
domestic support measures ... grant support to a specific commodity 
in excess of that decided during the 1992 marketing year and that, 
therefore, they are not exempt from actions based on paragraph 1 of Article XVI of the GATT 1994 or Articles 5 and 6 of the SCM 
Agreement .
348 
2. Appeal by the United States  
351. The United States appeals the Panel's finding that its relevant domestic support measures 
granted, during the implementation period, "support to a specific commodity in excess of that decided 
during the 1992 marketing year", and the conseque ntial finding that these measures are therefore 
susceptible to challenge under the actionable subsidies provisions of Articles 5 and 6 of the  SCM 
Agreement  and Article XVI:1 of the GATT 1994.   
352. The United States challenges, in particular, tw o elements of the Panel's reasoning.  The 
United States first appeals the Panel's interpretation  of the phrase "grant support to a specific 
commodity" in the proviso to Article 13(b)(ii), and, in particular, its finding that four types of payments made with respect to historical produc tion of upland cotton—production flexibility contract 
payments, market loss assistance payments, direct payments and counter-cyclical payments—grant 
support to the specific commodity upland cotton, ev en though producers have flexibility under these 
programs to grow crops other than upland cotton or not to plant any crop at all.  According to the United States, properly construed, the phrase "suppor t to a specific commodity" refers to "product-
specific support"
349, which would exclude payments under these "non-product-specific" base acre 
dependent measures.350  It adds that, even if the Panel is corr ect in its interpretation that "support to a 
specific commodity" refers to all "non-green box suppor t measures that clearly or explicitly define a 
commodity as one to which they bestow or confer support"351, the Panel erred in the application of its 
test by allocating to upland cotton all payments to historic upland cotton base acres under these four 
programs, including those that went to planted commodities other than upland cotton.352   
                                                      
347Panel Report, para. 7.607. 
348Ibid., para. 7.608.   
349United States' appellant's submission, para. 93.  
350Ibid., para. 105.  
351Panel Report, para. 7.494(i). 
352United States' appellant's submission, paras. 101-107.  WT/DS267/AB/R 
Page 132  
 
 
 353. Secondly, the United States contests the Panel's use of budgetary outlay methodology to 
measure the value of support, for purposes of the co mparison envisaged by Article 13(b)(ii), of two 
types of price-based payments: marketing loan  program payments and deficiency payments.353  In this 
regard, the United States argues that the Panel erred in  reading the word "grant" in Article 13(b)(ii) as 
meaning something actually provided, and not  in harmony with the term "decided".354  The United 
States argues that this led the Panel erroneously  to conclude that it could use a calculation 
methodology other than the price-gap methodology d escribed in paragraph 10 of Annex 3 to the  
Agreement on Agriculture  to measure the value of these price- based measures.  According to the 
United States, only the price gap methodology can reflect the nature of the support "decided" under 
these programs because it filters out fluctuations in market prices; indeed, only the price gap 
methodology can measure those aspects of support th at the government of a Member can control.355   
354. The United States, having "corrected" the Panel's calculations for its alleged errors using its 
own methodologies, asserts that its domestic suppor t measures at issue did not grant a level of 
product-specific support in any relevant year of  the implementation period in excess of the 1992 
benchmark.356  On this basis, the United States ar gues that its domestic support measures are 
consistent with the proviso to Article 13(b)(ii) of the  Agreement on Agriculture  and are, therefore, 
exempt from challenge under the peace clause.357  
355. Brazil argues that if the Appellate Body uphol ds the Panel's finding with respect to the 
interpretation of the phrase "support to a specific commodity" and thereby finds that production 
flexibility contract payments, market loss assistance  payments, direct payments and counter-cyclical 
payments cannot be excluded from the calculation of  support under Article 13(b)(ii), then, regardless 
of the methodology used to calculate the value of marketing loan program payments and deficiency 
payments, the United States measures w ould still exceed the 1992 benchmark.358  Brazil contends that 
the Panel was correct to find that "support to a specific commodity" does not mean "product-specific 
support", or support that is directed specifically at only one product, but may capture all "non-green 
                                                      
353Marketing loan program payments in respect of both the 1992 benchmark and the implementation 
period support, and deficiency payments in respect of the 1992 benchmark only. (United States' appellant's 
submission, para. 72) 
354Ibid., paras. 64-68.  The United States reiterates th is argument in the section of its appellant's 
submission dealing with the interpretation of the phrase "support to a specific commodity":  see ibid., 
paras. 114-116.  
355Ibid., paras. 69-75.  
356Ibid., paras. 120-122.  
357Ibid., paras. 122-124.  
358Brazil's appellee's submission, para. 330.   WT/DS267/AB/R 
 Page 133 
 
 
 box measures, that clearly or explicitly define a commodity as one to which they bestow or confer 
support".359     
356. Brazil also contends that the Panel was correct to use budgetary outlays for its analysis of the 
United States' price-based measures.  Brazil observes that paragraph 10 of Annex 3 of the  Agreement 
on Agriculture  permits, in principle, the use of  either  budgetary outlays or the price gap 
methodology for payments based on price gaps.360  There is thus no textual basis to say that only price 
gaps may be used to measure these types of paymen ts.  Brazil also submits that the Panel correctly 
found that the term "grant" refers to  what a measure actually provides361, and therefore contests the 
United States' claim that factors beyond the control of government, such as market price fluctuations, 
must be filtered out of the analysis envisaged by the proviso to Article 13(b)(ii) through use of the 
price gap methodology.362  Brazil also points out that the United States notified the level of support 
conferred by the marketing loan program for purpo ses of its base level Aggregate Measurement of 
Support ("AMS"), as well as in subsequent AMS no tifications, through use of a budgetary outlay 
methodology.363  According to Brazil, WTO Members should be able to rely upon AMS notifications 
to determine whether the notifying Member was entitled, during the implementation period, to the 
protection conferred by the peace clause.  
357. Finally, Brazil illustrates that, even using the price gap methodology to calculate the level of 
support under the deficiency payment and marketi ng loan payment programs, total United States 
support still exceeded the 1992 benchmark in each re levant year of the implementation period.364 
3. Analysis  
358. The United States appeals the Panel's finding that the United States' non-green box domestic 
support measures granted "support to a specific commodity", namely, upland cotton, during the 
implementation period, "in excess of that deci ded during the 1992 marketing year", and the 
consequential finding that this support was therefor e not sheltered from challenge under Article XVI:1 
of the GATT 1994 or Articles 5 and 6 of the  SCM Agreement.   The United States' appeal in this 
regard has two dimensions.  First, th e United States challenges the Panel's  interpretation  of the 
phrase "support to a specific commodity" used in the proviso to Article 13(b)(ii) and its  application   
                                                      
359Brazil's appellee's submission, paras. 369 and 385 (quoting Panel Report, para. 7.481).   
360Ibid., para. 350.   
361Ibid., paras. 344 ff.   
362Ibid., paras. 346 and 351.   
363Ibid., paras. 352 ff.   
364Ibid., paras. 442-445. WT/DS267/AB/R 
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 to four of the domestic support measures.  Th ese measures are production flexibility contract 
payments, market loss assistance payments, dir ect payments, and counter-cyclical payments.365  The 
question whether or not these four measures grant "su pport to a specific commodity" is at the heart of 
the difference between the participants in regard to  the comparison contemplated by Article 13(b) of 
the  Agreement on Agriculture .366  Secondly, the United States takes issue with the Panel's adoption of 
a budgetary outlay  methodology  to measure the value of two pri ce-based support measures for the 
comparison under the proviso to Article 13(b)(ii).  
(a) Interpretation of "Support to Specific Commodity" 
359. We address first the meaning of the phr ase "support to a specific commodity" in 
Article 13(b)(ii).  We then discuss the applicati on of this interpretation to four domestic support 
measures:  production flexibility contract payments367, market loss assistance payments368, direct 
payments369 and counter-cyclical payments370.  These four measures did not exist in 1992.  Therefore, 
this part of the United States' appeal affects the calculation of  only  the support granted during the 
implementation period.371   
                                                      
365The United States characterizes these measures as  "decoupled" from production. (United States' 
appellant's submission, para. 104)  
366On the basis that these four measures are not "s upport to a specific commod ity", the United States 
has assigned zero values to them in its calculations under the proviso to Article 13(b)(ii). ( Ibid., para. 120) 
367We describe briefly production flexibility contract payments  supra , para. 311.  
368Market loss assistance payments were provided to  recipients of production flexibility contract 
payments through  ad hoc  legislation as additional assistance to producers to make up for losses caused by low 
commodity prices.   Market loss assistance payments we re proportionate to the pr oduction flexibility contract 
payments made to the recipient, and the amount paid depended on the amount allocated to market loss 
assistance payments for the relevant crop year.  Accordingly, eligibility criteria for the market loss assistance 
payments were, essentially, the same as for the produc tion flexibility contract payments.  (See Panel Report, 
paras. 7.216-7.217)  
369We describe briefly direct payments  supra , para. 312.   
370Counter-cyclical payments supplement, for covere d commodities, direct payments and any payments 
made under the marketing loan program.  The eligibility requirements and planting flexibility requirements are 
the same as under the direct payment program, and they are also dependent on base acres.  Counter-cyclical payments supplement producer incomes by filling the gap between, on the one hand, the market price and 
payments under the marketing loan program and the direct payments program and, on the other hand, a target 
price established for upland cotton at 72.4 cents per pound.
 (See Panel Report, paras. 7.223-7.226)  
371We observe that the United States does not dispute that other payments, namely those under the 
marketing loan program (for a description of marketing loan program payments, see Panel Report, paras. 7.204-
7.208), Step 2 payments (for a description of Step 2 paym ents, see Panel Report, paras. 7.209-7.211), deficiency 
payments (for a description of deficiency payments, see Panel Report, footnote 294 to para. 7.213), and 
cottonseed payments (for a descriptio n of cottonseed payments, see Panel Report, paras. 7.233-7.235), result in 
"support to a specific commodity". (United States' appellant's submission, para. 120 and Table 2)  Nor does the United States appeal the Panel's finding  that the crop insuran ce program (for a descriptio n of the crop insurance 
program, see Panel Report, paras. 7.227-7.232) results in "support to a specific commodity", although it adds 
that it disagrees with the conclusion of the Panel. (See United States' appellant's submission, footnote 134)   WT/DS267/AB/R 
 Page 135 
 
 
 360. We note that payments in respect of each of these measures are calculated by reference to 
"base acres" upon which certain commodities (including upland cotton) were grown in a base period, 
but upon which a producer currently may or may no t grow upland cotton.  We refer to these four 
types of payment in this section as the "base acre dependent payments".   
361. We turn to our analysis of the phrase "such measures ... grant[ing] support to a specific 
commodity" in Article 13(b)(ii).  The Panel found and the participants do not dispute that the relevant 
United States measures grant "support"372;  similarly, the Panel found373 and the participants agree374 
that upland cotton is a "commodity" in the sense of that provision.   
362. The key element, however, is the significance of the qualifying word "specific" in this phrase.  
The Panel described the ordinary meaning of the term  "specific" as "clearly or explicitly defined;  
precise;  exact;  definite"375 and as "specially or peculiarly pertaining  to a particular thing or person, or 
a class of these; peculiar ( to)".376  In our view, the term "specific" in the phrase "support to a specific 
commodity" means the "commodity" must be clearly identifiable.  The use of term "to" connecting 
"support" with "a specific commodity" means that support must "specially pertain" to a particular commodity in the sense of being conferred on th at commodity.  In addition, the terms "such 
measures ... grant" indicates that a discernible lin k must exist between "s uch measures" and the 
particular commodity to which support is granted.  Thus, it is not sufficient that a commodity happens 
to benefit from support, or that support ends up flow ing to that commodity by mere coincidence.  
Rather, the phrase "such measures" granting "support  to a specific commodity" implies a discernible 
link between the support-conferring measure and th e particular commodity to which support is 
granted.   
363. Therefore, we agree with the Panel insofar as it found that the ordinary meaning of the phrase 
"such measures ... grant[ing] support to a specific commodity"  includes  "non-green box measures  
                                                     
 
372See Panel Report, paras. 7.518-7.520 and, for example, United States' appellant's submission, 
para 105.  We recognize that the Unite d States qualifies this by emphasizing that, in its view, they grant "non-
product-specific" support.  
373Panel Report, paras. 7.480 and 7.518-7.520.  
374See United States' appellant's submission, paras. 85 and 104;  and Brazil's appellee's submission, 
para. 385.   
375Panel Report, para. 7.481 (quoting The New Shorter Oxford English Dictionary , L. Brown (ed.) 
(Clarendon Press, 1993), Vol. 2, p. 2972). 
376Ibid., para. 7.482 (quoting The New Shorter Oxford English Dictionary , L. Brown (ed.) (Clarendon 
Press, 1993), Vol. 2, p. 2972).  The Panel found that this second definition was more appropriate in another context, but we believe that both of these definitions shed light upon the meaning of "specific" in "support to a 
specific commodity". WT/DS267/AB/R 
Page 136  
 
 
 that clearly or explicitly define a commodity as one to which they bestow or confer support".377  This 
is because the Panel's test requires that a commodity  be specified in the measure, and that the support 
be conferred on that commodity.  We  believe, however, that the terms of  this definition do not exhaust 
the scope of measures that may grant "support to a speci fic commodity".  We note in this regard that 
the Panel looked, in applying its test, to factors such as eligibility criteria and payment rates, as well 
as the relationship between payments and current market prices of the commodity in question.378  In 
our view, the Panel was correct to consider such  matters, as the requisite link between a measure 
granting support and a specific commodity may be di scerned not just from an explicit specification of 
the commodity in the text of a measure, as the Pa nel's test—on its face—seems to imply, but also 
from an analysis of factors such as the charact eristics, structure or design of that measure.379 
364. Moving to the context of the proviso to Article  13(b)(ii), we note that the United States argues 
that "support to a specific commodity" should be interpreted as meaning "product-specific support".  
The United States emphasizes the similarities betwee n the phrase "support to a specific commodity" 
in Article 13(b)(ii) and two phrases in Article 1 of the  Agreement on Agriculture  that refer to 
product-specific support: "support for basic agricultural products"380 and "support ... provided for an 
agricultural product in favour of the pro ducers of the basic agricultural product".381  The United States 
argues that the meaning of all of these phrases must be the same.   
365. These phrases do provide important context for the interpretation of Article 13(b)(ii).  In our 
view, "support to a specific commodity" certainly  includes  "product-specific" support.  However, 
like the Panel, we do not believe that the scope of  the phrase "support to a specific commodity" in the 
proviso to Article 13(b)(ii) is exhausted by taking into account the category of product-specific 
support alone.   
366. This is for at least two reasons.  First, we note that the drafters chose  not  to use phrases such 
as support "provided for an agricultural product in favour of the producers of the basic agricultural 
product" or "support for basic agricultural products" in Article 13(b)(ii), but rather chose the distinct 
                                                      
377Panel Report, para. 7.494(i). 
378Ibid., paras. 7.510-7.517.  
379Although we observe that the Panel correctly identifie d the elements that we believe are inherent in 
the term "support to a specific commodity", the Panel's articulation of the test was not absolutely clear.  We also note that the Panel appears to have misapplied the test for "support to a specific commodity" by attributing to 
upland cotton the total budgetary outlays with  respect to upland cotton base acres.  See  infra , para. 375.       
380This phrase is found in Article 1(h) of the Agreement on Agriculture . (United States' appellant's 
submission, para. 88) 
381This phrase is found in Article 1(a) of the Agreement on Agriculture . (United States' appellant's 
submission, para. 88)  WT/DS267/AB/R 
 Page 137 
 
 
 phrase "support to a specific commodity".  This choi ce of different words by the drafters gives a 
preliminary indication that they may have  intended to convey different meanings.382   
367. Secondly, and more importantly, the United States ' argument fails to reckon with the fact that 
the scope of domestic support measures that may grant "support to a specific commodity" under Article 13(b)(ii) is broader than just "product-specifi c support" in the sense of Article 1 and Annex 3.  
The proviso to Article 13(b)(ii) mentions only th e term "such measures" granting support; but the 
meaning of this term can be clarified by reference to the chapeau of Article 13(b) because, as the 
Panel noted, "[t]he chapeau of paragraph (b) and su bparagraph (ii) form part of a single sentence."
383  
The chapeau identifies the categories of support m easures covered by that provision.  These are:  
... domestic support measures that conf orm fully to the provisions of 
Article 6 of this Agreement includi ng direct payments that conform 
to the requirements of paragraph 5 thereof, as reflected in each Member's Schedule, as well as domestic support within de minimis  
levels and in conformity with  paragraph 2 of Article 6 ... 
368. Measures covered by Article 6 include both product-specific and non-product-specific amber 
box support subject to reduction commitments.  In  addition, measures covered by the chapeau  also  
include product-specific and non-product-specific support  within  de minimis  levels.  They further 
include blue box support provided in accordan ce with Article 6.5, as well as development box 
support, provided according to the provisions of Artic le 6.2, for both of which the distinction between 
product-specific and non-product specific support for purposes of the AMS calculation  has little 
practical relevance.
384  Like the Panel, we believe that the use of the term "such measures" in the 
proviso to Article 13(b)(ii) indicates that all such measures identified in the chapeau of Article 13(b) 
may qualify as granting "support to a specific commodity " and are eligible to be included in the 
analysis.  By contrast, under the United States' argument, domestic support measures listed in the 
chapeau (with the exception of product-specific am ber box support) could not be "support to a 
specific commodity" even if they confer support on a specific commodity and there is a discernible link between the measure and that commodity.   
                                                     
 
382We note in this regard that, for example, Article 6.4(a)(i) of the  Agreement on Agriculture   mentions 
"product-specific domestic support", whereas Article 13 does not mention or cross-refer to it. 
383Panel Report, para. 7.470. 
384The only type of domestic support clearly excluded from support covered by Article 13(b) is green 
box support, which does not need to conform with the prov isions of Article 6, but rather must conform with the 
provisions of Annex 2.  Green box support, however,  qualifies for the exemption from actions provided by 
Article 13(a).   WT/DS267/AB/R 
Page 138  
 
 
 369. In addition, the United States supports its position by reference to the obligations in Articles 3 
and 6 of the  Agreement on Agriculture , which lay down reduction commitments for total AMS 
comprising both product-specific and non-product- specific support, but provide no product-specific 
caps.  In the United States' view, because the reduction commitments do not cap product-specific 
support, the proviso in Article 13(b)(ii) disciplines th e degree to which a Member that is in conformity 
with its reduction commitments can shif t support between particular commodities.385 
370. Indeed, as the United States correctly points out, Article 13(b)(ii) serves to create a discipline 
upon Members that seek the shelter of the peace clau se during the implementation period.  We are not 
convinced, however, that this discipline is limited to "product-specific support" as defined in Article 1 
of the  Agreement on Agriculture .  Rather, it extends to all measur es that grant "support to a specific 
commodity", in the sense that the support is conferred on a specific commodity, and there is a 
discernible link between the measure and the specific commodity concerned.   
(b) Application of Article 13(b)(ii) to the Measures at Issue  
371. The proviso to Article 13(b)(ii) requires an ass essment of whether the relevant United States 
non-green box domestic support measures grant, du ring the implementation period, "support to a 
specific commodity in excess of that decided during the 1992 marketing year".     
372. As we have explained above, the term "s uch measures ... grant support to a specific 
commodity" comprises two elements: first, a non-green box measure actually confers support on the 
specific commodity in question; and second, there is a discernible link between the measure and the commodity, such that the measure is directed at  supporting that commodity.  Such a discernible link 
may be evident where a measure explicitly defin es a specific commodity as one to which it bestows 
support.  Such a link might also be ascertained, as a matter of fact, from the characteristics, structure 
or design of the measure under examination.  Conv ersely, support that does not actually flow to a 
commodity or support that flows to a commodity by co incidence rather than by the inherent  design of 
the measure cannot be regarded as falling within  the ambit of the term "support to a specific 
commodity".    
373. With these considerations in mind, we turn now to  the application of this interpretation to four 
measures that the United States claims do not gr ant "support to a specific commodity":  the  
production flexibility contract payments , market loss assistance payments , direct payments and 
counter-cyclical payments .  We refer to these measures as "base acre dependent payments" because 
each of these measures provides payments based on a calculation in which a payment rate, specific to 
                                                     
 
385United States' appellant's submission, para. 98.   WT/DS267/AB/R 
 Page 139 
 
 
 upland cotton, is multiplied by an ascer tained quantity of upland cotton, wh ich, in turn, is a product of 
a farm's historical planting of upland cotton (its "upland cotton base acres") and its historical yield of 
upland cotton per acre.386  For purposes of the Article 13(b)(ii)  comparison, the Panel outlined three 
alternative methodologies, and therefore three differe nt calculations, in respect of these measures in 
its Article 13(b)(ii) analysis.387  We also note that in calculating support granted to upland cotton the 
United States has ascribed a zero value to the four aforementioned domestic  support measures.  For 
purposes of these proceedings, we do not find it necessary to go beyond the Panel record, and thus 
limit our consideration to these four alternative calculations.   
374. The Panel ultimately based its calculations in r espect of the base acre dependent payments on 
the  total  budgetary outlays with respect to upland cotton base acres under each program.388  T h e  
United States contends that this calculation met hodology led the Panel to include, as support to upland 
cotton, payments to producers who did not plant upland cotton.389  For the United States, there is "[no] 
question that payments cannot be deemed to grant support to a crop the recipient does not produce".390  
In addition, the United States contends that the Pa nel erred in finding that the base acre dependent 
programs "clearly and explicitly specif[y] upland cotton ... as a commodity to which they grant 
support".391  In the view of the United States, these measures do no such thing.  The United States 
emphasizes that producers receive payments under th e base acre dependent programs irrespective of 
whether and how much upland cotton they plant, and regardless of whether they plant anything at all.
392  For the United States, the "Pan el's error stems largely from its assertion that merely identifying  
historical  criteria relating to a commodity according to  which payments will be made would render 
such payments 'support to a specific commodity'."393 
375. We agree with the United States that payments made with respect to historical upland cotton 
base acres to commodities other than upland cott on or to producers who produced no commodities at 
                                                      
386We note that each of these programs applied not just  to upland cotton, but also to other eligible 
commodities.  We also note that market loss assistance payments did not involve a separate calculation involving these criteria.  Rather, market loss assistance  payments served to supplement production flexibility 
contract payments and were made proportionate to a prod ucer's production flexibility contract payments.  (Panel 
Report, para. 7.217)     
387See Panel Report, para. 7.596 and "Attachment to Section VII:D" (Panel Report, paras. 7.634-7.647).   
388Ibid., paras. 7.580-7.583.  
389United States' appellant's submission, para. 106.  
390Ibid.  
391Ibid., para. 103 (quoting Panel Report, para. 7.518). 
392United States' appellant's submission, para. 104.  
393Ibid., para. 105. (original emphasis)  The United Stat es points out that "base acres" are not "physical 
acres" but hypothetical  acres for calculation of decoupled payments  to producers, who are free to produce 
whatever crop they choose or to produce no crop at all.  (United States' responses to questions during the oral 
hearing)  WT/DS267/AB/R 
Page 140  
 
 
 all cannot be deemed to be support granted to upland cotton for purposes of the Article 13(b)(ii) 
comparison.  The Article 13(b)(ii) assessment must be limited to support conferred on planted upland 
cotton;  support flowing to other commodities that were planted, or support that was given where no 
commodities were produced must of course be removed from the assessment.  We reject, therefore, the Panel's calculation methodology to the extent that  it failed to limit the Article 13(b)(ii) calculation 
to payments with respect to upland cotton base acres  corresponding to physical acres actually planted 
with upland cotton.   
376. We observe, however, that the Panel acknowle dged that a producer with upland cotton base 
acres may plant any crop other than the excluded fr uits, vegetables, and wild rice, but it found that 
there was "a strongly positive relationship between those recipients who hold upland cotton base acres 
and those who continue to plant upland cotton, despite their entitlement to plant other crops".
394  The 
Panel further observed that data provided by the Unit ed States showed that "a very large proportion of 
farms with upland cotton base acres continue to plant upland cotton in the year of payment"395, and 
that "the overwhelming majority of farms enrolle d in the programmes which plant upland cotton also 
hold upland cotton base".396     
377. We note in this regard that the Panel included, in "Attachment to Section VII:D" to its Report, 
and described as "appropriate"397, an alternative calculation using certain methodologies submitted by 
Brazil for allocating support to acres actually planted with upland cotton under the base acre 
dependent programs.  The first part of this calcu lation, the "cotton to cotton" methodology, allocated, 
for each  planted  acre of upland cotton, payments associated  with one  upland cotton base acre.  The 
second part ("Brazil's methodology") took the results of the "cotton to cotton" methodology and then 
added to it payments made with respect to non- upland cotton base acres corresponding to physical 
acres that were actually planted with upland cotton.398  The "cotton to cotton" methodology limits the 
Article 13(b)(ii) calculation to payments with r espect to cotton base acres corresponding to physical 
acres that were actually planted with upland cotton.   
378. We turn next to the United States' contention th at the mere fact that a measure is based on  
historical  production of upland cotton is not a sufficient basis for a finding that the measure grants at 
present "support to [the] specific commodity" upland co tton.  We agree that none of the base acre 
                                                      
394Panel Report, para. 7.637. 
395Ibid., para. 7.636. (footnote omitted) 
396Ibid., para. 7.636. 
397Ibid., para. 7.646.  
398See Ibid., paras. 7.640-7.642.   WT/DS267/AB/R 
 Page 141 
 
 
 dependent programs expressly ties support to contin ued production of upland cotton.  However, the 
absence of an express reference in the legislation to continued production of upland cotton does not 
mean that the payments do not grant support to uplan d cotton.  This is because a link between the four 
measures at issue and the continued production of upland cotton is discernible from the characteristics, structure and operation of those measures.   
379. We note in this regard the reasoning of the Panel:  
Where, for example, these measures specify commodities in the 
eligibility criteria and payment rate s, they constitute support to the 
commodities specified in that  way.  This applies  a fortiori   where the 
payments are determined according to, or are related to, current market prices of the specific commodities.
399 
On this basis, the Panel highlighted several fact ors revealing a close nexus between payments with 
respect to historic upland cotton base acres under th e production flexibility contract, market loss 
assistance, direct payment and counter-cyclical pa yment measures, and the continued production of 
upland cotton on an equivalent number of physical acres at present.  The Panel noted that payments 
under each program were based on "very specific eligibility criteria", primarily the production of 
upland cotton in a historical base period.400  The Panel also observed that, in the case of each of the 
measures, a particular payment rate was specified for upland cotton.401  Yield calculations were also 
specific to upland cotton and related to historical upland cotton yields per acre.402  In the case of 
market loss assistance payments, payments were sp ecifically designed to compensate for low prices 
for upland cotton.403  In the case of counter-cyclical paymen ts, the payment rate for upland cotton is 
directly linked to the market price of upland cotton in the year of payment.404  In our view, these 
characteristics and operational factors of the measures in question demonstrate a link between payments made with respect to historic upland cotton base acres and the continued production of 
upland cotton.   
380. We underline that these Panel findings do not pertain to  all  payments to  current   producers  
of upland cotton, but rather are limited to paym ents to producers with respect to historic  upland 
cotton   base acres.
405  Indeed, we see little in the Panel's findi ng or on the record that would allow us 
                                                      
399Panel Report, para. 7.484.  
400Ibid., paras. 7.513-7.516. 
401Ibid., para. 7.635. 
402See  ibid., paras. 7.513-7.516.  
403Ibid., para. 7.515. 
404Ibid., para. 7.516. 
405See  supra , footnote 184. WT/DS267/AB/R 
Page 142  
 
 
 to discern a link between the support-conferring measures with respect to non-cotton historical base 
acres and current production of upland cotton.  We do not, therefore, accept the methodology 
submitted by Brazil that included, in the Article 13(b )(ii) calculation, payments with respect to both 
cotton and non-cotton base acres flowing to current pr oduction of upland cotton.  We believe that only 
the "cotton to cotton" methodology, included by the Panel in "Attachment to Section VII:D" to its Report as an "appropriate"
406 alternative calculation, sufficiently demonstrates a discernible link 
between payments under base acre dependent measures (related to upland cotton) and upland cotton. 
381. Finally, we address the United States' argu ment that the calculation methodology under 
Article 13(b)(ii) must be based on only those factor s that the government of a Member can control, 
excluding, for example, producer decisions regard ing what crops to grow within the scope of 
production flexibility allowed by the measures.407  In advancing this contention, the United States 
relies upon the following statement of the Panel: 
[If] the proviso [to Article 13(b)(ii)] focused on where support was 
spent due to reasons beyond the control of the government, such as producer decisions on what to produce within a programme, it would 
introduce a major element of unpred ictability into Article 13, and 
render it extremely difficult to ensure compliance.
408   
382. The United States finds support for this view in the terms "grant" and "decided" in 
Article 13(b)(ii), and claims that "the focus of the Peace Clause comparison is on the support a 
Member decides".409  We note that the verbs "grant" and "deci ded" have distinct meanings.  We agree 
with the observation of the Panel that "'[d]ecided'  refers to what the government determines, but 
'grant' refers to what its measures provide."410  In Article 13(b)(ii), each of these words has been 
chosen to govern one side of the comparison required by that proviso.  In the light of the distinct meanings of these words, and the distinct roles they play in the context of Article 13(b)(ii), we reject 
the idea that the word "grant", which is applicable to implementation period support, must be read to 
mean the same thing as "decided", which is appli cable to the 1992 benchmark level of support.   
383. Moreover, we do not accept that unpredictab ility of producer decisions under planting 
flexibility rules,  per se ,  could modify the specific requirements set out in the proviso to 
Article 13(b)(ii).  What is relevant for the compar ison is the support that the measure actually grants 
                                                     
 
406Panel Report, para. 7.646.  
407United States appellant's submission, paras. 64-67 and 114-117. 
408Panel Report, para. 7.487.  
409United States appellant's submission, para. 66.  
410Panel Report, para. 7.476.   WT/DS267/AB/R 
 Page 143 
 
 
 during the implementation period.  Indeed, we agree with Brazil that a certain degree of 
unpredictability in the volume of the payments flow ing to particular commodities is inherent in many 
of the support measures disciplined by the  Agreement on Agriculture , including measures granting 
support to a specific commodity.411  The existence of such unpredictability cannot be a ground to alter 
the basis of comparison under the proviso to Article 13(b)(ii) from what is actually "grant[ed]" in the 
implementation period to what is only "decided".     
384. For the reasons stated above, we conclude that  payments with respect to upland cotton base 
acres to producers currently growing upland cotton under the production flexibility contract, market 
loss assistance, direct payment and counter-cyclical  payment measures, calculated in accordance with 
the "cotton to cotton" methodology, are support granted to the specific commodity upland cotton in the sense of Article 13(b)(ii) of the  Agreement on Agriculture .
412  
(c) Methodology for Calculating the Value of Price-Based Payments 
385. The United States' appeal regarding the Pa nel's decision to use the budgetary outlay 
methodology and not the price gap methodology descr ibed in paragraph 10 of Annex 3 to the  
Agreement on Agriculture  for certain price-based payments concerns calculation of the amounts of 
two types of payments:  (i) payments under the  marketing loan program ,  which are relevant to the 
calculation of both the 1992 benchmark level of  support and support during the implementation 
period;  and (ii)  deficiency payments , made in accordance with the FA CT Act of 1990, which were 
replaced by production flexibility contract paymen ts under the FAIR Act of 1996, and which are 
therefore relevant only to the calculation of the 1992 benchmark level of support.413  
386. Payments to upland cotton under the marketing loan  program could take one  of several forms.  
In each case, however, gains to producers under this  program accrued on the basis of a gap between a 
reference price tied to the market price of upland cotton, known as the "adjusted world price", and the 
                                                      
411Thus, in the case of measures that compensate fo r price fluctuations, unless a limit is set on total 
payments, a government has little control over the eventual  amount of payments.  In addition, we recall that the 
export subsidies at issue in  US – FSC  took the form of a foregoing of tax revenue, with the precise amount of 
the revenue foregone, and the nature of the specific products that it went to support, being dependent upon the 
actions of private corpor ations claiming the exemption.  In that case, therefore, it coul d also be said that whether 
the United States would exceed product-specific export subsidy commitments would also depend on private producers' decisions to claim tax exemptions.   
412For the Panel's findings on the value of produc tion flexibility contract payments, market loss 
assistance payments, direct payments and counter-cycli cal payments using the "cotton to cotton" methodology 
see Panel Report, para. 7.641.   
413United States' appellant's submission, para. 72;  Panel Report, para. 7.213.  We observe that the 
United States' arguments relating to the use of the price gap methodology to measure marketing loan program payments and deficiency payments extend only to the analysis required under Article 13(b)(ii) of the  Agreement 
on Agriculture ;  the United States does not argue that a price gap calculation is required in the context of an 
analysis of significant price suppression under Article 6.3(c) of the  SCM Agreement . WT/DS267/AB/R 
Page 144  
 
 
 "loan rate" fixed, from time to time,  for the marketing loan program.414  Deficiency payments for 
upland cotton were based on the gap between either  the loan rate under the marketing loan program, 
or the national average market price for upland cotton (whichever was higher) and a target price 
of 72.9 cents per pound of upland cotton.  In the even t that the loan rate or market price fell below the 
target price, deficiency payments filled the deficit.415     
387. The United States claims that both of these price-based measures represent "non-exempt 
direct payments ... dependent on a price gap", the va lue of which should be calculated by reference to 
the price gap methodology described in  paragraph 10 of Annex 3 to the  Agreement on Agriculture .416 
388. In addressing this issue, we—like the Panel— note that Article 13(b)(ii) gives no specific 
guidance regarding  how  the "support" that measures granted in the implementation period or that 
was decided during the 1992 marketing year should be calculated.  The Panel therefore turned to the 
broader context of the  Agreement on Agriculture   and chose to "apply the principles of AMS 
methodology" in accordance with Annex 3 of the  Agreement on Agriculture , with certain 
modifications.417  We observe that, on appeal, neither of th e participants, nor indeed any of the third 
participants that addressed this issue, suggested that the Panel erred in seeking guidance for its 
calculations in the principles set out in Annex 3.   
389. Against this background, we obser ve that paragraph 10  of Annex 3 provides that "non-exempt 
direct payments ... dependent on a price gap" may be  measured using either price gap methodology or 
budgetary outlay methodology.418  The Panel chose to rely upon actual budgetary outlays419, but 
                                                      
414For a description of payments under the marketing loan program, see Panel Report, paras. 7.204-
7.208. 
415For a description of deficiency payments, see Panel Report, footnote 294 to para. 7.213.  
416United States' appellant's submission, paras. 71-73 (quoting paragraph 10 of Annex 3 to the  
Agreement on Agriculture ).  
417Panel Report, para. 7.552. 
418Paragraph 10 of Annex 3 to the  Agreement on Agriculture  sets forth:  
Non-exempt direct payments: non-e xempt direct payments which are 
dependent on a price gap shall be calculated either using the gap between the fixed reference price and the applied administered price multiplied by 
the quantity of production eligible to r eceive the administered price, or using 
budgetary outlays.   
419See, for example, Panel Report, para. 7.596.  We reproduce the Panel's findings with respect to the 
values attributable to deficiency payments and paym ents under the marketing loan program using budgetary 
outlays in Table 1 of Annex 2.   WT/DS267/AB/R 
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 included in its Report findings regarding the valu e of support in each relevant year calculated 
according to price gap methodology as well.420   
390. As we explain in the next section, our conclu sion that the United States granted, during the 
relevant years of the implementation period, "support to a specific commodity", namely, upland cotton, "in excess of that decided during the 1992 ma rketing year" holds irrespective of whether the 
Panel's budgetary outlay calculations or its price gap calculations are used to attribute values to 
marketing loan program payments and deficiency pa yments.  Therefore, it is unnecessary for us to 
decide here which methodology must be used for purposes of the comparison envisaged by Article 13(b)(ii) with respect to these two types of payment.
421  
(d) Conclusion Regarding the Application of Article 13(b)(ii)  
391. We recall, once again, that the proviso to Article 13(b)(ii) of the  Agreement on Agriculture  
sets forth that, during the implementation period in  which Article 13 applies, non-green box domestic 
support measures must not "grant support to a speci fic commodity in excess of that decided during the 
1992 marketing year", if such measures are to enjo y exemption from actions "based on paragraph 1 of 
Article XVI of GATT 1994 or Articles 5 and 6 of the Subsidies Agreement".422 
392. In our review above, we have concluded that, for purposes of the comparison envisaged by 
Article 13(b)(ii), the values of the four measures, namely, production flexibility contract payments, 
market loss assistance payments, direct payments  and counter-cyclical payments in the years 1999, 
2000, 2001, and 2002 are properly determined by usi ng the "cotton to cotton" methodology, and we 
have therefore modified the Panel's findings in this  regard.  We further note that the United States has 
                                                      
420See Panel Report, para. 7.564 and footnote 727 to para. 7.565.  We reproduce the Panel's findings 
with respect to the values attributable to deficiency payments and payments under the marketing loan program 
using price gap methodology in each relevant year in Table 2 of Annex 2.  
421At the oral hearing, the United States confirmed that it may become unnecessary to rule on its appeal 
regarding calculation methodology, should the Panel's conclusions with respect to the phrase "support to a 
specific commodity" in Article 13(b)(ii) be upheld by the Appellate Body. (United States' response to 
questioning at the oral hearing) 
422We note at this point that we agree with the Panel that: 
There is no requirement to quantify th e excess, but the decisive question is 
whether there is any excess.  Thus, it w ould not be strictly necessary ... to 
make a precise calculation of the amount of the excess if it is clear that, on the basis of the proper evidentiary st andard, there is an excess of some 
degree. 
(Panel Report, para. 7.419) We also note, however, that fairly detailed calcula tions regarding the values attributable to United 
States implementation period support is available to us in these proceedings. WT/DS267/AB/R 
Page 146  
 
 
 not appealed the Panel's findings regarding the valu es attributable to three further support measures, 
namely, Step 2 payments to domestic users, crop insurance and cottonseed payments.423   
393. Adding, to the values of the seven measures mentioned above, the values for deficiency 
payments and marketing loan program payments calculated using  either  budgetary outlays424  or  
price gap methodology425, we conclude that the United States ' domestic support measures in question 
granted "support to a specific commodity", namely, upland cotton, that was "in excess of that decided 
during the 1992 marketing year" in each relevant year of the implementation period.   
394. It follows that the condition set out in the proviso to Article 13(b)(ii) of the  Agreement on 
Agriculture  has not been met by the United States.  We  uphold , therefore, the Panel finding, in 
paragraph 7.608 of its Report, that the United St ates' domestic support measures challenged by Brazil 
are not entitled to the exemption pr ovided by the peace clause from acti ons under Article XVI:1 of the 
GATT 1994 and Articles 5 and 6 of the  SCM Agreement . 
VI. Serious Prejudice 
A. Significant Price Suppression under Artic le 6.3(c) of the SCM Agreement 
1. Introduction  
395. The United States appeals the Panel's finding, in paragraphs 7.1416 and 8.1(g)(i) of the Panel 
Report, that the effect of marketing loan program payments, Step 2 payments, market loss assistance 
payments, and counter-cyclical payments (the "pri ce-contingent subsidies") is significant price 
suppression within the meaning of Article 6.3(c) of the  SCM Agreement constituting serious 
prejudice to the interests of Brazil within the meaning of Article 5(c) of the  SCM Agreement .  The 
United States raises several objections to the Panel' s analysis leading to this finding.  The United 
States also asks us to find that the Panel failed to set out the findings of fact, the applicability of 
relevant provisions, and the basic rationale behind this finding, as required by Article 12.7 of the 
DSU.  Brazil, for its part, raises a preliminary issue under Article 11 of the DSU.  
396. In this section of this Report, we begin our analysis by addressing the preliminary argument 
of Brazil regarding Article 11 of the DSU.  We then  turn to the various errors that the United States 
alleges that the Panel made in making its finding of significant price suppression under Article 6.3(c) 
                                                      
423For Panel findings on the value of support under these programs, see Panel Report, para. 7.596.  See 
also Tables 1 and 2 of Annex 2. 
424See Table 1 of Annex 2.  
425See Table 2 of Annex 2.  WT/DS267/AB/R 
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 of the  SCM Agreement .  In doing so, we examine the United States' objections to the "market" and 
"price" that the Panel examined in its analysis  of the price-contingent subsidies pursuant to 
Article 6.3(c).  We then consider the Panel's order of analysis under Article 6.3(c).  Next, we assess 
the other alleged errors in the Panel's reasoning lead ing to its finding that the effect of the price-
contingent subsidies is significant price suppression.   These include the Panel's alleged failure to 
quantify the amount of the price-contingent subsidi es benefiting upland cotton or to allocate the effect 
of the subsidies to the appropriate pe riod of time.  We then consider the implications of this appeal for 
the Panel's finding regarding serious prejudice under Article 5(c) of the  SCM Agreement .  Finally, we 
address the United States' claim that the Panel failed to comply with the requirements of Article 12.7 
of the DSU. 
2. Objective Assessment under Article 11 of the DSU  
397. Brazil argues that many of the United States' arguments, particularly those concerning serious 
prejudice, involve allegations that the Panel faile d to "make an objective assessment of the matter 
before it, including an objective assessment of th e facts of the case" pursuant to Article 11 of the 
DSU.426  Brazil requests us to dismiss the United States' arguments that Brazil lists in Annex A to its 
appellee's submission, on the basis that the United States has not made a proper claim of error under 
Article 11 of the DSU.427   
398. In its opening statement delivered at the oral hearing, the United States confirmed that it has 
not made an Article 11 claim in this appeal.  Rath er, the United States claims that the Panel erred in 
its interpretation of Article 6.3(c) of the SCM Agreement and in applying this interpretation to the 
facts in this dispute.  The United States also reque sts us not to dismiss certain of its arguments as 
requested by Brazil.  Under these circumstances, there is no need for us to rule that the United States 
makes no Article 11 claim.  We also refrain from ruling on whether the Panel complied with 
Article 11 of the DSU.  Moreover, we decline to di smiss the United States' arguments that Brazil lists 
in Annex A to its appellee's submission on the basis that an Article 11 claim was not properly set out 
by the United States.   
399. We are nevertheless mindful of the scope of appellate review with respect to legal and factual 
matters.  Pursuant to Article 17.6 of the DSU, app eals are "limited to issues of law covered in the 
panel report and legal interpretations  developed by the panel".  To the extent that the United States' 
arguments concern the Panel's appreciation and weighi ng of the evidence, we note from the outset that 
                                                      
426Brazil's appellee's submission, paras. 105 and 146. 
427Ibid., para. 146. WT/DS267/AB/R 
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 the Appellate Body will not interfere lightly with  the Panel's discretion "as the trier of facts".428  At the 
same time, the Appellate Body has previously pointed  out that the "consistency or inconsistency of a 
given fact or set of facts with the requirements of a given treaty provision is ... a legal characterization 
issue".429  Whether the Panel properly interpreted th e requirements of Article 6.3(c) of the  SCM 
Agreement   and properly applied that interpretation to the facts in this case is a legal question.  This 
question is different from whether the Panel made "an objective assessment of the matter before it, 
including an objective assessment of the facts of  the case", in accordance with Article 11 of the 
DSU.430  Therefore, the Panel's application of the legal requirements of Article 6.3(c) of the  SCM 
Agreement   to the facts of this case falls within the scope of  our review in this appeal, despite the fact 
that the United States does not claim that the Panel erred under Article 11 of the DSU.    
3. Relevant Market under Article 6.3(c) of the SCM Agreement  
400. Turning to the question of the relevant "marke t", we observe that Article 6.3(c) of the  SCM 
Agreement   addresses the situation where "the effect of th e subsidy is ... significant price suppression 
... in the same  market ". (emphasis added)  As the Panel suggested431, and the parties agree432, it is up 
to the complaining Member to identify the market in  which it alleges that the effect of a subsidy is 
significant price suppression and to demonstrate that th e subsidy has that effect within the meaning of 
Article 6.3(c).  Before the Panel, Brazil identifie d the following as relevant markets for its claim under 
Article 6.3(c):  (a) the world market for upland cotto n;  (b) the Brazilian market;  (c) the United States 
market;  and (d) 40 third country markets where Br azil exports its cotton and where United States and 
Brazilian upland cotton are found.433  In contrast, the United States argued before the Panel that the 
relevant market under Article 6.3(c) must be "a part icular domestic market of a Member", and that it 
cannot be a "world market".434   
                                                      
428"Determination of the credibility and weight properly to be ascribed to (that is, the appreciation of) a 
given piece of evidence is part and parcel of the fact findin g process and is, in principle, left to the discretion of 
a panel as the trier of facts." (Appellate Body Report, EC – Hormones , para. 132)  See also Appellate Body 
Report, US – Wheat Gluten , para. 151;  Appellate Body Report, EC – Sardines , para. 299;  Appellate Body 
Report, US – Carbon Steel , para. 142;  Appellate Body Report, Japan – Apples , para. 221. 
429Appellate Body Report, EC – Hormones , para. 132. 
430On this question, the Appellate Body has made se veral pronouncements in pr evious appeals.  See, 
for example, Appellate Body Report, EC – Hormones , para. 133;  Appellate Body Report, Korea – Dairy , 
para. 137;  Appellate Body Report, Japan – Apples , para. 222. 
431Panel Report, para. 7.1246. 
432The United States and Brazil indicated their agreem ent on this point in response to questioning 
during the oral hearing. 
433Panel Report, para. 7.1230. 
434Ibid., para. 7.1231.  WT/DS267/AB/R 
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 401. The Panel regarded the absence of any geogra phic limitation or refe rence to imports or 
exports in the text of Article 6.3(c), in cont rast to Articles 6.3(a) and (b) and 15.2 of the SCM 
Agreement , as indicating that the "same market" under Article 6.3(c) could be a "world market".435  
Applying this interpretation to the facts of the pr esent dispute, the Panel concluded that a "world 
market" for upland cotton does exist.436  The Panel further stated that "[w]here price suppression is 
demonstrated in [the world] market, it may not be  necessary to proceed to an examination of each and 
every other possible market where the products of both the complaining and defending Members are 
found".437  In the present dispute, having found that "p rice suppression has occurred in the same world 
market"438, the Panel decided that it was not "necessary to proceed to any further examination of ... 
alleged price suppression in i ndividual country markets".439  Thus, the Panel's analysis of the world 
market for upland cotton formed the basis for its finding that the effect of the price-contingent 
subsidies is significant price suppression within the meaning of Article 6.3(c). 
402. On appeal, the United States submits that the Panel erred in interpreting the words "same 
market" in Article 6.3(c) of the  SCM Agreement   as including a "world market".440  It also submits 
that the Panel's finding that a "world market" exists for upland cotton is inconsis tent with certain of its 
other findings.441  The United States also argues that, in any case, the Panel did not make a finding 
that United States and Brazilian upland cotton compete in the world market that it had identified for 
upland cotton.442  Brazil contends that significant price suppr ession under Article 6.3(c) "may apply to  
any  'market,' from local to global, and everything in between".443   
403. We begin our analysis of this issue by identifyi ng the ordinary meaning of the word "market" 
in the context of Article 6.3(c).  Article 6.3(c) of the  SCM Agreement   indicates that:  
Serious prejudice in the sense of paragraph (c) of Article 5 may arise 
in any case where one or several of the following apply: 
... 
                                                      
435Panel Report, paras. 7.1238-7.1240. 
436Ibid.,  para. 7.1247. 
437Ibid., para. 7.1252. 
438Ibid., para. 7.1312. 
439Ibid., para. 7.1315. 
440United States' appellant's submission, para. 307. 
441Ibid., paras. 318 and 319.  The United States submits that the Panel failed to reconcile its 
interpretation of the "same market" in Article 6.3(c) with its reading of the phrase "world market" under 
Article 6.3(d). 
442United States' appellant's submission, para. 321. 
443Brazil's appellee's submission, para. 628. (original emphasis) WT/DS267/AB/R 
Page 150  
 
 
 (c) the effect of the subsidy is a significant price undercutting by 
the subsidized product as compared with the price of a like product of another Member in the same  market or significant 
price suppression, price depression or lost sales in the same market [.] (emphasis added) 
404. The Panel described the ordinary me aning of the word "market" as:
444 
"a place ... with a demand for a commodity or service"1355; "a 
geographical area of demand for commodities or services"; "the area 
of economic activity in which buyers  and sellers come together and 
the forces of supply and demand affect prices".1356   
   
 1355 The New Shorter Oxford English Dictionary , (1993). 
 1356 Merriam-Webster Dictionary online . 
405. We accept that this is an adequate description of the ordinary meaning of the word "market" 
for the purposes of this dispute, and we do not understand the parties to dispute it.445  This ordinary 
meaning does not, of itself, impose any limitation on the "geographical area" that makes up any given 
market.  Nor does it indicate that a "world market " cannot exist for a given product.  As the Panel 
indicated, the "degree to which a market is limited by geography will depend on the product itself and 
its ability to be traded across distances".446   
406. The only express qualification on the type of "market"  referred to in Article 6.3(c) is that it 
must be "the same" market.  Aside from this qualifi cation (to which we return below), Article 6.3(c) 
imposes no explicit geographical limitation on the scope of the relevant market.  This contrasts with 
the other paragraphs of Article 6.3:   paragraph (a) restricts the releva nt market to "the market of the 
subsidizing Member";  paragraph (b) restricts the re levant market to "a third country market";  and 
paragraph (d) refers specifically to the "world  market share".  We agree with the Panel447 that this 
difference may indicate that the draf ters did not intend to confine, a priori , the market examined 
under Article 6.3(c) to any particular area.  Thus , the ordinary meaning of the word "market" in 
                                                      
444Panel Report, para. 7.1236. 
445As indicated by the United States and Brazil in res ponse to questioning during the oral hearing.  
446Panel Report, para. 7.1237. 
447Ibid., paras. 7.1238-7.1240.   WT/DS267/AB/R 
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 Article 6.3(c), when read in the context of the ot her paragraphs of Article 6.3, neither requires nor 
excludes the possibility of a nati onal market or a world market.448   
407. Turning to the phrase "in the same market", it is clear to us from a plain reading of 
Article 6.3(c) that this phrase applies to all four  situations covered in that provision, namely, 
"significant price undercutting", "significant price suppression, price depression [and] lost sales".  We read the Panel Report and the participants' submissions as endorsing this interpretation.
449  The phrase 
"in the same market" suggests that the subsidized product in question (United States upland cotton in 
this case)450 and the relevant product of the complaining Member must be "in the same market".  In 
this appeal, the Panel and the participan ts agree that United States upland cotton451 and Brazilian 
upland cotton452 must be "in the same market" for Braz il's claim under Article 6.3(c) to succeed.453  
Furthermore, the participants agree that these are like products.454  
408. When can two products be considered to be "i n the same market" for the purposes of a claim 
of significant price suppression under Article 6.3(c) ?  Article 6.3(c) does not provide an explicit 
answer.  However, recalling that one accepted definiti on of "market" is "the area of economic activity 
in which buyers and sellers come together and the forces of supply and demand affect prices"455, it 
seems reasonable to conclude that two products would be in the same market if they were engaged in 
actual or potential competition in that market.  Thus , two products may be "in the same market" even 
if they are not necessarily sold at  the same time and in the same place or country.  As the Panel 
                                                      
448This stands to reason, given that the purpose of the "actionable subsidies" provisions in Part III of the  
SCM Agreement   is to prevent Members from causing adverse effects to the interests of other Members through 
the use of specific subsidies, wh erever such effects may occur. 
449Panel Report, paras. 7.1248 and 7.1251;  United St ates' appellant's submission, para. 310;  Brazil's 
appellee's submission, paras. 636 and 638. 
450See  infra , footnote 451. 
451Specifically, the subsidized product is United States upland cotton lint. (Panel Report, paras. 7.139, 
7.1221-7.1224 and footnote 191 to para. 7.139)  The Panel explained that upland cotton, upon harvest, 
comprises cotton lint and cottonseed.  The cotton lint is separated from the cottonseed through "ginning". (Panel 
Report, footnote 258 to para. 7.197)    
452Panel Report, footnote 258 to para. 7.197 and paras. 7.1221-7.1224.  The United States and Brazil 
confirmed during the oral hearing that they do not contest this identification of the subsidized product and the 
other relevant product.   
453Accordingly, we need not deci de whether, in a claim of significant price suppression under 
Article 6.3(c), the product identified by  the complainant must be "like" the relevant subsidized product.  We 
note in this regard that the term "in the same mark et" appears twice in Article 6.3(c).  In the case of significant 
price undercutting , the "subsidized product" must be "compared with the price of a like product of another 
Member in the same market". (emphasis added)  This raises the question whether the other three situations 
mentioned in Article 6.3(c) (namely, "significant price suppression, price depression [and] lost sales") include a 
requirement that the subsidized product and the relevant product of the complainant be "like". 
454Panel Report, paras. 7.1248 and 7.1251;  United St ates' appellant's submission, para. 310;  Brazil's 
appellee's submission, paras. 636 and 638. 
455Panel Report, para. 7.1236 (quoting Merriam-Webster Dictionary online ). WT/DS267/AB/R 
Page 152  
 
 
 correctly pointed out, the scope of the "market", for determining the area of competition between two 
products, may depend on several factors such as th e nature of the product, the homogeneity of the 
conditions of competition, and transport costs.456  This market for a particular product could well be a 
"world market".  However, we agree with the Panel that the fact that a world market exists for one 
product does not necessarily mean that su ch a market exists for every product.457  T h u s  t h e  
determination of the relevant mark et under Article 6.3(c) of the  SCM Agreement   depends on the 
subsidized product in question.  If a world market exists for the product in question, Article 6.3(c) 
does not exclude the possibility of this "world market" being the "same market" for the purposes of a 
significant price suppression analysis under that Article.  
409. According to the United States, if the market  examined pursuant to a claim of significant 
price suppression under Article 6.3(c) is a "world ma rket", then the subsidized product and any like 
product will necessarily be in that market and the word "same" in Article 6.3(c) would have no 
meaning.458  We do not agree with this argument.  As we have explained above, there is no  per se   
geographical limitation of a market under Article 6.3( c).  It could well be a national market, a world 
market, or any other market.  It is for the compla ining party to identify the market where it alleges 
significant price suppression and to establish that that market exists.  In doing so, it is for the 
complaining party to establish that the subsidized  product and its product are in actual or potential 
competition in that alleged market.  If that market is established to be a "world market", it cannot be 
said, for that reason alone, that the two products ar e not in the "same market" within the meaning of 
Article 6.3(c). 
410. For these reasons, we agree with the Panel that, depending on the facts of the case, a "world 
market" may be the "same market" for the purposes of a claim of significant price suppression under Article 6.3(c) of the  SCM Agreement .
459   
411. We now examine the United States' objection to th e Panel's examination of the "world market 
for upland cotton"460 in the particular circumstances of this  dispute.  The United States submits that 
the Panel's finding that a world market for upland cotton exists is inconsis tent with the Panel's 
suggestion that the United States price for upland cotton is different from the "world price" 
                                                      
456Panel Report, para. 7.1237 and footnote 1357 to para. 7.1240. 
457Ibid., footnote 1357 to para. 7.1240. 
458"One can speak of a 'same' regional or national market because there are 'other' regional or national 
markets where the subsidized and like product may (or may not) compete.  One cannot speak of a 'same' world 
market in the same way because ther e is no 'other' world market where the products can be  found." (United 
States' appellant's submission, para. 311) 
459Panel Report, paras. 7.1238-7.1244. 
460Ibid., paras. 7.1247 and 7.1274.  WT/DS267/AB/R 
 Page 153 
 
 
 represented by the A-Index.461  Essentially, the United States appears to argue that no world market 
for upland cotton can exist if there is no world pri ce for upland cotton.  In our view, whether a world 
market for upland cotton and a world price for upla nd cotton exist in the circumstances of this case 
are factual questions.  The Panel Report indicates th at the Panel examined the evidence before it and 
concluded on the basis of that evidence that  a world market for upland cotton exists462 and that a 
world price in that market also exists and is reflected in the A-Index.463  We see no reason to disturb 
the Panel's findings of fact in this regard.464   
412. The United States also contends that the Panel did not make a finding that United States and 
Brazilian upland cotton were both in the world ma rket that it had identified for upland cotton.465  As 
we explained earlier466, the words "in the same market" in Article 6.3(c) of the SCM Agreement mean 
that subsidized United States upland cotton and Braz ilian upland cotton must be engaged in actual or 
potential competition in the market in which the eff ect of the challenged subsidy is alleged to be 
significant price suppression.  In this regard, we note that the Panel expressly stated that the market it 
examined pursuant to Article 6.3(c) had to be a market "in which both Brazilian and United States 
upland cotton were present and competing for sales"467 and "where competition exists between 
Brazilian and United States upland cotton".468 
413. Whether or not Brazilian and United States upland cotton competed in the "world market for 
upland cotton"469 during the period the Panel examined is a factual question.  As we stated earlier470, 
two products may be "in the same market" even if th ey are not necessarily sold  in the same place and 
at the same time, as long as they are engaged in actual or potential competition.  We recall that, in 
addition to the "world market", Brazil identified "40 third country markets ... where United States and 
                                                      
461United States' appellant's submission, para. 319 (referring to Panel Report, para. 7.1213).  
462Panel Report, paras. 7.1245-7.1252. 
463Ibid., paras. 7.1260-7.1274.  The Panel's "four main reasons" for this conclusion regarding the A-
Index were:  prices of Brazilian and United States up land cotton are "constituent elements" of the A-Index;  
"key market participants" perceive the A-Index as re flecting the world market price for upland cotton;  the 
International Cotton Advisory Council treats the A-I ndex in a similar manner;  and the Economic Research 
Service of the United States Department  of Agriculture (the "USDA") has itself referred to the A-Index as the 
world price.  In addition, "the United States 'adjusted world price' is based on  and derived from  the A-Index". 
(Ibid., paras. 7.1265-7.1271) (original emphasis) 
464See Appellate Body Report, EC – Hormones , para. 132.  See also Appellate Body Report, US – 
Wheat Gluten , para. 151. 
465United States' appellant's submission, para. 320. 
466Supra , paras.  407-408. 
467Panel Report, para. 7.1248. 
468Ibid., para. 7.1251. 
469Ibid., paras. 7.1247 and 7.1274. 
470Supra , para. 408. WT/DS267/AB/R 
Page 154  
 
 
 Brazilian like upland cotton is found".471  We also note that, based on  an assessment of the relevant 
facts, the Panel concluded, as a matter of fact, that these two products did compete in the world 
market for upland cotton.  In particular, the Panel referred to "the world upland cotton market, and the 
relative proportion of that market enj oyed by the United States and Brazil".472 
414. We are therefore not persuaded by the United States' arguments that the Panel erred with 
respect to whether United States and Brazilian upland cotton were "in the same market" according to 
Article 6.3(c). 
4. Relevant Price under Article 6.3(c) of the  SCM Agreement  
415. We now turn to the United States' arguments on appeal with respect to the relevant "price" 
under Article 6.3(c).  The Panel found that "the A-In dex can be taken to reflect a world price in the 
world market for upland cotton that is sufficient to form the basis for our analysis as to whether there 
is price suppression in the same world market within the meaning of Article 6.3(c) for the purposes of 
this dispute".473  The United States argues that, even if the Panel properly found that the effect of the 
price-contingent subsidies is significant suppression of the  world price   for upland cotton, this could 
not constitute significant price suppression for purposes of Brazil's claim under Article 6.3(c) of the  SCM Agreement .  According to the United States, Brazil had to show that the effect of the challenged 
subsidies is significant suppression of "the price of Brazilian upland cotton in the 'world market.'"
474  
416. We have already found that the "market" referr ed to in Article 6.3(c), in connection with 
significant price suppression, can be a "world market"475, and that the Panel was correct in examining 
the world market for upland cotton in the present dispute.476  The question before us is whether it was 
sufficient for the Panel to analyze the price of upla nd cotton in general in the world market or whether 
the Panel was required to analyze the price of Braz ilian upland cotton in the world market and find 
significant price suppression with respect to that price.  
                                                      
471Panel Report, para. 7.1230. 
472Ibid., para. 7.1313.  See also ibid., para. 7.1246. 
473Panel Report, para. 7.1274.  According to the Panel,  the "A-Index" "is a composite of an average of 
the five lowest price quotes from a selection of the principal upland cottons traded in the world market obtained 
by Cotlook, a private UK-based organization". (Panel Report, para. 7.1264) 
474United States' appellant's submission, para. 239. 
475Supra , para. 410. 
476Supra , para. 414.  WT/DS267/AB/R 
 Page 155 
 
 
 417. In our view, it was sufficient for the Panel to analyze the price of upland cotton in general in 
the world market.  The Panel did so by relying on the A-Index.  The Panel specifically found, based 
on its reading of the evidence before it: 
[P]rices for upland cotton transacti ons throughout the world are ... 
largely determined by the A-Index price.477 
Therefore, the Panel found that the A-Index adequate ly reflected prices in the world market for upland 
cotton.478  The Panel also found that "developments in the world upland cotton price would inevitably 
affect prices" wherever Brazilian and United States upl and cotton compete, "due to the nature of the 
world prices in question and the nature of the wo rld upland cotton market, and the relative proportion 
of that market enjoyed by the United States and Brazil".479  It was not necessary, in these 
circumstances, for the Panel to pr oceed to a separate analysis of the prices of Brazilian upland cotton 
in the world market.   
418. For these reasons, we reject the United States' cont ention that the Panel erred in its analysis of 
significant price suppression under Article 6.3(c) of the  SCM Agreement   "in not examining Brazilian 
upland cotton prices in the 'world market'".480 
5. Significant Price Suppression as the Effect of the Price-Contingent Subsidies  
(a) Introduction 
419. We now address the reasons the Panel provided fo r its ultimate finding under Article 6.3(c).  
First, the Panel found that price suppression had occurred within the meaning of Article 6.3(c)481 after 
examining three main considerations:  "(a) the re lative magnitude of the United States' production and 
exports in the world upland cotton market;  (b) genera l price trends [in the world market as revealed 
by the A-Index];  and (c) the nature of the subsidi es at issue, and in particular, whether or not the 
nature of these subsidies is such as to have discernible price suppressive effects".482  Next, the Panel 
found that the price suppression it had found to exist was "significant" price suppression under Article 6.3(c)
483, "given the relative magnitude of United States production and exports, the overall 
                                                      
477Panel Report, para. 7.1311.  
478Ibid., para. 7.1274.   
479Ibid., para. 7.1313. 
480United States' appellant's submission, para. 238. 
481Panel Report, para. 7.1312. 
482Ibid., para. 7.1280. 
483Ibid., para. 7.1333. WT/DS267/AB/R 
Page 156  
 
 
 price trends we identified in the world market, ... the nature of the mandatory United States subsidies 
in question ... and the readily av ailable evidence of the order of magnitude of the subsidies".484   
420. The Panel went on to find that "a causal link exists between" the price-contingent subsidies 
and the significant price suppression it had found485, for four main reasons:486 
[T]he United States exerts a substantial proportionate influence in the 
world upland cotton market.487   
[T]he [price-contingent subsidies] are directly linked to world prices 
for upland cotton, thereby insulating United States producers from 
low prices.488 
[T]here is a discern[i]ble temporal coincidence of suppressed world 
market prices and the price-contingent United States subsidies.489 
[C]redible evidence on th e record concerning the divergence between 
United States producers' total costs of production and revenue from 
sales of upland cotton since 1997 ... supports the proposition that 
United States upland cotton producers would not have been economically capable of remaining in the production of upland cotton had it not been for the United States subsidies at issue and that 
the effect of the subsidies was to allow United States producers to sell upland cotton at a price lower than would otherwise have been 
necessary to cover their total costs.
490 
421. Finally, the Panel found that the following "other causal factors alleged by the United 
States"491 "do not attenuate the genuine and substantia l causal link that we have found between the 
United States mandatory price-contingent subsidies at issue and the significant price suppression.  Nor 
do they reduce the effect of the mandatory price- contingent subsidies to a level which cannot be 
considered 'significant'"492: 
                                                      
484Panel Report, para. 7.1332. (footnotes omitted)  We address the United States' arguments regarding 
the magnitude or quantification of the subsidies  infra , paras. 459-472. 
485Panel Report, para. 7.1355. 
486Ibid., para. 7.1347. 
487Ibid., para. 7.1348.  
488Ibid., para. 7.1349. 
489Ibid., para. 7.1351. 
490Ibid., para. 7.1353. (footnotes omitted) 
491Ibid., para. 7.1357. 
492Ibid., para. 7.1363.  WT/DS267/AB/R 
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 [W]eakness in world demand for cotton due to competing, low-priced 
synthetic fibres, and weak world economic growth.493  
[B]urgeoning United States textile imports, reflecting the strong 
United States dollar since the mid-1990's and declining United States 
competitiveness in textile and apparel production[.]494 
[T]he strong United States dollar since the mid-1990's[.]495 
China subsidized the release of millions of bales of government 
stocks between 1999 and 2001[.]496 
[U]pland cotton planting decisions ... are driven by other factors such 
as (1) the effect of technological factors of upland cotton production ... (2) the relative movement of upland cotton prices vis-à-vis prices 
of competing crops ... (3) the expected prices for the upcoming crop 
year.497  
(b) Appeal by the United States 
422. In addition to the alleged errors already discu ssed in connection with the relevant "market" 
and "price", the United States contends on appeal that the Panel erred in finding that the effect of the 
price-contingent subsidies is significant price suppressi on within the meaning of Article 6.3(c) of the  
SCM Agreement .498  These errors, according to the United States, are: 
(a) in relation to the effects of the price-contingent subsidies: 
(i) failing to analyze "the rele vant production decision faced by farmers – that is, 
the decision on what to plant"499; 
(ii) ignoring data indicating that United States upland cotton production 
responded to market signals500; 
                                                      
493Panel Report, para. 7.1358.  
494Ibid., para. 7.1359.  
495Ibid.,  para. 7.1360.  
496Ibid., para. 7.1361.  
497Ibid., para. 7.1362.  
498Ibid., paras. 7.1416 and 8.1(g)(i). 
499United States' appellant's submission, paras. 136 and 154. 
500Ibid., para. 155. WT/DS267/AB/R 
Page 158  
 
 
 (iii) "failing to examine supply response in othe r countries – that is, to what extent 
other countries would increase supply in response to any alleged decrease in 
cotton production resulting from the absence of U.S. payments"501;  and 
(iv) "the four main, cumulative grounds the Panel identified supporting a finding 
of causation do not withstand scrutiny"502; 
(b) in relation to the quantification of subsidies: 
(i) "accepting Brazil’s argument that, for purposes of a serious prejudice claim, 
Brazil need not allege and demonstrat e, and the Panel need not find, the 
amount of the challenged subsid y that benefits upland cotton"503; 
(ii) finding "that subsidies not tied to current production of upland cotton 
(decoupled payments) need not be al located over the total sales of the 
recipients"504;  and 
(iii) failing to determine "the extent to which processed cotton benefits from 
subsidies provided with respect to raw cotton"505;  and 
(c) in relation to the effect of subsidies over time: 
(i) concluding "that the payments need not be allocated to the marketing year to 
which they relate"506;  and 
(ii) "making a finding of present serious prejudice related to past recurring 
subsidy payments", in the absence of a finding "that the past recurring 
subsidy payments at issue (that is, those from marketing years 1999-2001) 
had continuing effects at the time of panel establishment".507 
                                                      
501United States' appellant's submission, para. 227. 
502Ibid., para. 180. 
503Ibid., para. 240. 
504Ibid., para. 264. 
505Ibid., para. 301. 
506Ibid., para. 277. 
507Ibid., para. 278.  WT/DS267/AB/R 
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 (c) Meaning of "Significant Price Suppression" 
423. A central question before the Panel with  regard to Article 6.3(c) of the SCM Agreement was 
whether the effect of the subsidy is "significant price suppression".508  It is worth setting out the 
Panel's understanding of the meaning of the term "price suppression".  In explaining this term, the 
Panel stated, in paragraph 7.1277 of the Panel Report: 
Thus, " price suppression " refers to the situation where "prices" – in 
terms of the "amount of money set for sale of upland cotton" or the "value or worth" of upland cotton –  either are prevented or inhibited 
from rising (i.e. they do not increase when they otherwise would 
have) or they do actually increase, but the increase is less than it otherwise would have been.  Price depression  refers to the situation 
where "prices" are pressed down, or reduced.
1388   
   
 1388 In the remainder of our analysis, we use the term "price suppression" 
to refer both to an actual decline (which otherwise would not have declined, or would have done so to a lesser degree) and an increase in prices (which 
otherwise would have increased to a greater degree). (emphasis added) 
424. Although the Panel first identified "price suppression" and "price depression" as two separate 
concepts in paragraph 7.1277, footnote 1388 of the Panel Report suggests that, for its analysis, the 
Panel used the term "price suppression" to refer to  both price suppression and price depression.  We 
recognize that "the situation where 'prices' ... are pr evented or inhibited from rising" and "the situation 
where 'prices' are pressed down, or reduced"509 may overlap.  Nevertheless, it would have been 
preferable, in our view, for the Panel to avoid using the term "price suppression" as short-hand for 
both price suppression and price depression, given that Article 6.3(c) of the  SCM Agreement   refers to 
"price suppression" and "price depression" as distinct c oncepts.  We agree, however, that the Panel's 
description of "price suppression" in paragraph 7. 1277 of the Panel Report reflects the ordinary 
meaning of that term, particularly when read in conjunction with the French and Spanish versions of 
Article 6.3(c)510, as required by Article 33(3) of the  Vienna Convention on the Law of Treaties 
(the " Vienna Convention ").511   
                                                      
508According to the Panel, Brazil claimed that certain United Stat es subsidies "significantly 
suppress[ed] upland cotton prices" within the meaning of Article 6.3(c). (Panel Report, para. 7.1108(i)) 
509Panel Report, para. 7.1277. 
510The French version states, in part, "la subvention ... a pour effet d' empêcher des hausses de prix ou 
de déprimer les prix ... dans une mesure notable";  the Spanish version states, in part, "la subvención ... tenga un 
efecto significativo de contención de la subida de los precios , reducción de los precios". (emphasis added)   
511Done at Vienna, 23 May 1969, 1155 U.N.T.S. 331; 8 International Legal Materials 679.  
Article 33(3) provides:  "The terms of the treaty are presumed to have the same meaning in each authentic text." WT/DS267/AB/R 
Page 160  
 
 
 425. The Panel described its task in assessing "pri ce suppression" under Article 6.3(c) as follows: 
We need to examine whether these prices were suppressed, that is, 
lower than they would have been without the United States subsidies in respect of upland cotton.
512 
426. As regards the word "significant" in the context of "significant price suppression" in 
Article 6.3(c), the Panel found that this word means "important, notable or consequential".513   
427. Article 6.3(c) does not set forth any specific me thodology for determining whether the effect 
of a subsidy is significant price suppression.  There may well be different ways to make this 
determination.  However, we find no difficulty with the Panel's approach in the particular 
circumstances of this dispute.  We therefore turn to an examination of how the Panel carried out its 
assessment. 
(d) Panel's Order of Analysis 
428. In addressing Brazil's claims of serious prejudice under Articles 5(c) and 6.3(c) of the SCM 
Agreement , the Panel began  by examining whether the effect of the challenged subsidies was 
significant price suppression within the meaning of Artic le 6.3(c).  The Panel explained that it adopted 
this order of analysis because both parties agreed th at the Panel could not make an affirmative finding 
of serious prejudice under Article 5(c)  without making an affirmative finding that the effect of the 
challenged subsidies is significant price suppression within the meaning of Article 6.3(c).514  Neither 
party appeals this decision by the Panel.   
429. Having determined the relevant products, market, and price, the Panel continued its analysis 
with respect to Article 6.3(c) in the following order: 
Is there "price suppression"?515 
Is it "significant" price suppression?516 
"The effect of the subsidy"517 
                                                      
512Panel Report, para. 7.1288.  See also ibid., para. 7.1279. 
513Ibid., para. 7.1326. 
514Ibid., para. 7.1228. 
515Ibid., heading (ii) to paras. 7.1275-7.1315. 
516Ibid., heading (iii) to paras. 7.1316-7.1333. 
517Ibid., heading (k) to paras. 7.1334-7.1363.  WT/DS267/AB/R 
 Page 161 
 
 
 430. The United States contests the Panel's decision to address "significant price suppression" 
before addressing "the effect of the subsidy", arguing that "[a] finding of price suppression  without   
any prior finding of 'the effect of the subsidy' woul d be meaningless;  how could one know that prices 
were lower than they otherwise would have been without knowing what allegedly caused the prices to 
be lower?".518  The United States also contends that the Panel used "circular" reasoning by assuming 
causation in finding price suppression and using its  conclusion on price suppression to support its 
finding on causation (the effect of the subsidy).519 
431. As noted above, Article 6.3(c) is silent as to the sequence of steps to be followed in assessing 
whether the effect of a subsidy is significant price suppression.  We note that Article 6.8 indicates that the existence of serious prejudice pursuant to Articles 5(c) and 6.3(c) is to be determined on the basis 
of information submitted to or obtained by the pa nel, including informati on submitted in accordance 
with Annex V of the  SCM Agreement .
520  Annex V provides some limited guidance about the type of 
information on which a panel might base  its assessment under Article 6.3(c).   But we find little other 
guidance on this issue.  The text of Article 6.3(c) does not, however, preclude the approach taken by the Panel to examine first whether significant price s uppression exists and then, if it is found to exist, 
to proceed further to examine whet her the significant price suppression is the effect of the subsidy.  
The Panel evidently considered that, in the absence  of significant price suppression, it would not need 
to proceed to analyze the effect of the subsid y.  We see no legal error in this approach.   
432. One might contend that, having decided to separate its analysis of significant price 
suppression from its analysis of the effects of the challenged subsidies, the Panel's price suppression 
analysis should have addressed prices without refe rence to the subsidies and their effects.  For 
instance, in its significant price suppression analysis, the Panel could have addressed purely price developments in the world market for upland cotto n, such as whether prices fell significantly during 
the period under examination or whether prices were  significantly lower during that period than other 
periods.  Then, in its "effects" analysis, the Pane l could have addressed causal factors related to the 
nature of the subsidies, their relationship to pr ices, their magnitude, and their impact on production 
and exports.  In this causal analysis, the Panel could also have addressed factors other than the 
challenged subsidies that may have been suppressing the prices in question.   
433. However, the ordinary meaning of the transitive verb "suppress" implies the existence of a 
subject (the challenged subsidies) and an object (i n this case, prices in the world market for upland 
cotton).  This suggests that it would be difficult to make a judgement on significant price  
                                                     
 
518United States' appellant's submission, para. 230. (original emphasis) 
519Ibid., para. 131. 
520Annex V contains "Procedures for Developing Information Concerning Serious Prejudice". WT/DS267/AB/R 
Page 162  
 
 
 suppression   without taking into account the effect of the subsidies.521  The Panel's definition of price 
suppression, explained above522, reflects this problem;  it includes the notion that prices "do not 
increase when they  otherwise   would have" or "they do actually increase, but the increase is less than 
it  otherwise   would have been".523  The word "otherwise" in this context refers to the hypothetical 
situation in which the challenged subsidies are absent .  Therefore, the fact that the Panel may have 
addressed some of the same or similar factors in its reasoning as to significant price suppression and 
its reasoning as to "effects" is not necessarily wrong.524   
434. The specific factors that the Panel examined  in determining whether or not "price 
suppression" had occurred were:  "(a) the relativ e magnitude of the United States' production and 
exports in the world upland cotton market;  (b) ge neral price trends;  and (c) the nature of the 
subsidies at issue, and in particular, whether or not  the nature of these subsidies is such as to have 
discernible price suppressive effects".525  In the absence of explic it guidance on assessing significant 
price suppression in the text of Article 6.3(c), we  have no reason to reject the relevance of these 
factors for the Panel's assessment in the present ca se.  An assessment of "general price trends"526 is 
clearly relevant to significant price suppression (although, as the Panel itself recognized, price trends 
alone are not conclusive).527  The two other factors—the nature of the subsidies and the relative 
magnitude of the United States' production and export s of upland cotton—are also relevant for this 
assessment.  We are not persuaded that the fact that these latter factors were also considered in connection with the Panel's analysis of "the effect of the subsidy"
528 amounts to legal error for that 
reason alone.   
                                                      
521Similarly, it might be difficult to ascertain whether imports or expo rts are "displace[d]" or 
"impede[d]" under paragraphs (a) or (b) of Article 6.3 of the  SCM Agreement   without considering the effect of 
the challenged subsidy.  By way of contrast, it might be possible to determine whethe r the world market share of 
a subsidizing Member has increased w ithin the meaning of Article 6.3(d) before assessing whether any increase 
is the effect of the subsidy. 
522Supra , para. 423. 
523Panel Report, para. 7.1277. (emphasis added) 
524An analysis under Article 6.3(c)  SCM Agreement   could involve assessing similar facts from 
different perspectives in order to answer different factual and legal questions when addressing "significant price 
suppression" and "the effect of" the challenged subsidies.   
525Panel Report, para. 7.1280. 
526Ibid., para. 7.1286.  See also ibid., para. 7.1310. 
527Ibid., para. 7.1288. 
528We discuss these factors  infra , paras. 449 and 450.  WT/DS267/AB/R 
 Page 163 
 
 
 435. Turning to the Panel's assessment of the "effect of the subsidy"529, the Panel addressed the 
question whether there was a "causal link"530 between the price-contingent subsidies and the 
significant price suppression it had found.  It then addressed the impact of "[o]ther alleged causal 
factors".531  We observe that Article 6.3(c) does not use the word "cause";  rather, it states that "the 
effect of the subsidy is ... significant price suppressi on".  However, the ordinary meaning of the noun 
"effect" is "[s]omething ... caused or produced;  a result, a consequence".532  The "something" in this 
context is significant price suppression, and thus the question is whether significant price suppression 
is "caused" by or is a "result" or "consequence"  of the challenged subsidy.  The Panel's conclusion 
that "[t]he text of the treaty requires the establis hment of a causal link between the subsidy and the 
significant price suppression"533 is thus consistent with this ordi nary meaning of the term "effect".  
This is also confirmed by the context provided by Article 5(c) of the  SCM Agreement ,  which 
provides: 
 No Member should cause, through the use of any subsidy 
referred to in paragraphs  1 and 2 of Article 1, adverse effects to the 
interests of other Members, i.e.: 
... 
(c) serious prejudice to the interests of another Member.  
436. As the Panel pointed out, "Articles 5 and 6.3 ... do not contain the more elaborate and precise 
'causation' and non-attribution language" f ound in the trade remedy provisions of the SCM 
Agreement .534  P a r t  V  o f  t h e   SCM Agreement ,  which relates to the imposition of countervailing 
duties, requires,  inter alia ,  an examination of "any known factors other than the subsidized imports 
which at the same time are in juring the domestic industry".535  However, such causation requirements 
have not been expressly prescribed for an examination of  serious prejudice   under Articles 5(c) and 
Article 6.3(c) in Part III of the  SCM Agreement .  This suggests that a panel has a certain degree of 
discretion in selecting an appropriate methodology fo r determining whether the "effect" of a subsidy 
is significant price suppression under Article 6.3(c).   
                                                      
529Panel Report, heading (k) to paras. 7.1334-7.1363. 
530Ibid., heading (i) to paras. 7.1347-7.1356. 
531Ibid., heading (ii) to paras. 7.1357-7.1363. 
532Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University 
Press, 2002), Vol. 1, p. 793. 
533Panel Report, para. 7.1341. 
534Ibid., para. 7.1343. 
535See Article 15.5 of the  SCM Agreement .  Article 3.5 of the Anti-Dumping Agreement and 
Article 4.2(b) of the Agreement on Safeguards are broadly analogous to Article 15.5 of the SCM Agreement . WT/DS267/AB/R 
Page 164  
 
 
 437. Nevertheless, we agree with the Panel that it is  necessary to ensure that the effects of other 
factors on prices are not improperly attributed to the challenged subsidies.536  Pursuant to 
Article 6.3(c) of the  SCM Agreement , "[s]erious prejudice in the sense of paragraph (c) of Article 5 
may arise" when "the effect of the subsidy  is ... significant price suppression". (emphasis added)  If 
the significant price suppression found in the world market for upland cotton were caused by factors other than the challenged subsidies, then that pr ice suppression would not be "the effect of" the 
challenged subsidies in the sense of Article 6.3(c).  Therefore, we do not find fault with the Panel's 
approach of "examin[ing] whether or not 'the eff ect of the subsidy' is the significant price suppression 
which [it had] found to exist in the same world market"
537 and separately "consider[ing] the role of 
other alleged causal factors in the record before [it]  which may affect [the] analysis of the causal link 
between the United States subsidies and the significant price suppression."538   
438. The Panel's approach with respect to causation a nd non-attribution is similar to that reflected 
in Appellate Body decisions in the context of other WTO agreements.  In connection with the  
Agreement on Safeguards , the Appellate Body has stated that  a causal link "between increased 
imports of the product concerned and serious injury or threat thereof"539 "involves a genuine and 
substantial relationship of cause and effect between these two elements"540, and it has also required 
non-attribution of effects caused by other factors.541  In the context of the  Agreement on 
Implementation of Article VI of the Ge neral Agreement on Tariffs and Trade 1994  (the " Anti-
Dumping Agreement "),  the Appellate Body has stated:  "[ i]n order that investigating authorities, 
applying Article 3.5, are able to ensure that th e injurious effects of the other known factors are not 
'attributed' to dumped imports, they must appropr iately assess the injurious effects of those other 
factors."542  It must be borne in mind that these provisions of the  Agreement on Safeguards   and the  
Anti-Dumping Agreement , as well as the  provisions of Part V of the  SCM Agreement ,  relate to a 
determination of "injury" rather th an "serious prejudice", and they a pply in different contexts and with 
different purposes.  Therefore, they must not be automatically transposed into Part III of the  SCM 
Agreement .  Nevertheless, they may suggest ways of assessing whether the effect of a subsidy is 
significant price suppression rather than it being the effect of other factors.  
                                                      
536Panel Report, para. 7.1344.  
537Ibid., para. 7.1345. 
538Ibid., para. 7.1346. 
539Article 4.2(b) of the Agreement on Safeguards .  Compare Article 15.5 of the SCM Agreement and 
Article 3.5 of the Anti-Dumping Agreement . 
540Appellate Body Report, US – Wheat Gluten , para. 69. 
541Appellate Body Report, US – Line Pipe , para. 208.  
542Appellate Body Report, US – Hot-Rolled Steel , para. 223.  WT/DS267/AB/R 
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 (e) Rationale for the Panel's Finding that the Effect of the Price-
Contingent Subsidies is Significant Price Suppression 
439. We now address the United States' appeal relati ng to the specific reasons behind the Panel's 
conclusion that the effect of the price-contingent  subsidies is significant price suppression within the 
meaning of Article 6.3(c) of the  SCM Agreement .  The United States alleges that the Panel ignored or 
failed to take into account certain evidence and ar guments in analyzing the effect of the price-
contingent subsidies, and that the four main gr ounds on which the Panel based its analysis "do not 
withstand scrutiny".543  We begin by addressing the three key elements that the United States alleges 
the Panel failed to include in its analysis, and th en we address the reasons the Panel relied upon for its 
conclusion that the effect of the price-conti ngent subsidies is significant price suppression. 
440. First, the United States contends that the Panel failed to address the relevant economic 
decision faced by United States upland cotton farmers at the time of planting, namely, the decision of whether to plant upland cotton or alternative crops (and how much of each).  According to the United 
States, planted acreage of United States upland cotton responds to expected market prices at the time 
of harvest, rather than current prices at the time of planting.
544  Brazil counters that farmers decide 
what to plant based on expected market prices as well as expected payments under the challenged 
subsidy programs, such that planted acreage responds to both these factors.545  Brazil also points out 
that farmers sell their upland cotton throughout the course of a year, at whatever prices they can 
obtain during the year.546  During the oral hearing, the United States accepted that farmers decide 
what to plant based on expected mark et prices as well as expected subsidies.547  However, according 
to the United States, for the 1999-2001 and 2003 crop years, when farmers made their planting decisions, the expected upland cotton price (that is , the price the farmers expected to receive upon 
harvest) was higher than the "income guarantee set by  the marketing loan rate, suggesting that the 
effect of the subsidy on the planting decision was minimal".
548 
441. We note that the United States presented extens ive evidence and arguments to the Panel in 
relation to expected prices and planting decisions.549  Brazil also points to several questions asked by  
                                                      
543United States' appellant's submission, para. 180.  See  supra , para. 420.   
544United States' appellant's submission, paras. 154 and 155. 
545Brazil's appellee's submission, para. 692. 
546Brazil's response to questioni ng at the oral hearing. 
547See also United States' further rebuttal submission to the Panel, paras. 95-97.  
548United States' statement and response to questioning at the oral hearing.  
549See, for example:  United States' fu rther submission to the Panel, paras. 55-60;  United States' further 
rebuttal submission to the Panel, paras. 95-97 and 152-177. WT/DS267/AB/R 
Page 166  
 
 
 the Panel and responses to the Panel regarding planting decisions of United States upland cotton 
producers to demonstrate that the Panel was aware of  the United States' arguments in this regard and 
took them into account.550  The Panel Report makes it clear that the Panel specifically addressed 
"upland cotton planting decisions", "expected  prices", and "expected market revenue".551  The way in 
which United States upland cotton farmers make deci sions relating to the production of upland cotton, 
and the basis on which they make such decisions, are factual matters that fall within the Panel's task 
of weighing and assessing the relevant evidence, and we will not review these matters.  However, in 
our view, the application of the legal requirements of  Article 6.3(c) to the facts determined by the 
Panel falls within the scope of appellate review.552 
442. Turning first to Chart 2 at paragraph 7.1293 of  the Panel Report, the United States submits 
that it is defective because it "assumes that co tton production decisions are made continuously 
throughout the marketing year", it "does not identify the planting decision period", and it "does not 
identify the expected harvest season prices at the time of that planting decision".553  The Panel 
explained that it used this chart to demonstrate "that the per unit payment under the marketing loan 
programme increases when the gap between the adju sted world price and the loan rate widens"554 and 
"that except for a short period in MY 2000, the adjusted world price was  below   the marketing loan 
rate throughout virtually  the whole period from   MY 1999-2002".555  The Panel concluded from this 
graph, in connection with marketing loan program payments, that "[t]he further the adjusted world 
price drops, the greater the extent to which United States upland cotton producers' revenue is insulated 
from the decline, numbing United States production decisions from world market signals".556   
443. The Panel explained how the marketing loan pr ogram payments operate and found that these 
payments accounted for more than half of  United States upland cotton producer revenue.557  T h i s  
demonstrates that, in assessing the effect of mark eting loan program payments under Article 6.3(c), 
the Panel took into account the magnitude of the paym ents relative to the revenue of United States 
                                                      
550Brazil's appellee's submission, para. 685 (referring, inter alia , to Brazil's response to Question 167 
posed by the Panel (Panel Report, pp. I-216-217, para.151);  United States' response to Question 212 Posed by 
the Panel (Panel Report, p. I-360, para. 51);  Question 213 Posed by the Panel (Panel Report, p. I-361)). 
551Panel Report, para. 7.1362. 
552See the discussion  supra , para. 399. 
553United States' statement at the oral hearing. 
554Panel Report, para. 7.1293. 
555Ibid., para. 7.1294. (original emphasis) 
556Ibid., para. 7.1294. 
557Ibid., para. 7.1294.   WT/DS267/AB/R 
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 upland cotton producers and found that marketing loan program payments made up a significant 
proportion of producers' revenue.558   
444. During the oral hearing, the United States pr esented data to show that, when planting 
decisions were made for the 1999, 2000, 2001, and 2003 upland cotton crops, the  expected   upland 
cotton price upon harvest was higher than the marketing loan rate.559  Accordingly, the United States 
contends, the marketing loan program payments would have had only a minimal effect on planting 
decisions, because farmers would have expected to receive a higher price from the sale of their upland 
cotton and no marketing loan program payments.   
445. We note, based on the evidence provided by the United States, that, for four of the five upland 
cotton crops between 1999 and 2003, the  expected   harvest price at the time of making planting 
decisions was always substa ntially higher than the  actual   price realized at the time of harvest of the 
crop.  This suggests that although farmers had e xpected higher prices in making their planting 
decisions, they were also aware that if actual  prices were ultimately lower, they would be 
"insulated"560 by government support, including not only marketing loan program payments but also 
counter-cyclical payments, which were based on a target upland cotton price of 72.4 cents per 
pound.561  We are therefore satisfied that the Panel adopt ed a plausible view of the facts in connection 
with expected prices and planting decisions, even though it attributed to these factors a different 
weight or meaning than did the United States.  As the Appellate Body has said, it is not necessary for 
panels to "accord to factual evidence of the par ties the same meaning and weight as do the parties".562 
446. Turning to the second key element of the Unite d States' submission, the United States argues 
that the Panel ignored data showing that "U.S. cott on planted acreage did respond to expected market 
prices of cotton and other competing crops", "U.S. farmers change cotton acreage commensurately with changes made by cotton farmers in the rest of  the world", and "the U.S. share of world cotton 
production has been stable, again demonstrating that U.S. farmers respond to the same market signals 
as cotton farmers in the rest of the world do".
563  The Panel Report contains several passages 
suggesting that the Panel did take into account ev idence of this kind.  For example, the Panel 
                                                      
558We return to the issue of quantification of the pri ce-contingent subsidies in section VI.A.5(f) below. 
559This data corresponds with the United States' wr itten argument that "the uncontroverted evidence 
before the Panel ... showed that U.S. cotton plantings respond to expected prices  at the time planting 
decisions are taken ". (United States' appellant's submission, para. 137) (original emphasis)  The United States 
presented similar data to the Panel. (See, for example,  United States' further rebuttal submission to the Panel, 
paras. 162-163) 
560Panel Report, para. 7.1294. 
561Ibid., para. 7.225. 
562Appellate Body Report, Australia – Salmon , para. 267. 
563United States' appellant's submission, para. 155. WT/DS267/AB/R 
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 considered the United States' evidence regarding expected upland cotton prices564 and set out the 
United States' share of world upland cotton production during the relevant period.565  It would not 
amount to an error in the application of Article 6.3( c) to the facts of this case for the Panel not to 
address specifically in its Report every item of ev idence provided and to refer explicitly to every 
argument made by the parties, if the Panel consid ered certain items or arguments less significant for 
its reasoning than others.566   
447. We now address the third key element of the Un ited States' submission.  The United States 
argues that "the Panel should have considered to what  extent other market participants would increase 
supply or reduce demand in response to any alleged increase in cotton prices resulting from the absence of U.S. payments".
567  Brazil responds that the Panel took this factor into account because it 
took into account relevant aspects of certain econometric models incorporating this factor:  "the 
models track price effects that would occur as a result of reduced U.S. upland cotton supply  and  
increased supply from other countries".568  The participants agree that  these models incorporate the 
supply response of third countries.569  The dispute lies in whether the Panel  took into account   supply 
responses of third countries, as reflected in these models or otherwise.   
448. Whether and to what extent other upland cott on producers would have increased supply or 
reduced demand in the absence of the United States ' price-contingent subsidies is ultimately an 
empirical inquiry.  The answer to this inquiry de pends on an assessment of various factors bearing on 
the ability of cotton producers to assess and respond to supply and demand in the world upland cotton 
market.  We note that the Panel indicated expressly that it had taken the models in question into 
account.570  It would have been helpful had the Panel re vealed how it used these models in examining 
the question of third country responses.  Neverthel ess, we are not prepared to second-guess the Panel's 
                                                      
564Panel Report, para. 7.1362. 
565Ibid., para. 7.1282.  In this paragraph, the Panel stated:  "In the marketing years 1999 to 2002, the 
respective shares of the United States in world production of upland cotton were approximately 19.2, 19.3, 20.6 
and 19.6 per cent, respectively". 
566Appellate Body Report, EC – Hormones , paras. 135 and 138.   
567United States' appellant's submission, para. 237. 
568Brazil's appellee's submission, paras. 793-798 (referring to Panel Report, paras. 7.1205, 7.1209, 
and 7.1215). (original emphasis) 
569In relation to models presented by Brazil, both parties refer to Brazil's further submission to the 
Panel of 9 September 2003, paras. 9-10 of Annex I (whi ch is entitled "A Quantitative Simulation Analysis of the 
Impact of U.S. Cotton Subsidies on Cotton Prices and Qu antities by Professor Daniel Sumner").  (United States' 
appellant's submission, para. 235;  Brazil's appellee's subm ission, para. 793)  In relation to third party studies, 
see United States' appellant's submission, para. 236 and Brazil's appellee's submission, paras. 795-796. 
570Panel Report, paras. 7.1205, 7.1209 and 7.1215.    WT/DS267/AB/R 
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 appreciation and weighing of the evidence before it, and we do not see any error on the part of the 
Panel in the application of the law to the facts in addressing this question.   
449. We now turn to the four main grounds571 on which the Panel based its conclusion that "a 
causal link exists between" the price-contingent subsidies and the significant price suppression it had 
found572, which the United States contests.573  The first reason the Panel provided for finding a "causal 
link"574 was the "substantial proportionate influence" of the United States "in the world upland cotton 
market ... flow[ing] ... from the magnitude of th e United States production and export of upland 
cotton".575  The United States counters that, "absent some  analysis of how U.S. cotton competes with 
cotton from other sources, relative sizes are meaningless."576  We agree that, in and of itself, the 
degree of influence of the United States in the wo rld market for upland cotton may not be conclusive 
as to the effect of the price-contingent subsidies on prices in that market.  However, if the price-
contingent subsidies increased United States produc tion and exports or decreased prices for United 
States upland cotton, then the fact that United States production and exports of upland cotton significantly influenced world market prices would ma ke it more likely that the effect of the price-
contingent subsidies is significant price suppression.  Accordingly, this fact seems to support the 
Panel's conclusion, when read in conjunction with its other findings. 
450. The second reason the Panel provided for finding a "causal link"
577 was its view that the 
price-contingent subsidies "are directly  linked to world pri ces for upland cotton".578  This conclusion 
flowed from the Panel's earlier assessment—in conn ection with its analysis of significant price 
suppression—of the  nature   of the price-contingent subsidies.579  The nature of a subsidy plays an 
important role in any analysis of whether the effect of the subsidy is significant price suppression under Article 6.3(c).  With respect to marketing lo an program payments, the Panel found that "[t]he 
further the adjusted world price drops, the greater  the extent to which United States upland cotton 
producers' revenue is insulated from the decline".
580  As a result, during the 1999-2002 marketing 
years, United States production and exports remained  stable or increased, even though prices of 
                                                      
571United States' appellant's submission, para. 180. 
572Panel Report, para. 7.1355. 
573United States' appellant's submission, para. 180. 
574Panel Report, para. 7.1347. 
575Ibid., para. 7.1348. 
576United States' appellant's submission, para. 183. 
577Panel Report, para. 7.1347. 
578Ibid., para. 7.1349. 
579Supra , para. 434. 
580Panel Report, para. 7.1294.  WT/DS267/AB/R 
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 United States upland cotton decreased.581  The Panel found that Step 2 payments stimulate domestic 
and foreign demand for United States upland cotton582 by "eliminating any positive difference 
between United States internal prices and international prices of upland cotton".583  The Panel stated 
that Step 2 payments "result in lower world mark et prices than would prevail in their absence".584  
Finally, the Panel found that market loss assistance payments and counter-cyclical payments are made 
in response to low prices for upland cotton585 and stimulate United States production of upland cotton 
by reducing the "total and per unit revenue risk associated with price variability".586  The United 
States contends that the Panel's analysis of the price-contingent subsidies was "deficient".587  
However, the Panel found that the price-contingent  subsidies stimulated United States production and 
exports of upland cotton and thereby lo wered United States upland cotton prices.588  This seems to us 
to support the Panel's conclusion that the effect of the price-contingent subsidies is significant price 
suppression.589   
451. The third reason the Panel provi ded for finding a "causal link"590 was that "there is a 
discern[i]ble temporal coincidence of suppressed wo rld market prices" and the price-contingent 
subsidies.591  The United States describes this as "an exercise in spurious correlation".592  However, in 
our view, one would normally expect a discernible co rrelation between significantly suppressed prices 
and the challenged subsidies if the effect of these subsidies is significant price suppression.  
Accordingly, this is an important factor in any anal ysis of whether the effect of a subsidy is significant 
price suppression within the meaning of Article 6.3( c).  However, we recognize that mere correlation 
between payment of subsidies and significantly suppressed prices would be insufficient, without 
more, to prove that the effect of the subsidies is significant price suppression.   
                                                      
581Panel Report, para. 7.1296. 
582Ibid., para. 7.1299. 
583Ibid., para. 7.1298.   
584Ibid., para. 7.1299. 
585Ibid., para. 7.1301. 
586Ibid., para. 7.1302 and footnote 1410 to para. 7.1302. 
587United States' appellant's submission, para. 185. 
588Panel Report, para. 7.1291, 7.1295-7.1296, 7.1299, and 7.1308-7.1311.  
589We do not exclude the possibility that challenged subsidies that are not "price-contingent" (to use the 
Panel's term) could have some effect on production and exports and contribute to price suppression. 
590Panel Report, para. 7.1347. 
591Ibid., para. 7.1351. 
592United States' appellant's submission, para. 208.  WT/DS267/AB/R 
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 452. The fourth reason the Panel provided for finding a "causal link"593 was the "divergence 
between United States producers' total costs of production and revenue from sales of upland cotton 
since 1997".594  The United States argues that the Panel s hould have examined variable rather than 
total costs595 in assessing whether "United States upla nd cotton producers would ... have been 
economically capable of remaining in the productio n of upland cotton had it not been for the United 
States subsidies at issue".596   
453. We agree with the general proposition of the Unite d States that variable costs may play a role 
in farmers' decision-making as to whether to plan t upland cotton or some alternative crop, and how 
much of each crop to plant.  From a short-term perspective, variable costs may be particularly 
important.  However, from a longer-term perspectiv e, total costs may be relevant.  Based on the 
evidence before it regarding upland cotton production in  the United States, the Panel concluded that 
"the six-year period from 1997-2002 ... lends itself to an assessment of the medium- to longer-term 
examination of developments in the United States upland cotton industry".597  The Panel found that 
"the effect of the subsidies was to allow United St ates producers to sell upland cotton at a price lower 
than would otherwise have been n ecessary to cover their total costs".598  In the circumstances of this 
dispute, we do not consider that the Panel's relian ce on total rather than variable costs of production 
amounts to an error vitiating the Panel's analysis under Article 6.3(c). 
454. Finally, we consider the "other causal  factors alleged by the United States"599 to have had an 
effect on prices.  The United States argues that the Panel erred in addressing upland cotton planting 
decisions as an "other causal factor", given that th e United States maintained that the price-contingent 
subsidies did not cause price suppression at all.600  We disagree.  We have already addressed the 
United States' arguments with respect to planting decisions, and we find no fault in the Panel's 
consideration of the issue of "planting decisions".601 
                                                      
593Panel Report, para. 7.1347. 
594Ibid., para. 7.1353. (footnote omitted) 
595United States' appellant's submission, para. 215.  
596Panel Report, para. 7.1353.   
597Ibid., para. 7.1354. 
598Ibid., para. 7.1353. 
599Ibid., para. 7.1357. 
600United States' appellant's submission, para. 138. 
601Supra , paras. 440-445. WT/DS267/AB/R 
Page 172  
 
 
 455. The United States also argues that United St ates upland cotton exports increased during 1998-
2002602 because textile imports increased  in the same period, leading to  a decline in the use of cotton 
by domestic mills.603  The Panel regarded this factor as "c oncerning support, rather than suppression, 
of world cotton prices".604  However, even assuming that increasi ng textile imports led to increased 
exports of upland cotton, this does not mean that the price-contingent subsidies did not have the effect 
of significant price suppression.  It was not unreasonable for the Panel to conclude that the "effect" of 
the price-contingent subsidies was significant price suppression, even if some other factor might also 
have price-suppressive effects.605 
456. The remaining three "other causal factors" that  the Panel examined were weakness in world 
demand for upland cotton, the strong United States dollar, and the release by China of government 
upland cotton stocks between 1999 and 2001.606  The United States does not specifically address these 
three factors in its appellant's submission.  Howe ver, the Panel's discussion of these "other factors" 
was part of the reasoning leading to the Panel' s conclusion under Article 6.3(c), which the United 
States does appeal.607  The Panel found that the United States' argument that weak demand caused low 
prices was inconsistent with the increase in Unite d States upland cotton production and the absence of 
"pronounced declines" in world upland cotton consumption.608  With regard to the United States 
dollar, the Panel stated that exchange rates would af fect market prices, but that market prices did not 
guide "United States producer decisions (except to the extent that, when th ey are lower than the 
marketing loan rate, they dictate the magnitude of United States government subsidies to 
producers)".609  The Panel pointed to evidence on the reco rd confirming that marketing loan program 
payments and Step 2 payments "offset" declines in market prices.610  With respect to upland cotton 
stocks released by China, the Panel agreed with the United States (and Brazil) that "an infusion of a 
large amount of supply onto the market would exert a downward pressure on prices".611  However, the 
                                                      
602The United States also argues that 1998 was an inap propriate base year for the Panel's examination 
because of unusually weak world demand and reduced Unite d States production due to drought. (United States' 
appellant's submission, para. 209) 
603United States' appellant's submission, para. 211. 
604Panel Report, para. 7.1359. 
605In this regard, see  supra , para. 437 and  infra , para. 457. 
606Panel Report, paras. 7.1358, 7.1360, and 7.1361. 
607In appealing this finding, the United States refers in a footnote to paras. 7.1107-7.1416 and 8.1(g)(i) 
of the Panel Report. (United States' appellant's submission, footnote 531 to para. 516(8)) 
608Panel Report, para. 7.1358. 
609Ibid., para. 7.1360. 
610Ibid., footnote 1477 to para. 7.1360. 
611Ibid., para. 7.1361.  WT/DS267/AB/R 
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 Panel pointed out that the stock released by th e Chinese government "was smaller in magnitude than 
the United States exports over this period".612 
457. The Panel concluded: 
Although some of these factors may have contributed to lower, and 
even suppressed, world upland cotton prices during MY 1999-2002, they do not attenuate the genuine a nd substantial causal link that we 
have found between the United Stat es mandatory price-contingent 
subsidies at issue and the significant price suppression.  Nor do they reduce the effect of the mandatory price-contingent subsidies to a 
level which cannot be considered "significant".
613 
In sum, the Panel Report shows that it examined the other factors raised by the United States.  
Although the Panel found that some  of them had price-suppressive effects, it did not attribute those 
effects to the United States' price-contingent subsidies.   
458. Unlike in certain other instances under the WTO agreements, a panel conducting an analysis 
under Article 6.3(c) of the  SCM Agreement   is the first trier of facts, rather than a reviewer of factual 
determinations made by a domestic investigating authority.  Bearing this in mind, we underline the 
responsibility of panels in gathering and analyzi ng relevant factual data and information in assessing 
claims under Article 6.3(c) in order to arrive at  reasoned conclusions.  In this case, the voluminous 
evidentiary record before the Panel included sev eral economic studies, and substantial data and 
information.  For its part, the Panel posed a large number of questions to which the parties submitted 
detailed answers.  Overall, the Pane l evidently conducted an extensive analysis, but we believe that, in 
its reasoning, the Panel could have provided a more detailed explanation of its analysis of the complex 
facts and economic arguments arising in this disput e.  The Panel could have done so in order to 
demonstrate precisely how it evaluated the different factors bearing on the relationship between the 
price-contingent subsidies and significant price suppr ession.  Nevertheless, in the light of the Panel's 
examination of the relevant evidence, coupled with its legal reasoning, we find no legal error in the 
Panel's causation analysis.   
(f) Amount of the Price-Contingent Subsidies 
459. In reaching the conclusion that the effect of th e price-contingent subsidies is significant price 
suppression within the meaning of Article 6.3(c) of the  SCM Agreement , the Panel made the 
following statements with respect to the amount of  the price-contingent subsidies as a whole:   
                                                      
612Panel Report, para. 7.1361. 
613Ibid., para. 7.1363. WT/DS267/AB/R 
Page 174  
 
 
 We have readily available informa tion on the record showing us that 
the price-contingent subsidies in question involve very large amounts of United States government money benefiting United States upland cotton.
614 
[W]hile we do not believe that it is strictly necessar[y] to calculate 
precisely the amount of the subsidies in question, we observe that we 
have readily available information on the record showing us that the 
price-contingent subsidies in question involve very large amounts of United States government money benefiting United States upland 
cotton production.
615 
In addition, the Panel made statements regarding th e amount of individual price-contingent subsidies, 
namely marketing loan program payments and Step 2 payments.616 
460. On appeal, the United States raises several point s.  First, the United States argues that the 
Panel was required to quantify the amount of th e price-contingent subsidies benefiting upland 
cotton.617  Secondly, the United States submits that counter-cyclical and market loss assistance 
payments to recipients who did not produce upla nd cotton did not benefit upland cotton at all and 
therefore could not have caused serious prejudice.618  As for counter-cyclical and market loss 
assistance payments to recipients who produced both upland cotton and other products, the Panel should have "allocated [the subsidies] over the total sales of the recipients".
619  Thirdly, the United 
States maintains that the Panel erred, in its Article 6.3(c) analysis, by failing to identify the amount of 
benefit flowing to processed cotton from price-conti ngent subsidies paid to producers of raw cotton.620 
461. Beginning with the text of Article 6.3(c), we note that this provision does not state explicitly 
that a panel needs to quantify the amount of the challenged subsidy.  However, in assessing whether 
"the effect of the subsidy is ... significant price suppression", and ultimately serious prejudice, a panel 
                                                      
614Panel Report, para. 7.1308.   
615Ibid., para. 7.1349. 
616"While we do not believe it is necessary to calculate the precise amount of the subsidies in question, 
we observe that we have this information readily available on the record.  This is a very large amount". (Panel 
Report, paras. 7.1297 and 7.1300) (footnote omitted) 
617United States' appellant's submission, para. 240.  The United States does not contest the Panel's view 
that, in assessing the price-contingent subsidies und er Article 6.3(c), it was not required to quantify  precisely  
the amount of the subsidies benefiting upland cotton. (S ee United States' appellant's submission, para. 258;  
Panel Report, paras. 7.1173, 7.1186 and 7.1226)  The United States clarified this point in response to questioning during the oral hearing. 
618United States' appellant's submission, para. 242. 
619Ibid., para. 264. 
620Ibid., para. 301 and footnote 314 to para. 301.  In response to questioning during the oral hearing, the 
United States confirmed that its appeal  regarding "raw" and "processed" cotton relates to all the price-contingent 
subsidies.  WT/DS267/AB/R 
 Page 175 
 
 
 will need to consider the effects of the subsidy on prices.  The magnitude of the subsidy is an 
important factor in this analysis.621  A large subsidy that is closely linked to prices of the relevant 
product is likely to have a greater impact on prices th an a small subsidy that is less closely linked to 
prices.  All other things being equal, the smalle r the subsidy for a given product, the smaller the 
degree to which it will affect the costs or revenue of  the recipient, and the smaller its likely impact on 
the prices charged by the recipient for the product.  However, the size of a subsidy is only one of the 
factors that may be relevant to th e determination of the effects of a challenged subsidy.  A panel needs 
to assess the effect of the subsidy taking  into account all relevant factors.   
462. In order for a panel to find that a subsidy has the effect of significant price suppression, or 
some other effect mentioned in Article 6.3(c), the panel must determine that the payment is a specific 
subsidy within the meaning of Articles 1 and 2 of the  SCM Agreement .622  The Panel did so in this 
dispute623, and we do not understand the United States to contest this conclusion.  Rather, the United 
States argues that a panel needs to quantify the am ount of the "benefit" conferred on the subsidized 
product by a challenged subsidy.624  However, the definitions of a specific subsidy in Articles 1 and 2 
do not expressly require the quantification of the "ben efit" conferred by the subsidy on any particular 
product.   
463. Turning to the context of Article 6.3(c), we note that Article 6.1(a)—which has now 
expired—contains the only reference in Part III of the  SCM Agreement   to a calculation of  ad 
valorem   subsidization of a product.  Footnote 14 to Article  6.1(a) explains that this calculation is to 
be performed in accordance with Annex IV on the "Calculation of the Total Ad Valorem 
Subsidization (Paragraph 1(a) of Article 6)".  No similar provisions are found in Article 6.3(c), which 
suggests that no precise quantification is envisaged in that provision.   
464. The United States does not argue, as a general matte r, that the methodologies in Part V of the 
SCM Agreement  apply directly to a serious prejudice analysis under Part III of the  SCM 
Agreement .625  However, the United States identifies Part  V as providing relevant context for the  
                                                      
621Supra , para. 432. 
622As the United States points out, the word "subsidy" in Article 6.3(c) is defined in Article 1.1 of the 
 SCM Agreement , and the subsidies subject to the disciplines in Part III of the SCM Agreement   (including 
Articles 5(c) and 6.3(c)) must be "specific" pursuant to Article 1.2.  A "subsidy" as defined in the  SCM 
Agreement   involves the conferral of a "benefit" under Article 1.1(b).  (See United States' appellant's 
submission, paras. 244 and 245) 
623Panel Report, paras. 7.1120 and 7.1154. 
624United States' appellant's submission, para. 246. 
625Ibid., para. 258, as confirmed during the oral hearing. WT/DS267/AB/R 
Page 176  
 
 
 interpretation of Articles 5(c) and 6.3(c) of the  SCM Agreement .626  We note that the apparent 
rationale for Part III differs from that for Part V of the  SCM Agreement .  Under Part V, the amount of 
the subsidy must be calculated because, under Article 19.4 of the  SCM Agreement   and Article VI:3 
of the GATT 1994, countervailing duties cannot be levi ed in excess of that amount.  In contrast, under 
Part III, the remedy envisaged under Article 7.8 of the  SCM Agreement   is the withdrawal of the 
subsidy or the removal of the adverse effects.  This remedy is not specific to individual companies.  
Rather, it targets the effects of the subsidy more gene rally.  Article 6.3(c) thus goes in the same vein 
and does not require a precise quantification of the subsidies at issue.  
465. The provisions of the  SCM Agreement   regarding quantification of subsidies reveal that the 
methodological approaches to quantification may be  quite different, depending on the context and 
purpose of quantification.627  The absence of any indication in Ar ticle 6.3(c) as to whether one of 
these methods, or any other method, should be used suggests to us that no such precise quantification 
was envisaged as a necessary prerequisite for a panel's analysis under Article 6.3(c).  
466. Pursuant to Article 6.8, "the existence of ser ious prejudice" under Article 6.3(c) "should be 
determined on the basis of the information su bmitted to or obtained by the panel, including 
information submitted in accordance with the provisions of Annex V" of the  SCM Agreement .  The 
United States is correct that Annex V refers to "information ... as necessary to establish the existence 
and amount of subsidization" (in paragraph 2) and "data concerning the amount of the subsidy in 
question" (in paragraph 5)628, but Annex V also refers to other information.629  This demonstrates that 
the amount of the subsidy, as well as other elements , are relevant for the assessment of whether price 
suppression exists.  But we do not read Annex V as mandating the precise quantification of subsidies 
in order to determine their effect under Article 6.3(c). 
467. In sum, reading Article 6.3(c) in the context of Article 6.8 and Annex V suggests that a panel 
should have regard to the magnitude of the challe nged subsidy and its relati onship to prices of the 
                                                      
626United States' appellant's submission, para. 260. 
627In relation to countervailing duties, Article 19.4 of the  SCM Agreement   specifies that the amount of 
the subsidy is to be "calculated in terms of subsidization per unit of the subsidized and exported product".  Article 14 of the SCM Agreement adds that this calculation is to be done "in terms of the benefit to the 
recipient".  In contrast, under Article 6.1(a) and paragraph 1 of Annex IV of the  SCM Agreement ,  which relate 
to a claim of serious prejudice as mentioned above, the "total ad valorem  subsidization of a product" is to be 
calculated "in terms of the cost to the granting government". (footnote omitted) 
628United States' appellant's submission, paras. 247-252.   
629For example, paragraph 3 of Annex V refers to information such as "customs data concerning 
imports and declared values of the products concerned".  Paragraph 5 of Annex V refers to information such as 
"prices of the subsidized product, prices of the non-subsidized product, prices of other suppliers to the market, 
changes in the supply of the subsid ized product to the market in ques tion and changes in market shares".  WT/DS267/AB/R 
 Page 177 
 
 
 product in the relevant market when analyzing whet her the effect of a subsidy is significant price 
suppression.  In many cases, it may be difficult to decide this question in the absence of such an 
assessment.  Nevertheless, this does not mean that Article 6.3(c) imposes an obligation on panels to 
quantify precisely the amount of a subsidy benefitin g the product at issue in every case.  A precise, 
definitive quantification of the subsidy is not required.   
468. In the present case, the Panel could have been more explicit and specified what it meant by 
"very large amounts"630, beyond including cross-references to its earlier findings regarding certain 
subsidies.  Nevertheless, the in formation before the Panel clearl y supports the Panel's general 
statements regarding the magnitude of the price-contingent subsidies.631   
469. In addition to its arguments regarding quantifica tion, the United States contends that the Panel 
should have used an allocation methodology to determine the amount of "decoupled" market loss 
assistance payments and counter-cyclical payments th at benefits a given product.  It argues that 
Annex IV of the  SCM Agreement   contains an "economically neutral"632 allocation methodology 
agreed by WTO Members, pursuant to which "the subsidy would be allocated to the product according to the ratio of sales of that product to  the total value of the recipient firm's sales".
633  It is 
clear that use of the Annex IV methodology is not expressly  required   by Article 6.3(c).  We also 
observe that the Panel described as "appropriate"634 certain alternative allocation methodologies to the 
one it relied upon that sought to reduce the amount of payments with respect to upland cotton base 
acres within the base acre dependent programs to ac count only for payments corresponding to acres 
that were actually planted with upland cotton.635  In our view, even using these alternative allocation 
methodologies for market loss assistance payments  and counter-cyclical payments, the Panel's 
conclusion regarding the order of magnitude of the price-contingent subsidies stands.636   
470. Finally, we address the related United States argu ment that the Panel failed to determine the 
extent to which the "benefit" of price-contingent subsidies paid to producers of "raw" cotton flowed 
through to "processed" cotton.  We note that th e Panel seemed to regard market loss assistance 
payments and counter-cyclical payments as be nefiting the production of upland cotton lint.637  As for 
                                                      
630Supra , para. 459. 
631Panel Report, paras. 7.596 and 7.641;  United States ' response to questions posed by the Panel (Panel 
Report, p. I-126, para. 211). 
632United States' appellant's submission, para. 269. 
633Ibid., para. 268. 
634Panel Report, para. 7.646. 
635Ibid., "Attachment to Section VII:D", paras. 7.634-7.647. 
636Table 3 of Annex 2. 
637Panel Report, para. 7.1226 and footnote 258 to para. 7.197.  See  supra , para. 407 and footnote 451. WT/DS267/AB/R 
Page 178  
 
 
 marketing loan program payments and Step 2 paymen ts, the Panel suggested that it is a condition of 
eligibility for these payments that  harvested cotton containing cotton lint and cottonseed "be 'baled' 
and/or 'ginned'".638   
471. The United States contends that the Appellate Body's reasoning in US – Softwood Lumber IV  
indicates that it cannot be presumed that a "subs idy", as defined in Article 1.1 of the  SCM Agreement , 
provided to a producer of an input (such as raw cotton) "passes through" to the producer of the 
processed product (in this case, upland cotton lint).639  However, the Appellate Body's reasoning in 
that dispute focuses not on the requirements for establishing serious prejudice under Articles 5(c) and 6.3(c) of the  SCM Agreement , but on the conduct of countervailing duty investigations pursuant 
to Part V of the  SCM Agreement .
640 
472. As we have already noted641, the requirement in Article VI:3 of the GATT 1994 and 
Article 19.4 of the  SCM Agreement   that countervailing duties on a product be limited to the amount 
of the subsidy accruing to that product finds no para llel in the provisions on actionable subsidies and 
pertinent remedies under Part III of the SCM Agreement .  Therefore, the need for a "pass-through" 
analysis under Part V of the  SCM Agreement   is not critical for an assessment of significant price 
suppression under Article 6.3(c) in Part III of the  SCM Agreement .  Nevertheless, we acknowledge 
that the "subsidized product" must be properly identified for purposes of significant price suppression under Article 6.3(c) of the  SCM Agreement .  And if the challenged payments do not, in fact, 
subsidize that product, this may undermine the conclu sion that the effect of the subsidy is significant 
suppression of prices of that product in the relevant market.   
473. For these reasons, we find that the Panel did not  err in its assessment of the amount of the 
subsidies for the purpose of its analysis under Article 6.3(c) of the  SCM Agreement .  
                                                     
 
638Panel Report, footnote 258 to para. 7.197.  See also ibid., footnotes 1339 and 1340 to para. 7.1225. 
639United States' appellant's submission, paras. 304 and 305 (quoting Appellate Body Report, US – 
Softwood Lumber IV , para. 142). 
640Appellate Body Report,  US – Softwood Lumber IV , paras. 140-142.  The Appellate Body there 
addressed the need for authorities to ensure that the s ubsidy at issue confers a benefit on the product against 
which countervailing duties are to be im posed (pursuant to Article 1.1 of the SCM Agreement ) and that those 
duties do not exceed the total amount of  the subsidy accruing to that product  (pursuant to Artic le VI:3 of the 
GATT 1994).   The facts in that case are also quite different  from those in the present dispute.  In US – Softwood 
Lumber IV , it was undisputed that lumber is a distinct produc t from trees or logs, and countervailing duties were 
imposed on exported lumber and not on trees or logs. (Appellate Body Report, US – Softwood Lumber IV , 
para. 124)  In contrast, in the present dispute, no su ch clear distinction exists between cotton lint and "raw 
cotton", meaning (presumably) harvested cotton containing cottonseed and cotton lint.   
641Supra , para. 464.  WT/DS267/AB/R 
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 (g) Effect of the Price-Contingent Subsidies Over Time 
474. The United States asserts that the Panel erre d in making serious prejudice findings with 
respect to the price-contingent subsidies provided in marketing years 1999 to 2001.642  According to 
the United States, a "recurring" subsidy payment does not  confer a benefit after the year for which it is 
paid, and therefore it is no longer a "subsidy" under Article 1 of the  SCM Agreement .  A subsidy that 
is paid annually must be "allocated" or "expensed"643 to the year "for which the payment is made"644, 
and the effect of such a payment cannot be "sig nificant price suppression" in any other year.  The 
price-contingent subsidies "are made annually with respect to a particular marketing year"645, and 
therefore the effect of those subsidies cannot exte nd to any later marketing year.  In any case, the 
United States argues that the Panel did not fi nd that these subsidy pa yments had "continuing 
effects".646  The Panel was established in marketing year 2002647 and, therefore, the Panel could not 
have found that the effect of the price-conti ngent subsidies for marketing years 1999 to 2001 is 
significant price suppression.648   
475. We observe that the United States' contention that  the effect of a subsidy must be "allocated" 
or "expensed" to the year in which it is paid is conf ined to "recurring" subsidies, that is, subsidies paid 
on an annual basis.  The United States acknowledges that "non-recurring" subsidies could be "allocated" to subsequent years as well.  Article 6.3(c) of the  SCM Agreement   applies to a subsidy 
whether it is "recurring" or "non-recurring".  This Artic le does not suggest that the effect of a subsidy 
is limited to or continues only for a specified period of time.   
476. In this appeal, we are asked to address the limited question of whether the effect of a subsidy 
may continue beyond the year in which it was paid, in the context of a significant price suppression 
analysis under Article 6.3(c) of the  SCM Agreement .  Whether the effect of a subsidy begins and  
                                                     
 
642See  supra , para. 422(c).  "Because the recurring subsidie s provided in each of  marketing years 1999, 
2000, and 2001 ceased to exist when th e benefit was used up for production in  those years, the effect of those 
subsidies cannot be the subject of subsidies claims in marketing year 2002." (United States' appellant's 
submission, para. 284) 
643United States' appellant's submission, para. 284. 
644The United States argues that "recurring" subsidies should be "allocated ... to  the marketing year to 
which they relate". (United States' appellant's submission, para. 275) In response to questioning during the oral 
hearing, the United States clarified that when  it refers to the year to which a subsidy relates it means "the year 
for which the payment is made".   
645United States' appellant's submission, para. 291. 
646Ibid., para. 278. 
647The DSB established the Panel on 18 March 2003. (WT/DS267/15;  Panel Report, para. 1.2) "The 
date on which the Panel was established fell during the 2002 marketing year for upland cotton in the United States, which began on 1 August 2002 and ended on 31 July 2003." (Panel Report, para. 7.185) 
648United States' appellant's submission, para. 278. WT/DS267/AB/R 
Page 180  
 
 
 expires in the year in which it is paid or begins in one year and continues in any subsequent year, and 
how long a subsidy can be regarded as having eff ects, are fact-specific questions.  The answers to 
these questions may depend on the nature of the s ubsidy and the product in question.  We see nothing 
in the text of Article 6.3(c) that excludes a priori the possibility that the effect of a "recurring" subsidy 
may continue after the year in which it is paid.  Artic le 6.3(c) deals with the "effect" of a subsidy, and 
not with the financial accounting of the amount of the subsidy.649   
477. The context of Article 6.3(c) within Part III of the  SCM Agreement   does not support the 
suggestion that the effect of a subsidy is immediate,  short-lived, or limited to one year, regardless of 
whether or not it is paid every year.  Article 6.2 of the  SCM Agreement   refers to the possibility of the 
subsidizing Member demonstrating that "the subsidy in question  has not resulted   in any of the 
effects enumerated in paragraph 3".650 (emphasis added) The word "resulted" in this sentence 
highlights the temporal relationship between the subs idy and the effect, in that one might expect a 
time lag between the provision of the subsidy and the resulting effect.651  In addition, the use of the 
present perfect tense in this provision implies that  some time may have passed between the granting 
of the subsidy and the demonstration of the absence of its effects.652   
478. Article 6.4 of the  SCM Agreement   is also relevant context for interpreting Article 6.3(c).  
Article 6.4 requires that the displacement or impeding of exports be demonstrated "over an 
appropriately representative period", which "shall be at least one year", so that "clear trends" in 
changes in market share can be demonstrated.653  This suggests that the effect of a subsidy under 
Article 6.4 must be examined over a sufficiently long period of time and is not limited to the year in 
which it was paid.  As the Panel has also pointed out  in the context of Article 6.3(c), "[c]onsideration 
                                                      
649Although the accounting treatment of a subsidy may be relevant, it does not control the assessment 
of the effect of the subsidy under Article 6.3(c). 
650The French version of Article 6.2 states that "la subvention ... n'a eu aucun des effets énumérés au 
paragraphe 3".  The Spanish version of Article 6.2 states  "la subvención en cuestión no ha producido ninguno de 
los efectos enumerados en el párrafo 3". 
651The Spanish version of Article 6.2 uses the word "producido" for "resulted", again suggesting a time 
lag between the provision of the subsidy and the resulting effect.  The French version of Article 6.2 uses a more 
neutral term, "eu", which includes but perhaps does not emphasize this temporal connotation as strongly.  See 
supra , footnote 650. 
652The French and Spanish versions of Article 6. 2 also use the present perfect tense.  See supra , 
footnote 650. 
653Article 6.4 reads in relevant part: 
[T]he displacement or impeding of exports shall include any case in which 
... it has been demonstrated that there has been a change in relative shares of 
the market to the disadvantage of the non-subsidized like product ( over an 
appropriately representative period sufficient to demonstrate clear trends  in 
the development in the market for the product concerned, which, in normal 
circumstances, shall be at least one year ). ...  (emphasis added)  WT/DS267/AB/R 
 Page 181 
 
 
 of developments over a period of longer than one year ... provides a more robust basis for a serious 
prejudice evaluation than merely paying attention to developments in a single recent year".654 
479. The United States supports its arguments regard ing the "allocation" of "recurring" and "non-
recurring" subsidies by referring to several sources.655  The United States submits that "the Appellate 
Body has acknowledged that 'non-recurring' subsidies may be allocated over time"656, citing the 
following statement of the Appellate Body in  US – Lead and Bismuth II : 
[W]e agree with the Panel that while an investigating authority may 
presume, in the context of an administrative review under 
Article 21.2, that a "benefit" continues to flow from an untied, non-recurring "financial contribution", this presumption can never be "irrebuttable".
657 
In our view, this statement does not support the Unit ed States' argument.  A proper reading of this 
statement reveals that it was made in the context of Part V of the  SCM Agreement , and it focuses on 
the  benefit   flowing from a "non-recurring" financial contribution rather than the  effect   of a subsidy.  
Indeed, the Appellate Body's conclusion that inv estigating authorities cannot adopt an irrebuttable 
presumption that a benefit continues to flow from certain non-recurring financial contributions 
highlights the importance of examining the particular  characteristics of a given subsidy in evaluating 
its impact.   
480. In addition, the United States refers to  paragraph 7 of Annex IV to the  SCM Agreement658, 
which provides that "[s]ubsidies granted prior to the entry into force of the WTO Agreement, the 
benefits of which are allocated to future produc tion, shall be included in the overall rate of 
subsidization."  Although  this provision recognizes that the be nefits of some subsidies may be 
allocated to future production, it does not specify that this applies exclusively to "non-recurring"  
                                                      
654Panel Report, para. 7.1199. 
655United States' appellant's submission, paras. 282 and 283, citing:  SCM Agreement , paragraph 7 of 
Annex IV;  Guidelines on Amortization and Depreciation adopted by the Tokyo Round Committee on Subsidies 
and Countervailing Measures, SCM/64, BISD 32S/154 (25 April 1985), para. 1;  Anti-Dumping Agreement , 
Article 2.2.1.1;  Appellate Body Report, US – Lead and Bismuth II , para. 62;  Report by the Informal Group of 
Experts to the Committee on Subsidies and Countervailing Measures, G/SCM/W/415/Rev.2 (15 May 1998), Recommendation 1 and paras. 1-12. 
656United States' appellant's submission, para. 283. 
657Appellate Body Report, US – Lead and Bismuth II , para. 62. 
658The title of Annex IV of the  SCM Agreement   is "Calculation of the Total Ad Valorem 
Subsidization (Paragraph 1(a) of Article 6)". (footnote omitted) WT/DS267/AB/R 
Page 182  
 
 
 subsidies.  In any event, as the Panel noted, the "effect" of a subsidy cannot  be equated with the 
"benefit" of a subsidy.659 
481. The United States also points to Article 2.2.1.1 of the  Anti-Dumping Agreement , which 
relates to the calculation of costs in constructing a normal value under Article 2.2, in order to calculate 
a dumping margin in certain circumstances.  Article 2.2. 1.1 states, in relevant part, that "costs shall be 
adjusted appropriately for those non-recurring items of cost which benefit future and/or current 
production".  However, this provision pertains to the method of calculation of producers' costs in 
constructing the normal value of a product, which is a different inquiry.  It does not apply in assessing 
the effect of a subsidy under Article 6.3(c) of the  SCM Agreement .   
482. For these reasons, we are not persuaded by the Un ited States' contention that the effect of 
annually paid subsidies must be "allocated" or "expen sed" solely to the year in which they are paid 
and that, therefore, the effect of such subsid ies cannot be significant price suppression in any 
subsequent year.  We do not agree with the proposi tion that, if subsidies are paid annually, their 
effects are also necessarily extinguished annually.   
483. Turning to the effect of the subsidies at issue in  this appeal, we note that the Panel found that 
the effect of the price-contingent subsidies for marketing years 1999 to 2002660 "is significant price 
suppression ... in the period MY 1999-2002".661  The Panel did not specify which subsidies had effects 
in which years;  nor did it specifically state that the effect of the subsidies for marketing years 1999-
2001 was significant price suppression in marketing year 2002.  This is consis tent with the Panel's 
earlier statement regarding the way in  which it would conduct its analysis: 
[I]n our price suppression analysis under Article 6.3(c), we examine 
one effects-related variable – pr ices – and one subsidized product – 
upland cotton.  To the extent a sufficient nexus with these exists 
among the subsidies at issue so that their effects manifest themselves collectively, we believe that we may legitimately treat them as a "subsidy" and group them and their effects together.
662 
                                                      
659Panel Report, para. 7.1179. 
660Ibid., para. 7.1108. 
661Ibid., para. 7.1416.  Before the Panel, Brazil also cl aimed that United States subsidies to be granted 
from marketing year 2003 to marketing year 2007 threat en to cause serious prejudice to Brazil's interests. ( Ibid., 
para. 7.1478)  However, the payments to be made in marketing years 2003-2007 and the issue of  threat   of 
serious prejudice under the  SCM Agreement   do not form part of this appeal.   
662Ibid., para. 7.1192.  WT/DS267/AB/R 
 Page 183 
 
 
 484. For this reason, the Panel examined the price- contingent subsidies for marketing years 1999 
to 2002 as a group663, and its finding of significant price suppression in marketing years 1999 to 
2002664 applied to this group of subsidies.  As we  noted above, the effects of a "recurring" subsidy 
may continue after the year in which it is paid.665  Given that the Panel found significant price 
suppression in the period 1999 to 2002 as a whole, a nd this period includes the marketing year 2002, 
we are unable to agree with the United States' asser tion that the Panel erred in not making a specific 
finding that the price-contingent subsidies for market ing years 1999 to 2001 "had continuing effects at 
the time of panel establishment".666  
6. Serious Prejudice under Article 5(c) of the SCM Agreement  
485. Having found that the effect of the price-contingent subsidies is significant price suppression 
within the meaning of Article 6.3(c) of the  SCM Agreement667, the Panel then considered whether the 
United States had caused adverse effects in the form  of serious prejudice to the interests of Brazil 
through the use of these subsidies, contrary to Article 5(c) of the  SCM Agreement .  The Panel found 
that the significant price suppression it had found under Article 6.3(c) of the  SCM Agreement   
amounted to serious prejudice within the meaning of the Article 5(c) of the  SCM Agreement668, based 
on the following findings: 
[A]n affirmative conclusion that the effects-based situation in 
Article 6.3(c) exists is a sufficient basis for an affirmative conclusion that "serious prejudice" exists for the purposes of Article 5(c) of the SCM Agreement .
669 
[A]ssuming arguendo that any sort of additional demonstration is 
necessary to establish that the "significant price suppression" we 
have found to exist in the same world market constitutes prejudice 
amounting to "serious prejudice" with in the meaning of Article 5(c), 
... Brazil has also fulfilled that burden.670 
486. Thus, the Panel provided two alternative reasons for finding that the significant price 
suppression it had found amounted to serious prejudice within the meaning of the Article 5(c) of the  
                                                      
663Panel Report, para. 7.1290. 
664Ibid., para. 7.1416.   
665Supra , para. 482. 
666United States' appellant's submission, para. 278. 
667Panel Report, paras. 7.1355-7.1356 and 7.1363. 
668Ibid., paras. 7.1395 and 8.1(g)(i). 
669Ibid., para. 7.1390. 
670Ibid., para. 7.1391. WT/DS267/AB/R 
Page 184  
 
 
 SCM Agreement .671  The Panel's primary reason was that if the effect of a subsidy is significant price 
suppression within the meaning of Article 6.3(c), this is sufficient, without more, to conclude that the 
subsidizing Member has caused serious prejudice to  the interests of another Member within the 
meaning of Article 5(c).672  The Panel's alternative reason was that, even if this is not sufficient, Brazil 
had fulfilled the burden of demonstrating that th e United States had caused serious prejudice to the 
interests of Brazil within the meaning of Article 5(c).673 
487. In its Notice of Appeal, and in the "Conclusion"  section of its Appellant's Submission, the 
United States challenged the Panel's finding "that 'significant price suppression' is sufficient to 
establish 'serious prejudice' for purposes of Ar ticles 5(c) and 6.3 of the SCM Agreement".674  Brazil 
asks us to dismiss this claim because the United Stat es did "not appear to have advanced arguments in 
its Appellant's Submission" in relation to it.675  In response to questioning during the oral hearing, the 
United States clarified that, in its Notice of Appeal , it intended to challenge only the first of the two 
findings mentioned above (that is , the Panel's finding in paragra ph 7.1390 of the Panel Report).  
However, the United States indicated that it did not pursue this claim in its appellant's submission. 
488. As neither party has appealed the Panel's fi nding in paragraph 7.1390 of the Panel Report 
(regarding the sufficiency of a finding of an effect under Article 6.3(c) for a finding of serious 
prejudice under Article 5(c), in gene ral terms) or the Panel's alterna tive finding in paragraph 7.1391 of 
the Panel Report (regarding serious prejudice to the in terests of Brazil in the particular circumstances 
of this dispute), we express no opinion on either of those findings.  Nor do we address the Panel's 
consequential finding that the significant price suppr ession that it had found to be the effect of the 
price-contingent subsidies under Article 6.3(c) of the  SCM Agreement   amounted to serious prejudice 
within the meaning of Article 5(c) of the  SCM Agreement .676  Accordingly, upon adoption of the 
Panel Report by the DSB, the Panel's findings in pa ragraphs 7.1390 and 7.1391 of the Panel Report as 
mentioned above677 would stand, without endorsement or rejection by the Appellate Body. 
                                                      
671Panel Report, paras. 7.1395 and 8.1(g)(i). 
672Ibid., para. 7.1390. 
673Ibid., para. 7.1391. 
674United States' Notice of Appeal (WT/DS267/17, 18 October 2004, attached as Annex 1 to this 
Report), para. 8(i);  United States' appellant's submission, para. 516(8)(i).   
675Brazil's appellee's submission, para. 1084.  
676Panel Report, paras. 7.1395 and 8.1(g)(i). 
677Supra , para. 485.  WT/DS267/AB/R 
 Page 185 
 
 
 7. Basic Rationale under Article 12.7 of the DSU  
489. The United States contends that, contrary to Ar ticle 12.7 of the DSU, the Panel failed to set 
out the basic rationale behind its finding that the effect  of the price-contingent subsidies is significant 
price suppression within the meaning of Article 6.3(c) of the  SCM Agreement .  Article 12.7 of the 
DSU requires a panel to set out in its report "the findings of fact, the applicability of relevant provisions and the basic rationale behind any findings and recommendations that it makes".   
490. The United States submits that the Panel "provi ded no explanation of what degree of price 
suppression it had found to be 'significant.'"
678  In fact, the Panel based its  reasoning in this regard on 
the ordinary meaning of "significant"679, explaining that the "significance" of price suppression could, 
depending on the circumstances, have both quantitative and qualitative aspects.680  We find that the 
Panel adequately explained the basis for its c onclusion that the price suppression it had found was 
"significant" with the meaning of Article 6.3(c).681  We therefore see no failure on the part of the 
Panel to comply with Article 12.7 of the DSU in this regard. 
491. The United States also argues that the Panel "fa iled to set out the basic rationale behind its 
findings and recommendations ... with resp ect to the amount of the subsidy".682  We have already held 
that the Panel did not err in interpreti ng or applying Article 6.3(c) of the  SCM Agreement   in relation 
to the amount of the challenged subsidies.683  In addition, we note that the Panel articulated a basic 
rationale for its conclusions in this regard.684  Accordingly, we decline to find an error on the part of 
the Panel under Article 12.7 of the DSU.   
492. In addition, the United States contends that, c ontrary to Article 12.7 of the DSU, the Panel 
failed to set out the basic rationale behind several st eps in its reasoning leading to the conclusion that 
                                                      
678United States' appellant's submission, para. 330. 
679Panel Report, para. 7.1325 (referring to The New Shorter Oxford English Dictionary (1993)). 
680"The 'significance' of any degree of price suppression ... may not solely depend upon a given level of 
numeric significance". (Panel Report, para. 7.1329)   
681Panel Report, paras. 7.1316-7.1333. 
682United States' appellant's submission, para. 326. 
683Supra , para. 473. 
684Panel Report, paras. 7.1166-7.1190.  In assessing the need to quantify the benefit conferred on 
upland cotton by the subsidies at issue, the Panel compar ed the specific provisions in Parts III and V of the 
 SCM Agreement , as well as certain aspects of Articles VI and XVI of the GATT 1994.  It highlighted the 
different remedies contained in the provisions of Part III and V and the rationale behind these different parts.  The Panel identified the specific arguments of the United States that it was addressing as well as the relevant 
Appellate Body pronouncements.  The Panel's basic rationale for deciding that it need not quantify precisely the 
benefit conferred on upland cotton by the subsidies at issue appears to have been that "the more precise 
quantitative concepts and methodologies found in Part V of the  SCM Agreement   are not directly applicable in 
our examination of Brazil's actionable s ubsidy claims under Part III of the SCM  Agreement ". (Panel Report, 
para. 7.1167) WT/DS267/AB/R 
Page 186  
 
 
 the effect of the price-contingent subsidies is  significant price suppression within the meaning of 
Article 6.3(c) of the  SCM Agreement .  The United States contends that the Panel "prejudged ... the 
outcome of its causation analysis" in making its finding of price suppression685 and that the Panel 
"never explained why it did not analyze the farm er's planting decision and the use of expected 
prices".686  In the present dispute, the Panel set out the basic rationale for its findings on "significant 
price suppression" and the "causal link" with the price-contingent subsidies.687 As we have already 
explained, the Panel did address the "planting decision" and "expected prices"688, and the overlap 
between different sections of the Panel's analysis stemmed in part from the elements that constitute 
"price suppression" under Article 6.3(c).689 
493. In its appellant's submission, the United States argues that the Panel failed to comply with 
Article 12.7 of the DSU, inter alia , in making its findings as to:  (i) "why the processed cotton was a 
'subsidized product' and why [the Panel] could a ssume that all of the subsidies paid to cotton 
producers for raw cotton passed  through to the processor"690;  and (ii) "why any price suppression that 
it found meant that there was serious prejudice to the interests of Brazil".691 
494. However, paragraph 10 of the United States' No tice of Appeal (which contains the United 
States' allegations in connection with Article 12. 7 of the DSU) does not refer to the "subsidized 
product", "pass through", or "serious prejudice".  No r does the general statement in paragraph 10 of 
the issues covered in the United St ates' claim under Article 12.7 of the DSU appear to extend to these 
two findings.692   
495. We acknowledge that the wording of paragraph 10 of the United States' Notice of Appeal 
(and, in particular, the use of the words "for ex ample") suggests that the findings listed in this 
paragraph are simply  examples   of findings challenged in connection with Article 12.7 of the DSU, 
                                                      
685United States' appellant's submission, para. 325. 
686Ibid., para. 324. 
687Panel Report, paras. 7.1275-7.1363.  The Panel re ferred to and addressed a great deal of factual 
evidence provided by the parties.  The Panel also clearly identified the provis ions of the covered agreements that 
it considered relevant to this issue and gave detailed explanations for its conclusions at each step.   
688Supra , para. 441. 
689Supra , para. 433. 
690United States' appellant's submission, para. 328. 
691Ibid., para. 329. 
692It could be argued that the "pass-through" issue is encompassed in the reference to "the amount of 
the challenged subsidies" in paragraph 10.  However, if the United States wished to include this issue in its 
claim of error under Article 12.7, as described in paragraph 10 of the Notice of Appeal, one might have expected it to do so more explicitly, given that a substantive claim of error regarding the need for a "pass-
through" analysis is raised specifically in paragraph 8( d) of the Notice of Appeal in respect of the issues 
appealed regarding "serious prejudice".  WT/DS267/AB/R 
 Page 187 
 
 
 and that the United States' claim of error under Artic le 12.7 extends to other Panel findings.  In other 
words, paragraph 10 purports to provide an illustrative rather than exhaustive list of the findings that 
the United States intends to challenge under Articl e 12.7 of the DSU. However, the fact that 
paragraph 10 purports to provide an illustrative lis t is not conclusive as to whether the Notice of 
Appeal contains a sufficient reference to the Panel' s findings described in paragraph 493 above for us 
to conclude that these findings are included in the United States' appeal.  The significance of terms 
such as "for example" is likely to depend on the pa rticular claim in question and the particular context 
in which the term is used in a given appeal.  In our view, the United States' Notice of Appeal did not 
provide adequate notice to Brazil, as contemplated by Rule 20(2) of the Working Procedures for 
Appellate Review   (the " Working Procedures ")693, that the United States intended to make a claim of 
error under Article 12.7 of the DSU with respect to  the Panel's findings described in paragraph 493 
above.  We therefore decline to rule on these findi ngs in connection with Article 12.7 of the DSU. 
8. Conclusion  
496. For these reasons, the United States has not pers uaded us that the Panel committed a legal 
error in interpreting the relevant le gal requirements of Article 6.3(c) or  in applying its interpretation to 
the facts of this case.  We therefore  uphold   the Panel's finding, in paragraphs 7.1416 and 8.1(g)(i) of 
the Panel Report, that the effect of marketing lo an program payments, Step 2 payments, market loss 
assistance payments, and counter-cyclical payments is significant price suppression within the 
meaning of Article 6.3(c) of the  SCM Agreement .694  We also find that the Panel set out the findings 
of fact, the applicability of relevant provisions, a nd the basic rationale behind this finding, as required 
by Article 12.7 of the DSU. 
B. World Market Share under Article 6.3(d) of the SCM Agreement  
1. Introduction  
497. In addition to its claim that it had suffered serious prejudice resulting from price suppression 
under Article 6.3(c) of the  SCM Agreement ,  Brazil also made claims before the Panel alleging that 
the effect of the challenged subsidies was serious  prejudice resulting from an increase in the United 
States' world market share in upland cotton under Article 6.3(d) of that Agreement.695  The principal 
                                                      
693See  supra , footnote 18. 
694See  supra , para. 488. 
695The Panel listed the following as subsidies at issue for purposes of Brazil's claim under Article 6.3(d) 
of the  SCM Agreement :  "user marketing (Step 2) payments to domestic users and exporters; marketing loan 
programme payments;  [production flexibility contract] payments;  [market loss assistance] payments;  [direct] payments;  [counter-cyclical] payments; crop insurance payments; and cottonseed payments".  (Panel Report, 
para. 7.1418) (footnote omitted)  WT/DS267/AB/R 
Page 188  
 
 
 disagreement between the parties regarding the applica tion of Article 6.3(d) related to the meaning of 
the phrase contained therein, "world market shar e".  Brazil submitted that this phrase meant "a 
Member's share of the world market for exports"696, and put forward evidence regarding increases in 
the United States' share of the world market for exports of upland cotton.  The United States 
contended that the United States' share of the "world market" for upland cotton encompassed all 
consumption of all upland cotton, including consum ption by a country of its own cotton production.697 
498. The Panel rejected Brazil's contention that the "world market share" referred to in 
Article 6.3(d) was limited to the world market for exports.698  The Panel also rejected the United 
States' argument that "world market share" focu ses on a Member's share of consumption, based 
largely upon an interpretation of the object and purpose of subsidies disciplines699 and logical 
inconsistencies in the United States' arguments.700  Instead, the Panel reached the view that: 
... the phrase "world market share"  of the subsidizing Member in 
Article 6.3(d) of the  SCM Agreement   refers to share of the world 
market supplied  by the subsidizing Member of the product 
concerned.701  
499. In view of the fact that the evidence and argumentation submitted by Brazil "focused 
exclusively upon a different, and in [the Panel's] view erroneous, legal inte rpretation of the phrase 
'world market share' in Article 6.3(d)", the Pane l found that "Brazil has not established a prima facie 
case of violation of Article 6.3(d) or Article 5(c) of the  SCM Agreement ".702 
500. Brazil appeals the Panel's finding that it failed to make a  prima facie   case of violation under 
Article 6.3(d) (and Article 5(c)) of the  SCM Agreement .  Its appeal has two sequential elements.  
First, Brazil appeals the Panel's legal interpretation of Article 6.3(d).  Brazil stresses that its appeal 
regarding the Panel's legal interpretation of the phrase "world market share" is  not conditional .703  
Brazil suggests that the text of Article 6.3(d) is s ilent on the question of whether "world market share" 
refers to world market share of  exports   or world market share of something else.704  However, the 
                                                      
696Panel Report, para. 7.1424. (footnote omitted) 
697Ibid., para. 7.1425. 
698Ibid., paras. 7.1438-7.1450, and 7.1455-7.1463. 
699Ibid., paras. 7.1451-7.1453. 
700Ibid., footnote 1527 to para. 7.1451. 
701Ibid., para. 7.1464. (underlining added) 
702Ibid., para. 7.1465. (footnote omitted) 
703Brazil's other appellant's submission, para. 264.  
704Ibid., para. 275.   WT/DS267/AB/R 
 Page 189 
 
 
 use of the word " trade " in footnote 17 to Article 6.3(d) (in the context of "multilaterally agreed 
specific rules apply to the trade in the product or co mmodity") suggests that the focus of the provision 
is upon a Member's share of world  trade   in a product, which requires a focus on  exports ,  not  
production ,  as the Panel found.705  Brazil argues that Article XVI:3 of the GATT 1994 addresses a 
Member's "share of world export trade" and that structural similarities between Article XVI:3 and 
Article 6.3(d) require the phrase "world market share" in the latter provision to be read in the same 
way.706  Brazil also points to the context provided by pa ragraphs (a) and (b) of Article 6.3, as well as 
Articles 6.4 and 6.7, and argues that the focus of a serious prejudice analysis under Article 6.3 is on 
the effects of the subsidies on like products from the complaining Member.707  In addition, Brazil 
argues that the Panel's reasoning subverts the object and purpose of the  SCM Agreement ,  which is to 
reduce trade distortions caused by subsidies.  The Panel's reading de nies any remedy to countries that 
lose market share to subsidized products.708   
501. Secondly, Brazil requests us to complete the analysis of its claim of serious prejudice under 
Article 6.3(d).  Brazil makes this element of its appeal conditional   upon us reversing the Panel's 
findings that United States price-contingent subsidies709 caused significant price suppression in terms 
of Article 6.3(c) of the  SCM Agreement .  Brazil submits that findings by the Panel and undisputed 
facts on the record would allow us to complete the analysis and find a violation of Article 6.3(d) by 
the United States.710 
502. The United States counters that the Panel was corre ct to reject the Brazilian interpretation that 
"world market share" in Article 6.3(d) means "wor ld market share of exports".  The Panel correctly 
reasoned that nothing in the ordinary meaning of "world market share" s uggests that it should not 
include the domestic market of the Member concerned.711  The United States recalls that the Panel 
distinguished between Article 6.3(d) (which deals with "world market share") and Article XVI:3 of 
GATT 1994 (which deals with "share of world export trade") and suggests that the distinct choice of 
                                                      
705Brazil's other appellant's submission, paras. 276-277.  
706Ibid., paras. 275-280.  
707Ibid., paras. 281-288.   
708Ibid., paras. 289-294.   
709That is, marketing loan program payments, Step 2 payments, market loss assistance payments and 
counter-cyclical payments.  
710Brazil's other appellant's submission, paras. 296-315.  
711Indeed (and although the United Stat es does not appeal this point), th e United States stresses that the 
Panel's interpretation that the focus in the phrase "w orld market share" is upon production is too narrow, 
because it focuses only on  supply   in the world "market" and not upon  demand .  A correct interpretation would 
take into account demand—that is  consumption —as well.  On this basis, the focus in Article 6.3(d) is not upon 
a share of the world's supply or production, but rather upon total sales . (United States' ap pellee's submission, 
paras. 148-152)  WT/DS267/AB/R 
Page 190  
 
 
 words reflected in these provisions contains impor tant context to suggest that the coverage of 
Article 6.3(d) is different from that of Article XVI:3.712  The United States rebuts Brazil's arguments 
regarding footnote 17 to Article 6.3(d) by stressing that the term "trade" in the footnote does not 
purport to limit the scope of the otherwise broad term "world market share" in the text of 
Article 6.3(d) itself.713  Other elements of the context in wh ich Article 6.3(d) appears, such as 
paragraphs (a) and (b) of Article 6. 3 and Articles 6.4 and 6.7 of the  SCM Agreement , explicitly limit 
the aspects of the market that th ey address.  This contrasts with Article 6.3(d), which focuses only 
upon the general concept "world market share".  The United States also contests Brazil's view that the 
Panel's interpretation of Article 6. 3(d) reduces the provision to inutility.714  With respect to Brazil's 
conditional request to complete the analysis, the Un ited States submits that, even if the Appellate 
Body accepts Brazil's arguments with respect to the interpretation of Article 6.3(d), there are 
insufficient facts available for the Appellate Body to  complete the analysis of Brazil's claim on this 
matter.  The United States observes that the Panel did not undertake an analysis regarding a causal 
link between the subsidies at issue and an increase in  the United States' world market share of exports 
in upland cotton, and that the causation analysis re garding price suppression under 6.3(c) could not be 
transposed into an analysis of worl d market share under Article 6.3(d).715   
503. Benin and Chad, third participants in this a ppeal, support Brazil's interpretation of the phrase 
"world market share" in Article 6.3(d) of the  SCM Agreement .716  Benin and Chad argue that, in the 
event we agree with Brazil that "world market sh are" refers to a Member's share of world exports, 
then we should complete the analysis.  In the vi ew of Benin and Chad, the undisputed evidence on 
record demonstrates that the effect of the United St ates' subsidies is serious prejudice to the interests 
of Benin and Chad as well, within the mean ing of Articles 6.3(d) and 5(c) of the  SCM Agreement .  
Benin and Chad submit that the "interests of anothe r Member" in Article 5(c) are not limited only to 
the interests of the complaining Me mber and ask us to find accordingly.717    
                                                      
712United States' appellee's submission, para. 153.  
713Ibid., paras. 154-156.  
714Ibid., para. 161.  
715Ibid., paras. 163-165.  
716Benin and Chad's third participants' submission, paras. 75-79.  
717Ibid., paras. 80-91.   WT/DS267/AB/R 
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 2. Analysis  
504. Article 6.3 of the  SCM Agreement  provides, in relevant part: 
Serious prejudice in the sense of pa ragraph (c) of Article 5 may arise 
in any case where one or several of the following apply:  
... 
(d) the effect of the subsidy is an increase in the world market 
share of the subsidizing Member in a particular subsidized 
primary product or commodity17 as compared to the average 
share it had during the previous period of three years and this increase follows a consistent trend over a period when subsidies have been granted. 
____________ 
 17 Unless other multilaterally agreed specific rules apply to the trade in 
the product or commodity in question. 
505. As we have noted above, the four subparagra phs of Article 6.3 describe circumstances in 
which a subsidy has certain effects, which, in turn, may constitute serious prejudice under 
Article 5(c).718  Article 6.3(d) addresses a situation in whic h subsidies have the effect of increasing the 
"world market share of the subsidizing Member in  a particular subsidized product or commodity".  
The Panel held that the phrase "world market share"  of the subsidizing Member in Article 6.3(d) of 
the SCM Agreement  "refers to share of the world market  supplied  by the subsidizing Member of the 
product concerned".719  As Brazil had failed to submit evidence pertaining to this le gal interpretation, 
the Panel found that Brazil had failed to make a  prima facie  case of violation of this provision.720  
506. Brazil's appeal with respect to the application of Article 6.3(d) of the  SCM Agreement  has 
two elements.  First, Brazil appeals the Panel's in terpretation of the phrase "world market share" in 
that provision.  Second, Brazil requests us to complete the analysis of this issue and rule that the effect 
of certain United States subsidies is an increase in  the world market share of the United States in 
upland cotton.  This second element of Brazil's appeal is  conditional  upon us reversing the Panel's 
findings with respect to the interpretation of Article 6.3(c) of the  SCM Agreement .   
                                                      
718On the relationship between Articles 5(c) and 6.3 of the  SCM Agreement , see  supra , paras.  
485-488. 
719Panel Report, para. 7.1464. (emphasis added) 
720Ibid., para. 7.1465. WT/DS267/AB/R 
Page 192  
 
 
 507. We observe with regard to the interpreta tion of the phrase "world market share" in 
Article 6.3(d) that, above721, we upheld the Panel's finding that th e effect of the price-contingent 
subsidies at issue in these proceedings is si gnificant price suppression within the meaning of 
Article 6.3(c) of the  SCM Agreement .  We observe, therefore, that the condition upon which the 
second part of Brazil's appeal is contingent is  not  fulfilled, and thus there is no need for us to 
complete the analysis and to examine whether or not the United States subsidies at issue have the 
effect of increasing the United States' world market share in upland cotton. 
508. Nor do we believe that it is necessary to make a finding on the interpretation of the phrase 
"world market share" in Article 6.3(d) of the  SCM Agreement .  We recall that Article 17.12 of the 
DSU requires that the "Appellate Body shall addr ess each of the issues raised in accordance with 
paragraph 6 [of Article 17] during the appellate proceed ing".  In addition, we note that Article 3.3 of 
the DSU explains that:  
The prompt settlement of situati ons in which a Member considers 
that any benefits accruing to it directly or indirectly under the covered agreements are being impair ed by measures taken by another 
Member is essential to the effective functioning of the WTO and the 
maintenance of a proper balance between the rights and obligations of Members. 
For its part, Article 3.4 of the DSU provides that  "[r]ecommendations or rulings made by the DSB 
shall be aimed at achieving a satisfactory settlement of  the matter".  Similarly, Article 3.7 states that 
"[t]he aim of the dispute settlement mechanism is  to secure a positive solution to a dispute".   
509. In  US – Wool Shirts and Blouses , the Appellate Body cautioned that:  
Given the explicit aim of dispute settlement that permeates the DSU , 
we do not consider that Article 3.2 of the DSU  is meant to encourage 
either panels or the Appellate Body to "make law" by clarifying 
existing provisions of the WTO Agreement  outside the context of 
resolving a particular dispute.
722 
510. With this in mind, we observe that although an  interpretation by the Appellate Body, in the 
abstract, of the meaning of the phrase "world market share" in Article 6.3(d) of the  SCM Agreement   
                                                      
721Supra , para. 496. 
722Appellate Body Report, US – Wool Shirts and Blouses , p. 19, DSR 1997:I, 323 at 340.    WT/DS267/AB/R 
 Page 193 
 
 
 might offer at best some degree of "guidance" on that  issue, it would not affect the resolution of this 
particular dispute.723  Indeed, irrespective of whether we were  to uphold or reverse the Panel's finding 
on this issue, upon adoption of the recommendations and rulings by the DSB, the United States would 
be under no additional obligation re garding implementation.  Thus, a lthough we recognize that there 
may be cases in which it would be useful for us to review an issue, despite the fact that our ruling 
would not result in rulings and recommendations by the DSB, we find no compelling reason for doing 
so in this case. 
511. Accordingly, we believe that an interpreta tion of the phrase "world market share" in 
Article 6.3(d) of the  SCM Agreement   is unnecessary for purposes of resolving this dispute.  We 
emphasize that we neither uphold nor reverse the Panel's findings on the interpretation of the phrase 
"world market share" in Article 6.3(d) of the  SCM Agreement .  
512. Finally, we recall that Article 24.1 of the DSU requires that "[a]t all stages of the 
determination of the causes of a dispute and of dispute settlement procedures involving a least-developed country Member, particular  consideration shall be given to the special situation of least-
developed country Members".  We fully recognize th e importance of this provision.  However, we 
recall that Benin and Chad request us to find that their interests have suffered serious prejudice in the 
sense of Article 5(c) of the  SCM Agreement , if we find Brazil has suffered serious prejudice as a 
result of an increase in the United States' world market share in upland cotton in the sense of 
Article 6.3(d) of the  SCM Agreement .  As we do not find it necessary to rule on Brazil's appeal 
regarding the interpretation of the phrase "world mark et share" in Article 6.3(d), we therefore are not 
in a position to accede to Benin and Chad's request to  complete the analysis and to find that, in 
addition to Brazil, Benin and Chad also have suffere d serious prejudice to their interests in the sense 
of Articles 6.3(d) and 5(c) of the  SCM Agreement .  We note that Benin and Chad's request to 
complete the analysis was predicated upon us revers ing the Panel's interpreta tion of the phrase "world 
market share" in Article 6.3(d) of the  SCM Agreement .
724  This condition is not met.    
                                                      
723We note, in this regard, that, in US – Steel Safeguards , the Appellate Body noted that "several 
participants expressed an interest in having [it] ru le on causation as it would provide guidance to Members on 
applying safeguard measures in the future consistently  with their WTO obligations".  (Appellate Body Report, 
US – Steel Safeguards , para. 484)  Despite this request for guidance, the Appellate Body declined to make a 
ruling on this specific aspect of the case. (Appellate Body Report, US – Steel Safeguards , para. 483) 
724Benin and Chad's third participants' submission, para. 83.   WT/DS267/AB/R 
Page 194  
 
 
 VII. Import Substitution Subsidies and Export Subsidies 
A. Step 2 Payments to Domestic Users  
1. Introduction  
513. We examine next the United States' claims agai nst the Panel's findings relating to the Step 2 
payments provided to domestic users and e xporters of United States upland cotton under 
Section 1207(a) of the FSRI Act of 2002. 
514. According to the Panel725, the program pursuant to which Step 2 payments are granted has 
been authorized since 1990 under successive le gislation, including the FAIR Act of 1996726 and the 
FSRI Act of 2002.727  Under the program, marketing certificates or cash payments (collectively 
referred to by the Panel as "user  marketing (Step 2) payments")728 are issued to eligible domestic users 
and exporters of eligible upland cotton when certain market conditi ons exist such that United States 
cotton pricing benchmarks are exceeded.  "Eligi ble upland cotton" is defined as "domestically 
produced baled upland cotton which ba le is opened by an eligible dom estic user ... or exported by an 
eligible exporter".729  An "eligible domestic user" of upland cotton is defined under the regulations as: 
A person regularly engaged in the business of opening bales of 
eligible upland cotton for the purpose of manufacturing such cotton into cotton products in the United States (domestic user), who has entered into an agreement with CCC
[730] to participate in the upland 
cotton user marketing certificate program.731 
                                                      
725Panel Report, para. 7.209. 
726Section 136 of the FAIR Act of 1996, reproduced in Exhibits BRA-28 and US-22. 
727Section 1207 of the FSRI Act of 2002, reproduced in Exhibits BRA-29 and US-1, implemented 
under 7 CFR 1427, Subpart C, reproduced in Exhibit BRA-37. 
728The Panel explained that "[f]or the purposes of this dispute, on the basis of the views of the parties, 
we make no distinction between user marketing (Step 2) cash payments and marketing certificates". (Panel Report, footnote 284 to para. 7.209, referring to Brazil' s and the United States' respective responses to Panel 
Question No. 110 (a))  
7297 CFR Section 1427.103(a). 
730Additional information about the CCC is provided,  infra , footnote 859;  see also Panel Report, 
para. 7.702. 
7317 CFR Section 1427.104(a)(1).    WT/DS267/AB/R 
 Page 195 
 
 
 515. For its part, an "eligible exporter" of upland cotton is: 
A person, including a producer or a cooperative marketing 
association ... regularly engaged in selling eligible upland cotton for 
exportation from the United States (exporter), who has entered into 
an agreement with CCC to partic ipate in the upland cotton user 
marketing certificate program.732 
516. The Panel explained that, under the FAIR Ac t of 1996, the United States Secretary of 
Agriculture "issued user marketing (Step 2) paym ents to domestic users and exporters of upland 
cotton for documented purchases by domestic users and sales for export by exporters made in a week following a consecutive four-week period when the lowest price quotation for United States cotton 
delivered to Northern Europe ex ceeded the Northern Europe price quotation by more than 1.25 cents 
per pound, and the adjusted world price did not ex ceed 130 per cent of the marketing loan rate for 
upland cotton."
733  The payments to domestic users and e xporters are calculated "at a rate per pound 
equal to the difference between the two price quotati ons during the fourth week of the period, minus 
the 1.25 cents per pound threshold".734  Step 2 payments continued to be authorized under the FSRI 
Act of 2002, although with certain modifications.  The Panel pointed out that "[i]n particular, 
application of the 1.25 cents per pound threshol d has been delayed until 1 August 2006 (i.e. for the 
2002 through 2005 marketing years)".735  The consequence of this, the Panel explained, is that "Step 2 
payments are issued following a consecutive four-w eek period when the lowest price quotation for 
United States cotton delivered to Northern Europe  exceeded the Northern Europe price quotation by 
any amount and the adjusted world price did not ex ceed 134 per cent (not 130 per cent, as under the 
FAIR Act of 1996) of the marketing loan rate".736  Domestic users and exporters receive payments 
that are calculated "at a rate per pound equal to th e difference between the two price quotations during 
the fourth week of the period, with no reduction for the threshold".737    
517. We address first the United States' appeal of the Panel findings in respect of Step 2 payments 
to  domestic users   of United States upland cotton.  We examine the United States' appeal of the  
                                                      
7327 CFR Section 1427.104(a)(2). 
733Panel Report, para. 7.210. 
734Ibid., para. 7.210 (referring to Section 136(a) of the FAIR Act of 1996 reproduced in Exhibits  
BRA-28 and US-22).  The Panel added that Section 136(a)(5) limited total expenditures under this program to $701 million, but this was later repealed. ( Ibid., footnote 286 to para. 7.210)  
735Ibid., para. 7.211. 
736Ibid. 
737Ibid., para. 7.211 (referring to Section 1207(a) of the FSRI Act of 2002, reproduced in Exhibits 
BRA-29 and US-1, and 7 CFR 1427.107 (1 January 2003 edition), reproduced in Exhibit BRA-37).   WT/DS267/AB/R 
Page 196  
 
 
 Panel's finding in respect of Step 2 payments to  exporters   of United States upland cotton in the next 
Section of this Report. 
2. Panel Findings  
518. Before the Panel, Brazil argued that Step 2 pa yments to domestic users of upland cotton are 
per se   import substitution subsidies that are inconsis tent with Articles 3.1(b) and 3.2 of the 
SCM  Agreement .738  Brazil explained that Step 2 payments  to domestic users are "contingent on the 
use of domestic over imported goods within the meaning of Article 3.1(b) of the  SCM Agreement " 
because the payments "are 'conditional' on proof of  consumption of domestically produced upland 
cotton".739 
519. The United States did not dispute that Step 2 payments are "subsidies" and that to receive a 
Step 2 payment a domestic user must "open a ba le of domestically produced baled upland cotton".740  
The United States, however, asserted that Step 2 pa yments to domestic users of upland cotton are 
included, and they comply with, the United Stat es' domestic support reduction commitments pursuant 
to Article 6.3 of the  Agreement on Agriculture .741  As Step 2 payments to domestic users are 
permitted under the  Agreement on Agriculture ,  the United States argued that these payments cannot 
be contrary to Article 3 of the  SCM Agreement .   This is because the introductory language of 
Article 3.1 of the  SCM Agreement   makes it clear that that provision applies "[e]xcept as provided in 
the  Agreement on Agriculture ".742  The United States additionally asserted that "pursuant to 
Article 21 of the  Agreement on Agriculture ,  all of the Annex 1A agreements (including the  SCM 
Agreement ) apply subject to the provisions of the  Agreement on Agriculture ".743 
520. The Panel began its examination by observing that  "[t]he introductory clause of Article 3.1 of 
the  SCM Agreement  ('[e]xcept as provided in the Agreemen t on Agriculture') indicates that any 
examination of the WTO-consistency of a s ubsidy for agricultural products under the  SCM 
                                                      
738Panel Report, para. 7.1019.  Before the Panel, Brazil also claimed that Step 2 payments to  domestic 
users   are contrary to Article III:4 of the GATT 1994 an d that they are not justified under Article III:8(b) 
because they are not exclusively paid to domestic  producers   of cotton, but rather to domestic  users . 
The Panel exercised judicial economy in  respect of this claim, in the li ght of the fact that it had already 
found the same measure to be inconsistent  with Articles 3.1(b) and 3.2 of the  SCM Agreement .  Brazil has not 
appealed the Panel's exerci se of judicial economy. ( Ibid., paras. 7.1099 and 7.1106) 
739Ibid., para. 7.1019. 
740Ibid., para. 7.1022 (quoting the United States' response to Question 144 Posed by the Panel (Panel 
Report, p. I-128, para. 217 and p. I-249, para. 58)). 
741Ibid., para. 7.1023. 
742Ibid., para. 7.1024. 
743Ibid.  WT/DS267/AB/R 
 Page 197 
 
 
 Agreement  may depend upon the provisions of the  Agreement on Agriculture .744  The Panel then 
examined Article 21.1 of the  Agreement on Agriculture   and observed that this provision "expressly 
acknowledges the application of the  GATT 1994   and the  SCM Agreement   to agricultural products, 
while indicating that the  Agreement on Agriculture   would take precedence in the event, and to the 
extent, of any conflict".745  The Panel described the situations in which, in its view, Article 21.1 of the  
Agreement on Agriculture   applies746, and then turned to "the relevant provisions of the  Agreement on 
Agriculture   in order to discern whether, and/or to what extent, these provisions affect a claim 
concerning the prohibition on import substitution subsidies in Article 3.1(b) of the  SCM 
Agreement ."747 The Panel concluded that "none of the situ ations" it described arises in this dispute 
from the relevant provisions in the  Agreement on Agriculture .748 
521. The Panel examined Article 13 of the  Agreement on Agriculture ,  but concluded that this 
provision did not affect its analysis of Brazil's claims under Article 3.1(b) of the  SCM Agreement .749  
The Panel then looked at Article 6.3 and paragraph 7 of Annex 3 of the  Agreement on Agriculture ,  
rejecting the United States' contention that "user  marketing (Step 2) payments to upland cotton 
domestic users that provide support to domestic pr oducers contingent on the use of domestic goods 
[are] consistent with the  Agreement on Agriculture ".750  The Panel reasoned instead that: 
Article 6.3 does not provide that compliance with such "domestic 
support reduction commitments" shall necessarily be considered to 
be in compliance with other appli cable WTO obligations.  Nor does 
it contain an explicit textual indication that otherwise prohibited measures are necessarily justified by virtue of compliance with the domestic support reduction commitm ents.  The obligations are 
parallel, and the operation of Article 6.3 of the Agreement on 
Agriculture  does not pre-empt or exclude the operation of the 
obligation under Article 3.1(b) of the  SCM Agreement .
751 
522. From this the Panel concluded that "Article 3.1(b) of the  SCM Agreement   can be read 
together with the  Agreement on Agriculture   provisions relating to domestic  support in a coherent and 
consistent manner which gives full and eff ective meaning to all of their terms".752  Accordingly, the 
                                                      
744Panel Report, para. 7.1034. (footnote omitted) 
745Ibid., para. 7.1036.  
746Ibid., para. 7.1038.  See  infra ,  para. 532. 
747Ibid., para. 7.1041. (footnote omitted) 
748Ibid., para. 7.1039. 
749Ibid., para. 7.1052. 
750Ibid., para. 7.1056. 
751Ibid., para. 7.1058. (original emphasis)   
752Ibid., para. 7.1071. WT/DS267/AB/R 
Page 198  
 
 
 Panel found no conflict between the dom estic support provisions of the  Agreement on Agriculture   
and Article 3.1(b) of the  SCM Agreement   and, therefore, saw no n ecessity to apply the rules in 
Article 21.1 of the  Agreement on Agriculture .753 
523. Having examined the relationship between the relevant provisions of the  Agreement on 
Agriculture   and the  SCM Agreement ,  the Panel proceeded to examin e whether the Step 2 payments 
to domestic users are contingent on the use of domest ic products contrary to Article 3.1(b) of the 
SCM Agreement .  The Panel noted that the United States had acknowledged that "to receive a 
payment under the user marketing (Step 2) pr ogramme, a domestic user must open a bale of 
domestically produced baled upland cotton" and, ther efore, did "not dispute that user marketing 
(Step 2) payments to domestic users constitute a subsidy conditional or dependent upon the use of 
domestic over imported goods within the meaning of Article 3.1(b) of the  SCM Agreement ".754  The 
Panel also conducted its own examination and found that: 
... user marketing (Step 2) payments to domestic users under 
section 1207(a) of the FSRI Act of 2002 will not be made except upon proof of consumption of eligib le upland cotton – which must be 
"domestically produced", and "not imported".  It is not just that it will 
invariably be easier for domestic user s to meet the conditions for user 
marketing (Step 2) payments to domestic users by using domestic -- 
rather than imported -- upland cotton.  The text of the measure explicitly requires  the use of domestically produced upland cotton as 
a pre-condition for receipt of the payments.   
The use of United States domestically produced upland cotton is a 
condition for obtaining the subsidy.   User marketing (Step 2) 
payments to domestic users under section 1207(a) of the FSRI Act of 2002 are clearly conditional, or dependent upon, such use.
755   
524. The Panel, furthermore, recalled its finding that  the "fact that the user marketing (Step 2) 
payments are also available in another factual situ ation ... —i.e. exporters—w ould not have the effect 
of dissolving such contingency in respect of domestic users, particularly ... where the other factual 
contingency (upon export performance) also  gives rise to a prohibited subsidy".756   
                                                      
753Panel Report, para. 7.1071. 
754Ibid., para. 7.1082 (referring to the United States' response to Question 144 Posed by the Panel 
(Panel Report, p. I-249, para. 58) and Appellate Body Report, Canada – Autos , para. 126). (footnotes omitted) 
755Ibid., paras. 7.1085-7.1086. (original emphasis)   
756Ibid., para. 7.1087.  WT/DS267/AB/R 
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 525. Therefore, the Panel concluded that "secti on 1207(a) of the FSRI Act of 2002 providing for 
user marketing (Step 2) payments to domestic user s is inconsistent with Article 3.1(b) of the  
SCM Agreement ".757  In addition, the Panel found that "[t]o the extent that section 1207(a) of the FSRI 
Act of 2002 providing for user marketing (Step 2) pa yments to domestic user s is inconsistent with 
Article 3.1(b), it is, consequently, also inconsistent with Article 3.2 of the  SCM Agreement ".758 
3. Arguments on Appeal  
526. On appeal, the United States requests us to re verse the Panel's findings.  According to the 
United States, the Panel's conclusion fails to give  meaning to the introductory phrase "[e]xcept as 
provided in the Agreement on Agriculture" of Article 3.1 of the  SCM Agreement .759  This phrase not 
only applies to export subsidies covered by Article 3.1(a) of the  SCM Agreement ,  but also to import 
substitution subsidies covered by Article 3.1(b).  Th e United States contends that Step 2 payments to 
domestic users are properly classified as domestic  support subject to reduction commitments under 
Article 6 of the  Agreement on Agriculture .760  Indeed, paragraph 7 of Annex 3 requires that measures 
directed at agricultural processors shall be include d in the AMS to the extent that such measures 
benefit the producers of the basic agri cultural products.  This approach is consistent with the objective 
of the  Agreement on Agriculture   of providing for substantial progressive reductions in agricultural 
support and protection sustained over an agreed period of time.761  Furthermore, the United States 
argues that the lack of any reference to domes tic content subsidies in Article 13(b) of the  Agreement 
on Agriculture   does not support the Panel's interpretation.762  Article 13(b) does not refer to Article 3 
of the  SCM Agreement   because the substantive obligation of Article 3.1(b) does not apply in the case 
of domestic content subsidies in favour of agricultural producers. 
527. Brazil requests that we uphold the Panel's findings.  According to Brazil, "[t]he obligations in 
the  Agreement on Agriculture   and the  SCM Agreement   apply cumulatively, unless there is an 
exception or a conflict".763  In Brazil's view, no conflict arises.  Under the  Agreement on Agriculture , 
WTO Members enjoy a right to grant domestic suppor t in favour of agricultural producers.  However, 
this does not create a conflict with Article 3.1(b) of the  SCM Agreement , because it is perfectly 
possible for Members to grant domestic support w ithout making payments contingent on domestic 
                                                      
757Panel Report, para. 7.1097. (footnote omitted) 
758Ibid., para. 7.1098. 
759United States' appellant's submission, paras. 429-430. 
760Ibid., para. 434. 
761Ibid., para. 435. 
762Ibid., paras. 431-432. 
763Brazil's appellee's submission, para. 75.   WT/DS267/AB/R 
Page 200  
 
 
 content.  In other words, Members can fully enjoy their right to grant domestic support  and  comply 
with Article 3.1(b).764 
528. Brazil asserts that this interpretation is cons istent with a primary objective of the covered 
agreements, namely, avoiding discrimination under the na tional treatment rule.  It  is also consistent 
with an adopted 1958 GATT panel report involving a subsidy to agricultural producers that was 
contingent on purchase of domestic goods.765  Thus, Brazil states that domestic content subsidies in 
favour of agricultural producers have been underst ood to be impermissible since 1958, so there is 
nothing novel about Brazil’s complaint.766  The  Agreement on Agriculture   did not mark a step back 
to allowing discrimination and protection that was prohibited under the GATT 1947.  Therefore, 
domestic support under the  Agreement on Agriculture   can and must be granted consistently with 
Article 3.1(b) of the  SCM Agreement   and Article III:4 of the GATT 1994.767 
4. Does Article 3.1(b) of the  SCM Agreement   Apply to Agricultural Products?  
529. At the outset, we note that the United States did not dispute before the Panel that, if the  
SCM Agreement   were applicable, "user marketing (Step 2) payments to domestic users [would] 
constitute a subsidy conditional or  dependent upon the use of do mestic over imported goods within 
the meaning of Article 3.1(b)" of that Agreement.768  Instead, before the Panel and on appeal, the 
United States asserts that Article 3.1(b) of the  SCM Agreement   is inapplicable to Step 2 payments to 
domestic users because these payments are consis tent with the United States' domestic support 
reduction commitments under the  Agreement on Agriculture .769   
                                                      
764Brazil's appellee's submission, para. 867. 
765Ibid., para. 860 (referring to GATT Panel Report, Italy – Agricultural Machinery , para. 16).  
According to Brazil, that panel recognized that the GA TT contracting parties were entitled to grant support to 
agricultural producers but found that this could be done without granting domestic content subsidies.   
766Brazil's appellee's submission, para. 861. 
767Ibid., paras. 863-865. 
768Panel Report, para. 7.1082. 
769Ibid., para. 7.1023;  United States' appellant's submission, paras. 434-436.  WT/DS267/AB/R 
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 530. Article 3.1(b) of the  SCM Agreement   provides: 
Article 3 
Prohibition 
Except as provided in the Agreem ent on Agriculture, the following 
subsidies, within the meaning of Article 1, shall be prohibited: 
... 
(b) subsidies contingent, whether solely or as one of several 
other conditions, upon the use of domestic over imported goods. 
We note that the introductory language of the chapeau makes it clear that the Agreement on 
Agriculture  prevails over Article 3 of the  SCM Agreement , but only to the extent that the former 
contains an exception. 
531. Article 21.1 of the  Agreement on Agriculture ,  which deals more broadly with the 
relationship between that Agreement and the other covered agreements relating to the trade in goods, 
provides: 
The provisions of GATT 1994 and of other Multilateral Trade 
Agreements in Annex 1A to the WTO Agreement shall apply subject 
to the provisions of this Agreement.770 
532. We agree that Article 21.1 could apply in the th ree situations described by the Panel, namely: 
... where, for example, the domestic support provisions of the 
Agreement on Agriculture   would prevail in the event that an explicit 
carve-out or exemption from the disciplines in Article 3.1(b) of the SCM Agreement  existed in the text of the  Agreement on Agriculture .  
Another situation would be where it would be impossible for a 
Member to comply with its domestic support obligations under the Agreement on Agriculture  and the Article 3.1(b) prohibition 
simultaneously.  Another situation mi ght be where there is an explicit 
authorization in the text of the  Agreement on Agriculture   that would 
authorize a measure that, in th e absence of such an express 
authorization, would be prohib ited by Article 3.1(b) of the 
SCM  Agreement .
771 
                                                      
770The SCM Agreement  is among the Multilateral Trade Agreements in Annex 1A to the WTO 
Agreement .  
771Panel Report, para. 7.1038. (original emphasis)  The Panel concluded that "none of the situations just 
mentioned arise[s] in this dispute from the relevant provisions in the  Agreement on Agriculture ". (Panel Report, 
para. 7.1039) WT/DS267/AB/R 
Page 202  
 
 
 The Appellate Body has interpreted Article 21.1 to mean that the provisions of the GATT 1994 and of 
other Multilateral Trade Agreements in Annex 1A  apply, "except to the extent that the  Agreement on 
Agriculture   contains specific provisions dealing specifically with the same matter".772  There could 
be, therefore, situations other than those iden tified by the Panel where Article 21.1 of the  Agreement 
on Agriculture   may be applicable. 
533. The key issue before us is whether the  Agreement on Agriculture   contains "specific 
provisions dealing specifically with the same matter" as Article 3.1(b) of the  SCM Agreement ,  that 
is, subsidies contingent upon the use of domestic over imported goods.  We, therefore, turn to the 
relevant provisions of the  Agreement on Agriculture .   
534. The United States draws our attention to the domestic support provisions in the  Agreement on 
Agriculture ,  particularly to Article 6.3 and to pa ragraph 7 of Annex 3.  Article 6 of the Agreement on 
Agriculture  deals with domestic support commitments.  Pursuant to Article 6, WTO Members have 
committed themselves to reduce the domestic support that they provide to their agricultural sector.773  
For this purpose, domestic support is calculated usi ng what is known as the AMS, which is defined in 
Article 1(a) as: 
... the annual level of support, expr essed in monetary terms, provided 
for an agricultural product in favour of the producers of the basic 
agricultural product or non-product-specific support provided in favour of agricultural producers in general, other than support provided under programmes that qualify as exempt from reduction under Annex 2 to this Agreement ... 
A WTO Member's domestic support reduction commitment s are registered in Part IV of its Schedule. 
535. Article 6.3 of the  Agreement on Agriculture ,  the particular provision relied on by the United 
States,  reads: 
A Member shall be considered to be in compliance with its domestic 
support reduction commitments in any year in which its domestic support in favour of agricultural pr oducers expressed in terms of 
Current Total AMS does not exceed the corresponding annual or 
final bound commitment level specified in Part IV of the Member's 
Schedule. 
                                                     
 
772Appellate Body Report, EC – Bananas III , para. 155.  (See also Appellate Body Report, Chile – 
Price Band System , para. 186) 
773Certain domestic measures are exempted from these reduction commitments under Articles 6.4 
and 6.5 and Annex 2 of the Agreement on Agriculture .  WT/DS267/AB/R 
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 The United States also relies on paragraph 7 of Annex 3 of the  Agreement on Agriculture .  This 
Annex explains how WTO Members are to calculate AM S.  Paragraph 7 of Annex 3 states, in relevant 
part, that "[m]easures directed at agricultural pro cessors shall be included [in the AMS calculation] to 
the extent that such measures benefit the produ cers of the basic agricultural products".   
536. Before determining whether Article 6.3 and paragraph 7 of Annex 3 of the  Agreement on 
Agriculture   deal specifically with the same matter as Article 3.1(b) of the  SCM Agreement ,  we must 
address the question whether the Step 2 payments to domestic users of United States upland cotton 
fall within paragraph 7 of  Annex 3 because the United States claims that they are "[m]easures directed 
at agricultural processors" and "benefit the producer s of the basic agricultural products".  The United 
States argues that Step 2 payments to domestic user s fall within paragraph 7 of Annex 3 because, even 
though the payment is provided to persons  opening a bale of cotton, the payment  benefits   producers 
of United States cotton.  The United States explains that this is the case "because [the program] serves 
to maintain the price competitiveness of U.S. cott on vis-a-vis foreign cotton through a payment to 
capture some differential between prevai ling foreign and domestic cotton prices."774   
537. We recall that "domestic users" are defined, un der the United States' regulations, as "person[s] 
regularly engaged in the business of opening bale s of eligible upland cotton for the purpose of 
manufacturing such cotton into cotton products in the United States".775  The United States has 
acknowledged that the domestic users of United Stat es cotton that receive Step 2 payments include 
textile mills.776  There is no dispute between the parties th at the producers of United States cotton are 
"producers of ... basic agricultural products" for pur poses of paragraph 7 of Annex 3.  Moreover, 
Brazil has not disputed the United States' claim that  Step 2 payments to domestic users may "benefit" 
the producers of United States cotton.  Therefore,  we will proceed with our examination on the  
assumption   that Step 2 payments to domestic users of United States cotton are contemplated by 
paragraph 7 of Annex 3 of the  Agreement on Agriculture .777     
538. We thus turn to the issue raised by the United States' appeal, that is, whether Article 6.3 and 
paragraph 7 of Annex 3 of the  Agreement on Agriculture   are "specific provisions dealing specifically 
with the same matter" as Article 3.1(b) of the  SCM Agreement ,  namely, subsidies contingent upon 
the use of domestic over imported goods.   
                                                      
774United States' appellant's submission, para. 428. 
775See  supra , para. 514. 
776United States' response to questioning at oral hearing. 
777In this dispute we do not decide whether subsidies paid to textile manufacturers on their purchases of 
cotton could be regarded as measures directed at "agricultural processors" within the meaning of paragraph 7 of 
Annex 3.   WT/DS267/AB/R 
Page 204  
 
 
 539. The United States finds in the second senten ce of paragraph 7 of Annex 3 of the  Agreement 
on Agriculture   an exception to the broad prohibition ag ainst subsidies contingent upon the use of 
domestic over imported goods that is esta blished in Article 3.1(b) of the  SCM Agreement .  We note 
that Annex 3 sets out instructions on how to cal culate WTO Members' AMS.  Paragraph 7 is one 
of 13 paragraphs contained in Annex 3.  It reads: 
The AMS shall be calculated as close as practicable to the point of 
first sale of the basic agricultural product concerned.  Measures directed at agricultural processors sh all be included to the extent that 
such measures benefit the producers of the basic agricultural products.   
540. Neither of the two sentences in paragraph 7 of Annex 3 refers to import substitution subsidies.  
Paragraph 7 of Annex 3 reflects a preference for ca lculating domestic support as near as possible to 
the stage of production of an agricultural good.  Henc e, the first sentence of paragraph 7 of Annex 3 
provides that "[t]he AMS shall be calculated as close as practicable to the point of first sale of the basic agricultural product concerned".  The sec ond sentence of paragraph 7 recognizes situations 
where subsidies are not provided directly to the ag ricultural producer, but rather to an agricultural 
processor, yet the measures may benefit the producer s of the basic agricultural good.  This sentence 
also clarifies that only the portion of the subsidy th at benefits the producers of the basic agricultural 
good, and not the entire amount, shall be included in a Member's AMS.   
541. It may well be that a measure that is an import substitution subsidy could fall within the 
second sentence of paragraph 7 as "[m]easures direct ed at agricultural processors [that] shall be 
included [in the AMS calculation] to the extent th at such measures benefit the producers of the basic 
agricultural products".  There is nothing, however, in the text of paragraph 7 that suggests that such 
measures, when they are import substitution subsidies, are exempt from the prohibition in 
Article 3.1(b) of the  SCM Agreement .  We agree with the Panel that there is a clear distinction 
between a provision that requires a Member to include a certain type of payment (or part thereof) in its AMS calculation and one that would authorize subs idies that are contingent on the use of domestic 
over imported goods.
778    
542. The United States argues that, if payments to processors that fall within paragraph 7 are not 
exempted from the prohibition in Article 3.1(b) of the  SCM Agreement , paragraph 7 would be 
rendered inutile.779  According to the United States, if domestic users were allowed to claim Step 2 
payments, regardless of the origin of the cotton,  this "would cause the benefit to [domestic] cotton 
                                                      
778Panel Report, para. 7.1059. 
779United States' appellant's submission, para. 428.  WT/DS267/AB/R 
 Page 205 
 
 
 producers to evaporate" and the "subsidy would be transformed from a subsidy 'in favor of 
agricultural producers' to a simple input subsidy".780  Rather than "a cotton subsidy", it would become 
a "textile subsidy".781  Like the Panel, we do not believe that  the scope of paragraph 7 is limited to 
measures that have an import s ubstitution component in them.  Th ere could be other measures 
covered by paragraph 7 of  Annex 3 that do not necessarily have such a component.  Indeed, Brazil 
submits that if the Step 2 payments were provided to United States processors of cotton, regardless of 
the origin of the cotton, th ese processors "would still buy  at least   some U.S. upland cotton, so 
producers would continue to derive  some   benefit".782  Thus, paragraph 7 of  Annex 3 refers more 
broadly to measures directed at agricultural processors that benef it producers of a basic agricultural 
product and, contrary to the United States' asser tion, it is not rendered inutile by the Panel's 
interpretation.  WTO Members may still provide subs idies directed at agricultural processors that 
benefit producers of a basic agricultu ral commodity in accordance with the  Agreement on 
Agriculture , as long as such subsidies do not include an import substitution component.   
543. In addition to paragraph 7 of Annex 3, the Unite d States draws our attention to Article 6.3 of 
the  Agreement on Agriculture .  The United States points out that Article 6.3 explicitly provides that a 
WTO Member "shall be considered to be  in compliance   with its domestic support reduction 
commitments in any year in which its domestic support in favour of agricultural producers expressed 
in terms of Current Total AMS does not exceed the corresponding annual or final bound commitment 
level". (emphasis added)   
544. Like paragraph 7 of Annex 3, Article 6.3 does not explicitly refer to import substitution 
subsidies.  Article 6.3 deals with domestic support.  It establishes only a  quantitative   limitation on 
the amount of domestic support that a WTO Member can provide in a given year.  The quantitative limitation in Article 6.3 applies generally to all domestic support measures that are included in a WTO 
Member's AMS.  Article 3.1(b) of the  SCM Agreement   prohibits subsidies that are contingent—that 
is, "conditional"
783—on the use of domestic over imported goods.784   
545. Article 6.3 does not authorize subsidies that are contingent on the use of domestic over 
imported goods.  It only provides that a WTO Member shall be considered to be in compliance with 
its domestic support  reduction commitments   if its Current Total AMS does not exceed that Member's 
annual or final bound commitment level specified in its Schedule.  It does not say that compliance 
                                                      
780United States' appellant's submission, para. 428.  
781Ibid. (emphasis omitted) 
782Brazil's appellee's submission, footnote 1242 to para. 854. (original emphasis)   
783Appellate Body Report, Canada – Autos , para. 123. 
784See Panel Report, para. 7.1067. WT/DS267/AB/R 
Page 206  
 
 
 with Article 6.3 of the  Agreement on Agriculture   insulates the subsidy from the prohibition in 
Article 3.1(b).  We, therefore, agree with the Panel that: 
Article 6.3 does  not  provide that compliance with such "domestic 
support reduction commitments" shall necessarily be considered to 
be in compliance with other appli cable WTO obligations.  Nor does 
it contain an explicit textual indication that otherwise prohibited measures are necessarily justified by virtue of compliance with the domestic support reduction commitments.
785 
546. For these reasons, we find that paragraph 7 of Annex 3 and Article 6.3 of the  Agreement on 
Agriculture   do not deal specifically with the same matter as Article 3.1(b) of the  SCM Agreement ,  
that is, subsidies contingent upon the use of domestic over imported goods.   
547. We are mindful that the introductory language of Article 3.1 of the  SCM Agreement   clarifies 
that this provision applies "[e]xcept as provided in  the Agreement on Agriculture".  Furthermore, as 
the United States has pointed out, this introductory language applies to both the export subsidy 
prohibition in paragraph (a) and to the prohibition on import substitution subsidies in paragraph (b) of 
Article 3.1.  As we explained previously, in our review of the provisions of the  Agreement on 
Agriculture   relied on by the United States, we did not fi nd a provision that deals specifically with 
subsidies that have an import substitution component.  By contrast, the prohibition on the provision of 
subsidies contingent upon the use of domestic over imported goods in Article 3.1(b) of the  SCM 
Agreement   is explicit and clear.  Because Article 3.1(b)  treats subsidies contingent on the use of 
domestic over imported products as prohi bited subsidies, it would be expected that the drafters would 
have included an equally explicit and clear provision in the  Agreement on Agriculture   if they had 
indeed intended to authorize such prohibited subsid ies provided in connection with agricultural goods.  
We find no provision in the  Agreement on Agriculture   dealing specifically with subsidies contingent 
upon the use of domestic over imported agricultural goods.   
548. Our approach in this case is consistent with the Appellate Body's approach in EC – 
Bananas III .  In that case, the European Comm unities relied on Article 4.1 of the  Agreement on 
Agriculture   in arguing that the market access concessi ons it made for agricultural products pursuant 
to the  Agreement on Agriculture   prevailed over Article XIII of the GATT 1994.786  The Appellate 
Body, however, found that "[t]here is nothing in Artic les 4.1 or 4.2, or in any other article of the  
Agreement on Agriculture , that deals specifically with the allocation of tariff quotas on agricultural 
                                                      
785Panel Report, para. 7.1058. (original emphasis)   
786Appellate Body Report, EC – Bananas III , para. 153.  WT/DS267/AB/R 
 Page 207 
 
 
 products".787  It further explained that "[i]f the negot iators had intended to permit Members to act 
inconsistently with Article XIII of the GA TT 1994, they would have said so explicitly".788  The 
situation before us is similar.  We have found nothing in Article 6.3, paragraph 7 of Annex 3 or 
anywhere else in the  Agreement on Agriculture   that "deals specifically" with subsidies that are 
contingent on the use of domestic over imported agricultural products.  
549. We recall that the  Agreement on Agriculture   and the  SCM Agreement  "are  both  
Multilateral Agreements on Trade in Goods  contained in Annex 1A of the  Marrakesh Agreement 
Establishing the World Trade Organization   (the " WTO Agreement "), and, as such, are  both  'integral 
parts' of the same treaty, the  WTO Agreement , that are 'binding on all Members'".789  Furthermore, as 
the Appellate Body has explained, "a treaty interpre ter must read all applicable provisions of a treaty 
in a way that gives meaning to  all  of them, harmoniously".790  We agree with the Panel that 
"Article 3.1(b) of the SCM Agreement  can be read together with the  Agreement on Agriculture   
provisions relating to domestic support in a cohe rent and consistent manner which gives full and 
effective meaning to all of their terms".791  
550. In sum, we are not persuaded by the United States' submission that the prohibition in 
Article 3.1(b) of the  SCM Agreement   is inapplicable to import s ubstitution subsidies provided in 
connection with products falling under the  Agreement on Agriculture .  WTO Members may still 
provide domestic support that is  consistent with their reduc tion commitments under the  Agreement on 
Agriculture .  In providing such domestic support, howeve r, WTO Members must be mindful of their 
other WTO obligations, including the prohibition in Article 3.1(b) of the  SCM Agreement   on the 
provision of subsidies that are contingent  on the use of domestic over imported goods.   
551. Turning to the particular measure before us in this dispute, we recall that the United States 
acknowledged before the Panel that, if the  SCM Agreement   were applicable, "user marketing 
(Step 2) payments to domestic users [would] cons titute a subsidy conditiona l or dependent upon the 
                                                      
787Appellate Body Report, EC – Bananas III , para. 157. 
788Ibid. 
789Appellate Body Report, Argentina – Footwear (EC) , para. 81 (quoting from WTO Agreement , 
Article II:2). (original emphasis)  In that case, the Appellate Body was referring to the GATT 1994 and the 
Agreement on Safeguards . 
790Appellate Body, Argentina – Footwear (EC) , para. 81 and footnote 72 thereto (referring to Appellate 
Body Report, Korea  – Dairy , para. 81;  Appellate Body Report, US – Gasoline , p. 23, DSR 1996:I, 3 at 21;  
Appellate Body Report, Japan – Alcoholic Beverages II , p. 12, DSR 1996:I, 97 at 106;  and Appellate Body 
Report, India – Patents (US) , para. 45). (original emphasis) 
791Panel Report, para. 7.1071. WT/DS267/AB/R 
Page 208  
 
 
 use of domestic over imported goods within the me aning of Article 3.1(b)" of that Agreement.792  The 
Panel also conducted its own an alysis and concluded that: 
The use of United States domestically produced upland cotton is a 
condition for obtaining the subsidy.   User marketing (Step 2) 
payments to domestic users under section 1207(a) of the FSRI Act of 
2002 are clearly conditional, or dependent upon, such use.793  
The United States has not appealed this finding  and, therefore, we need not review it. 
552. Accordingly, we  uphold   the Panel's findings, in paragra phs 7.1088, 7.1097-7.1098 and 8.1(f) 
of the Panel Report, that Step 2 payments to domestic users of United States upland cotton, under 
Section 1207(a) of the FSRI Act of 2002, are s ubsidies contingent on the use of domestic over 
imported goods that are inconsistent w ith Articles 3.1(b) and 3.2 of the  SCM Agreement . 
B. Step 2 Payments to Exporters 
553. We turn to the United States' claim that the Panel erred in finding that Step 2 payments 
provided to  exporters   of United States upland cotton, under Section 1207(a) of the FSRI Act 
of 2002, are subsidies contingent on exportation an d, therefore, are inconsistent with Articles 3.3 
and 8 of the  Agreement on Agriculture   and Articles 3.1(a) and 3.2 of the  SCM Agreement .  We 
described the Step 2 payments program in the previo us Section of this Report, where we examined the 
Panel's findings relating to Step 2 payments provided to  domestic users   of United States upland 
cotton.794 
554. Before the Panel, Brazil argued that Step 2 payments to exporters are  per se   export subsidies 
listed in Article 9.1(a) of the  Agreement on Agriculture   and are inconsistent with Article 3.3 and/or 
Article 8 of the  Agreement on Agriculture , as well as with Articles 3.1 and 3.2 of the  
SCM Agreement .795  The United States denied that Step 2 payments constitute export subsidies for 
purposes of the  Agreement on Agriculture   or Articles 3.1(a) and 3.2 of the  SCM Agreement ,  
arguing that these payments are available not only to exporters, but also to domestic users of upland 
cotton.796 
                                                      
792Panel Report, para. 7.1082. 
793Ibid., para. 7.1086. 
794See also  ibid., paras. 7.209-7.211. 
795Ibid., para. 7.649(i).  Brazil also made an a lternative claim under Article 10.1 of the Agreement on 
Agriculture , but the Panel found it unnecessar y to examine this clai m because of its findings under Article 9. 
(Ibid., para. 7.750) 
796Ibid., para. 7.651(i).  WT/DS267/AB/R 
 Page 209 
 
 
 555. Because Brazil challenged the alleged Un ited States export subsidies under the  Agreement on 
Agriculture and the  SCM Agreement , the Panel first examined the relationship between these 
Agreements.  The Panel explained what it considered  to be the proper order of analysis as follows: 
... it is appropriate to examine an a lleged export subsidy in respect of 
an agricultural product first under the Agreement on Agriculture  
before, if and as appropriate, turning to any examination of the same 
measure under the SCM Agreement.797 
556. Accordingly, the Panel began its examination of  Brazil's claims against the Step 2 payments 
to exporters with Article 9.1 of the  Agreement on Agriculture .  In this respect, the Panel observed 
that the United States did not appear to dispute that Step 2 payments are subsidies provided by a 
government to producers of agricultural products, or to cooperatives or associations of such producers 
for purposes of Article 9.1(a) of the  Agreement on Agriculture .798  The "key issue" before it, the Panel 
explained, was whether Step 2 payments to exporters are subsidies "contingent on export 
performance" within the meaning of Article 9.1(a) of the  Agreement on Agriculture .799 
557. The Panel then noted that the Agreement on Agriculture  does not define the phrase 
"contingent on export performance".  Given that a similar phrase is used in the  SCM Agreement ,  the 
Panel saw no reason to read the phrase differently in the  Agreement on Agriculture .800  The Panel also 
equated Brazil's claim that Step 2 payments to exporters are " per se " export subsidies with a claim 
that the subsidies are  de jure   export contingent under Article 3.1(a) of the  SCM Agreement .801  Such 
a claim of  de jure  export contingency had to be demonstrated , according to the Panel, "on the basis 
of the words of the relevant legislati on, regulation or other legal instrument"802 o r  " w h e r e  t h e  
condition to export can be derived by necessary im plication from the words actually used in the 
measure".803 
                                                      
797Panel Report, para. 7.673.  The order of analysis was not an issue on appeal. 
798Ibid., para. 7.695.  The Panel also conducted it own assessment and concluded that the measure 
meets the description in Article 9.1(a). ( Ibid., para. 7.696) 
799Ibid., para. 7.697. 
800Ibid., para. 7.700 and footnote 872 thereto (relying on Appellate Body Report, US – FSC , para. 141 
and Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 192).   
801Ibid., para. 7.702.   
802Ibid., (relying on Appellate Body Report, Canada – Aircraft , para. 167). 
803Ibid., para. 7.702 (relying on Appellate Body Report, Canada – Autos , para. 100 and Appellate Body 
Report, US – FSC (Article 21.5 – EC) , para. 112). WT/DS267/AB/R 
Page 210  
 
 
 558. In assessing whether the Step 2 payments to e xporters are contingent on export performance 
under Article 9.1(a) of the  Agreement on Agriculture ,  the Panel found: 
It is undeniable that a condition of  the receipt of user marketing 
(Step 2) payments to exporters under section 1207(a) of the FSRI Act 
of 2002 will always and inevitably be proof of exportation.  The only 
way to receive such a payment is through exportation.  Export performance is, therefore, a condition of receipt for this discrete segment of eligible recipients.   
Every user marketing (Step 2) payment to an eligible exporter is 
contingent upon export.
804 
559. The Panel rejected the United States' contention that Step 2 payments are not contingent on 
export performance because they are available to both exporters and domestic user s.  According to the 
Panel, the program under which Step 2 payments are granted "involves payment to two distinct sets of 
recipients (exporters or domestic users) in two di stinct factual situations (export or domestic use)".805  
In the Panel's view, "[t]he fact that the subsidi es granted in the second situation may not be export 
contingent does not dissolve the export con tingency arising in the first situation".806   
560. Having found that Step 2 payments to expor ters are mandatory when certain market 
conditions exist807, the Panel concluded: 
We therefore find that section 1207(a) of the FSRI Act of 2002 
providing for user marketing (Step 2) payments to exporters constitutes a subsidy "contingent on  export performance" within the 
meaning of Article 9.1(a) of the  Agreement on Agriculture .
808  
                                                      
804Panel Report, paras. 7.734 and 7.735. 
805Ibid., para. 7.732. 
806Ibid., para. 7.739 and footnote 907 thereto (relying on Appellate Body Report, US – FSC 
(Article 21.5 – EC) , para. 119).   
807Ibid., paras. 7.7745 and 7.746. 
808Ibid., para. 7.748.  WT/DS267/AB/R 
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 561. Consequently, the Panel also found: 
User marketing (Step 2) payments  to exporters under section 1207(a) 
of the FSRI Act of 2002 are an export subsidy listed in Article 9.1 of 
the Agreement on Agriculture .  In providing such subsidies, the 
United States has acted inconsiste ntly with its obligation under 
Article 3.3 of the Agreement on Agriculture  to "not provide subsidies 
in respect of any agricultural product not specified in ... its 
Schedule".  The United States has furthermore acted inconsistently  
with its obligation in Article 8 of the  Agreement on Agriculture "not 
to provide export subsidies otherwise than in conformity with [the Agreement on Agriculture ] and with the commitments as specified in 
[its] Schedule".
809  
562. As for Brazil's claims under the  SCM Agreement ,  the Panel found "that section 1207(a) of 
the FSRI Act of 2002 providing for user marketing (Step 2) payments to exporters  is inconsistent with 
Article 3.1(a) of the  SCM Agreement ".810  The Panel additionally found that "[t]o the extent that 
section 1207(a) of the FSRI Act of 2002 providing for u ser marketing (Step 2) payments to exporters 
is inconsistent with Article 3.1(a), it is, conseque ntly, also inconsistent with Article 3.2 of the  
SCM Agreement ".811 
563. On appeal, the United States requests us to reverse the Panel's findings that Step 2 payments 
provided to exporters of United States upland co tton are export subsidies within the meaning of 
Article 9.1(a) of the  Agreement on Agriculture   and, therefore, are inconsistent with Articles 3.3 
and 8 of that Agreement.  The United States also requests that we reverse the Panel's finding that 
Step 2 payments to exporters are inconsis tent with Articles 3.1(a) and 3.2 of the SCM Agreement , 
because they are not exempted from action by Article 13(c) of the  Agreement on Agriculture .812  
564. The United States does not contest that Step 2 payments are subsidies to producers of an 
agricultural product for purposes of Article 9.1(a) of the  Agreement on Agriculture ;  nor does it 
contest the Panel's finding in this regard.  The focu s of the United States' appeal is the Panel's finding 
that Step 2 payments are contingent on  export performance under Article 9.1(a).813   In support of its 
claim, the United States reiterates on appeal the argum ents that it made before the Panel.  The United 
States asserts that Step 2 payments are not contin gent on export performance because Step 2 payments 
                                                      
809Panel Report, para. 7.749. 
810Ibid., para. 7.760. 
811Ibid., para. 7.761. 
812United States' appellant's submission, para. 516(6). 
813Ibid., para. 442. WT/DS267/AB/R 
Page 212  
 
 
 are also available to domestic users of United States upland cotton.814  The United States contends that 
the payments are contingent on use, not exportation.   
565. Brazil requests that we uphold the Panel's finding  that Step 2 payments to exporters are 
contingent upon export performance.815  According to Brazil, the m easure pursuant to which Step 2 
payments are granted establishes two mutually ex clusive conditions of payment that address two 
different factual situations where a Step 2 payment can be made.816  These situations are mutually 
exclusive because the same bale of cotton cannot  be both opened for dom estic use and exported.817  In 
one situation under the Step 2 measure, proof of exportation is required as a condition of payment.  
This export contingency is not dissolved because the payment can also made in another situation to 
domestic users, on other conditions.818 
566. In addition, Brazil rejects the United States' cont ention that Step 2 payments are contingent on 
use and not on exportation.  Brazil explains that St ep 2 payments do not apply to all United States 
production of upland cotton because domestic brokers,  resellers and other persons not regularly 
engaged in opening bales of cotton for manufactur ing are not eligible to receive the payments.819  
Furthermore, Brazil asserts that, in the case of St ep 2 payments to exporters, the payment is not 
contingent on use because the measure is indiffere nt to whether, how or when the upland cotton is 
used so long as it is exported.820  
567. The issue raised on appeal is whether the Step 2 payments provided to exporters of United 
States upland cotton, under Section 1207(a) of the FSRI Act of 2002, are contingent on export 
performance within the meaning of Article 9.1(a) of the  Agreement on Agriculture   and Article 3.1(a) 
of the  SCM Agreement . 
                                                      
814United States' appellant's submission, para. 443.  The United States submits that its position is 
consistent with the reasoning of the panel in  Canada – Dairy . (Ibid., para. 444 (relying on Panel Report,  
Canada – Dairy ,  para. 7.41))  
815Brazil's appellee's submission, para. 872.   
816Ibid., para. 888. 
817Ibid. 
818Brazil finds support for its argument in the Appellate Body's reasoning in US – FSC (Article 21.5 – 
EC).  See  supra , footnote 806. (Brazil's appellee's submission, paras. 883-884) 
819Brazil's appellee's submission, para. 886. 
820Ibid., para. 891.    WT/DS267/AB/R 
 Page 213 
 
 
 568. Article 9.1(a) of the Agreement on Agriculture  reads : 
[T]he provision by governments or th eir agencies of direct subsidies, 
including payments-in-kind, to a firm, to an industry, to producers of an agricultural product, to a coopera tive or other association of such 
producers, or to a marketing board, contingent on export performance[.] 
569. Article 3.1(a) of the SCM Agreement  provides: 
Article 3 
Prohibition 
Except as provided in the Agreem ent on Agriculture, the following 
subsidies, within the meaning of Article 1, shall be prohibited: 
(a) subsidies contingent, in law or in fact
4, whether solely or as 
one of several other conditions, upon export performance, including those illustrated in Annex I
5; 
   
 4 This standard is met when the fact s demonstrate that the granting of a 
subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation or export 
earnings. The mere fact that a subsidy is  granted to enterprises which export 
shall not for that reason alone be considered to be an export subsidy within the meaning of this provision.  
 
5 Measures referred to in Annex I as not constituting export subsidies 
shall not be prohibited under this or any other provision of this Agreement.  
570. In previous appeals, the Appellate Body has e xplained that the WTO-consistency of an export 
subsidy for agricultural products has to be examined, in the first place, under the  Agreement on 
Agriculture821;  the examination under the  SCM Agreement   would follow if necessary.  Turning, 
then, to the  Agreement on Agriculture ,  we note that Article 1(e) of that Agreement defines "export 
subsidies" as "subsidies contingent upon export perf ormance, including the export subsidies listed in 
Article 9 of this Agreement".  
571. Although an export subsidy granted to agricultu ral products must be examined, in the first 
place, under the  Agreement on Agriculture ,  we find it appropriate, as has the Appellate Body in 
previous disputes, to rely on the  SCM Agreement   for guidance in interpreting provisions of the  
Agreement on Agriculture .  Thus, we consider the export-contin gency requirement in Article 1(e) of 
                                                      
821See, for example, Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US), 
para. 123. WT/DS267/AB/R 
Page 214  
 
 
 the  Agreement on Agriculture   having regard to that same requireme nt contained in Article 3.1(a) of 
the  SCM Agreement .822  
572. The Appellate Body has indicated, in this regard , that the ordinary meaning of "contingent" is 
"conditional" or "dependent"823 and that Article 3.1(a) of the  SCM Agreement   prohibits subsidies that 
are conditional upon export performance, or ar e dependent for their existence on export 
performance.824  It has also emphasized that "a 'relati onship of conditionality or  dependence', namely 
that the granting of a subsidy should be 'tied to' th e export performance, lies at the 'very heart' of the 
legal standard in Article 3.1(a) of the  SCM Agreement ".825  We are also mindful that in demonstrating 
export contingency in the case of subsidies that ar e contingent in law upon export performance, the 
"existence of that condition can be demonstrated on the basis of the very words of the relevant 
legislation, regulation or other lega l instrument constituting the measure".826  
573. It is clear that the legal provisions pursuant to which Step 2 payments are granted to exporters 
of United States upland cotton, on their face, apply to exporters of United States upland cotton.  Section 1207(a) of the FSRI Act of 2002 provides th at, when certain market conditions exist, the 
United States Secretary of Agriculture: 
... shall issue marketing certificates or  cash payments, at the option of 
the recipient, to domestic users and exporters  for documented 
purchases by domestic users and sales for export by  exporters . 
(emphasis added) 
                                                     
 
822Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 192. 
823Appellate Body Report, Canada – Aircraft , para. 166. 
824Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 47.  See also Appellate Body 
Report, Canada – Aircraft , para. 166.   
825Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil ), para. 47 (quoting Appellate Body 
Report, Canada – Aircraft , para. 171). 
826The legal instrument does not have to provide expressly for the export contingency;  the 
conditionality may be derived by necessa ry implication from the text of th e measure. (Appellate Body Report, 
Canada – Autos , para. 100)  WT/DS267/AB/R 
 Page 215 
 
 
 The regulations define "eligible exporters" as: 
A person, including a producer or a cooperative marketing 
association ... regularly engaged in selling eligible upland cotton for 
exportation from the United States (exporter), who has entered into 
an agreement with CCC[827] to participate in the upland cotton user 
marketing certificate program.828 
"Eligible upland cotton" is defined as "domestica lly produced baled upland cotton which bale is 
opened by an eligible domestic user ... or  exported   by an eligible  exporter ."829 
574. Furthermore, in order to clai m Step 2 payments, exporters must submit an application and 
provide supporting documentation to the CCC, includ ing "proof of export of eligible cotton by the 
exporter".830  This provision confirms that the paymen t is "tied to" exportation.  As the Panel 
explained, "a condition of the receipt of user marketing (Step 2) payments to exporters under 
section 1207(a) of the FSRI Act of 2002 will alwa ys and inevitably be proof of exportation".831  Thus, 
on the face of the statute and regulations pursuant to  which Step 2 payments are granted to exporters, 
the payments are "conditional upon export performance"  or "dependent for their existence on export 
performance".832   
575. The United States directed the Panel's attenti on to the fact that the same statute and 
regulations also provide for sim ilar payments to domestic users c onditioned on the domestic use of 
United States upland cotton.  According to the Un ited States, Step 2 payments to exporters and 
domestic users are governed by a single legislativ e provision and a single set of regulations.  In 
addition, the form and payment ra te to domestic users and exporters  are identical, and the payments 
are made from a single fund.833  As Step 2 payments are available to both domestic users and 
exporters, the United States submits that exportati on is not a condition to receive payment and, 
therefore, the payments are not export-contingent.834 
576. We are not persuaded by the United States' argu ments.  Like the Panel, we recognize that  
Step 2 payments to exporters and domestic users are governed by a single legislative provision and a 
                                                      
827Additional information about the CCC is provided, infra , footnote 859;  see also Panel Report, 
para. 7.702.   
8287 CFR Section 1427.104(a)(2). 
8297 CFR Section 1427.103(a). (emphasis added) 
8307 CFR Section 1427.108(d).   
831Panel Report, para. 7.734. 
832See Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 47.   
833United States' appellant's submission, para. 442. 
834Ibid., para. 454. WT/DS267/AB/R 
Page 216  
 
 
 single set of regulations, that the form and rate of payment to exporters and domestic users are 
identical, and that the fund from which payments are made is a single fund.835  Nevertheless, we agree 
with the Panel that the statute and regulations pur suant to which Step 2 payments are granted do not 
establish a "single class" of recipients of the payments; rather, the statute and regulations clearly distinguish between two types of eligible recipients , namely, eligible exporte rs and eligible domestic 
users.
836  As we have seen, an eligible exporter must  be "[a] person, including a producer or a 
cooperative marketing association ... regularly e ngaged in selling eligible upland cotton for  
exportation   from the United States".837  In contrast, an "eligible domestic user" is "[a] person 
regularly engaged in the business of opening bale s of eligible upland cotton for the purpose of 
manufacturing such cotton into cotton products in the United States".838  Thus, the statute and 
regulations themselves clearly distinguish between exporters and domestic users. 
577. In addition, the statute and regulations establis h different conditions that eligible exporters 
and eligible domestic users must meet to receive St ep 2 payments.  An eligible domestic user must 
"open" a bale of cotton to qualify for payment.839  For its part, an eligible exporter must demonstrate 
the upland cotton has been exported.  These are dis tinct conditions that the statute and regulations 
themselves set out for the two distinct recipients  of Step 2 payments.  Because the conditions to 
qualify for payment are different, the documenta tion required from eligible domestic users and 
eligible exporters is also different.  An eligible exporter must submit proof of exportation; an eligible 
domestic user must provide  documentation indicating the number of bales opened.840  We agree, 
therefore, with the Panel's view that the statute a nd regulations pursuant to which Step 2 payments are 
granted "involve[] payment to two distinct sets of  recipients (exporters or domestic users) in two 
distinct factual situations (export or domestic use)".841   
578. Furthermore, we agree with the Panel's conclu sion that the fact that the subsidy is also 
available to domestic users of upland cotton does not "dissolve" the export-contingent nature of the 
Step 2 payments to exporters.842  The Panel's reasoning is consistent  with the approach taken by the 
                                                      
835Panel Report, para. 7.709. 
836Ibid., paras. 7.721-7.723.  
8377 CFR Section 1427.104(a)(2). (emphasis added) 
8387 CFR Section 1427.104(a)(1).   
839United States' response to questioning at oral hearing.  7 CFR Section 1427.103(a). 
840Panel Report, para. 7.727.   
841Ibid., para. 7.732. 
842Ibid., para. 7.739.  WT/DS267/AB/R 
 Page 217 
 
 
 Appellate Body in  US – FSC (Article 21.5 – EC) .843  In that case , the United States argued that the tax 
exclusion at issue was not an export-contingent s ubsidy because it was available for both (i) property 
produced within the United States and held for use outside the United States and (ii) property 
produced outside the United States and held for u se outside the United States.  The United States 
asserted that, as the tax exemption was available in both circumstances, it was "export-neutral".844  
According to the United States, the panel's separat e examination of each situation in which the tax 
exemption was available "artificially bifurcat[ed]" the measure.845   
579. The Appellate Body rejected th e United States' contention in  US – FSC (Article 21.5 – EC)  
because it considered it necessary, under Article 3.1(a) of the  SCM Agreement , "to examine 
separately the conditions pertaining to the grant of  the subsidy in the two different situations".846  It 
then confirmed the Panel's finding that the tax exem ption in the first situation, namely for property 
produced within the United States and held for use out side the United States, is an export-contingent 
subsidy.847  In its reasoning, the Appellate Body explai ned that whether or not the subsidies were 
export-contingent in both situations envisaged by the measure would not alter the conclusion that the 
tax exemption in the first situation was contingent upon export: 
Our conclusion that the ETI measure grants subsidies that are export 
contingent in the first set of circumstances is not affected by the fact 
that the subsidy can also be obtained in the second set of circumstances.  The fact that the subsidies granted in the second set 
of circumstances  might  not be export contingent does not dissolve 
the export contingency arising in the first set of circumstances.
   
Conversely, the export contingency arising in these circumstances 
has no bearing on whether there is an export contingent subsidy in 
the second set of circumstances.848 
                                                      
843The Panel also found support for its reasoning in the Appellate Body's statement, in Canada – 
Aircraft , that: 
... the fact that some of TPC's contribu tions, in some industry sectors, are  
not contingent upon export performance, does not necessarily mean that the 
same is true for all of TPC's contributions.  It is enough to show that one or 
some of TPC's contributions do cons titute subsidies "contingent ... in 
fact … upon export performance". 
 (Appellate Body Report, Canada – Aircraft , para. 179) (original emphasis) 
844Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 110. 
845Ibid. 
846Ibid., para. 115. 
847Ibid., para. 120.   
848Ibid., para. 119. (original emphasis;  footnote omitted) WT/DS267/AB/R 
Page 218  
 
 
 580. As in  US – FSC (Article 21.5 – EC) ,  the Panel in this case found that Step 2 payments are 
available in two situations, only one of which involves export contingency.849  The Panel's conclusion, 
therefore, is consistent with the Appellate Body's holding in  US – FSC (Article 21.5 – EC)   quoted 
above that "the fact that the subsidies granted in the second set of circumstances  might  not be export 
contingent does not dissolve the export contingency arising in the first set of circumstances".   
581. The United States submits that the facts in this case are similar to those before the panel in  
Canada – Dairy .850  In that dispute, the complaining parties argued that the provision of milk to 
exporters/processors under various mechanisms (de scribed as "special milk classes") constituted 
export-contingent subsidies.  The panel in  Canada – Dairy   found, nevertheless, that certain special 
milk classes were  not  export-contingent because the "milk unde r such other classes is also available 
(often exclusively) to processors wh ich produce for the domestic market".851   The Panel, in this 
dispute, did not see any relevance in the Panel Report in  Canada – Dairy   because, in that case, 
"there was no explicit condition limiting a discret e segment of the payments of the subsidies 
concerned to exporters".852  Brazil also seeks to distinguish the factual situation in  Canada – Dairy ,  
explaining that it involved a single regulatory class of milk instead of two mutually exclusive 
regulatory categories, as is the case in the present dispute.853   We agree with the Panel and Brazil that 
the facts in  Canada – Dairy   differ from those of the present dispute.  In this case, we have before us 
a statute and regulations that clearly distinguish between two sets of recipients—that is, eligible 
exporters and eligible domestic users—that must  meet different conditions to receive payment.854  In 
the case of one set of recipients, eligible expor ters, exportation is a nece ssary condition to receive 
payment.    
582. In sum, we agree with the Panel's view that  Step 2 payments are export-contingent and, 
therefore, an export subsidy for purposes of Article 9 of the Agreement on Agriculture  and 
Article 3.1(a) of the  SCM Agreement .  The statue and regulations pursuant to which Step 2 payments 
are granted, on their face, condition payments to exporters on exportation.855  In order to claim 
payment, an exporter must show proof of exporta tion.  If an exporter does not provide proof of 
exportation, the exporter will not receive a payment.   This is sufficient to establish that Step 2 
                                                      
849See, supra , para. 577. 
850United States' appellant's submission, paras. 444-445 (referring to Panel Report, Canada – Dairy , 
para. 7.41 and footnote 496 to para. 7.124). 
851Panel Report, Canada – Dairy , para. 7.41. 
852Panel Report, para. 7.718. 
853Brazil's appellee's submission, paras. 898-899. 
854See  supra , para. 577. 
855Panel Report, para. 7.734.  WT/DS267/AB/R 
 Page 219 
 
 
 payments to exporters of United States upland cotton are "conditional upon export performance" or 
"dependent for their existence on export performance".856  That domestic users may also be eligible to 
receive payments under different conditions does not eliminate the fact that an exporter will receive 
payment only upon proof of exportation.   
583. For these reasons, we  uphold   the Panel's findings, in paragr aphs 7.748-7.749 and 8.1(e) of 
the Panel Report, that Step 2 payments to expor ters of United States upland cotton, pursuant to 
Section 1207(a) of the FSRI Act of 2002, constitute  subsidies contingent upon export performance 
within the meaning of Article 9.1(a) of the  Agreement on Agriculture   and that, therefore, in 
providing such subsidies the United States has act ed inconsistently with its obligations under 
Articles 3.3 and 8 of the  Agreement on Agriculture .   
584. Having explained that there is no reason to read  the export-contingency requirement in the  
Agreement on Agriculture   differently from that contained in Article 3.1(a) of the  SCM Agreement857, 
and having found that Step 2 payments to exporte rs of United States upland cotton are contingent 
upon export performance within the meaning of Article 9.1 of the  Agreement on Agriculture ,  we also 
find that such payments are export-contingent for purposes of Article 3.1(a) of the  SCM 
Agreement .858  Consequently, we  uphold   the Panel's findings, in para graphs 7.760-7.761 and 8.1(e) 
of the Panel Report, that Step 2 payments provi ded to exporters of United States upland cotton, 
pursuant to Section 1207(a) of the FSRI Act of 2002, are inconsistent with Articles 3.1(a) and 3.2 of 
the  SCM Agreement . 
C. Export Credit Guarantees – Article 10.2 of the Agreement on Agriculture 
585. We turn next to the United States' and Brazil' appeals of the Panel's findings relating to the 
United States' export credit guarantee programs.  
1. United States' Export Credit Guarantee Programs  
586. Brazil challenges three types of export credit guarantee programs.  The first two programs, 
GSM 102 and GSM 103, provide guarantees to exporters when credit is extended by foreign financial 
                                                      
856See Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 47.   
857See  supra , para. 571. 
858As the Panel observed, pursuant to Article 13(c)(ii) of the  Agreement on Agriculture , "to the extent 
that the export subsidy at issue does not conform fully to the provisions of Part V of the  Agreement on 
Agriculture , it is not exempt from actions based on Articles 3.1(a) and 3.2 of the  SCM Agreement ".  (Panel 
Report, para. 7.751) WT/DS267/AB/R 
Page 220  
 
 
 institutions.  The third type, the SCGP, applies wh en credit is extended by the exporter to the 
purchaser of United States agricultural products.859   
587. The GSM 102 program is available to cover co mmercial exports of United States agricultural 
commodities on credit terms of between 90 days a nd 3 years.  To obtain the credit guarantee under 
GSM 102, the exporter must have received a letter of  credit in its favour from the foreign bank and 
must apply for the guarantee before making the e xportation.  The exporter will pay a fee for the 
guarantee based on a schedule of rates that vary according to the credit period, but are capped by law 
at one per cent of the guaranteed dollar value of th e transaction.  In the even t that the foreign bank 
fails to make a payment, the exporter informs the CC C of the default and "[t]he CCC generally covers  
98 per cent of the principal and a portion of the interest".860   
588. The GSM 103 is similar to the GSM 102.  The difference between the two programs is that 
GSM 103 guarantees export credits that have longer terms.  Specifically, GSM 103 guarantees credits 
with terms of between 3 and 10 years.  An additiona l difference is that, contrary to GSM 102, the fee 
that an exporter must pay to obtain a guarantee under GSM 103 is not capped by law. 
589. The SCGP guarantees credits extended by the exporter itself to foreign buyers of United 
States agricultural commodities.  Under the SCGP, th e United States exporter is required to submit to 
the CCC a promissory note signed by the importer prio r to exportation.  The exporter will pay a fee at 
a rate that varies according to th e term of the loan, and, like GSM 102, is capped by law at one per 
cent of the guaranteed dollar value of the transaction.   If the importer defaults on the promissory note, 
then the CCC will pay the exporter 65 per cent of the dollar value of the e xported product (excluding 
interest).  
2. Panel Findings  
590. Before the Panel, Brazil asserted that these three United States export credit guarantee 
programs—GSM 102, GSM 103 and SCGP—violate Articles 10.1 and 8 of the  Agreement on 
Agriculture   and are therefore not exempt, under Article 13(c)(ii) of the Agreement on Agriculture , 
                                                      
859These export credit guarantee programs are establis hed under Section 5622 of Title 7 of the United 
States Code and implemented in Part 1493 of Title 7 of the United States Code of Federal Regulations. (See 
Panel Report, para. 7.250(vi))  Subpart B of Part 1493 relates to the GSM 102 and the GSM 103 programs and 
Subpart D deals with the SCGP program.  GSM 102 and 103 export credit guarantees have been issued since late 1980, while the SCGP program began in 1996. (U nited States' first written submission to the Panel, 
paras. 151 and 152 and footnote 133 thereto)  Export credit guarantee programs are administered through the 
CCC, created under the Commodity Credit Corporation Char ter Act of 1948.  The CCC is a federal corporation 
established within the USDA. (Panel Report, para. 7.236 and footnote 346 thereto)  A further description of the 
GSM 102, GSM 103 and SGCP is provided in Panel Report, paras. 7.236-7.244. 
860Panel Report, para. 7.242.  WT/DS267/AB/R 
 Page 221 
 
 
 from actions based on Articles 3.1(a) and 3.2 of the  SCM Agreement .861  Brazil also argued that the 
three programs violate Articles 3.1(a) and 3.2 of the  SCM Agreement .862   
591. The United States responded that Article 10.2 of the  Agreement on Agriculture   makes it 
clear that the export subsidy disciplines in the  Agreement on Agriculture   and the  SCM Agreement   
are not applicable to export credit guarantee program s.  According to the United States, Article 10.2 
of the  Agreement on Agriculture   "reflects the deferral of disciplines on export credit guarantee 
programs contemplated by WTO Members".863  The United States argued that, even if the export 
subsidy disciplines in the  SCM Agreement   were applicable, its export credit guarantee programs are 
not prohibited export subsidies under Article 3.1(a) b ecause they do not meet the criteria in item (j) of 
the Illustrative List of Export  Subsidies attached to the  SCM Agreement   as Annex I, namely that the 
premiums are inadequate to cover the pr ograms' long-term operating costs and losses.864 
592. At the outset of its analysis, the Panel observed that it would adopt the parties' shared view 
that "export credit guarantees are not included in the non-exhaustive list of export subsidies in 
Article 9.1, and that Article 10 of the  Agreement on Agriculture   is the relevant provision".865  The 
Panel then stated that Article 10.1 "covers any subsidy contingent  on export performance that is not 
listed in Article 9.1".866  The Panel observed that, other than the list of export subsidies listed in 
Article 9.1, the  Agreement on Agriculture   does not specify what is a subsidy contingent upon export 
performance.867  Thus, the Panel sought contextual guidance in the  SCM Agreement ,  to assist it in its 
interpretation of the term "export s ubsidies" in Article 10.1 of the  Agreement on Agriculture .  In 
particular, the Panel looked at item (j) of the Illu strative List of Export Subsidies annexed to the  
SCM Agreement , observing that "there is no disagreement between the parties ... that, if an export 
credit guarantee programme meets the elements of item (j), it is a  per se  export subsidy".868 
                                                      
861Panel Report, para. 7.765. 
862Ibid., para. 7.765. 
863United States' first written submission to the Panel, para. 160 (quoted in Panel Report, para. 7.770). 
864Panel Report, para. 7.772. 
865Ibid., para. 7.788. 
866Ibid., para. 7.796. 
867Ibid., para. 7.797. 
868Ibid., para. 7.803. WT/DS267/AB/R 
Page 222  
 
 
 593. The Panel then examined whether the Un ited States' export credit guarantee programs 
challenged by Brazil met the criteria se t out in item (j) and concluded that: 
On the basis of the totality of  the record evidence, including 
approaches regularly relied upon by the United States government 
itself, we find that Brazil has established that the United States CCC 
provides the GSM 102, GSM 103 and SCGP export credit guarantee programmes "at premium rates whic h are inadequate to cover the 
long-term operating costs and losses of the programmes" within the meaning of item (j) of the Illustrative List of Export Subsidies in 
Annex I of the  SCM Agreement .
869 
594. Having reached this general conclusion, the Pa nel next examined Brazil's claims that the 
United States' export credit guarantees "result[ ] in" or "threaten[ ] to lead to" circumvention of the 
United States' export subsidy commitments,  contrary to Article 10.1 of the  Agreement on Agriculture .  
In its analysis, the Panel distinguished between , on the one hand, "suppor ted" and "unsupported" 
products, and, on the other, "scheduled" and " unscheduled" products.  The Panel used the term 
"supported products" to refer to produc ts for which there was evidence in the record showing that they 
were not only eligible under the programs, but that  export credit guarantees were in fact received in 
connection with exports of those products.870  "Scheduled products" are those for which a WTO 
Member has assumed a commitment to limit the amount  of export subsidies in terms of budgetary 
outlays and quantities exported pursuant to Articles 3, 8, and 9 of the  Agreement on Agriculture.871   
595. The Panel found that, "in respect of upland cotton and other such [supported]  unscheduled   
agricultural products on record, the United States  applies export credit guarantees constituting export 
subsidies in a manner which results in circ umvention of its export subsidy commitments 
inconsistently with Article 10.1 of the  Agreement on Agriculture ".872  In addition, the Panel found 
that "the United States has applied export credit guarantees constituting export subsidies within the 
                                                      
869Panel Report, para. 7.867. 
870Ibid., para. 6.32;  see also footnote 1056 to para. 7.875.  At the oral hearing, the participants 
confirmed that this is also their understanding of what  the Panel meant by the distinction that it drew between 
"supported" and "unsupported" products.  In respect of "supported" products, the Panel stated that "[t]o the 
extent that it identifies products within the product coverage of the  Agreement on Agriculture   that are within 
our terms of reference, we consider Exhibit BRA-73 to be the relevant record evidence of such products for the purposes of this dispute". (Panel Report, footnote 1056 to para. 7.875;  see also ibid., footnote 1575 to 
para. 8.1(d)(i)) 
871The Panel noted that "[t]he United States has scheduled export subsidy reduction commitments in 
respect of the following thirteen commodities:  wheat, coarse grains, rice, vegetable oils, butter and butter oil, 
skim milk powder, cheese, other milk products, bovine meat, pigmeat, poultry meat, live dairy cattle, eggs".  
(Panel Report, footnote 1057 to para. 7.876 (referring to Schedule XX of the United States of America, Part IV, Section II, entitled "Export Subsidies:  Budgetar y Outlays and Quantitative Reduction Commitments", 
reproduced in Exhibit BRA-83 and Exhibit US-13)) 
872Panel Report, para. 7.875. (original emphasis)  WT/DS267/AB/R 
 Page 223 
 
 
 meaning of Article 10.1 – and therefore, necessaril y, not listed in Article 9.1 – in a manner which 
results in circumvention of export subsidy co mmitments in respect of" rice (a scheduled 
commodity).873  The Panel, nonetheless, found that "[i]t has not been established, however, that such 
actual circumvention has resulted in respect of  the twelve other United States scheduled 
commodities".874  Finally, the Panel "decline[d] to find that the export credit guarantee programmes at 
issue are generally applied to scheduled agricultu ral products other than rice and other unscheduled 
agricultural products (not supported under the progra mmes) in a manner which threatens to lead to 
circumvention of United States' export subsidy commi tments within the meaning of Article 10.1 of 
the  Agreement on Agriculture ."875   
596. After making these findings, the Panel turned to the United States' argument that "the text of 
Article 10.2 of the  Agreement on Agriculture   reflects the deferral of disciplines on export credit 
guarantee programmes contemplated by [WTO] Members".876  This argument was rejected by the 
Panel, which was of the opposite view, namely, that the text of Article 10.1 "clearly indicat[es] that 
export credit guarantee programmes constituting export subsidies for the purposes of Article 10.1 must not be applied in a manner which results in, or which threatens to lead to, circumvention of 
export subsidy commitments".
877  The Panel found support for this interpretation in the provision's 
context and in its object and purpose, emphasizing in  particular that Article 10.2 is a subparagraph of 
Article 10.  According to the Panel, "[t]he title of Ar ticle 10, and the text of Article 10.1, indicates an 
intention to prevent Members from circumventing or 'evading' their 'export subsidy commitments'".878  
The Panel also rejected the United States' argume nts based on subsequent practice and the drafting 
history.879  In respect of the United States' argument on subsequent practice, the Panel stated that 
"[t]he record ... does not suggest that there is a di scernible pattern of acts or pronouncements implying 
an agreement among WTO Members on the United States' interpretation of Article 10.2".880  
                                                      
873Panel Report, para. 7.881. 
874Ibid. 
875Ibid., para. 7.896. 
876Ibid., para. 7.900. 
877Ibid., para. 7.901. 
878Ibid., para. 7.912. (footnote omitted) 
879Ibid., paras. 7.928-7.944. 
880Ibid., para. 7.929. (footnotes omitted) WT/DS267/AB/R 
Page 224  
 
 
 Although the Panel did not see a need to examine the drafting history, it found that "nothing in the 
drafting history of [Article 10.2] would compel [the Panel] to reach a different conclusion".881 
597. Finally, the Panel turned to Brazil's cl aims under Articles 3.1(a) and 3.2 of the SCM 
Agreement ,  and found: 
To the extent that the United States export credit guarantee 
programmes at issue – GSM 102, GSM 103 and SCGP – do not conform fully to these provisions in Part V of the Agreement on 
Agriculture  and do not benefit from the exemption from actions 
provided by Article 13(c)(ii) of the Agreement on Agriculture , they 
are also export subsidies prohibited by Article 3.1(a) ... 
... 
To the extent that the three Un ited States export credit guarantee 
programmes at issue are inconsistent with Article 3.1(a), they are, 
consequently, also inconsistent with Article 3.2 of the SCM 
Agreement .
882 
3. Arguments on Appeal  
598. The United States contends that the Panel erre d in analyzing whether export credit guarantees 
are export subsidies subject to the disciplines of Article 10.1 solely by reference to the   
SCM Agreement.   According to the United States, the prope r context in which to analyze the meaning 
of Article 10.1 with respect to export credit guarantees is Article 10.2 of the  Agreement on 
Agriculture .883  This provision reflects the fact that, during the Uruguay Round, WTO Members did 
not agree on disciplines to be applied to agricu ltural export credits, export credit guarantees, and 
insurance programs, opting instead to continue discussions, deferring the imposition of substantive 
disciplines until a consensus was achieved. 
599. According to the United States, this interpretati on of Article 10.2 is cons istent with Article 10 
as a whole.884  Article 10.2 contributes to the preven tion of circumvention of export subsidy 
commitments by imposing two obliga tions on Members: first, they must undertake to work toward the 
development of internationally agreed discip lines on export credit guarantees; and second "after 
                                                      
881Panel Report, para. 7.933.  The Panel did not see a need to examine the drafting history because it 
considered that its "examination of the text of Article 10.2 of the Agreement on Agriculture , in its context and in 
light of the object and purpose of that  agreement leads to a clear interpretation of the text". (Panel Report, 
para. 7.933) 
882Ibid., paras. 7.947 and 7.948. (footnote omitted)   
883United States' appellant's submission, para. 341. 
884Ibid., para. 346.  WT/DS267/AB/R 
 Page 225 
 
 
 agreement on such disciplines", they must provide  export credit guarantees "only in conformity 
therewith".885  Moreover, excluding export credit guarantees from the application of Article 10.1 is 
also consistent with the treatment of food aid tr ansactions under Article 10.  Because Article 10.4 of 
the  Agreement on Agriculture   does not explicitly exempt food aid transactions from the applicability 
of Article 10.1, the Panel's interpretative approach would mean that all food aid transactions constitute 
export subsidies under Article 10.1.886 
600. The United States submits that the negotiating history confirms its interpretation that 
Article 10.2 makes the export subsidy disciplines in  Article 10.1 inapplicable to export credit 
guarantees.887  In addition, the United States argues that  it defies logic, as well as the object and 
purpose of the  Agreement on Agriculture ,  to take the view of the Panel whereby export credit 
guarantees, export credits and insurance programs would be treated as already disciplined export 
subsidies, yet would not be permitted to be in cluded within the applicable reduction commitments 
expressly contemplated by the text.888  The United States therefore requests that we reverse the Panel's 
finding that export credit guarantees are subject to th e disciplines of Article 10.1.  In addition, the 
United States requests that we reverse the Panel's findings that export credit guarantees to agricultural 
commodities are subject to Articles 3.1 and 3.2 of the  SCM Agreement .  The United States asserts 
that, because export credit guarantees currently are no t subject to export subsidy disciplines under the  
Agreement on Agriculture ,  the export subsidy disciplines of the  SCM Agreement   are also 
inapplicable to these measures pursuant to Article 21.1 of the  Agreement on Agriculture   and the 
introductory language of Article 3.1 of the  SCM Agreement .889  
601. Brazil requests that we reject the United Stat es' appeal from the Panel's finding that export 
credit guarantees are subject to the export subsidy disciplines in Article 10.1 of the  Agreement on 
Agriculture .  Brazil asserts that subsidized export credit guarantees are covered by the general 
definition of "export subsidies" under Article 1(e) of the  Agreement on Agriculture   and that these 
measures are, therefore, subject to Article 10.1 of the  Agreement on Agriculture ,  unless an exception 
is provided in Article 10.2.890  The text of Article 10.2 establishes two obligations, but does not 
provide an exception.891   
                                                      
885Quoting Article 10.2 of the  Agreement on Agriculture . 
886United States' appellant's submission, paras. 349 and 358.  
887Ibid., paras. 367-380. 
888Ibid., paras. 384-385. 
889Ibid., para. 391. 
890Brazil's appellee's submission, paras. 905-906. 
891Ibid., para. 912. WT/DS267/AB/R 
Page 226  
 
 
 602. According to Brazil, the Panel's interpretation is consistent with the context and object and 
purpose of Article 10.2.  Each of the paragra phs in Article 10 pursues the aim of "preventing 
circumvention" of export subsidy commitments and, thereby, contributes to the purpose of the  
Agreement on Agriculture   of establishing specific binding commitments on export competition.  
Therefore, Article 10.2 also must be interpreted in  a manner that ensures that it contributes to the 
purpose of preventing circumvention of commitments on export competition.892  The United States’ 
interpretation of Article 10.2 would tend in the opposite direction, leaving Members free to grant 
unlimited export subsidies in the form of e xport credit guarantees and would permit wholesale 
circumvention of commitments.893  Brazil, furthermore, disagrees with the United States' assertion 
that the Panel's interpretation is an "assault" on international food security.894  According to Brazil, 
food aid is subject to the specific disciplines in Article 10.4 of the  Agreement on Agriculture ,  as well 
as to the general disciplines in Article 10.1.895    
603. In addition, Brazil disagrees with the conclusions drawn by the United States from the 
negotiating history of the  Agreement on Agriculture .896  Brazil also rejects the United States' 
contention that the Panel’s reading of Article 10.2 is "manifestly unreasonable".897  Brazil explains 
that, at the close of the Uruguay Round, Members ag reed that they would calculate their respective 
export subsidy commitment levels using exclusively th e export subsidies listed in  Article 9.1  and thus 
chose to leave out of the calculation export subsid ies referred to in Article 10.1.  Finally, Brazil 
emphasizes that the Panel's interpretation does not  mean that Members cannot grant export credit 
guarantees.  Instead, it means that subsidized e xport credit guarantees are subject to disciplines as 
trade-distorting measures, and cannot be used  to override export subsidy commitments.898 
604. Argentina, Australia, Canada, and New Zealand are of the view that Article 10.2 of the  
Agreement on Agriculture   does not provide an exception from WTO export subsidy disciplines for 
export credit guarantees, export credits or insuran ce programs, and assert that the Panel correctly 
interpreted this provision.899  Before the Panel, the European Communities submitted that Article 10.2 
                                                      
892Brazil's appellee's submission, paras. 951-952. 
893Ibid., para. 953. 
894United States' appellant's submission, para. 350. 
895Brazil's appellee's submission, para. 940.  
896Ibid., para. 975. 
897Ibid., paras. 926-934 (referring to the United States' appellant's submission, para. 384). 
898Ibid., paras. 977-978.  
899Argentina's third participant's submission, para. 39;  Australia's third participant's submission, 
para. 71;  Canada's third participant's submission, para. 42;  and New Zealand's third participant's submission, 
para. 3.65.  WT/DS267/AB/R 
 Page 227 
 
 
 of the  Agreement on Agriculture   cannot be seen as exempting export credit guarantees granted to 
agricultural products from WTO disciplines as this  provision makes it clear that export credit 
guarantees are not one of the types of export subsidi es listed in Article 9.1 that a Member is given a 
limited authorization to apply900;  the European Communities did no t express a view on this issue on 
appeal. 
4. Does Article 10.2 Exempt Export Credit Guarantee Programs from Export 
Subsidy Disciplines?901 
605. The United States argues that because export cred it guarantees are specifically dealt with in 
Article 10.2, and this provision expressly acknowledg es that Uruguay Round negotiators did not reach 
an agreement on the disciplines that apply to them, th ey cannot properly be considered to be included 
within the "export subsidies" covered by Article 10.1. 
606. As usual, our analysis begins with the text of the provision in question.  Article 10.2 reads: 
Members undertake to work toward the development of 
internationally agreed disciplines to  govern the provision of export 
credits, export credit guarantees or insurance programmes and, after agreement on such disciplines, to provide export credits, export credit 
guarantees or insurance programmes only in conformity therewith. 
607. Article 10.2 refers expressly to export cred it guarantee programs, along with export credits 
and insurance programs.  Unde r Article 10.2, WTO Members have taken on two distinct 
commitments in respect of these three types of meas ures:  (i) to work toward the development of 
internationally agreed disciplines to govern thei r provision;  and (ii) after agreement on such 
disciplines, to provide them only in conformity therewith.  The text includes no temporal indication with respect to the first commitment.  There is no deadline for beginning or ending the negotiations.  
The second commitment does have a temporal connotation,  in the sense that it is triggered only "after 
agreement on such disciplines".  This means that "a fter" international disciplines have been agreed 
upon, Members shall provide export credit guarantees,  export credits and insurance programs only in 
conformity with those agreed disciplines.  There is  no dispute between the parties that, to date, no 
disciplines have been agreed interna tionally pursuant to Article 10.2.  
                                                     
 
900Panel Report, para. 7.781. 
901A separate opinion on this issue of one of the Members of the Division is set out  infra ,  
paras. 631-641.  The relevant findings and conclusions for purposes of the recommendations and rulings to be adopted by the DSB in this dispute, pursuant to Article 17.14 of the DSU, are those set out in paragraph 763(e) 
and (f) of this Report.  WT/DS267/AB/R 
Page 228  
 
 
 608. Article 10.2 does not, however, expressly define the disciplines that  currently   apply to 
export credits, export credit guarantees and insurance programs under the  Agreement on Agriculture .  
The Panel reasoned that "in order to carve out or  exempt particular categories of measures from 
general obligations such as the prevention of ci rcumvention of export subsidy commitments in 
Article 10.1 of the  Agreement on Agriculture ,  it would be reasonable to expect an explicit indication 
revealing such an intention in the text of the Agreement".902  The Panel saw "no language in 
Article 10.2 which would modify the scope of appli cation of the general export subsidy disciplines in 
Article 10.1 in the  Agreement on Agriculture   so as to carve out or exempt export credit guarantees 
from the export subsidy disciplin es imposed by that Agreement".903   
609. We agree with the Panel's view that Article 10.2 does not expressly exclude export credit 
guarantees from the export subsidy disciplines in Article 10.1 of the  Agreement on Agriculture .  As 
the Panel observes, were such an exemption inte nded, it could have been easily achieved by, for 
example, inserting the words "[n]otwithstanding th e provisions of Article 10.1", or other similar 
language at the beginning of Article 10.2.904  Article 10.2 does not include express language 
suggesting that it is intended as an exception, nor does it expressly state that the application of any 
export subsidy disciplines to export credits or e xport credit guarantees is "deferred", as the United 
States suggests.  Given that the drafters were aw are that subsidized export credit guarantees, export 
credits and insurance programs could fall with in the export subsidy disciplines in the  Agreement on 
Agriculture   and the  SCM Agreement , it would be expected that an exception would have been clearly 
provided had this been the drafters' intention. 
610. Moreover, as the Panel explained, Article 10. 2 "contrasts starkly with the text of other 
provisions in the covered agreements, which clearly ca rve out or exempt certain products or measures 
from certain obligations that woul d otherwise apply pending the de velopment of further multilateral 
disciplines".905  The Panel referred to Article 6.1(a) and the footnote 24 to Article 8.2(a) of the  
SCM Agreement   and Article XIII of the  General Agreement on Trade in Services , which expressly 
indicate that existing disciplines do not apply pending the negotiation of future disciplines.906  
However, Article 10.2 does not expressly exclude th e application of the existing disciplines in the  
Agreement on Agriculture   until such time as the specific disciplines on export credits, export credit 
guarantees and insurance programs are internationally agreed upon.    
                                                      
902Panel Report, para. 7.903. (footnote omitted)   
903Ibid., para. 7.904. 
904Ibid., para. 7.909. 
905Ibid., para. 7.906.   
906Ibid., paras. 7.907-7.908.  WT/DS267/AB/R 
 Page 229 
 
 
 611. The Panel rejected the United States' submission907 that Brazil's approach would render 
Article 10.2 irrelevant.908  In the Panel's view, "the purpose of any eventual disciplines could be 
further to facilitate the determination of when export credit guarantee programmes in respect of 
agricultural products constitute export subsidies  per se   by developing and refining existing 
disciplines".909  Put another way, "the work envisaged in Article 10.2 would presumably elaborate 
further and more specific disciplines that could fac ilitate identification of the extent to which such 
export credit guarantee programmes constitute export subsidies, or to what extent export credit 
guarantee programmes are not permitted".910  The use of the term "development" in Article 10.2 is 
consistent with this view.  The definitions of the term "development" include:  "[t]he action or process 
of developing;  evolution, growth, maturation; ... a gradual unfolding, a fuller working-out" and "[a] 
developed form or product ... an  addition, an elaboration".911  This suggests that the disciplines to be 
internationally agreed will be an elaboration of  the export subsidy disciplines that are currently 
applicable. 
612. This interpretation is consistent  with the reference in Article 10.2 to internationally agreed 
disciplines "to govern the provision of" export credits , export credit guarantees or insurance programs;  
alternatively, Article 10.2 could have referred to internationally agreed disciplines "to govern" export 
credits, export credit guarantees or insurance program s.  The latter formulation ("to govern") would 
have been broader in scope, whereas the formulation used in Article 10.2 ("to govern the provision") 
is narrower.  If the drafters had intended that cu rrently no disciplines at all would apply to export 
credit guarantees, export credits and insurance program s, it would have made more sense for them to 
have chosen the broader formulati on "to govern".  The drafter's choice of the narrower formulation "to 
govern the provision of" suggests that export credit guarantees, export credits and insurance programs 
are not "undisciplined" in all respects, and that  the disciplines to be developed have to do  only  with 
their  provision .  In other words, export credit guarantees,  export credits and insurance programs are 
governed by Article 10.1 of the  Agreement on Agriculture , but WTO Members will develop specific 
disciplines on the provision of these instruments.   
                                                      
907United States' first written submission to the Panel, paras. 163-165. 
908Panel Report, para. 7.925. 
909Ibid. 
910Ibid., para. 7.926. (footnote omitted) 
911Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University 
Press, 2002), Vol. 1, p. 662.  WT/DS267/AB/R 
Page 230  
 
 
 613. The Panel's interpretation of Article 10.2, whic h is based on a plain reading of the text, is 
confirmed when, in accordance with the customary rules of treaty interpretation codified in Article 31 
of the  Vienna Convention ,  that provision is examined in its cont ext and in the light of the object and 
purpose of the  Agreement on Agriculture , and in particular Article 10,  which is entitled "Prevention 
of Circumvention of Export Subsidy Commitments".   
614. We note that Article 10.1 of the  Agreement on Agriculture ,  the provision that immediately 
precedes Article 10.2, reads: 
Export subsidies not listed in paragr aph 1 of Article 9 shall not be 
applied in a manner which results in , or which threatens to lead to, 
circumvention of export subsid y commitments;  nor shall non-
commercial transactions be used to circumvent such commitments. 
615. Although Article 10.2 commits WTO Members to work toward the development of 
internationally agreed disciplines on export credit gu arantees, export credits and insurance programs, 
it is in Article 10.1 that we find the disciplines that currently apply to export subsidies not listed in 
Article 9.1.  A plain reading of Article 10.1 indicates that the only export subsidies that are excluded from its scope are those "listed in paragraph 1 of Article 9".  The Un ited States and Brazil agreed that 
export credit guarantees are not listed in Article 9.1.
912  Thus, to the extent that an export credit 
guarantee meets the definition of an "export subsidy" under the Agreement on Agriculture , it would be 
covered by Article 10.1.  Article 1(e) of the  Agreement on Agriculture   defines "export subsides" as 
"subsidies contingent upon export performance,  including   the export subsidies listed in Article 9 of 
this Agreement". (emphasis added)  The use of th e word "including" suggests that the term "export 
subsidies" should be interpreted broadly and that the list of export subsidies in Article 9 is not 
exhaustive.  Even though an export credit guarantee may not necessarily include a subsidy 
component, there is nothing inherent about export credit guarantees that precludes such measures 
from falling within the definition of a subsidy.913  An export credit guarantee that meets the definition 
of an export subsidy would be covered by Article 10.1 of the  Agreement on Agriculture   because it is 
not an export subsidy listed in Article 9.1 of that Agreement.  
                                                      
912Panel Report, para. 7.788. 
913For discussion of the definitional elements of a subsidy in the context of the  Agreement on 
Agriculture , see Appellate Body Report, US – FSC , para. 136, and Appellate Body Report, Canada – Dairy , 
para. 87.  WT/DS267/AB/R 
 Page 231 
 
 
 616. We find it significant that paragraph 2 of Article 10 is included in an Article that is titled the 
"Prevention of Circumvention of Export Subsidy Co mmitments".  As Brazil correctly points out, each 
paragraph in Article 10 pursues this aim.914  Article 10.1 provides that WTO Members shall not apply 
export subsidies not listed in Article 9.1 of the  Agreement on Agriculture   "in a manner which results 
in, or which threatens to lead to, circumven tion of export subsidy commitments;  nor shall non-
commercial transactions be used to circumvent such  commitments".  Article 10.3 pursues the aim of 
preventing circumvention of export subsidy commitment s by providing special rules on the reversal of 
burden of proof where a Member exports an agricu ltural product in quantities that exceed its reduction 
commitment level;  in such a situation a WTO Member is treated as if it has granted WTO-inconsistent   export subsidies for the excess quantities, unless the Member presen ts adequate evidence 
to "establish" the contrary.
915  Article 10.4 provides disciplines to prevent WTO Members from 
circumventing their export subsidy commitments through food aid transactions.  Similarly, 
Article 10.2 must be interpreted in a manner th at is consistent with the aim of preventing 
circumvention of export subsidy commitments that pe rvades Article 10.  Otherwise, it would not have 
been included in that provision. 
617. The United States submits that Article 10.2 cont ributes to the prevention of circumvention 
because it commits WTO Members to work toward the development of internationally agreed 
disciplines and to provide export credit guarantees,  export credits and insurance programs only in 
conformity with these disciplines on ce an agreement has been reached.916  We are not persuaded by 
this argument.  The necessary implication of the Unit ed States' interpretation of Article 10.2 is that, 
until WTO Members reach an agreement on internat ional disciplines, export credit guarantees, export 
credits and insurance programs are subject to no disciplines  at all .  In other words, under the United 
States' interpretation, WTO Members are free to "circumvent" their export subsidy commitments 
through the use of export credit guarantees, export credits and insurance programs until 
internationally agreed disciplines are developed, when ever that may be.  We find it difficult to believe 
that the negotiators would not have been aware of and did not seek to address the potential that 
subsidized export credit guarantees, export credits  and insurance programs could be used to  
                                                      
914Brazil's appellee's submission, para. 951.  See Appellate Body Report, US – FSC , para. 148 and 
Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 74. 
915Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US) , para. 74.  
Article 10.3 of the  Agreement on Agriculture   provides: 
Any Member which claims that any quantity exported in excess of a 
reduction commitment level is not subsidized must establish that no export 
subsidy, whether listed in Article 9 or no t, has been granted in respect of the 
quantity of exports in question. 
916United States' appellant's submission, para. 346. WT/DS267/AB/R 
Page 232  
 
 
 circumvent a WTO Member's export subsidy reduction commitments.  Indeed, such an interpretation 
would  undermine   the objective of preventing circumvention of export subsidy commitments, which 
is central to the  Agreement on Agriculture .   
618. The United States submits that, under the Panel's approach, international food aid transactions 
would be subject to the "full array of export subsidy disciplines" because they are not expressly excluded from Article 10.1.
917  According to the United States, this would adversely affect food 
security in the less developed world, which cannot  be construed as the intent of the drafters.918  
Furthermore, the United States asserts, the Panel's approach would mean that international food aid 
transactions are subject to both the specific disciplin es in Article 10.4 and those in Article 10.1 of the  
Agreement on Agriculture .919  
619. We are unable to subscribe to the United States' arguments because we do not see 
Article 10.4920 as excluding international food aid from the scope of Article 10.1.921  International 
food aid is covered by the second clause of Article 10.1 to the extent that it is a "non-commercial 
transaction".  Article 10.4 provides specific disciplin es that may be relied on to determine whether 
international food aid is being "used to circumve nt" a WTO Member's export subsidy commitments.  
There is no contradiction in the Panel's approach to Article 10.2 and its approach to Article 10.4.  The 
measures in Article 10.2 and the transactions in Ar ticle 10.4 are both covered within the scope of 
Article 10.1.  As Brazil submits, "Article 10.4 provides an example of specific disciplines that have 
been agreed upon for a particular type of measur e and that complement the general export subsidy 
                                                      
917United States' appellant's submission, para. 349. 
918Ibid., para. 350. 
919Ibid., para. 358.   
920Article 10.4 of the  Agreement on Agriculture   provides: 
4. Members donors of international food aid shall ensure: 
(a) that the provision of international food aid is not tied 
directly or indirectly to comm ercial exports of agricultural 
products to recipient countries;   
(b) that international food aid transactions, including bilateral 
food aid which is monetized, shall be carried out in 
accordance with the FA O "Principles of Surplus Disposal 
and Consultative Obligations", including, where 
appropriate, the system of Usual Marketing Requirements 
(UMRs);  and 
(c) that such aid shall be prov ided to the extent possible in 
fully grant form or on terms no less concessional than 
those provided for in Article IV of the Food Aid Convention 1986. 
A new Food Aid Convention was concluded in 1999. 
921Brazil's appellee's submission, para. 940.    WT/DS267/AB/R 
 Page 233 
 
 
 rules" but, like Article 10.2, it does not "establish any exceptions for the measures that [it] covers".922  
WTO Members are free to grant as much food aid as th ey wish, provided that they do so consistently 
with Articles 10.1 and 10.4.   Thus, Article 10.4 does not support the United States' reading of 
Article 10.2. 
620. The United States also relies on the negotiating history of the  Agreement on Agriculture   to 
support its position.923  The Panel identified the drafting history in the record.  It referred to 
paragraph 22 of the Framewor k Agreement on Agriculture Reform Programme (known as the 
"DeZeeuw Text"), circulated in July 1990, which envisaged "concurrent negotiations to govern the 
use of export assistance, including 'disciplines on export credits'".924  There was also a "Note on 
Options in the Agriculture Negotiations" of June 1991, in which the Chairman of the negotiations 
"requested decisions by the principals on 'whether  subsidized export credits  and related practices ... 
would be subject to reduction commitments unless they  meet appropriate criteria to be established in 
terms of the rules that would govern export competition'".925  An addendum circulated in August 
of 1991 set out an Illustrative List of Export Subsid y Practices and included, as item (i), "[s]ubsidized 
export credit guarantees or insurance programs".926  In December 1991, a "Draft Text on Agriculture" 
was circulated by the Chairman, Article 9.3 of whic h stated that "[f]or the purposes of this Article, 
whether export credits, export credit guarantees or in surance programmes provided by governments or 
their agencies constitute export subsidies shall be de termined on the basis of paragraphs (j) and (k) of 
Annex 1 to the [ SCM Agreement ]."927  That paragraph was omitted from the "Draft Final Act 
Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations"928, which was 
circulated later that month.  Article 10. 2 of the Draft Final Act reads as follows:  
                                                      
922Brazil's appellee's submission, para. 950. 
923The United States refers to the negotiating history pursuant to Article 32 of the Vienna Convention . 
(United States' appellant's submission, para. 367;  see also Panel Report, footnote 1112 to para. 7.933)  
Article 32 provides that recourse may be had to s upplementary means of interpretation, including negotiating 
history, to determine the meaning wh en the interpretation according to Artic le 31 "leads to a result which is 
manifestly absurd or unreasonable".  
924Panel Report, para. 7.934. 
925Ibid., para. 7.935. 
 926Ibid., para. 7.936.  Item (h) referred to"[e]xport cred its provided by governmen ts or their agencies on 
less than fully commercial terms." 
927Panel Report, para. 7.937.  Article 8.2 of that text listed export subsidies subject to reduction 
commitments "somewhat resembling the current Article 9.1 of the Agreement on Agriculture ", while Article 9.1 
was similar to the current Article 10.1.  (Panel Report, para. 7.937)  
928MTN.TNC/W/FA (20 December 1991), reproduced in Exhibit US-29. WT/DS267/AB/R 
Page 234  
 
 
 Participants undertake not to pr ovide export credits, export credit 
guarantees or insurance programs otherwise than in conformity with internationally agreed disciplines. 
This language was subsequently replaced by the current text of Article 10.2.
929    
621. The Panel did not consider that this negotia ting history supported the United States' position 
that "the drafters intended to defer the applica tion of any and all disciplines on agricultural export 
credit guarantees".930  According to the Panel, "[t]he omis sion of paragraph 3 of Article 9 of the 
December 1991 Draft Text is consistent with a deci sion that the words were mere surplusage, because 
export credits, export credit guarantees and insuran ce programmes were within the disciplines on 
export subsidies according to the terms of the agreement captured".931  "The omission", the Panel 
added, "is much less consistent with a decision to exclude such programmes from the disciplines 
altogether, considering the clear textual ability of  the disciplines to extend to such programmes and 
the lack of any attention to an explicit carve -out of such programmes from the disciplines".932  
622. On appeal, the United States again re lies on the drafting history of the Agreement on 
Agriculture , which it considers "reflects that the Members very early specifically included export 
credits and export credit guarantees as a subject  for negotiation and specifically elected  not  to 
include such practices among export subsidies in the WTO Agreements with respect to those goods 
within the scope of ... the  Agreement on Agriculture ".933  The United States adds that "[b]y deleting 
an explicit reference to export credit guarantees from the illustrative list of export subsidies in 
Article 9.1, Members demonstrated that they had no t agreed in the case of agricultural products that 
export credit guarantees constitute export subsidie s that should be subject to export subsidy 
disciplines".934  Finally, the United States takes issue with the Panel's explanation that draft Article 9.3 
was omitted because it was mere surplusage.935 
623. We agree with the Panel that the meaning of Ar ticle 10.2 is clear from the provision's text, in 
its context and in the light of the object and purpose of the  Agreement on Agriculture ,  consistent 
with Article 31 of the  Vienna Convention .936  The Panel did not think it necessary to resort to 
                                                      
929Panel Report, paras. 7.938-7.939. 
930Ibid., para. 7.939. 
931Ibid., para. 7.940. 
932Ibid. 
933United States' appellant's submission, para. 377. (original emphasis)  
934Ibid., para. 378. 
935Ibid., para. 379. 
936Panel Report, para. 7.933.  WT/DS267/AB/R 
 Page 235 
 
 
 negotiating history for purposes of its interpretation of  Article 10.2.  Even if the negotiating history 
were relevant for our inquiry, we do not find that  it supports the United States' position.  This is 
because it does not indicate that the negotiators did no t intend to discipline ex port credit guarantees, 
export credits and insurance programs  at all .  To the contrary, it shows that negotiators were aware of 
the need to impose disciplines on export credit gua rantees, given their potential as a mechanism for 
subsidization and for circumvention of the expo rt subsidy commitments under Article 9.  Although 
the negotiating history reveals that the negotiators st ruggled with this issue, it does not indicate that 
the disagreement among them related to whet her export credit guarantees, export credits and 
insurance programs were to be disciplined at all.  In our view, the negotiating history suggests that the 
disagreement between the negotiators related to whic h kinds of specific disciplines were to apply to 
such measures.  The fact that negotiators felt that internationally agreed disciplines were necessary for 
these three measures also suggests that the disciplines that currently exist in the  Agreement on 
Agriculture   must apply pending new disciplines because, otherwise, it would mean that subsidized 
export credit guarantees, export credits, and insuranc e programs could currently be extended without 
any limit or consequence.   
624. The United States contends that the Panel's interp retation leads to a result that is "manifestly 
absurd or unreasonable".937  According to the United States, it "defies logic ... to take the view of the 
Panel in which such practices would be treated as already disciplined export subsidies yet not 
permitted to be included within the applicable re duction commitments expressly contemplated by the 
text".938  The Panel's interpretation thus results in an enormous "windfall" for Brazil because the 
United States would have been permitted to gran t export credit guarantees had such measures been 
listed in Article 9 of the  Agreement on Agriculture .939  The United States also submits that exemption 
of export credit guarantees from export subsidy disciplines of the  Agreement on Agriculture   is 
further demonstrated by the fact that "no export credit guarantees are reported in the schedules of the 
United States or any other Members ... nor are they currently subject to reporting as export 
subsidies".940  
625. We do not agree with the United States' submissi on in this regard.  There could have been 
several reasons why Members chose not to incl ude export credit guarantees, export credits and 
insurance programs under Article 9.1 of the  Agreement on Agriculture .  One reason, for instance, 
may be that they considered that their export cr edit guarantee, export credit or insurance programs did 
                                                      
937United States' appellant's submission, para. 383.   
938Ibid., para. 384. 
939Ibid. 
940Ibid., para. 385. (footnote omitted)  The United States makes this argument within the context of its 
assertion that the Panel's interpretation leads to a resu lt that is "manifestly absu rd or unreasonable".   WT/DS267/AB/R 
Page 236  
 
 
 not include a subsidy component, so that there was no need to subject them to export subsidy 
reduction commitments.  There could have been othe r reasons.  Thus, the fact that export credit 
guarantees, export credits and insurance programs we re not included in Article 9.1 does not support 
the United States' interpretation of Article 10.2.  We also observe that whether WTO Members with 
export credit guarantee programs have reported them  in their export subsidy notifications is not 
determinative for purposes of our inquiry into the me aning of Article 10.2.  In any event, the United 
States and Brazil disagree about whether such pr ograms are subject to notification requirements.941    
626. Accordingly, we do not believe that Article 10.2 of the  Agreement on Agriculture   exempts 
export credit guarantees, export credits and insuran ce programs from the export subsidy disciplines in 
the  Agreement on Agriculture .  This does not mean that export credit guarantees, export credits and 
insurance programs will necessarily constitu te export subsidies for purposes of the Agreement on 
Agriculture .  Export credit guarantees are subject to the export subsidy disciplines in the  Agreement 
on Agriculture   only to the extent that such measures include an export subsidy component.  If no 
such export subsidy component exists, then th e export credit guarantees are not subject to the 
Agreement's export subsidy discip lines.  Moreover, even when export credit guarantees contain an 
export subsidy component, such an export cred it guarantee would not be inconsistent with 
Article 10.1 of the  Agreement on Agriculture   unless the complaining party demonstrates that it is 
"applied in a manner which results in, or which threat ens to lead to, circumvention of export subsidy 
commitments".  Thus, under the  Agreement on Agriculture ,  the complaining party must first 
demonstrate that an export credit guarantee program  constitutes an export subsidy.  If it succeeds, it 
must then demonstrate that such export credit guara ntees are applied in a manner that results in, or 
threatens to lead to, circumvention of the res ponding party's export subsidy commitments within the 
meaning of Article 10.1 of the Agreement on Agriculture .   
627. For these reasons, we  uphold   the Panel's finding, in paragr aphs 7.901, 7.911 and 7.932 of the 
Panel Report, that Article 10.2 of the  Agreement on Agriculture   does not exempt export credit 
guarantees from the export subsidy disciplines in Article 10.1.   
628. Before proceeding further, we refer to the order followed by the Panel in its analysis of 
Brazil's claims against the United States' export cr edit guarantee programs.  We do not find that the 
                                                      
941The notification requirements are set out in Notification Requirements and Formats under the WTO 
Agreement on Agricultur e (PC/IPL/12, 2 December 1994), submitted by  the United States to the Panel as 
Exhibit US-99.  The United States argues that the absence of a repor ting requirement for export credit 
guarantees provides further proof that such measures are not subject to export s ubsidy disciplines under the 
Agreement on Agriculture .  (United States' appellant's submission, paras. 384-385)  Brazil disagrees and submits 
that, to the extent export credit guarantees constitute expo rt subsidies, such measures are subject to notification 
requirements. (Brazil's appellee's submission, para. 934)  WT/DS267/AB/R 
 Page 237 
 
 
 Panel's order of analysis was wrong or that it cons tituted legal error.  Nor has the United States made 
such a claim on appeal.  Nevertheless, we are struck  by the fact that the Panel addressed Article 10.2 
only at the end of its analysis, especially given th at this provision constituted the core of the United 
States' defence that the disciplines of the  Agreement on Agriculture   currently do not apply to export 
credit guarantees at all.  
5. Articles 3.1 and 3.2 of the  SCM Agreement  
629. We turn to the United States' appeal of the Pa nel's findings under Articles 3.1 and 3.2 of the  
SCM Agreement .  According to the United States, "Article 3 of the  SCM Agreement  ... is subject in its 
application to Article 21.1 of the  Agreement on Agriculture ".942  The United States then argues that, 
because "export credit guarantees are not subject to the disciplines of export subsidies for purposes of 
the  Agreement on Agriculture ,  Article 21.1 of that Agreement renders Article 3.1(a) of the  SCM 
Agreement  inapplicable to such measures".943  Furthermore, the United States asserts that "the 
exemption from action under Article 13(c) is inapplicable, because it only is effective with respect to 
export subsidies disciplined under the  Agreement on Agriculture ."944 
630. The United States' argument is premised on the proposition that Article 10.2 of the  
Agreement on Agriculture   exempts export credit guarantees from the export subsidy disciplines in 
that Agreement.  The Panel rejected this propositio n and we have upheld the Panel's finding in this 
regard.  Therefore, because it is premised on an incorrect interpretation of Article 10.2 of the  
Agreement on Agriculture , we reject the United States' argument.  We examine the United States' 
appeals from other aspects of the Panel's assessme nt of the export credit guarantee programs under 
Article 3 of the  SCM Agreement   in the following section of our Report. 
6. Separate Opinion  
631. One Member of the Division hearing this appeal wishes to set out a brief separate opinion.  At 
the outset, I would like to make it absolutely clear that I agree with the findings and conclusions and 
reasoning set out in all preceding Sections of this Report, but one, namely, Section C above, which 
relates to Article 10.2 of the  Agreement on Agriculture .  It is only on the interpretation of Article 10.2 
that I must respectfully disagree.  
632. First I wish to point out that although Article 10.1 of the  Agreement on Agriculture   covers a 
range of export subsidies that do not fall within th e ambit of Article 9.1 of the Agreement, Members 
                                                      
942United States' appellant's submission, para. 393. 
943Ibid. 
944Ibid., para. 395. WT/DS267/AB/R 
Page 238  
 
 
 considered that it was necessary to carve out three types of programs, namely export credit 
guarantees, export credits and insurance programs, a nd to spell out in Article 10.2 their commitments 
with respect to those three areas.  The fact that th ey chose to deal with th ese three types of measures 
in Article 10.2 shows that this special treatment of  the three types of measures must be given meaning 
and weight.  Put differently, Article 10.2 is the only provision in the  Agreement on Agriculture   that 
speaks directly to export credit guarantees, e xport credits and insurance programs provided in 
connection with agricultural goods.  I read Article  10.2 as saying that WTO Members have committed 
to two specific undertakings: (1) "to work  toward   the development " of international agreed 
disciplines and (2) to provide export credit guara ntees in conformity with these disciplines " after   
agreement on such disciplines". (emphasis added)  Thus, the text of Article 10.2 obliges Members to 
"work toward the  development " of internationally agreed discip lines to regulate the provision of 
export credit guarantees, as well as export credits and insurance programs.   
633. A specific provision that calls on Members to "work toward the development " of disciplines 
strongly suggests to me that disciplines do not yet exist.  Certainly reference is not made in Article 10.2 to any other disciplines found in the  Agreement on Agriculture   that apply to export 
credit guarantees, export credits and insurance pr ograms provided in connection with agricultural 
goods.  Furthermore, the second part of Article 10.2 clearly limits the application of disciplines to  
after   such time as the international disciplines have been agreed upon.  This is a further indication 
that there are no current disciplines under the  Agreement on Agriculture   that apply to export credit 
guarantees, export credit and insurance programs.  
634. I recognize that the language of this provision is not free from ambiguity.  As noted by my 
colleagues on the Division, the drafters could ha ve—dare I say, should have—made their intentions 
even more plain.  If there were no Article 10.2, th en I might concur with my colleagues that to the 
extent that an export credit guarantee provided an export subsidy then the  Agreement on Agriculture   
envisions that that subsidy portion should be addressed by Article 10.1.  However, Article 10.2 does 
exist and the meaning of the words as I read them is entirely prospective, at least with respect to the 
existence of applicable disciplines.  
635. I do not see my reading of Article 10.2 to be in consistent with the provision's context and 
with the object and purpose of the  Agreement on Agriculture .  Article 10 is entitled "Prevention of 
Circumvention of Export Subsidy Commitments".  I see the first part of Article 10.1 as setting out a 
catch-all provision, designed to potentially cover an  export subsidy that is used to circumvent the 
reduction commitments under Article 9.  In contrast , as discussed above, Article 10.2 is designed to  
specifically  deal with export credit programs, expor t credits and insurance programs, and its  WT/DS267/AB/R 
 Page 239 
 
 
 provisions are controlling with respect to any su ch programs.  Although it speaks to prospective 
development and application of agreed disciplines, Ar ticle 10.2 is also consistent with the objective of 
prevention of circumvention.  Its placement in Ar ticle 10 suggests a recognition that export credits, 
export credit guarantees and insurance programs can ha ve the potential to circumvent export subsidy 
commitments.945  Article 10.3 pursues the aim of preventing circumvention of export subsidy 
commitments by providing special rules on reversal  of burden of proof when a Member's exports 
exceed the quantitative reduction commitments, a nd Article 10.4 itemizes a series of specific 
commitments or disciplines that apply in the area of  international food aid.  It is accurate, as my 
colleagues reason, that the language of Article 10.2 is  quite different from that used in Article 10.4.  
While Article 10.4 establishes disciplines for food ai d transactions, Article 10.2 merely foresees that 
disciplines will be established, in the future, for export credit guarantees, export credits and insurance 
programs.  The fact that a single Article contains commitments with varying degrees of temporal 
effect and both specific and general provisions, doe s not support an interpretation that the general 
undertaking (Article 10.1) overrides the specific and prospective provision (that is, Article 10.2).   
636. I also find support for my view in the negotiating history.  Of course, care must be taken in 
relying on negotiating history and I do not wish to imply that resort to Article 32 of the  Vienna 
Convention   is strictly necessary in these circumstances.946  Nevertheless, as I read it this history 
confirms my view that at the end of the Uruguay Round, negotiators had not agreed to subject export 
credit guarantees, export credits and insurance pr ograms provided in connection with agricultural 
goods to the disciplines of the  Agreement on Agriculture   or to any other disciplines that existed at 
that time.  Article 10.2, in my view, was intende d to reflect this outcome.  At one point in the 
negotiations, there was a proposal for applying to agricultural products the disciplines in the 
Illustrative List of Export Subsidies annexed to the  SCM Agreement .947  This proposal was dropped in 
the Draft Final Act in favour of an "undertak[i ng] not to provide export credits, export credit  
                                                      
945In this sense, I find the United St ates' term "deferral" to be more  meaningful than "exception" in 
thinking about the nature of Article 10.2 in that it acknowledges that Members are already under an obligation to 
develop such disciplines, albeit in the future. 
946I also recognize that the negotiating materials referred to by the Panel may not formally constitute  
travaux préparatoires   for purposes of Article 32 of the  Vienna Convention . 
947Panel Report, para. 7.937.  Sp ecifically, in December 1991, a "Draft Text on Agriculture" was 
circulated by the Chairman.  Article 9. 3 of the draft text stated that "[f]or  the purposes of this Article, whether 
export credits, export credit guarantees or insurance progr ammes provided by governments or their agencies 
constitute export subsidies shall be determined on the basis of paragraphs (j) and (k) of Annex 1 to the [SCM Agreement]". ( Ibid., para. 7.937)  Later, the Draft Final Act was circulated and it omitted paragraph 3 of 
Article 9 that had appeared in the previous draft. ( Ibid., para. 7.938)  WT/DS267/AB/R 
Page 240  
 
 
 guarantees or insurance programs otherwise than in conformity with internationally agreed 
disciplines"948, which in turn was replaced by the current  version of Article 10.2.   The previous 
version of Article 10.2 (in the Draft Final Act) re flected an immediate undert aking "not to provide 
export credit guarantees, export credits or insuranc e programs otherwise than in conformity with 
internationally agreed disciplines", whatever t hose may have been.  In contrast, no immediate 
commitment is evident from the current version of  Article 10.2, which instead calls for continued 
negotiations and for WTO Members  to  provide ex port credits, export credit guarantees or insurance 
programs only in conformity with internationally agreed disciplines  after   agreement on such 
disciplines.  This suggests to me that the negotiato rs were aware of the need to impose disciplines on 
export credit guarantees, given their potential as a mechanism for circumvention, but they were 
unable to agree upon and identify the disciplines that were to apply to such measures until disciplines 
were developed in the future.  Thus, in my view, th e negotiating history supports an interpretation that 
Article 10.2 was inserted to commit WTO Members to  continue negotiating on the disciplines that 
would apply, in the future, and that no disciplin es would apply to such m easures until such time as 
disciplines were internationally agreed upon. 
637. As noted by my colleagues on the Division, the United States argues that "it defies logic, as 
well as the obvious object and purpose of the agreemen t, to take the view of the Panel in which such 
practices would be treated as already disciplined export subsidies yet not permitted to be included within the applicable reduction commitment s expressly contemplated by the text".
949  Brazil argues 
that the United States was never willing to accept th at its export credit guarantee programs constituted 
an export subsidy and took a calculated risk by not including them under its Article 9 reduction 
commitments.950   
638. I agree with my colleagues on the Division that the decisions of WTO Members regarding 
how to schedule their export subsidy commitmen ts have limited value for purposes of an 
interpretation of Article 10.  However, it seems anomalous that WTO Members with export credit 
guarantee programs would not have sought to preserve  some flexibility to provide subsidies through 
such programs, which flexibility would have been av ailable to them had such programs been included 
under Article 9 of the  Agreement on Agriculture .  My colleagues' reading of Article 10 perceives that 
WTO Members intended to impose upon themselves the more onerous obligation of immediately 
subjecting export credit guarantees, export credits and insurance programs to the export subsidy 
disciplines of the  Agreement on Agriculture   rather than the less demanding obligation of working 
                                                      
948Panel Report, para. 7.938. 
949United States' appellant's submission, para. 384.  
950Brazil's response to questioni ng at the oral hearing.  WT/DS267/AB/R 
 Page 241 
 
 
 toward the development of such disciplines.  We ar e bound to rely upon what we have before us in the 
treaty provisions, and I find the same text and contex t leads me in the opposite direction.  Namely, 
that the absence of reference in Article 9 to export credit guarantees, export credits and insurance 
programs suggests that it was believed that such  measures would not be subject to any disciplines 
until such time as disciplines were internationa lly agreed upon pursuant to Article 10.2.   
639. In conclusion, for these reasons and particularly my reading of the text, it is my view that, 
pursuant to Article 10.2, export credit guarantees,  export credits and insurance programs are not 
currently subject to export subsidy disciplines under the  Agreement on Agriculture ,  including the 
disciplines found in Article 10.1.  In the light of Article 21.1 of the Agreement on Agriculture  and the 
introductory language to Article 3.1 of the  SCM Agreement ,  I am also of the view that export credit 
guarantees, export credits and insurance programs pr ovided in connection with agricultural goods are 
not subject to the prohibition in Article 3.1(a) of the  SCM Agreement . 
640. I recognize that this interpretation of Article  10.2 perceives a significant gap in the  
Agreement on Agriculture   with respect to export credit gua rantees, export credits and insurance 
programs that apply to agricultural products.  This  underscores the importance of working "toward the 
development of international disciplines" as envisioned by Article 10.2. 
641. I also recognize that this interpretation of Artic le 10.2 has consequential results for some of 
the other claims on appeal brought by both the United States and Brazil in connection with the United States' export credit guarantee programs.  As to the other Sections of this Report dealing with export 
credit guarantees
951, I agree that the legal interpretati on and analyses contained therein follow 
logically from the view of my colleagues on the Divi sion with respect to Article 10.2, as set forth in 
paragraphs 605 through 630 of this Report.952  
D. Export Credit Guarantees – Burden of Proof 
642. The United States submits that the Panel erred in three different ways in respect of the 
application of the burden of proof in assessing the United States' export credit guarantee programs 
under item (j) of the Illustrative List of Export Subsidies annexed to the  SCM Agreement .  First, the 
United States asserts that the Panel erred by applyi ng the special rules on the burden of proof provided 
in Article 10.3 of the  Agreement on Agriculture   in its examination of Brazil's claim under the  SCM 
                                                      
951I am referring to Sections D. Export Credit Guarantees – Burden of Proof , E. Export Credit 
Guarantees – Necessary Findings of Fact , F. Export Credit Guarantees – Circumvention , G. Export Credit 
Guarantees – Articles 1.1 and 3.1(a) of the SCM Agreement  of this Report.   
952The relevant findings and conclusions for purposes of the recommendations and rulings to be 
adopted by the DSB in this dispute, pursuant to Article 17.14 of the DSU, are those set out in paragraph 763(e) 
and (f) of this Report. WT/DS267/AB/R 
Page 242  
 
 
 Agreement .  The United States emphasizes that "the burden of proof articulated in ... Article 10.3 has 
no application to the  SCM Agreement ".953  Secondly, the United States argues that the Panel erred by 
applying the special rules on burden of proof in Article 10.3 of the  Agreement on Agriculture   in 
examining whether the United States circumvented its export subsidy commitments in respect of 
upland cotton and certain other  unscheduled   agricultural products.954  According to the United States, 
Article 10.3 does not apply at all in respect of e xport subsidies to an agricultural good for which the 
respondent has no reduction commitments.955  Finally, the United States refers to three specific 
instances in which the Panel allegedly applied the wrong burden of proof.956 
643. Brazil responds by highlighting the Panel’s fi nding that, whichever party bore the burden of 
proof, Brazil had demonstrated that the export cr edit guarantee programs cons titute export subsidies 
under the terms of item (j) of the Illustrative List of Export Subsidies.957 
644. Before examining the specific points raised by the United States on appeal relating to the 
Panel's application of the burden of  proof, we recall the general rule  that "the burden of proof rests 
upon the party, whether complaining or defending, w ho asserts the affirmative of a particular claim or 
defence".958  Article 10.3 of the  Agreement on Agriculture ,  however, "provides a special rule for 
proof of export subsidies that applies in certa in disputes under Articles 3, 8, 9 and 10 of the  
Agreement on Agriculture ".959  The text of Article 10.3 reads: 
Any Member which claims  that any quantity exported in excess of a 
reduction commitment level is not subsidized must establish that no export subsidy, whether listed in Artic le 9 or not, has been granted in 
respect of the quantity of exports in question. 
This provision "cleaves the complaining Member's claim" into two parts:  a quantitative aspect, and 
an export subsidization aspect, "allocating to different  parties the burden of proof with respect to the 
two parts".
960   
                                                      
953United States' appellant's submission, para. 400. (emphasis omitted) 
954Ibid., para. 403. 
955Ibid., para. 404. 
956Ibid., paras. 405-408. 
957Brazil's appellee's submission, paras. 95 and 1015 (referring to Panel Report, para. 7.793 and 
footnote 948 thereto and para. 7.867). 
958Appellate Body Report, US – Wool Shirts and Blouses , p. 14, DSR 1997:1, 323 at 335. 
959Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 69. 
960Ibid., para. 71.  WT/DS267/AB/R 
 Page 243 
 
 
 645. As the Appellate Body has explained in a pr evious dispute, the burden of proof under 
Article 10.3 operates in the following manner: 
... where a Member exports an agricultural product in quantities that 
exceed its quantity commitment level, that Member will be treated as 
if it has granted WTO- inconsistent   export subsidies, for the excess 
quantities, unless the Member pre sents adequate evidence to 
"establish" the contrary.  This reve rsal of the usual rules obliges the 
responding Member to bear the consequences of any doubts concerning the evidence of export subsidization.
961 (original 
emphasis) 
Pursuant to Article 10.3 "the complaining Member .. . is relieved of its burden, under the usual rules, 
to establish a  prima facie   case of export subsidization, provided that [it] has established the 
quantitative part of [its] claim".962 
646. Having briefly set out the applicable rules on the burden of proof, we now turn to the specific 
points raised by the United States in this appeal.  First, the United States alleges that the Panel erred 
by applying the "special rule" on the burden of proof set out in Article 10.3 of the  Agreement on 
Agriculture   to its examination of the export credit guarantees under the  SCM Agreement ,  where 
such a rule "has  no  application at all".963  To support its contention that the Panel applied 
Article 10.3 in the context of examining Brazil's claim under the  SCM Agreement ,  the United States 
points to the following statement by the Panel: 
Moreover, recalling the burden of proof articulated in Article 10.3 of 
the Agreement on Agriculture , the United States has not established 
that it does not provide these export credit guarantee programmes at premium rates which are inadequate to cover the long-term operating 
costs and losses of the programmes.
964  
647. We agree with the United States that Article 10.3 of the  Agreement on Agriculture   does not 
apply to claims brought under the  SCM Agreement .  However, the Panel did not make the error 
attributed to it by the United States.  The Pane l made the statement relied on by the United States in 
the context of its assessment of the United Stat es' export credit guarantee program under the  
Agreement on Agriculture .  Although the Panel made use of the criteria set out in item (j) of the 
Illustrative List of Export Subsidies annexed to the  SCM Agreement   (providing these programs at 
premium rates inadequate to cover long-term ope rating costs and losses) it did so as contextual 
                                                      
961Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , para. 74. 
962Ibid., para. 75. 
963United States' appellant's submission, para. 399. (emphasis added) 
964Panel Report, para. 7.868. WT/DS267/AB/R 
Page 244  
 
 
 guidance for its analysis under the  Agreement on Agriculture ,  and both the United States and Brazil 
appear to have agreed with the appropriateness of this approach.965  Thus, the Panel's reference to 
Article 10.3 did not relate to its assessment of the United States' export credit guarantee programs 
under the  SCM Agreement .   
648. Moreover, we note that in the immediately pr eceding paragraph, which the United States fails 
to mention, the Panel stated: 
We have conducted a detailed exam ination of the relevant evidence 
and argumentation submitted by the parties.  On the basis of the 
totality of the record evidence, in cluding approaches regularly relied 
upon by the United States government itself, we find that Brazil has 
established  that the United States CCC provides the GSM 102, 
GSM 103 and SCGP export credit guarantee programmes "at 
premium rates which are inadequate to cover the long-term operating 
costs and losses of the programmes" within the meaning of item (j) of the Illustrative List of Export Subsidies in Annex I of the SCM 
Agreement .  Our view is based on a careful consideration of the 
evidence, taken as a whole, and no one element, in isolation, is 
determinative.
966 (underlining added) 
It is clear from this paragraph that the Panel placed  the burden of proof on Brazil and determined that 
Brazil met its burden of proving that the United States' export credit guarantees are provided at 
premium rates that are inadequate to cover l ong-term operating costs and losses.  The Panel's 
statement on which the United States relies simply ma kes the point that the United States did not rebut 
the case that was made out by Brazil.  The reference to Article 10.3 does not, by itself, change the fact 
that the Panel ultimately placed the burden of proof on Brazil.   
649. After making its findings under the  Agreement on Agriculture ,  the Panel examined the 
United States' export credit guarantees under the SCM Agreement .  There is no reference to 
Article 10.3 of the  Agreement on Agriculture   in this discussion.967  We are aware that the Panel 
applied the "'contextual' analysis" that it had con ducted "under item (j) of the Illustrative List of 
Export Subsidies ... for the purposes of determining whet her or not an export subsidy exists within the 
meaning of Article 10.1 of the  Agreement on Agriculture " to its examination of "Brazil's claims under 
item (j)/Article 3.1(a) of the  SCM Agreement ".968  In doing so, it would have been useful for the Panel 
to have clarified that the special rules on the burden of proof in Article 10.3 of the  Agreement on 
                                                      
965Panel Report, para. 7.803. 
966Ibid., para. 7.867. 
967See  ibid., paras. 7.946-7.948. 
968Ibid., para. 7.946 (footnote omitted)  WT/DS267/AB/R 
 Page 245 
 
 
 Agriculture ,  to which it had referred previously in its  "contextual" analysis of item (j) under the  
Agreement on Agriculture , were not applicable for purposes of its analysis under the  SCM 
Agreement .969  Because we have found that the Panel did not ultimately relieve Brazil of its burden of 
proof in determining that the United States' export credit guarantee programs constituted export 
subsides under the Agreement on Agriculture ,  we do not believe that the Panel's failure to clarify that 
Article 10.3 of the  Agreement on Agriculture  did not apply to its examination of the same measures 
under the SCM Agreement   constitutes reversible legal error. 
650. Secondly, the United States submits that the Panel erred by applying the special rules on the 
burden of proof in Article 10.3 of the  Agreement on Agriculture   in examining whether the United 
States circumvented its export subsidy commitments in respect of upland cotton and certain other  
unscheduled   agricultural products.970  According to the United States, Article 10.3 applies only to 
agricultural products for which a WTO Member has assumed export subsidy reduction commitments 
in its schedule, pursuant to Article 9.1 of the  Agreement on Agriculture .971  
651. The Panel's view was that Article 10.3 does apply to unscheduled products: 
With respect to upland cotton and other unscheduled products, the 
Panel considers that the United States' reduction commitment level, for the purposes of Article 10.3, is zero for each unscheduled 
product.  By virtue of the second clause of Article 3.3, that is the level to which a Member must reduce any Article 9.1 export 
subsidies that were not in fact specifically made subject to 
"scheduled" reduction commitments.  Accordingly, in the case of upland cotton and other unscheduled  products the same sequence is 
to be followed, with Brazil as the complaining party first having to prove that United States' exports of unscheduled products exceed that "zero" level.
972 
652. We disagree with the Panel's view that Article 10.3 applies to  unscheduled  products.  Under 
the Panel's approach, the only thi ng a complainant would have to do to meet its burden of proof when 
bringing a claim against an  unscheduled   product is to demonstrate that the respondent has exported 
that product.  Once that has been established, the r espondent would have to de monstrate that it has not 
                                                      
969Panel Report, paras. 7.946-7.948. 
970United States' appellant's submission, para. 403 (referring to Panel Report, para. 7.875). 
971Ibid., para. 404. 
972Panel Report, para. 7.793. (footnote omitted) WT/DS267/AB/R 
Page 246  
 
 
 provided an export subsidy.973  This seems to us an extreme result.   In effect, it would mean that any 
export of an unscheduled product is  presumed   to be subsidized.  In our view, the presumption of 
subsidization when exported quantities exceed the re duction commitments makes sense in respect of a  
scheduled   product because, by including it in its sche dule, a WTO Member is reserving for itself the 
right to apply export subsidies to that product, within the limits in its schedule.  In the case of  unscheduled   products, however, such a presumption appear s inappropriate.  Export subsidies for both 
unscheduled agricultural products and industrial products are completely prohibited under the  
Agreement on Agriculture   and under the  SCM Agreement , respectively.  The Panel's interpretation 
implies that the burden of proof with regard to the same issue would apply differently, however, under 
each Agreement:  it would be on the respondent under the  Agreement on Agriculture ,  while it would 
be on the complainant under the  SCM Agreement . 
653. Although we disagree with the Panel's in terpretation of Article 10.3 of the  Agreement on 
Agriculture   in respect of unscheduled products, we do not believe that the Panel's ultimate finding is 
erroneous.  This is because the Panel did not rely on its interpretation of Article  10.3.  In a footnote to 
the paragraph quoted above, the Panel stated: 
In any event, even if there is no reduction commitment level in 
respect of unscheduled products, affecting the rules of burden of 
proof that apply to Brazil's claims pertaining to unscheduled products so as to remove the burden entirely from Brazil or to place the entire burden on Brazil to prove not only th at exports have been made, but 
even that export subsidies have b een provided in respect of such 
exported products, this would not ma terially affect our analysis, as 
we are of the view that Brazil has discharged this burden as well, and 
the United States has failed to disch arge its burden in this respect.
974  
(original emphasis) 
Thus the Panel placed the burden on Brazil to establish that the United States provided export 
subsidies, through export credit guarantees, to upla nd cotton and other unscheduled products.  This is 
confirmed in the following paragraph: 
                                                      
973As the Appellate Body explained, when the special rule on burden of proof in Article 10.3 applies, 
then "the complaining party is not required to lead in the presentation of evidence to panels, and it might well 
succeed in its claim even if it presents  no evidence—should the responding Me mber fail to meet its legal burden 
to establish that no export subsidy has been granted w ith respect to the excess quantity".  (Appellate Body 
Report,  Canada – Dairy (Article 21.5 – New Zealand and the US II) , para. 75) 
974Panel Report, footnote 948 to para. 7.793.  WT/DS267/AB/R 
 Page 247 
 
 
 Recalling our discussion of the applicable burden of proof, we find 
that Brazil has shown that export credit guarantees – constituting export subsidies within the meani ng of Article 10.1 (and therefore, 
necessarily, not listed in Article 9.1)  – have been provided under the 
programmes in question during the period we have examined in 
respect of exports of upland cotton and certain other unscheduled 
agricultural products.  The United States has not shown that no export subsidy has been granted in respect of such products.  We therefore conclude that, in respect of upland cotton and other such unscheduled  agricultural products on record, the United States 
applies export credit guarantees c onstituting export subsidies in a 
manner which results in circum vention of its export subsidy 
commitments inconsistently with Article 10.1 of the Agreement on 
Agriculture .
975  (footnote omitted;  original emphasis) 
654. It is clear from the first sentence in this para graph that the Panel imposed on Brazil the burden 
of demonstrating that export subsidies have b een granted to upland cotton and other unscheduled 
agricultural products supported under the programs.  The second sentence, on which the United States 
relies in its submission, simply indicates that the United States did not rebut the evidence and 
arguments put forward by Brazil; it does not indicate that the Panel erroneously placed the burden of 
proof on the United States. 
655. Finally, the United States refers to three speci fic instances in which the Panel allegedly erred 
by improperly placing the burden of proof on the United  States.  The first example cited by the United 
States is the Panel's statement that the premiums  charged by the CCC for the export credit guarantees 
"are not geared toward  ensuring   adequacy to cover long-term operating costs and losses for the 
purposes of item (j)".976  The United States assert that this is "a much higher threshold" than that 
provided in text of item (j) of the Illustrative List of Export Subsidies annexed to the  SCM 
Agreement .977  Next, the United States takes issue with th e Panel's statements that "[i]n terms of the 
structure, design, and operation of the export cr edit guarantee programmes [we] believe that the 
programmes are not designed to avoid a net cost to government"978 and that the Panel was entitled to 
inquire whether revenue "would be likely to cover the total of all operating costs and losses under the 
programme".979  According to the United States, "to 'avoid a net cost' prospectively is simply not the 
requirement of item (j)" and the "'likelihood' sta ndard of performance" imposed by the Panel is 
                                                      
975Panel Report, para. 7.875. 
976United States' appellant's submission, para. 406 (re ferring to Panel Report, para. 7.859). (emphasis 
added by the United States) 
977Ibid., para. 406. 
978Ibid., para. 407 (referring to Panel Report, para. 7.857).  
979Ibid., para. 407 (referring to Panel Report, paras. 7.805 and 7.835). WT/DS267/AB/R 
Page 248  
 
 
 "higher than that found in item (j)".980  The third example cited by the United States is the Panel's 
statement that "[w]e have not been persua ded that cohort re-estimates over time, will  necessarily   not 
give rise to a net cost to the United States government."981  The United States contends that "[u]nder 
the applicable burden of proof, however, it is not fo r the United States to make such incontrovertible 
demonstrations to the Panel, a nd the Panel erred in requiring it".982    
656. In our view, none of these statements demonstrat es that the Panel improperly applied the rules 
on burden of proof.  The United States is selecting statements made by the Panel within its broader 
analysis of how the United States' export credit guara ntee programs operate, reading them in isolation, 
and disregarding the context in which th ey were made.  As indicated earlier983, it is clear that the 
Panel imposed on Brazil the overall burden of prov ing that the premiums charged under the United 
States' export credit guarantee programs are inadequate  to cover long-term operating costs and losses.  
This approach is consistent with the usual rules on the allocation of the burden of proof whereby the 
complaining party is responsible for proving its claim.984   As for the Panel's rejection of the United 
States' submissions relating to the cohort re-estimates985, we agree with Brazil that "[a]s the party 
asserting that the trends existed, the United States bore the burden of proving that they existed".986  
Thus, the Panel cannot be said to have improperly re versed the burden of proof.  Accordingly, the 
isolated statements referred to by the United States  do not demonstrate an error by the Panel in the 
application of the burden of proof.   
657. We, therefore,  reject   the United States' allegations th at the Panel improperly applied the 
burden of proof in finding that the United Stat es' export credit guarantee programs are prohibited 
export subsidies under Article 3.1(a) of the  SCM Agreement   and are consequently inconsistent with 
Article 3.2 of that Agreement. 
                                                      
980United States' appellant's submission, para. 407. 
981Ibid., para. 408 (quoting  Panel Report, para. 7.853). (emphasis added by the United States)  The 
United States also mentions the following statement by the Panel:  "[w]hile there may be a possibility (based on 
the experience of certain of other cohorts) that this figure may diminish over the lifetime of the cohort 
concerned, there is no assurance that this figure will necessarily evolve towards, and conclude as, zero or a 
negative figure." (Panel Report, footnote 1028 to para. 7.853) (emphasis added by the United States) 
982United States' appellant's submission, para. 408. 
983See  supra , para. 648 (quoting Panel Report, para. 7.867). 
984We emphasize that the United States' argument on this specific point is limited to the Panel's 
application of the burden of proof. The United Stat es has not argued that the Panel incorrectly  interpreted   
item (j) as requiring that export credit guarantee programs  be "geared toward ensuri ng adequacy to cover long-
term operating costs and losses" or that such programs "'avoid a net cost' prospectively". 
985Panel Report, para. 7.853;  see supra , para. 655. 
986Brazil's appellee's submission, para. 1027.  WT/DS267/AB/R 
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 E. Export Credit Guarantees – Necessary Findings of Fact 
658. We turn to the United States' claim that the Panel erred by failing to make factual findings 
that were allegedly necessary for the Panel's analysis  of whether premiums are adequate to cover the 
long-term operating costs and losses of the Unite d States' export credit guarantee programs under 
item (j) of the Illustrative List of Export Subsidies annexed to the  SCM Agreement .   
659. In the United States' view, "the absence of a specific factual finding on the basis for and 
monetary extent to which the United States has a llegedly not covered its long-term operating costs 
and losses for the CCC export credit guarantee program s, compels the reversal of the Panel’s finding 
in respect of item (j)".987  The United States explained that item (j) requires a determination whether 
premium rates are inadequate to cover long-term  costs and losses and that this requires some 
determination as to what the operating costs and lo sses are.  The United States further argued that the 
Panel's failure consisted in not making any determination about how to treat the rescheduled debt 
within operating costs and losses.988   
660. Brazil responds that the United States has not made a proper claim under Article 11 of the 
DSU and is thus precluded from challenging the Panel's appreciation of the facts.989  In any event, 
Brazil submits that neither item (j), nor Articles 3.1(a) and 3.2 of the  SCM Agreement , nor 
Articles 10.1 and 8 of the  Agreement on Agriculture ,  required the Panel to make specific factual 
findings on the "monetary extent to which" premiu m rates are inadequate to cover the long-term 
operating costs and losses of the United States' expor t credit guarantee programs.  It was sufficient for 
the Panel to have found that, under any and all me thodologies that it reviewed and accepted, premium 
rates are  inadequate   to cover the long-term operating cost s and losses of the export credit guarantee 
programs.990 
661. In addition, Brazil asserts that the Panel made  sufficient factual findings "on the basis for"991 
its conclusion that premium rates are inadequate to cover the long-term operating costs and losses of 
the export credit guarantee programs.  Specifically , the Panel assessed the performance of the export 
credit guarantee programs under the elements of item (j ) in various ways.  In its assessment of the  
past performance   of the ECG programs during the peri od 1992-2002, the Panel used two accounting 
                                                      
987United States' appellant's submission, para. 419.   
988United States' response to questi oning at the oral hearing. 
989Brazil's appellee's submission, para. 1065. 
990Ibid., para. 99. 
991Ibid., para. 100. WT/DS267/AB/R 
Page 250  
 
 
 methodologies— net present value accounting , and  cash basis accounting —to determine whether 
premium rates are inadequate to cover the long- term operating costs and losses of the programs.992  
662. Before proceeding to the merits of the Unite d States' claim, we examine first Brazil's 
allegation that the United States had to bring its claim, that the Panel did not make the necessary 
findings of fact, under Article 11 of the DSU.  Article 11 of the DSU provides that a "panel should make an objective assessment of the matter before it,  including an objective assessment of the facts of 
the case".
993  The Appellate Body stated in  Canada – Wheat Exports and Grain Imports   that "an 
appellant is free to determine how to characterize its claims on appeal"994, but observed that "due 
process requires that the legal basis of the claim be  sufficiently clear to allow the appellee to respond 
effectively."995   
663. The United States has styled its claim as relate d to the interpretation and application of 
item (j) of the Illustrative List of Export Subsidies annexed to the  SCM Agreement .  According to the 
United States, the Panel could not have reached a legal conclusion under item (j) without having 
necessarily determined what were the long-term ope rating costs and losses of the United States' export 
credit guarantee programs, and more specifically, made a determination in respect of the treatment of 
rescheduled debt.  We find no difficulty with the Un ited States' approach.  Its claim relates to the 
Panel's application of item (j) to the specific facts of the case.  The United States is not asking us to 
review the Panel's factual findings, nor is it arguing that the Panel's assessment of the matter was not 
objective.  Instead, the United States' claim relates to  the application of the legal standard set out in 
item (j) of the Illustrative List of Export S ubsidies to the specifi c facts of this case.996  It is an issue of 
legal characterization.997  Thus, we do not agree with Brazil's contention that the United States was 
under an obligation to bring its claim under Article 11 of the DSU.  Consequently, our inquiry will be 
limited to the Panel's application of  the law to the facts in this case. 
                                                      
992Brazil's appellee's submission, para. 101.  
993The Appellate Body has emphasized that "a claim, by an appellant, that a panel erred under 
Article 11 of the DSU, and a request for a finding to this  effect, must be included in  the Notice of Appeal, and 
clearly articulated and substantiated in an appellant's  submission with specific arguments". (Appellate Body 
Report, US – Corrosion-Resistant Steel Sunset Review , footnote 60 to para. 71;  see also Appellate Body Report, 
Japan  – Apples , para. 127;  Appellate Body Report, US – Steel Safeguards , para. 498;  and Appellate Body 
Report, Canada – Wheat Exports and Grain Imports , para. 177) 
994Appellate Body Report, Canada – Wheat Exports and Grain Imports , para. 177. 
995The Appellate Body, however, did not need to decide in that appeal whether to reject the appellant's 
claim on the basis that it was brought under the substantive provision at issue, rather than Article 11 of the DSU. (Appellate Body Report, Canada – Wheat Exports and Grain Imports , para. 177) 
996Appellate Body Report, Canada – Periodicals , p. 22, DSR 1997:1, 449 at 468. 
997Appellate Body Report, EC – Hormones , para. 132.  WT/DS267/AB/R 
 Page 251 
 
 
 664. Turning to the merits of the United States' allegation, we note that item (j) of the Illustrative 
List of Export Subsidies, which is attached to the  SCM Agreement   as Annex I, reads:  
The provision by governments (or special institutions controlled by 
governments) of export credit guarantee or insurance programmes, of 
insurance or guarantee programmes ag ainst increases in the cost of 
exported products or of exchange risk programmes, at premium rates 
which are inadequate to cover the long-term operating costs and 
losses of the programmes. 
665. The Panel provided the following explanation of  the examination that is required under 
item (j) of the Illustrative List of Export Subsidies: 
... item (j) calls for an examination of whether the premium rates of 
the export credit guarantee programme  at issue are inadequate to 
cover the long-term operating costs and losses of the programmes.  
Beyond that, item (j) does not set forth, or require us to use, any one 
particular methodological appro ach nor accounting philosophy in 
conducting our examination.  Nor are we required to quantify precisely the amount by which costs and losses exceeded premiums paid.
998 
We agree with the Panel's approach.  The text of item (j) does not suggest that this provision requires 
a Panel to choose one particular basis for the calcu lation and then to make a precise quantification of 
the difference between premiums and long-term opera ting costs and losses on that basis.  Indeed, at 
the oral hearing, the United States acknowledged that the text of item (j) does not, by its own terms, 
require precise quantification, but asserted that the Panel should have precisely quantified the long-
term operating costs and losses "in this particular case".999   
666. In our view, the focus of item (j) is  on the inadequacy of the premiums.1000  To us, this focus 
suggests that what is required is a finding on whet her the premiums are insufficient and thus whether 
the specific export credit guarantee program at issue constitutes  an export subsidy, and not a finding 
of the precise difference between premiums and long-term operating costs and losses.1001   
                                                      
998Panel Report, para. 7.804.   
999United States' response to questi oning at the oral hearing. 
1000The Panel observed that there was no disagreemen t between the parties in this case about the 
meaning of the term "premiums" for purposes of item (j).  According to the Panel, "[u]nder the GSM 102, GSM 103 and SCGP export credit guarantee programmes, su ch 'premiums' are the fees paid by the applicant 
exporter constituting the consideration for the payment guarantee provided by the CCC". (Panel Report, 
paras. 7.817-7.818) 
1001"Inadequate" is defined as "Not adequate; insufficient".  ( Shorter Oxford English Dictionary , 5th 
ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University Press, 2002), Vol. 1, p. 1338) WT/DS267/AB/R 
Page 252  
 
 
 667. Having said this, we recognize that item (j) sets out a test that is essentially financial, as it 
requires a panel to look at the financial performance of an export credit guarantee program, that is, its 
revenues from premiums and its long-term operating co sts and losses.  Our review of the Panel record 
confirms that, in this case, the Panel conducted a fina ncial analysis of the United States' export credit 
guarantee programs using three approaches.  First, the Panel looked at the method used by the United 
States government, which "utilizes a 'net present valu e' approach to budget accounting for its export 
credit guarantee programmes".1002  The Panel explained that "a positive net present value means that 
the United States government is extending a 'subsid y' to borrowers; a negative present value means 
that the programme generates a 'profit' (excl uding administrative costs) to the United States 
government".1003  Having explained the method used by the United States government, the Panel then 
observed that: 
The annual entries in the "guaranteed loan subsidy" line in the United 
States budget, 1992-2002 (plus 2003 and 2004 estimates) show us 
that, according to this formula, th ere has been a positive "guaranteed 
loan subsidy" every year.  If administrative expenses are added thereto, the annual amount of cost to the United States government increases under this formula by approximately $39 million.
1004  
This shows that the Panel viewed the accounting da ta provided under this method used by the United 
States government as evidence that the premiums  charged for the export credit guarantees are 
inadequate to cover long-term operating costs and losses.1005   
668. Next, the Panel examined data submitted by Brazil based on a constructed "cost" formula.1006  
This formula compares the revenues and costs of the export credit guarantee programs.1007  T h e  
revenue column includes premiums collected, r ecovered principal and interest, and interest 
                                                      
1002Panel Report, para. 7.842.  According to the Panel, the United States government adopted the "net 
present value" approach star ting with fiscal year 1992, pursuant to the Federal Credit Reform Act of 1990 (the 
"FCR Act of 1990").  A specific formula is provided under the FCR Act of 1990 for the "net present value" calculation.  ( Ibid., footnotes 996 and 997 to para. 7.842) 
1003Ibid., para. 7.842. 
1004Ibid., para. 7.842. (footnotes omitted) 
1005The Panel recognized that the "net pr esent value" approach relies on " initial estimates of the long-
term costs to the United States government".  The Panel,  however, stated that these were not "random guesses" 
but rather were based on "[a]ctual historical experi ence".  Furthermore, the Pa nel reasoned that "[t]he 
consistently positive numbers in the United States budget guaranteed loan subsidy line indicate to us that the 
United States government believes, based upon its own assessment, that it may not, even over the long term, be 
able to operate the export credit gua rantee programmes without some net co st to government". (Panel Report, 
para. 7.843) (original emphasis)    
1006Ibid., para. 7.844. 
1007In its appellee's submission, Brazil describes this  method as following a "cash basis accounting" 
approach, in which the programs' receipt s are netted against disbursements on a fiscal year basis.  The data on 
receipts and disbursements "reflect actual cash fl ows". (Brazil's appellee's submission, para. 985)  WT/DS267/AB/R 
 Page 253 
 
 
 revenue.1008  The costs column includes administrative expenses, default claims, and interest 
expense.1009  The data used in this formula are "taken fro m the 'prior year' column of the United States 
government budget".1010  The formula shows that there was a difference of a little more than US$ 1 
billion between premiums and long-term costs and losses for the period 1993-2002.1011  Accordingly, 
the data submitted by Brazil showed that the expor t credit guarantee programs of the United States did 
not charge premiums that were adequate to cover long-term operating costs and losses.    
669. After examining the data submitted by Brazil, th e Panel then referred to "fiscal year/cash 
basis" evidence submitted by the United States.  Ac cording to the United States, these data reflect 
"actual performance of the programmes, unlike the da ta in the US budget to which Brazil alludes ... 
which ... are based on estimates and re-estimates  required under the Federal Credit Reform Act 
of 1990".1012  The data submitted by the United States s howed that, during the same period, total 
revenues exceeded total expenses by approximately US$ 630 million.1013   
670. The Panel proceeded to compare the two sets of data.1014  In contrasting the results under the 
two methods, the Panel came to the conclusion that the difference between the two was mainly due to 
treatment of rescheduled debt.  This rescheduled  debt amounted to approximately US$ 1.6 billion.1015  
The United States asserts that "the Panel did not  make any determination about how to treat 
rescheduled debt".1016  We disagree.  In fact, the Panel reject ed the approach suggested by the United 
States for the treatment of rescheduled debt.  Unde r the United States' approach, rescheduled debt is 
                                                      
1008Brazil states that this is a "conservative" formula that credits the programs with interest revenue, 
even though item (j) calls for only an assessment of revenue from premiums. (Brazil's appellee's submission, 
para. 985) 
1009See Table 3 in Panel Report, para. 7.845. 
1010Panel Report, para. 7.846. 
1011Ibid., paras. 7.845-7.846. 
1012United States' response to Question 264 Posed by the Panel (Panel Report, p. I-673, para. 21).  The 
data were presented in a spreadsheet and submitted to the Panel as Exhibit US-128.  See also Panel Report, 
para. 7.846. 
1013Panel Report, para. 7.846. 
1014The Panel acknowledged certain limitations inherent in the comparison, including the fact that some 
of the data "may not directly correlate", that "Un ited States budget data may not always reflect 'actual 
performance'" and the need to be especially "sensitive" to  "the particular time periods covered by the data".  
Nevertheless, the Panel concluded that "none of these considerations undermine[s] the comparison made".  
(Panel Report, footnote 1006 to para. 7.846) 
1015Ibid., para. 7.846. 
1016United States' response to questi oning at the oral hearing. WT/DS267/AB/R 
Page 254  
 
 
 not treated as an outstanding claim, but rather as a new direct loan.1017  In the Panel's view, however, 
this approach "understates the net cost to the United States government associated with the export 
credit guarantee programmes at issue".1018  Thus, contrary to the United States' submission, the Panel 
did make a determination in respect of the treatment of rescheduled debt.1019  Furthermore, we read 
this as indicating that the Panel considered th at the data submitted by the United States, once 
rescheduled debt was properly taken into account, also  showed that premiums did not offset long-term 
operating costs and losses.   
671. The Panel went further in its analysis and considered the evidence submitted by the 
United States concerning re-estimates.  According to  the Panel, this evidence showed a subsidy of 
approximately US$ 230 million, without includ ing administrative expenses of approximately 
US$ 39 million.1020  The Panel was not persuaded by the United States' submission that "over time" 
the re-estimates would necessarily do away with the subsidy shown by the current figures.1021  In 
addition, we note that the Panel looked not only at the past financial performance of the United States' 
export credit guarantee programs, but also at the structure, design, and operation of the programs.  The Panel concluded that the programs "are not  designed to avoid a net cost to government"
1022 and 
"the premiums are not geared toward ensuring ade quacy to cover long-term operating costs and losses 
for the purposes of item (j)".1023   
672. In the light of the above, it is clear th at the Panel undertook a sufficiently detailed 
examination of the financial perfo rmance of the United States' export credit guarantee programs.  Its 
analysis showed that none of the methods proposed by the parties indicated that the premiums charged 
under the United States' export credit guarantee progr ams are adequate to cover long-term costs and 
                                                      
1017Panel Report, para. 7.851. In its appellee's submission, Brazil states that it "accepted that 
repayments made pursuant to re-scheduled debt agreements should be included as receipts under the [export 
credit guarantee] programs ... [but] disagreed that the full amount of re-scheduled debt should be treated as received the moment the re-scheduling agreement is co mpleted".  Instead, according to Brazil, "the default 
claim should continue to be treated as a loss unless the United States receives paymen t from the debtor, and only 
then should be credited as a receipt  in the amount actually received from  the debtor". (Brazil's appellee's 
submission, para. 988)     
1018Panel Report, para. 7.851.  The Panel was struck by the fact that "no amounts have actually been 
determined uncollectible, written off or forgiven" after 1992.  ( Ibid., para. 7.848) 
1019We recall that the United States has not challenged the Panel's assessment of the matter, including 
the assessment of the facts of the case, pursuant to Article 11 of the DSU.  Thus, the United States has not asked 
us to review the evidentiary basis on which the Panel relied to reject the treatment of rescheduled debt by the United States.  
1020Panel Report, para. 7.852.  The Panel noted that figures submitted by Brazil showed a subsidy of 
US$ 211 million, without administrative expenses. 
1021Ibid., para. 7.853.   
1022Ibid., para. 7.857.  
1023Ibid., para. 7.859.  WT/DS267/AB/R 
 Page 255 
 
 
 losses.  In these circumstances, we agree with the Panel that, in this particular case, it was not 
necessary to choose a particular method nor dete rmine the precise amount by which long-term 
operating costs and losses exceeded premiums.  Although it did not provide a final figure for the long-
term operating costs and losses of the United States' export credit guarantee programs, as the United States suggests it should have, the Panel found that th e various methods put forward by the parties led 
to the same conclusion, namely, that the premiums  for the United States' export credit guarantee 
programs are inadequate to cover the programs' long-term operating costs and losses.  The Panel's 
decision not to choose between methods or make a finding on the precise difference between premiums and long-term costs and losses does not, in our view, invalidate the Panel's ultimate findings under Articles 3.1(a) and 3.2 of the  SCM Agreement .  
673. For these reasons, we reject the United States' claim that the Panel failed to make the 
"necessary" findings of fact. 
674. Consequently, we  uphold   the Panel's finding in paragraph 7.869 of the Panel Report that "the 
United States export credit guarantee programmes at issue – GSM 102, GSM 103 and SCGP – constitute a  per se   export subsidy within the meaning of item (j) of the Illustrative List of Export 
Subsidies in Annex I of the  SCM Agreement ".  In addition, we  uphold   the Panel's findings, in 
paragraphs 7.947 and 7.948 of the Panel Report, that these export credit guarantee programs are 
export subsidies for purposes of Article 3.1(a) of the  SCM Agreement   and are inconsistent with 
Articles 3.1(a) and 3.2 of that Agreement. 
F. Export Credit Guarantees – Circumvention 
1. Introduction
 
675. We turn to the issues raised by Brazil in rela tion to the Panel's findings under Article 10.1 of 
the  Agreement on Agriculture .   
676. The Panel divided its analysis of Brazil's clai ms under Article 10.1 into different categories, 
distinguishing between scheduled and unscheduled  products, and supported an d unsupported products 
(and rice as a result of its finding in respect of this product).  "Scheduled products" are those for which a WTO Member has assumed a commitment to lim it the amount of export subsidies in terms of 
budgetary outlays and quantities exported pursu ant to Articles 3, 8, and 9 of the  Agreement on WT/DS267/AB/R 
Page 256  
 
 
 Agriculture .1024  The Panel used the term "supported products " to refer to products for which there 
was evidence in the record showi ng that they were not only eligible under the programs, but that 
export credit guarantees were in fact received in connection with expor ts of those products.1025   
677. The Panel first examined whether the United States' export credit guarantees to exports of 
upland cotton and other unscheduled  agricultural products supported  under the export credit guarantee 
programs are applied in a manner that "results in" circumvention for purposes of Article 10.1 of the  
Agreement on Agriculture .  In other words, the Panel examined  whether there is actual circumvention 
with respect to exports of these products.  The Pane l found that, "in respect of upland cotton and other 
such  unscheduled   agricultural products on record, the United States applies export credit guarantees 
constituting export subsidies in a manner which resu lts in circumvention of  its export subsidy 
commitments inconsistently with Article 10.1 of the  Agreement on Agriculture ".1026  This finding has 
not been appealed.   
678. The Panel next examined whether the Unite d States' export credit guarantees to scheduled  
products supported  under the export credit guarantee programs are applied in a manner that "results 
in" circumvention for purposes of Article 10.1 of the  Agreement on Agriculture .  The Panel found 
that "the United States has applied export credit guarantees constituting export subsidies within the 
meaning of Article 10.1 – and therefore, necessaril y, not listed in Article 9.1 – in a manner which 
results in circumvention of export s ubsidy commitments in respect of" rice.1027  In addition, the Panel 
found, that "[i]t has not been established, however, that such actual circumvention has resulted in 
respect of the twelve other United States scheduled commodities".1028  Brazil appeals the latter finding 
by the Panel.  According to Brazil, the Panel e rred in finding that the United States' export credit 
guarantee programs are not applied in a manner that  "results in" circumvention of the United States' 
                                                      
1024The Panel noted that "[t]he United States has scheduled export subsidy reduction commitments in 
respect of the following thirteen commodities:  wheat, coarse grains, rice, vegetable oils, butter and butter oil, 
skim milk powder, cheese, other milk products, bovine meat, pigmeat, poultry meat, live dairy cattle, eggs".  
(Panel Report, footnote 1057 to para. 7.876 (referring to Schedule XX of the United States of America, Part IV, Section II, entitled "Export Subsidies:  Budgetar y Outlays and Quantitative Reduction Commitments", 
reproduced in Exhibit BRA-83 and Exhibit US-13)) 
1025Panel Report, para. 6.32;  see also footnote 1056 to para. 7.875.  At the oral hearing, the participants 
confirmed that this is also their understanding of what  the Panel meant by the distinction that it drew between 
"supported" and "unsupported" products.  In respect of "supported" products, the Panel stated that "[t]o the 
extent that it identifies products within the product coverage of the  Agreement on Agriculture   that are within 
our terms of reference, we consider Exhibit BRA-73 to be the relevant record evidence of such products for the 
purposes of this dispute".  (Panel Report, footnote 1056 to para. 7.875;  see also ibid., footnote 1575 to 
para. 8.1(d)(i)) 
1026Ibid., para. 7.875. 
1027Ibid., para. 7.881. 
1028Ibid.  WT/DS267/AB/R 
 Page 257 
 
 
 export subsidy commitments with respect to pig meat and poultry meat in 2001.1029  Brazil further 
submits that "[i]n making this finding, the Panel erred in the interpretation and application of 
Article 10.1 of the  Agreement on Agriculture ,  and also of Article 11 of the DSU".1030   
679. The Panel also examined whether the United States' export credit guarantees to scheduled 
products other than rice  and unscheduled  products not supported  under the United States' export credit 
guarantee programs are applied in a manner that "t hreatens to lead to" circ umvention of the United 
States' export subsidy commitments for purposes of Article 10.1 of the  Agreement on Agriculture .  
The Panel "decline[d] to find that the export credit guarantee programmes at issue are generally applied to scheduled agricultural products other than  rice and other unscheduled agricultural products 
(not supported under the programmes) in a manner wh ich threatens to lead to circumvention of United 
States' export subsidy commitments within  the meaning of Article 10.1 of the Agreement on 
Agriculture ."
1031   
680. Brazil makes two claims on appeal in relation to the Panel's examination of threat of 
circumvention.  First, Brazil submits that the Pa nel erred in the interpre tation and application of 
Article 10.1 in examining Brazil's claims that the United States' export credit guarantee programs 
"threaten[] to lead to" circumvention of the United States' export subsidy commitments.1032  I f  t h e  
Appellate Body were to agree with Brazil and modi fy the Panel's interpretation, Brazil requests that 
the Appellate Body complete the analysis and de termine that, contrary to Article 10.1 of the  
Agreement on Agriculture ,  export credit guarantees have been applied in a manner that threatens to 
lead to circumvention of the United States' expor t subsidy commitments for all agricultural products 
eligible to receive these subsidies.1033  Secondly, Brazil argues that the Panel erred "by confining its 
examination of threatened circumvention to scheduled products other than rice and unsupported 
unscheduled products", despite the fact that Brazil' s claim "extended to all scheduled and unscheduled 
agricultural products eligible to receive [export credit guarantees] export subsidies".1034  We examine 
Brazil's allegations, in turn, below.   
                                                      
1029Brazil's other appellant's submission, para. 65.  Brazil initially included vegetable oil in this claim.  
At the oral hearing, however, Brazil indicated that it was no longer pursuing this claim in respect of vegetable 
oil.  See  infra , para. 683.  
1030Ibid., para. 76. 
1031Panel Report, para. 7.896. 
1032Brazil's other appellant's submission, para. 63. 
1033Ibid., para. 64. 
1034Ibid., para. 75. WT/DS267/AB/R 
Page 258  
 
 
 2. Actual Circumvention  
681. We begin with Brazil's claim that the Panel erred by failing to find that the United States' 
export credit guarantees are applied in a manner that led to  actual   circumvention of the United 
States' export subsidy commitments with respect to pig meat and poultry meat in 2001.1035   
682. The Panel found: 
We note that the United States has not specifically discharged its 
burden of establishing that it did not grant WTO-inconsistent   export 
subsidies, for the excess quantities of rice exported.  Therefore, we 
find that the United States has applied export credit guarantees 
constituting export subsidies within  the meaning of Article 10.1 – 
and therefore, necessarily, not listed in Article 9.1 – in a manner which results in circumvention of export subsidy commitments in respect of this particular scheduled commodity.  It has not been 
established, however, that such actual circumvention has resulted in 
respect of the twelve other United States scheduled commodities.
1036 
683. In its appellant's submission, Brazil states that  "according to uncontested evidence of record, 
supplied by the United States, actual circumvention also occurred for pig meat and poultry meat in 
2001, and for vegetable oils in 2002".1037  Brazil adds that the Panel "f ailed to properly apply a proper 
interpretation of Article 10.1 to the admitted facts".1038  "By failing to do so", Brazil submits that the 
Panel "erred in the application of Article 10.1 to uncontested facts", and also "failed to make an 
objective assessment of the matter, including of ad mitted and uncontested facts supplied by the United 
States, as required by Article 11 of the DSU".1039  In its statement at the oral hearing, Brazil 
acknowledged that data submitted by the United Stat es indicated that the United States did not exceed 
its reduction commitment levels for vegetable o il in 2001-2002.  We understand from Brazil's 
statement that it no longer wished to pursue th is claim in respect of vegetable oil.  
684. The United States responds that Brazil has not made a proper claim under Article 11 of the 
DSU.  According to the United States, Brazil "is contesting findings of the Panel on matters of 
                                                      
1035The United States has scheduled export subsidy reduction commitments for pig meat and poultry 
meat.  Consequently, the special rule on the burden of proof established in Article 10.3 applies to any quantities 
exported that exceed the United States ' reduction commitment levels.  In re spect of these quantities, the United 
States would be "treated as if it has granted WTO- inconsistent  export subsidies ... unless the [United States] 
presents adequate evidence to 'establish' the contrary".  (Appellate Body Report, Canada – Dairy (Article 21.5 – 
New Zealand and US II) , para. 74. (original emphasis)) 
1036Panel Report, para. 7.881. 
1037Brazil's other appellant's submission, para. 204. (footnote omitted) 
1038Ibid., para. 210. 
1039Ibid., para. 211.  (footnote omitted)   WT/DS267/AB/R 
 Page 259 
 
 
 disputed fact".1040  Because "Brazil does not appeal the Panel's factual findings that the facts did not 
demonstrate that subsidized exports exceeded U.S. quantitative reduction commitments for poultry, 
pig meat, and vegetable oils", the United States subm its that Brazil's appeal is improper as it does not 
"stand by itself" and is not "substantiated with respect to the challenged findings".1041   
685. In addition, the United States points out that  Brazil's allegation of actual circumvention 
related to the period July 2001 through June 2002.1042  In contrast, quantitative data on exports under 
the United States' export credit guarantee program ar e maintained on a fiscal year basis, which 
extends from 1 October to 30 September of the following year.1043  In any event, even if this 
difference between periods can be overcome, the United States argues that "the actual data also support[
 ] the Panel's finding that Brazil had not de monstrated actual circumvention for these 
products".1044   
686. We understand Brazil to argue that the Panel erre d both in the application of Article 10.1 of 
the  Agreement on Agriculture   and in its assessment of the matter pursuant to Article 11 of the 
DSU.1045  As we explained earlier, the application of a legal rule to the specific facts of a case is an 
issue of legal characterization.1046  In this case, we understand that Brazil's claim under Article 11 of 
the DSU is additional to its claim of legal error in respect of Article 10.1.  We thus turn first to 
Brazil's claim that the Panel erred in it application of Article 10.1 of the  Agreement on Agriculture   to 
the facts before it.   
687. It will be recalled that Article 10.1 provides:  
Export subsidies not listed in paragr aph 1 of Article 9 shall not be 
applied in a manner which results in , or which threatens to lead to, 
circumvention of export subsid y commitments;  nor shall non-
commercial  transactions be used to circumvent such commitments. 
                                                      
1040United States' appellee's submission, para. 50 (footnote omitted) 
1041Ibid., para. 50 (referring to Appellate Body Report, US – Steel Safeguards , para. 498). (original 
emphasis;  footnote omitted) 
1042Ibid., para. 56 (referring to Panel Report, para. 7.878 and Brazil's first written submission to the 
Panel, para. 265 and Figure 18).  We note that the period from July of one year to June of the next year is the 
period used in the United States' schedule of concessi ons for its quantitative export subsidy commitments.  See 
Schedule XX of the United States submitted by Brazil to the Panel as Exhibit BRA-83. 
1043The fiscal year of the United Stat es federal government is designated according to the calendar year 
in which it ends.  Therefore, fiscal year 2001 ran from 1 October 2000 to 30 September 2001. 
1044United States' appellee's submission, para. 56.  
1045Brazil's response to questioning at the oral hearing; Brazil's other appellant's submission, para. 211. 
1046Appellate Body Report, EC – Hormones , para. 132. WT/DS267/AB/R 
Page 260  
 
 
 688. Brazil asserts that "the Panel’s legal analysis of the circumstances in which actual 
circumvention occurs for scheduled products was correct" and draws our attention to the Panel's 
statement that "where the United States exports an agricultural product in quantities that exceed its 
quantity commitment level, it will be treated for the purposes of Article 10.1 as if it has granted 
WTO-inconsistent  export subsidies, for the excess quantities, unless it presents adequate evidence to 
'establish' the contrary".1047  Brazil adds that although the Panel co rrectly applied this interpretation to 
rice, it failed to do so in respect of pig meat and poultry meat.1048   
689. We observe that after finding that the United States had circumvented its commitments for 
rice, the Panel went on to reject Brazil's claim in  respect of the other scheduled products supported 
under the programs without providing an explanation of the basis for its conclusion.  Looking at the Panel's analysis, we note that, in paragraph 7.878, the Panel recognized that Brazil's claim of actual 
circumvention extended to thirteen agricultural prod ucts, including pig meat and poultry meat.  In the 
next paragraph, the Panel refers to the United St ates' submission that it was in compliance with 
respect to nine of the products mentioned by Brazil" , and that, in fiscal year 2002 it would also be true 
for poultry meat".
1049  Pig meat is not mentioned at all.  As for poultry meat, the use of the conditional 
"would also be true" suggests some question about co mpliance with respect to that product as well, as 
the condition is not identified.  Oddly, however, these issues are not taken up by the Panel, which 
does not examine any further whether there was actual circumvention for these products.   
690. Instead, from that point on, the Panel focused exclusively on rice, in respect of which the 
Panel found that the United States failed to establis h "that it did not grant WTO-inconsistent export 
subsidies, for the excess quantities of rice exported."1050  It would appear that the Panel satisfied itself 
with what it considered to be an admission by the United States in respect of rice, and declined to 
examine further Brazil's claim in respect of the othe r products.  In concluding, the Panel merely stated 
that "[i]t has not been established, however, that su ch actual circumvention has resulted in respect of 
the twelve other United States scheduled commodities".1051  There is no further explanation of the 
reasons leading to this conclusion. 
691. The Panel may have decided to satisfy itself w ith the United States' admission regarding rice 
because it allowed it to avoid having to resolve the problem posed by the different time periods used, 
                                                      
1047Brazil's other appellant's submission, para. 205 (quoting Panel Report, para. 7.877). 
1048Ibid., paras. 206-207.  
1049Panel Report, para. 7.879.  
1050Ibid., para. 7.881. 
1051Ibid.   WT/DS267/AB/R 
 Page 261 
 
 
 on the one hand, to track exports under the Unite d States' export credit guarantee programs and, on 
the other, to determine the expor t subsidy reduction commitments under the United States' schedule.  
Exports under the United States' export credit guarantee programs are tracked on a fiscal year basis, 
extending from 1 October to 30 September of the following year.  Meanwhile, the United States' export reduction commitments are based on a year th at extends from 1 July to 30 June of the 
following year.  These periods overlap, albeit only in part.   
692. We find nothing wrong in the Panel having relied on an admission by the United States 
relating to rice to conclude that the United States  had failed to rebut Brazil's initial allegation of 
circumvention.
1052  This did not excuse the Panel, however , from specifically analyzing Brazil's claim 
in respect of the other products.  Consequently, we  find no basis to support the Panel's finding that 
"[i]t has not been established, however, that such ac tual circumvention has resulted in respect of the 
twelve other United States scheduled commodities".1053  
693. We must determine next whether there are suffici ent uncontested facts in the record to permit 
us to complete the analysis with  respect to the other commodities.1054  In our view, there are not.  
First, the parties disagree about the time period covered by Brazil's claim.  The United States asserts 
that Brazil's claim was limited to  the period July 2001 to June 2002 , while Brazil contends that its 
claim was not limited to that period.1055  Second, as we noted previously1056, different time periods are 
used for the sets of data that have to be compar ed.  The data regarding Un ited States exports under the 
export credit guarantee programs are maintained on a fiscal year basis, which extends from 1 October 
to 30 September of the following year.1057  The United States' expor t subsidy commitments are 
registered based on a year that extends from 1 July  to 30 June of the following year.  Both Brazil and 
the United States have sought to reconcile the data.1058  In each case, Brazil and the United States 
assert that the data support their position.  Given the di fferences between the participants in respect of 
the data that we would have to examine to dete rmine whether the United States applied export credit 
guarantees in a manner that results in circumvention of its export subsidy commitments for pig meat  
                                                      
1052Panel Report, footnote 1060 to para. 7.880. 
1053Ibid., para. 7.881.  
1054Appellate Body Report, US – Section 211 Appropriations Act , para. 343. 
1055Brazil's and the United States' responses to questioning at the oral hearing. 
1056Supra , para. 691. 
1057The fiscal year of the United Stat es federal government is designated according to the calendar year 
in which it ends.  Therefore, fiscal year 2001 ran from 1 October 2000 to 30 September 2001. 
1058United States' appellee's submission, paras. 58-6 0;  Brazil's statement at the oral hearing. WT/DS267/AB/R 
Page 262  
 
 
 and poultry meat, we do not believe there are sufficient undisputed facts in the record to enable us to 
complete the analysis. 
694. We recall that Brazil's claim on appeal is limite d to the Panel's findings relating to pig meat 
and poultry meat.  For the reasons mentioned above, we  reverse   the Panel's finding, in 
paragraph 7.881 of the Panel Report, that Brazil di d not establish actual circumvention in respect of 
poultry meat and pig meat.  Nevertheless, because there are insufficient uncontested facts in the 
record to enable us to do so, we do not complete  the legal analysis to determine whether the United 
States' export credit guarantees to poultry meat and pi g meat have been applied in a manner that 
"results in" circumvention of the United States' export subsidy commitments.   
695. Brazil has made an additional claim that the Panel failed to make an objective assessment of 
the matter, as required by Article 11 of the DSU.  Having reversed the Panel's ultimate finding, we 
find that it is not necessary for us to rule on Brazil's additional claim under Article 11 of the DSU.  
This is because, even if we were to agree with Br azil, it would lead to the same result that we have 
reached after examining the Panel's ap plication of Article 10.1 of the  Agreement on Agriculture   to 
the facts before it.   
3. Threat of Circumvention  
(a) Scheduled Products Other than Rice and Unscheduled Products not 
Supported under the Export Credit Guarantee Programs  
696. We move next to Brazil's two claims on app eal relating to the Panel's examination of  threat   
of circumvention.  We recall that the Panel examined whether the United States' export credit 
guarantees are applied in a manner that "threatens to  lead to" circumvention of the United States' 
export subsidy commitments in respect of  scheduled products other than rice   and  unscheduled 
products not supported   under the export credit programs.   
697. For ease of reference, we note again the text of Article 10.1, which reads: 
Export subsidies not listed in paragr aph 1 of Article 9 shall not be 
applied in a manner which results in , or which threatens to lead to, 
circumvention of export subsid y commitments;  nor shall non-
commercial  transactions be used to circumvent such commitments.  WT/DS267/AB/R 
 Page 263 
 
 
 698. The Panel explained that its conclusion on whet her the United States' export credit guarantees 
are applied in a manner that threatens to lead to  circumvention would depend on whether the Panel 
considered that: 
... the United States export credit guarantee programmes require the 
provision of an 'unlimited amount' of subsidies, so that scheduled commodities other than rice and unscheduled agricultural products 
not supported under the programmes,  therefore, benefit from those 
subsidies when the reduction comm itment levels specified in the 
United States' Schedule for those agricultural products have been reached.
1059 
The Panel cautioned, however, that even if it made  an affirmative finding, "if these programmes are 
not such as to necessarily create an unconditional legal entitlement  to receive them, then there would 
not necessarily be such a threat".1060  The Panel therefore proceeded to "examine whether an 
unconditional statutory legal entitlement to an export  credit guarantee exists in respect of such 
products".1061 
699. In its examination, the Panel noted that "United States export credit guarantee programmes 
are classified as 'mandatory' under the Un ited States Budget Enforcement Act of 1990."1062  It went on 
to explain, however, that it did "not believe that the 'mandatory/discretionary' distinction is the sole 
legally determinative one for [its] examination of whether or not 'threat' of circumvention of export 
subsidy commitments within the meaning of Article 10.1 of the  Agreement on Agriculture   has been 
proven to the required standard".1063  The Panel, moreover, stated that, "[i]n order to pose a 'threat' 
within the meaning of Article 10.1 of the  Agreement on Agriculture , [it did] not believe that it is 
sufficient that an export credit guarantee programme might possibly, or theoretically, be used in a 
manner which threatens to lead to circumvention of export subsidy commitments".1064 
700. After examining the statutory and regulatory framework of the United States' programs under 
which the export credit guarantees are issued, the Pa nel concluded that this statutory and regulatory 
framework "is such that the CCC would not necessarily be required to issue guarantees in respect of 
any other unscheduled agricultural product (not s upported under the programmes), or in respect of 
                                                      
1059Panel Report, para. 7.882. (footnote omitted) 
1060Ibid., para. 7.883. (emphasis added)   
1061Ibid., para. 7.883. 
1062Ibid., para. 7.884. (footnote omitted) 
1063Ibid., para. 7.886. 
1064Ibid., para. 7.893. WT/DS267/AB/R 
Page 264  
 
 
 scheduled agricultural products other than rice, in a manner which 'threatens to lead to' circumvention 
of export subsidy commitments".1065  The Panel, therefore, found:  
Keeping the applicable burden of proof in mind, we therefore decline 
to find that the export credit guarantee programmes at issue are 
generally applied to scheduled agricultural products other than rice 
and other unscheduled agricultural products (not supported under the 
programmes) in a manner which threatens to lead to circumvention of United States export subsidy commitments within the meaning of Article 10.1 of the  Agreement on Agriculture .
1066  
701. Brazil asserts that the Panel erred in inte rpreting and applying Article 10.1 of the  Agreement 
on Agriculture .  According to Brazil, "[by] declaring that a 'possibility' of circumvention was not 
sufficient for a 'threat' finding under Article 10.1, the Panel mischaracterized the threat obligation, 
reducing it to situations of near certainty".1067  Brazil explains that the ordinary meaning of the term 
"threat" can "encompass events that are a possibility or that appear likely; the word can also include 
events whose occurrence is indicated or portended by circumstances".1068  Furthermore, Brazil asserts, 
that the meaning of the term "threatens" is clarifie d by its immediate context, particularly by the use 
of the word "prevent" in the title of Article 10.1069  Brazil explains that "[t]o give proper meaning to 
the aim of 'prevention,' the threat obligation should,  therefore, be read in a way that it thwarts, 
forestalls, or stops circumvention from occurring by requiring a Member to take appropriate 
precautionary action".1070  If, on the contrary, "the degree of likelihood necessary to trigger the threat 
obligation were set too high, the threat obligation w ould fail to 'prevent' circumvention, contrary to 
the express aim of the provision".1071 
                                                      
1065Panel Report, para. 7.895. 
1066Ibid.,  para. 7.896. 
1067Brazil's other appellant's submission, para. 95.  Braz il is referring to the Panel's statement that "[i]n 
order to pose a 'threat' within the meaning of Article 10.1 of the Agreement on Agriculture , we do not believe 
that it is sufficient that an export credit guarantee prog ramme might possibly, or theoretically, be used in a 
manner which threatens to lead to circumvention of export subsidy commitments". (Panel Report, para. 7.893) 
1068Brazil's other appellant's submission, para. 97.   
1069Ibid., paras. 98-99.  The title of Article 10 is "Prevention of Circumvention of Export Subsidy 
Commitments". 
1070Ibid., para. 100.  According to Brazil, "[ t]his reading of Article 10.1 of the Agreement on 
Agriculture  is consistent with the Appellate Body's observation, in US – FSC , that the FSC measure did not 
provide a mechanism for "stemming or otherwise controlling"  the "flow" of export subsidies. (Appellate Body 
Report, US – FSC , para. 149) 
1071Brazil's other appellant's submission, para. 101.  WT/DS267/AB/R 
 Page 265 
 
 
 702. Having set out its views on the meaning of the term  "threatens" as used in Article 10.1 of the  
Agreement on Agriculture ,  Brazil then distinguishes it from the connotation that the same term is 
given in other covered agreemen ts.  Brazil submits that the  Agreement on Safeguards   and the  Anti-
Dumping Agreement   require a higher degree of likelihood because, under both Agreements, the 
demonstration of "threat" triggers the  right   of a WTO Member to apply trade remedy measures 
involving suspension or modification of WTO commitments.1072  In contrast, "Article 10.1 of the  
Agreement on Agriculture  aims at the effective enforcement  of a Member's export subsidy 
obligations ".1073  Finally, Brazil submits that the assess ment of whether a threat exists under 
Article 10.1 must be done on a case-by-case basis and suggests a list of factors that could be considered as part of the assessment.
1074 
703. The United States responds by asserting that Brazil mischaracterizes the Panel's findings.  
Contrary to Brazil's argument, the Panel's findi ng that the export credit guarantee programs do not 
threaten circumvention of export subsidy commitments is not an articulation of a broad standard that 
circumvention of export subsidy commitments woul d only be "threatened" if beneficiaries had an 
"absolute" or "unconditional statut ory legal entitlement" to receive th e subsidies such that the United 
States would "necessarily" be required to grant s ubsidies after the commitment level had been 
reached.1075  Rather, in concluding that the programs di d not pose a threat of circumvention, the 
United States argues, the Panel simply was respond ing to and declining to adopt Brazil's erroneous 
factual and legal characterizations of the program.1076  The United States submits, furthermore, that 
the Panel rightly distinguished these programs from the mandatory subsidies at issue in  US – FSC ,  
and the Panel's decision presents no conf lict with that Appellate Body Report.1077  According to the 
United States, Brazil effectively argued that a mere  possibility of issuance of export credit guarantees 
presented a threat of circumvention, and the Panel si mply did not adopt this theory in the context of 
the export credit guarantee programs.1078 
                                                      
1072Brazil's other appellant's submission, para. 103. 
1073Ibid., para. 104. (original emphasis) 
1074Ibid., para. 105.   
1075United States' appellee's submission, paras. 6 and 27 (referring to Brazil's other appellant's 
submission, para. 89). 
1076Ibid., paras. 6 and 30. 
1077Ibid., para. 32. 
1078Ibid., paras. 6 and 35.  WT/DS267/AB/R 
Page 266  
 
 
 704. The Appellate Body has explained that "under Ar ticle 10.1, it is not necessary to demonstrate  
actual  'circumvention' of 'export subsidy commitments'".1079  It suffices that "export subsidies" are 
"applied in a manner which … threatens to lead to  circumvention of export subsidy commitments".1080  
We note that the ordinary meaning of the term "thr eaten" includes "[c]onstitute a threat to", "be likely 
to injure" or "be a source of harm or danger".1081  Article 10.1 is concerned not with injury, but rather 
with "circumvention".  Accordingly, based on its ordi nary meaning, the phrase "threaten[] to lead to ... 
circumvention" would imply that the export subsidies are applied in a manner that is "likely to" lead 
to circumvention of a WTO Member's export subsid y commitments.  Furtherm ore, we observe that 
the ordinary meaning of the term "threaten" refers to a  likelihood   of something happening; the 
ordinary meaning of "threaten" does not connote a sense of certainty.1082    
705. The concept of "threat" has been discussed by th e Appellate Body within the context of the 
Agreement on Safeguards   and the  Anti-Dumping Agreement .  It has explained that "threat" refers to 
something that "has  not  yet occurred, but remains a future event whose actual materialization cannot, 
in fact, be assured with certainty".1083  In  US – Line Pipe ,  the Appellate Body stated that there is a 
continuum that ascends from a "threat of seri ous injury" up to the "serious injury" itself.1084  W e  
emphasize that the Appellate Body's discussion of th e concept of "threat" in previous appeals related 
to the interpretation of other covered agreements that  contain obligations relating to injury that differ 
from those relating to circumvention of export subsidy reduction comm itments contained in 
Article 10.1 of the  Agreement on Agriculture .  Our interpretation of "thr eat" in Article 10.1 of the  
Agreement on Agriculture   is consistent with the Appellate B ody's interpretation of the term "threat" 
in these other contexts. 
                                                      
1079Appellate Body Report, US – FSC , para. 148. (original emphasis)   
1080Ibid., para. 148.  
1081Shorter Oxford English Dictionary , 5th ed., W.R. Trumble, A. Stevenson (eds.) (Oxford University 
Press, 2002), Vol. 2, p. 3251. 
1082Both participants agree that the determination of threat of circumvention has to be done on a case-
by-case basis. (Brazil's and the United States' re sponses to questioning at the oral hearing.) 
1083Appellate Body Report, US – Lamb , para. 125. (original emphasis)  The Appellate Body was 
interpreting the phrase "threat of serious injury " within the context of Article 4.1(b) of the Agreement on 
Safeguards .  Article 4.1(b) defines "threat of serious injury" as "serious injury that is clearly imminent, in 
accordance with the provisions of paragrap h 2.  A determination of  the existence of a thr eat of serious injury 
shall be based on facts and not merely on allegation, conjecture or remote possibility". 
1084The Appellate Body explained that "[i]n terms of the rising continuum of an injurious condition of a 
domestic industry that ascends from a 'threat of serious injury' up to 'serious injury', we see 'serious injury'—
because it is something  beyond   a 'threat'—as necessarily  including  the concept of a 'threat' and  exceeding   the 
presence of a 'threat'". (Appellate Body Report, US – Line Pipe , para. 170) (original emphasis)  WT/DS267/AB/R 
 Page 267 
 
 
 706. The Panel explained that, in its view, "threat " of circumvention under Article 10.1 requires 
that there be a "an unconditional legal entitlement".1085  We see no basis for this requirement in 
Article 10.1.  The Panel also stated that "[i]n orde r to pose a 'threat' within the meaning of Article 10.1 
of the Agreement on Agriculture , [it did] not believe that it is sufficient that an export credit guarantee 
programme might possibly, or theoretically, be used in a manner which threatens to lead to 
circumvention of export subsidy commitments".1086  In both of these statements, the Panel seems to 
conflate the phrase "threaten to lead to .... circumve ntion" with certainty that the circumvention will 
happen.  We find it difficult, moreover, to reconc ile the Panel's interpretation with the ordinary 
meaning of the term "threaten", which, as we indica ted earlier, connotes that something is "likely" to 
happen.1087  We also find it difficult to reconcile these statements of the Panel with its own view that it 
did "not believe that the 'mandatory/discretionary' di stinction is the sole legally determinative one for 
our examination of whether or not 'threat' of circ umvention of export subsidy commitments within the 
meaning of Article 10.1 of the  Agreement on Agriculture   has been proven to the required 
standard".1088 
707. Nor are we prepared to accept Brazil's suggesti on that the concept of "threat" in Article 10.1 
should be read in a manner that requires WTO Me mbers to take "anticipatory or precautionary 
action".1089  The obligation not to apply export subsidies in a manner that "threatens to lead to" 
circumvention of their export subsidy commitments does not extend that far.  There is no basis in 
Article 10.1 for requiring WTO Members to take a ffirmative, precautionary steps to ensure that 
circumvention of their export subsidy reduction commitments does not occur.1090    
708. In concluding as it did, the Panel appears to have relied on the Appellate Body Report in  
US – FSC   for guidance.1091  In our view, however, the Panel misa pplies that analysis.  We recall that, 
in  US – FSC , the Appellate Body underscored the importan ce of considering "the structure and other 
characteristics of [the] measure" when examining whet her the specific measure at issue is "applied in 
                                                      
1085Panel Report, para. 7.883. 
1086Ibid., para. 7.893. 
1087Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 85. 
1088Panel Report, para. 7.886. 
1089Brazil's other appellant's submission, para. 100. 
1090We note in this respect that Article 10 is title d "Prevention of Circumvention of Export Subsidy 
Commitments".  Brazil's assertion that Article 10.1 requ ires WTO Members to take precautionary action would 
imply that the aim of the provision would also include the prevention of  threat   of circumvention.  
1091In a footnote, the Panel states that the United States' export credit guarantee programs that it was 
"examining are of a fundamentally different nature than  the mandatory and essentially unlimited subsidy (in the 
form of revenue forgone that is otherwise due) examined in US – FSC ". (Panel Report, footnote 1082 to 
para. 7.894)  WT/DS267/AB/R 
Page 268  
 
 
 a manner which ... threatens to lead to circ umvention of export subsidy commitments".1092  T h e  
Appellate Body then went on to note that the speci fic measure at issue in that dispute created "a  legal 
entitlement   for recipients to receive export subsidies,  not listed in Article 9.1, with respect to 
agricultural products, both scheduled and unscheduled".1093  This meant that there was "no 
discretionary element in the provision by th e government of the FSC export subsidies".1094  
Furthermore, the Appellate Body noted that the "l egal entitlement that the FSC measure establishes is 
unqualified as to the  amount   of export subsidies that may be claimed".1095  This meant that the 
measure was "unlimited" because there was "no mechanism in the measure for stemming, or 
otherwise controlling the flow of ... subsidies that may be claimed with respect to any agricultural 
products".1096 
709. A proper reading of the Appellate Body's statement in  US – FSC ,  however, reveals that it did 
not intend to provide an exhaustive interpretation of threat of circumvention under Article 10.1 of the  
Agreement on Agriculture .  In noting that the measure at issu e in that dispute created a "legal 
entitlement" and had no "discretionary element" , the Appellate Body was merely describing 
characteristics of the measure at issu e in that case that it found relevant for its analysis of "threat".  In 
other words, the Appellate Body did not foreclose, in US – FSC , the possibility that a measure that 
does not create a "legal entitlement" or that has a "discretionary element" could be found to 
"threaten[] to lead to circumvention" under Article 10.1 of the  Agreement on Agriculture . 
710. We therefore modify the Panel's interpretati on, in paragraphs 7.882-7.883 and 7.896 of the 
Panel Report, of the phrase "threatens to lead to  .... circumvention" in Article 10.1 of the  Agreement 
on Agriculture   to the extent that the Panel's inte rpretation requires "an unconditional legal 
entitlement" to receive the relevant export subsid ies as a condition for a finding of threat of 
circumvention.   
711. Having interpreted the phrase "threatens to lead  to ... circumvention", we turn to Brazil's 
request that we complete the legal analysis a nd find that, contrary to Article 10.1 of the  Agreement on 
Agriculture ,  the United States' export credit guarantee pr ograms have been applied in a manner that 
threatens to lead to circumvention of the United States' export subsidy reduction commitments for all  
                                                      
1092Appellate Body Report, US – FSC , para. 149. 
1093Ibid. (original emphasis) 
1094Ibid., para. 149.   
1095Ibid. (original emphasis) 
1096Ibid., para. 149.    WT/DS267/AB/R 
 Page 269 
 
 
 agricultural products eligible to receive these subsidies.1097  According to Brazil, the alleged discretion 
retained by the CCC, as found by the Panel, does not operate in a manner that "mitigates the threat of 
circumvention".1098  Brazil submits that the initial allocations by country of funds available for export 
credit guarantees "are repeatedly increased during the year".1099  "The same is also true", Brazil 
asserts, "of product allocations, although the CCC  makes relatively limited use of these".1100  I n  
addition, Brazil points out that "the record does not contain one single example of a situation where 
the CCC was unable to provide [export credit guarant ees] because a country or product allocation had 
been exhausted ... [i]nstead, the record discloses th at country and product allocations are repeatedly 
increased, by significant amounts, during the fiscal year as demand for [export credit guarantees] exhausts existing allocations".
1101   
712. Brazil also questions the significance attributed  by the Panel to the fact that, under United 
States law, export credit guarantees may not be provid ed in relation to exports to a country that the 
Secretary of Agriculture determines "cannot adequa tely service the debt associated with such sale".1102  
According to Brazil, this statutory provision does not constrain the overall amount of export credit 
guarantees because "the possible exclusion of a coun try does not prevent the CCC from using all the 
[export credit guarantees] that would have gone to that  country to support exports to other, eligible 
countries".1103  Moreover, Brazil submits that the record shows that the Secretary of Agriculture has 
used this authority "other than sparingly" and that  the current list of countries that are eligible under 
the United States' export credit guarantee programs incl ude "the very large majority of the world's 
highly indebted poor countries".1104 
713. We are not persuaded that the arguments put  forward by Brazil establish that the United 
States' export credit guarantee programs are applie d in a manner that threatens to lead to 
circumvention of the United States' export subsid y commitments in respect of scheduled products 
other than rice and unscheduled products not supported under the programs.  In our view, the fact 
alone that exports of certain products are eligible  for export credit guarantees is not sufficient to 
                                                      
1097Brazil's other appellant's submission, paras. 63-64 and 140. 
1098Ibid., para. 187. 
1099Ibid., para. 188.   
1100Ibid., para. 189.  According to Brazil, less than eight percent of allocations were product-specific 
in 2003. 
1101Brazil's other appellant's submission, para. 191. (footnote omitted) 
1102Panel Report, para. 7.888 (quoting 7 USC 5622(f)(1)).  The Panel stated that "[w]hile this does not 
curtail the amount of guarantees that may ultimately be made available, it does indicate to us that there exists a 
discretion (on the part of the Secretar y [of Agriculture]) to determine situations in which guarantees cannot be 
made available". ( Ibid., para. 7.888) 
1103Brazil's other appellant's submission, para. 195. 
1104Ibid., para. 196. WT/DS267/AB/R 
Page 270  
 
 
 establish a threat of circumvention.  This is par ticularly the case where there is no evidence in the 
record that exports of such products have been "supported" by export credit guarantees in the past.1105  
As we stated earlier, Article 10.1 of the  Agreement on Agriculture   does not require WTO Members 
to take affirmative, precautionary steps to ensure that circumvention of their export subsidy reduction 
commitments never happens.  Nor is it sufficient for Brazil to have alleged that the United States has 
provided export credit guarantees to exports of  other   unscheduled products or to exports of 
scheduled products in excess of its export subsidy re duction commitments.  Therefore, we agree with 
the Panel that Brazil has not established that th e United States applies its export credit guarantee 
programs to scheduled agricultural products othe r than rice and other unscheduled agricultural 
products (not "supported" under the programs) "i n a manner ... which threatens to lead to ... 
circumvention" of the United States' export subsidy commitments. 
714. We thus  uphold , albeit for different reasons, the Pane l's finding, in paragraph 7.896, that 
Brazil has not established that "the export credit gua rantee programmes at issu e are generally applied 
to scheduled agricultural products other than rice and other unscheduled agricultural products (not 
supported under the programmes) in a manner which threatens to lead to circumvention of United 
States export subsidy commitments within  the meaning of Article 10.1 of the Agreement on 
Agriculture ".   
(b) Rice and Unscheduled Products Supported by the Export Credit 
Guarantee Programs  
715. We turn to Brazil's claim that the Panel imprope rly confined its examination of Brazil's threat 
claim to scheduled  products other than rice  and unscheduled products not supported  under the 
programs.  Put another way, Brazil submits that th e Panel's analysis of "threat" of circumvention 
should have also included rice (a scheduled pr oduct) and unscheduled products supported by the 
programs (including upland cotton).1106   
716. As Brazil acknowledges, the products that th e Panel allegedly excluded from its "threat" 
analysis had been the subject of the Pane l's analysis of "actual" circumvention.1107  In fact, for these 
products, the Panel had  already   found that the United States' export credit guarantees are applied in a 
manner that "results in" circumvention.  That is, the Panel found  actual   circumvention.1108  T h e  
                                                      
1105"Supported" products are described, supra , para. 676. 
1106Brazil's other appellant's submission, para. 75. 
1107Ibid., para. 135 (referring to Panel Report, paras. 7.875 and 7.881). 
1108Panel Report, para. 7.875.  WT/DS267/AB/R 
 Page 271 
 
 
 Panel, however, explained that it was unnecessary fo r it to examine whether export credit guarantees 
for the same products were also applied in a ma nner that "threatens to lead to" circumvention: 
Article 10.1 of the Agreement on Agriculture  provides that export 
subsidies not listed in Article 9.1 "shall not be applied in a manner 
which results in, or which threatens to lead to, circumvention of 
export subsidy commitments ..." (em phasis added).  With respect to 
rice and to unscheduled agricultural products supported under programmes, we have found, in pa ragraphs 7.875 and 7.881, that the 
United States applies export credit guarantee programmes 
constituting export subsidies in a manner which results in  
circumvention of its export subsidy commitments inconsistently with 
Article 10.1.  We consider that the "or" in Article 10.1 indicates that either one (resulting in circumvention) or the other (threatening to lead to circumvention) or both in combination would be adequate to 
trigger the remedies associated with this provision.  We also see 
"resulting in circumvention" as including and exceeding the concept of "threatening to lead to circumvention".  ...  We therefore do not believe that it is necessary to co nduct any additional examination 
here.
1109 (original emphasis) 
717. We believe the Panel was within its discreti on in declining to examine whether scheduled 
products other than rice and unscheduled products supported by the programs are applied in a manner 
that "threatens to lead to" circumvention.  The Panel had already found that the United States acted 
inconsistently with Article 10.1 of the  Agreement on Agriculture   because it applied its export credit 
guarantee program in a manner that "results in" (actual) circumvention of its export subsidy 
commitments for these products.  We do not see wh y the Panel had to examine also whether the 
United States acted inconsistently with the  same   provision in respect of the  same   products, but on 
the basis of there being a  threat   of circumvention, rather than  actual   circumvention.  
718. The Appellate Body has stated that panels may exercise judicial economy and refrain from 
addressing claims beyond those necessary to resolve the dispute.1110  In this case, the Panel did not 
expressly state it was exercising judicial economy.1111  We agree with the United States, however, that 
the Panel's approach can be properly charact erized as an exercise of judicial economy.1112  Moreover, 
we believe that the Panel was within its discretion in refraining from making a dditional findings and it 
                                                      
1109Panel Report, footnote 1061 to para. 7.882.   
1110Appellate Body Report, Canada – Wheat Exports and Grain Imports , para. 133. 
1111The Panel stated that it did not believe it "necessary to conduct any additional examination". (Panel 
Report, footnote 1061 to para. 7.882) 
1112The United States asserts that "the Panel proper ly exercised judicial economy in not examining 
threat of circumvention for agricultural products with respect to which it found actual circumvention". (United 
States' appellee's submission, para. 42)   WT/DS267/AB/R 
Page 272  
 
 
 was not improper for the Panel to have exercise d judicial economy given that its finding of  actual   
circumvention resolved the matter.1113   
719. Therefore, we reject Brazil's appeal that th e Panel erred in confining its examination of 
Brazil's threat of circumvention claim to scheduled  products other than rice and unscheduled products 
not supported under the United States' export credit guarantee programs.   
G. Export Credit Guarantees – Articles 1.1 and  3.1(a) of the SCM Agreement 
720. We turn now to Brazil's allegation that the Panel erred by exercising judicial economy in 
respect of Brazil's claim that the United States' e xport credit guarantees are export subsidies within the 
meaning of Articles 1.1 and 3.1(a) of the  SCM Agreement . 
721. The Panel first examined the United States' export credit guarantees under the  Agreement on 
Agriculture   using the benchmark provided in item (j) of the Illustrative List of Export Subsidies 
attached to the  SCM Agreement   as Annex 1, albeit as context.1114  The Panel found: 
On the basis of the totality of  the record evidence, including 
approaches regularly relied upon by the United States government 
itself, we find that Brazil has established that the United States CCC provides the GSM 102, GSM 103 and SCGP export credit guarantee programmes "at premium rates whic h are inadequate to cover the 
long-term operating costs and losses of the programmes" within the 
meaning of item (j) of the Illustrative List of Export Subsidies in 
Annex I of the SCM Agreement . 
... 
We therefore find that the United States export credit guarantee 
programmes at issue – GSM 102, GSM 103 and SCGP – constitute a per se  export subsidy within the meaning of item (j) of the 
Illustrative List of Export Subsidies in Annex I of the SCM 
Agreement .
1115   
722. After completing its examination under the  Agreement on Agriculture ,  the Panel moved to 
Brazil's claims under the  SCM Agreemen t.  The Panel noted that it had "conducted a 'contextual' 
analysis under item (j) ... for the purposes of determ ining whether or not an export subsidy exists 
within the meaning of Article 10.1 of the  Agreement on Agriculture "  and, therefore, saw "no reason 
... why this analysis may not also be applied directly in an examination of the merits of Brazil's claims 
                                                      
1113Appellate Body Report, Australia – Salmon , para. 223.  See also Appellate Body Report, Canada – 
Wheat Exports and Grain Imports , para. 133.  
1114Panel Report, para. 7.803. 
1115Ibid., paras. 7.867 and 7.869.  WT/DS267/AB/R 
 Page 273 
 
 
 under item (j)/Article 3.1(a) of the  SCM Agreement   in respect of the export credit guarantee 
programmes in this factual situation".1116  The Panel found: 
To the extent that the United States export credit guarantee 
programmes at issue – GSM 102, GSM 103 and SCGP – do not 
conform fully to these provisions in Part V of the Agreement on 
Agriculture  and do not benefit from the exemption from actions 
provided by Article 13(c)(ii) of the Agreement on Agriculture , they 
are also export subsidies prohibited by Article 3.1(a) for the reasons we have already given.
1125 
Article 3.2 of the SCM Agreement  provides: "A Member shall neither 
grant nor maintain subsidies referred to in paragraph 1" of Article 3.  
To the extent that the three Un ited States export credit guarantee 
programmes at issue are inconsistent with Article 3.1(a), they are, consequently, also inconsistent with Article 3.2 of the SCM 
Agreement .
1117 
   
 1125 We recall that Artic le 3.1(a) of the SCM Agreement  sets out a 
prohibition on subsidies contingent upon export performance, "including 
those illustrated in Annex I".  Annex I - the Illustrative List of Export 
Subsidies - contains item (j).  We have found that the challenged United 
States export credit guarantee programmes  meet the definitional elements of 
a per se  export subsidy in item (j).  As they are among those "illustrated in 
Annex I" for the purposes of Article  3.1(a), they are included in the 
subsidies contingent upon export performance prohibited by Article 3.1(a) of the  SCM Agreement . 
723. During the interim review, Brazil  requested the Panel "to make certain additional 'factual' 
findings regarding the parties' evidence and argumen tation relating to Brazil's allegation that the CCC 
export credit guarantee programmes at issue constitute  prohibited export subsidies under the elements 
of Articles 1 and 3.1(a) of the  SCM Agreement ".1118  Brazil asserted that "in the event one of the 
parties appeals and the Appellate Body reverses the Panel's conclu sion on item (j), it might not have 
the necessary facts at its disposal to 'complete th e analysis' with respect to Brazil's claims under 
Articles 1 and 3.1(a) of the  SCM Agreement ".1119 
724. The United States asked the Panel to reject Brazil's request, asserting that "the Panel ha[d] 
already made findings on the claims cited by Brazil" and, therefore, Brazil was improperly requesting 
                                                      
1116Panel Report, para. 7.946. (footnote omitted) 
1117Ibid., paras. 7.947-7.948. (footnote 1124 omitted) 
1118Ibid., para. 6.31. 
1119Ibid. WT/DS267/AB/R 
Page 274  
 
 
 the Panel "to make unnecessary and unsupported additi onal factual findings with respect to its  SCM 
Agreement   claims, and to reverse the applicable burden of proof".1120    
725. The Panel declined Brazil's request because, in its view: 
Brazil's allegation invoking the elemen ts of Articles 1 and 3.1(a) of 
the SCM Agreement  is not a separate claim, but merely another 
argument, on a different factual basis, as to how the United States 
export credit guarantee programmes would meet the definition of an 
export subsidy in Article 3.1(a) of the SCM Agreement .  Given our 
finding in paragraphs 7.946-7.948, we do not believe that it is 
necessary to address Brazil's additional arguments about how the Article 3.1(a) definitional elemen ts would be fulfilled on another 
factual basis in order to resolve this dispute.  For greater clarity, we 
have inserted footnote 1125.
1121 
726. On appeal, Brazil asserts that the Panel's re jection of Brazil's request constitutes a false 
exercise of judicial economy.  According to Braz il, "[i]n concluding that Brazil's allegations under 
item (j) and under Articles 1.1 and 3.1(a) of the  SCM Agreement   constitute alternative 'arguments, on 
a different factual basis,' the Panel failed to r ecognize the distinct obligations that flow from 
Article 3.1(a), and the potentially distinct c ourse of implementation triggered by a Member's 
maintenance of export subsidies within the meaning of Articles 1.1 and 3.1(a)".1122  Brazil explains 
that "because of the different benchmarks that a pply under item (j), on the one hand, and Articles 1.1 
and 3.1(a), on the other, a measure that no longer constitutes an export subsidy under item (j) may still 
constitute an export subsidy un der Articles 1.1 and 3.1(a)".1123 
727. Brazil asserts that a "panel is obligated to address all claims on which a finding is necessary 
to enable the Dispute Settlement Body to make  sufficiently precise recommendations and rulings to 
allow for 'prompt settlement' of the dispute, a nd for prompt compliance by a Member with those 
recommendations and rulings 'in order to ensure eff ective resolution of disputes to the benefit of all 
Members.'"1124  It then adds that "[b]ecause a measur e that no longer constitutes an export subsidy 
under item (j) may still constitute an export subsidy u nder Articles 1.1 and 3.1(a), the Panel's exercise 
of judicial economy in this case was in error".1125  Brazil further explains that the United States "could 
comply with its obligations under item (j) but still fail to comply with its obligations under 
                                                      
1120Panel Report, para. 6.31. 
1121Ibid. See  supra , para. 722. 
1122Brazil's other appellant's submission, para. 22 (quoting Panel Report, para. 6.31). 
1123Ibid., para. 22. 
1124Ibid., para. 23 (quoting Articles 3.2 and 21.1 of the DSU). (footnotes omitted) 
1125Ibid., para. 23.  WT/DS267/AB/R 
 Page 275 
 
 
 Articles 1.1 and 3.1(a)".1126  Therefore, in Brazil's view, the Panel's failure "to examine Brazil's claim 
... leaves open a dispute and creates uncertainty concer ning the scope of the United States' obligations, 
and the consistency of its existi ng measures with those obligations".1127  If the Appellate Body were to 
agree with Brazil's assertion that the Panel's exercise of judicial  economy was improper, then Brazil 
requests that the Appellate Body complete the analys is, and find that the United States' export credit 
guarantee programs constitute export subsidi es under Articles 1.1 and 3.1(a) of the  SCM 
Agreement .1128 
728. The United States requests us to reject Brazil's claim.  According to the United States, any 
further findings by the Panel would have been redun dant as the Panel had already determined that the 
export credit guarantees "constitute  per se   export subsidies prohibited by Articles 3.1(a) and 3.2 of 
the  SCM Agreement ."1129  The United States explains that "[n]either item (j) nor the Illustrative List 
imposes obligations  per se ".1130  Rather, the obligations regard ing export subsidies are found in 
Articles 3.1(a) and 3.2.1131  The United States asserts, furthermore,  that an additional finding by the 
Panel on the issue of whether the export credit gu arantees programs confer a "benefit" would not 
change the United States' compliance obligations.1132 
729. In addition, the United States submits that Br azil mischaracterizes what the Panel did as a 
failure to address a claim by Brazil when, in fact, Brazil's request at the interim review stage was for 
the Panel to make additional factual findings.1133  Even if Brazil had made a separate claim before the 
Panel under Articles 1.1 and 3.1 of the  SCM Agreement ,  the United States submits that the Panel 
could have properly exercised judicial economy, as the Appellate Body recognized, in  US – Wool 
Shirts and Blouses ,  that panels "need only address those  claims   which must be addressed to resolve 
the matter in issue in the dispute".1134  Finally, the United States rejects the contention that Brazil has 
demonstrated that the United States' export credit guarantees confer a "benefit".1135 
                                                      
1126Brazil's other appellant's submission, para. 23. 
1127Ibid. 
1128Ibid., para. 42.   
1129United States' appellee's submission, para. 62 (referring to Panel Report, para. 8.1(d)(i)). 
1130Ibid., para. 66 
1131Ibid., para. 66.  The United States submits that, under Brazil's reading, the Illustrative List would be 
deprived of meaning.  ( Ibid., para. 67) 
1132Ibid., para. 80. 
1133Ibid., paras. 81-82 (referring to Panel Report, para. 6.31). 
1134Ibid., para. 85 (referring to Appellate Body Report, US – Wool Shirts and Blouses , p. 19, 
DSR 1997:1, 323 at 339). (emphasis added) 
1135Ibid., paras. 92-99. WT/DS267/AB/R 
Page 276  
 
 
 730. We observe that Brazil premises its claim on appeal on its submission that item (j) of the 
Illustrative List of Export Subsides annexed to the  SCM Agreement   is a distinct obligation from that 
contained in Article 3.1(a), read together with Article 1.1.1136  In other words, Brazil submits that the 
requirement in item (j) for an export credit guarantee program to charge premiums that are adequate 
to cover long-term operating costs and losses is di stinct from the requirement, under Articles 1.1 
and 3.1(a), not to confer a "benefit".  The United States rejects the premise of Brazil's argument, 
asserting instead that the Illustrative List of Export Subsidies, and more specifically item (j), do not 
establish a separate obligation from that in Article 3.1(a).1137  Rather, the Illustrative List provides 
examples (hence "illustrative") of the types of measu res that constitute "export subsidies" within the 
meaning of Article 3.1(a) and "to the extent that it does address a practice this constitutes the standard 
to determine whether a particular practic e constitutes a prohibited export subsidy".1138  
731. We need not decide, in this case, whether an  export credit guarantee program that meets the 
standard of item (j) of the Illustrative List of Export Subsidies—because the premiums charged are adequate to cover long-term operating costs and losses—may nevertheless be challenged as a 
prohibited export subsidy under Article 3.1(a) on the b asis that it confers a benefit.  This is because, 
even if we were to assume that such a claim were  possible, we would conclude that the Panel was 
within its discretion in exercising judici al economy in respect of Brazil's claim.
 1139     
732. As we explained earlier, panels may refrain from ruling on every claim as long as it does not 
lead to a "partial resolution of the matter".1140  The Panel found that the United States' export credit 
guarantee programs constitute a prohi bited export subsidy under Article  3.1(a) because they do not 
meet the criteria in item (j) of the Illustrative List of Export Subsidies.  This finding, in our view, is 
sufficient to resolve the matter.  Th erefore, we are not persuaded that the Panel's exercise of judicial 
                                                      
 1136Brazil's other appellant's submission, para. 22.   
1137United States' appellee's submisison, para. 66. 
1138Ibid., para. 70. 
1139The Panel did not expressly state that it was exercising judicial economy.  Instead, the Panel stated 
that it did not believe that it was "necessary to address Brazil's additional arguments ". (Panel Report, para. 6.31) 
(emphasis added) Brazil initially describes the Panel's failure  as an error by the Panel in the "interpretation and 
application of Article 3.1(a) of the SCM Agreement , as well as of Article 3.7 of the DSU". (Brazil's other 
appellant's submission, para. 22)  Later in its submission, however, Brazil describes the Panel's error as a 
"misapplication of the princi ple of judicial economy". ( Ibid., para. 23;  see also  ibid., paras. 33 and 39-41)  
1140Appellate Body Report, Australia – Salmon , para. 223.  WT/DS267/AB/R 
 Page 277 
 
 
 economy was improper, as Brazil has not demonstrated that it has led to "a partial resolution of the 
matter".1141   
733. For these reasons, we reject Brazil's claim that the Panel erred by exercising judicial economy 
in respect of Brazil's allegation that the United States' export credit guarantees are prohibited export subsidies, under Article 3.1(a) of the  SCM Agreement ,  because they confer a "benefit" within the 
meaning of Article 1.1. 
H. ETI Act of 2000 
734. We turn to Brazil's claim that the Panel erred in the "interpretation and application of the 
burden of proof"
1142, in connection with its finding that Brazil did not establish a  prima facie   case 
that the ETI Act of 20001143 and the subsidies granted thereunde r are inconsistent with Articles 8 
and 10.1 of the  Agreement on Agriculture   and Articles 3.1 and 3.2 of the  SCM Agreement ,  in 
respect of upland cotton.    
735. Before the Panel, Brazil argued that the ETI Ac t of 2000 provides an export subsidy to upland 
cotton, within the meaning of Article 10.1 of the  Agreement on Agriculture ,  because it eliminates tax 
liabilities for exporters who sell upland cotton in forei gn markets.  According to Brazil, the ETI Act of 
2000 threatens to circumvent the United States' export subsidy commitments by providing an export 
subsidy to upland cotton, despite the fact that th e United States has not scheduled any export subsidy 
reduction commitments for that commodity, thereby violating Articles 8 and 10.1 of the  Agreement 
on Agriculture .  In addition, Brazil asserted that th e ETI Act of 2000 provides prohibited export 
                                                      
1141Appellate Body Report, Australia – Salmon , para. 223.  As the United States argues, the 
circumstances of this case are different from those in Australia – Salmon.  In that case, the panel limited its 
findings for other Canadian salmon to Article 5.1 of the  SPS Agreement   and "gave no  convincing reason why 
it examined Article 5.5 and 5.6 for only one category of the products in dispute, i.e., ocean-caught Pacific 
salmon, and did not undertake the same analysis for other categories, i.e., other Canadian salmon". (Appellate Body Report, Australia – Salmon , para. 225)  The present case does not involve a panel incorrectly limiting its 
findings under other provisions to certain products.  Inst ead, Brazil is questioning the Panel's refusal to make an 
additional finding of inconsistency with the same provision for the same products.     
1142Brazil's other appellant's submission, para. 7. 
1143Public Law 106-519.  The ETI Act of 2000 is a measure that was taken by the United States to 
comply with the recommendations and rulings of the DSB after the original FSC measure was found to be WTO-
inconsistent in US – FSC . (Appellate Body Report, US – FSC , para. 178)  It is the same measure that the 
European Communities challenged in US – FSC (Article 21.5 – EC) , part of which the panel and Appellate Body 
found, in that dispute, to be inconsistent with the United States' WTO obligations. (Appellate Body Report,  
US – FSC (Article 21.5 – EC) , paras. 1 and 256(d))  Brazil acknowledges that, after the Panel Report was 
circulated, the "United States enacted le gislation ... that seems to repeal mo st of the illegal aspects of the ETI 
Act of 2000". (Brazil's other appellant's submission, para. 214)  Brazil is referring to the American Jobs 
Creation Act of 2004, enacted as Public Law 108-357. WT/DS267/AB/R 
Page 278  
 
 
 subsidies to upland cotton within the meaning of Articles 3.1(a) and 3.2 of the  SCM Agreement .1144  
Brazil pointed out that, in  US – FSC (Article 21.5 – EC) ,  both the panel and Appellate Body found 
that the ETI Act of 2000 violates Articles 8 and 10.1 of the  Agreement on Agriculture   and 
Articles 3.1(a) and 3.2 of the  SCM Agreement .  Brazil requested the Panel to apply the reasoning 
developed by that panel, as modified by the Appellate Body,  mutatis mutandis ,  to this dispute.1145   
736. The United States responded that the Panel shoul d reject Brazil's claim because Brazil failed 
to make a  prima facie   case.1146  According to the United States, "[a]s a result of Brazil's ' mutatis 
mutandis ' approach, the Panel [was] in no position to ex ercise its judgment to follow, or decline to 
follow, prior dispute settlement findings concerning the ETI Act of 2000, nor even in a position to 
make factual findings concerning the Act".1147 
737. The Panel began its analysis by noting that, apart from referring the Panel to the European 
Communities' claims and arguments in  US – FSC (Article 21.5 – EC) ,  Brazil had submitted no direct 
evidence reflecting the nature, function or WTO-inconsistency of the ETI Act of 2000.1148  I t  t h e n  
observed that Brazil appeared to: 
                                                      
1144Panel Report, para. 7.950. (footnote omitted)  Brazil explained that the subsidies granted to upland 
cotton under the ETI Act of 2000 do not fully conform to Part V of the  Agreement on Agriculture   and, 
therefore, are not exempt  from action under the  SCM Agreement   pursuant to Article 13(c) of the  Agreement on 
Agriculture .   
1145Panel Report, para. 7.949. (footnotes omitted)  Brazil incorporated by reference into its submissions 
(i) the Panel Report in  US – FSC (Article 21.5 – EC) ,  (ii) the Appellate Body Report in  US – FSC (Article 21.5 
– EC) ,  and (iii) all submissions of the European Communitie s in that case.  Brazil contends that an approach 
whereby the complaining Member incorporates by reference the reasoning of another panel, as modified by the Appellate Body, is consistent with the Appellate Body's reasoning in  Mexico – Corn Syrup  (Article 21.5 – US).  
(Brazil's other appellant's submission, para. 224 (referring to Appellate Body Report,  Mexico – Corn Syrup 
(Article 21.5 – US) ,  para. 109)) 
1146Panel Report, para. 7.951. 
1147Ibid. 
1148Ibid., para. 7.959.  WT/DS267/AB/R 
 Page 279 
 
 
 ... seek a Panel process whereby we would simply apply the 
reasoning, and findings and conclusions of the panel, as modified by the Appellate Body, in the US – FSC (Article 21.5 – EC) dispute, 
without going through the ordinary  procedural steps constituting 
panel proceedings set out in the DSU , including the examination of 
the legal claims against the measu res constituting the matter before 
this Panel on the basis of direct evidence and argumentation submitted by the complaining and defe nding parties in this dispute.  
While Brazil has supplemented the evidence and argumentation in that dispute, it has not purported directly to establish the elements 
comprising the basis of the findings and conclusions in that 
dispute.
1149 
The Panel saw "no basis in the text of the  DSU  ... for such incorporation by  reference of claims and 
arguments made in a previous dispute nor fo r a quasi-automatic application of findings, 
recommendations and rulings from a previous dispute" .1150  In addition, the Panel rejected Brazil's 
reliance on Article 17.14 of the DSU1151 to support its claim, reasoning that, because Brazil was not a 
party in  US – FSC (Article 21.5 – EC) ,  the panel and Appellate Body reports in that case "cannot be 
taken as a providing a final resolution to the part  of the matter before [it] concerning the ETI Act 
of 2000".1152 
738. The Panel then identified other differences between the present dispute and  US – FSC 
(Article 21.5 – EC) .1153  These differences meant, according to  the Panel, that the evidence and 
argumentation relating to the present dispute are distinct from those in  US – FSC (Article 21.5 – 
EC).1154  The differences in the evidence and argumentati on, in turn, led the Panel to decide that "no 
direct transposition or incorporation of the panel a nd Appellate Body findings and conclusions would, 
in any event, be appropriate on the basis of the evidence and argumentation submitted in this 
dispute".1155  Moreover, the Panel observed that, in a written communication to the parties after the 
                                                      
1149Panel Report, para. 7.961. (footnotes omitted) 
1150Ibid., para. 7.962. 
1151Article 17.14 of the DSU provides: 
An Appellate Body report shall be adopted by the DSB and unconditionally 
accepted by the parties to the dispute unless the DSB decides by consensus 
not to adopt the Appellate Body report within 30 days following its circulation to the Members. (footnote omitted) 
1152Panel Report, para. 7.967. (footnote omitted) 
1153The Panel explained that, in US – FSC (Article 21.5 – EC),  the claims under the SCM Agreement  
were examined before those under the Agreement on Agriculture , an order contrary to that adopted by the Panel 
in this case. (Panel Report , para. 7.971)  Also, the Panel pointed out that, in US – FSC (Article 21.5 – EC),  there 
was no discussion relating to issues under Article 13 of the Agreement on Agriculture . (Panel Report, 
para. 7.972)  Finally, the Panel observed that the findings in US – FSC (Article 21.5 – EC)  were not specific to 
upland cotton. (Panel Report, para. 7.973) 
1154Ibid., para. 7.975. 
1155Ibid. WT/DS267/AB/R 
Page 280  
 
 
 first meeting, it had "put Brazil on notice that th e evidence and arguments submitted up to that point 
in the Panel proceedings did not provide suffici ent basis for [the Panel] to make a finding".1156 
739. For these reasons, the Panel concluded: 
[O]n the basis of the evidence and arguments submitted, we are not 
in a position to conclude that Brazil has established a prima facie  
case that the ETI Act of 2000 and subsidies granted thereunder are 
inconsistent with Articles 8 and 10.1 of the Agreement on Agriculture  
in respect of upland cotton.1157 
740. On appeal, Brazil asserts that the Panel erred in the "interpretation and application of the 
burden of proof under Articles 8 and 10.1 of the  Agreement on Agriculture ,  and Articles 3.1(a) 
and 3.2 of the  SCM Agreement ,  in light of the goal of the WTO dispute settlement system, under 
Article 3.3 of the DSU, to provide for the 'prompt settlement' of disputes".1158  Brazil submits that it 
challenged before the Panel exactly the same measu re that the panel and the Appellate Body in  US – 
FSC (Article 21.5 – EC)   held violated the  Agreement on Agriculture   and the  SCM Agreement .  This 
measure had not changed since it was enacted in 20001159 and thus the legislation that forms the basis 
for the United States measure that is subject to Brazil’s claims is identical to the legislation at issue in  
US – FSC (Article 21.5 – EC) .1160  According to Brazil, the United States did not dispute the identity 
between the measures.1161 
                                                      
1156Panel Report, para. 7.980.  The written communication is dated 5 September 2003 and in it the 
Panel "indicated to the parties that, 'on the basis of the evidence and arguments presented to date, it is unable to form any view on whether the ETI Act of 2000 satisfies the relevant provisions of the Agreement on 
Agriculture '". 
The Panel also referred to "its discretionary author ity to put questions to the parties to clarify the 
factual and legal aspects of the matter". ( Ibid., para. 7.983)  In this respect, the Panel explained that its authority 
to ask questions or seek information is not conditional on a party having established a  prima facie   case.  
Nevertheless, the Panel observed that it was "not  permitted to make Brazil's case for Brazil". ( Ibid., para. 7.985) 
1157Ibid., para. 7.986.  The Panel also concluded that: 
... in accordance with Article 13(c)(ii) of the Agreement on Agriculture , to 
the extent that Brazil has not demonstrat ed that the United States ETI Act of 
2000 is not in conformity with the United States export subsidy 
commitments under Part V of the Agreement on Agriculture  in respect of 
upland cotton, the United States is "exempt from actions based on" 
Articles 3.1(a) and 3.2 of the SCM Agreement .  We therefore decline to 
examine Brazil's claims base d on those provisions.  
(Ibid., para. 7.987) (footnote omitted) 
1158Brazil's other appellant's submission, para. 7. 
1159Brazil notes that legislation "that seems to repeal most of the illegal aspects of the ETI Act of 2000" 
was enacted in 2004. (Brazil's other appellant's submission, para. 214)  See supra , footnote 1143. 
1160Brazil's other appellant's submission, para. 221. 
1161Ibid.  WT/DS267/AB/R 
 Page 281 
 
 
 741. In addition, Brazil asserts that the United St ates never rebutted Brazil’s arguments, or the 
supporting documents that Brazil referenced, that demonstrate the inconsistency of the ETI Act 
of  2000 with Articles 8 and 10.1 of the  Agreement on Agriculture   and Articles 3.1(a) and 3.2 of the  
SCM Agreement .1162  Brazil refers to  Mexico – Corn Syrup (Article 21.5 – US) ,  where the Appellate 
Body held that a panel may incorporate the reasoning of another panel by reference and still meet the 
requirement in Article 12.7 of the DSU to set out the "basic rationale" for its findings and 
conclusions.1163  Brazil sees no reason why this reasoning should not also apply to submissions by a 
complaining Member that incorporate by reference th e reasoning of another panel, as modified by the 
Appellate Body, addressing the exact same measure. 1164  
742. Brazil acknowledges that the "United States enacte d legislation ... that seems to repeal most 
of the illegal aspects of the ETI Act of 2000".1165  Consequently, Brazil expressly states that, were we 
to modify the Panel's "interpretation and application of the burden of proof"1166, it is not requesting us 
to complete the legal analysis and find that the e xport subsidies to upland cotton, provided under the 
ETI Act of 2000, are inconsistent with Articles 8 and 10.1 of  Agreement on Agriculture   and 
Articles 3.1(a) and 3.2 of the  SCM Agreement .1167  
743. The United States responds that we should not decide Brazil’s appeal because Brazil 
acknowledges that the appeal is not necessary to r esolve the dispute between the parties.  Brazil 
explicitly does not ask the Appellate Body to complete  the analysis with respect to its claims.  The 
United States argues that the Appellate Body should abstain from deciding this issue because Brazil is 
not asking "the Appellate Body to make findings that would result in DSB rulings and 
recommendations with respect to the ETI Act".1168  For that reason alone, the Appellate Body should 
decline to decide Brazil’s appeal.1169 
744. In any event, the United States submits that th e Panel correctly concluded that Brazil did not 
make a  prima facie  case with respect to the ETI Act of 2000.  Brazil simply did not present any 
evidence at all regarding the ETI Act of 2000 itself.   According to the United States, the Panel acted 
                                                      
1162Brazil's other appellant's submission, para. 222. 
1163Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 109. 
1164In addition, Brazil states that it submitted to the Panel arguments and evidence that addressed the 
specific nature of its claims, in particular with respect to Article 13(c)(ii) of the  Agreement on Agriculture . 
(Brazil's other appellant's submission, para. 225) 
1165Ibid., para. 214. 
1166Ibid., para. 7. 
1167Ibid., para. 214. 
1168United States' appellee's submission, para. 100.  The United States relies for support on the 
Appellate Body Reports in US – Steel Safeguards  and US – Wool Shirts and Blouses .   
1169United States' appellee's submission, para. 100. WT/DS267/AB/R 
Page 282  
 
 
 properly under the text of the DSU, including Article 11, by declining to find that the "short shrift" 
that Brazil gave to the ETI Act of 2000 satisfied Brazil’s burden to make its  prima facie   case 
concerning that Act.1170 
745. At the outset, we observe that Article 17.6 of the DSU provides that appeals "shall be limited 
to issues of law covered in the panel report and legal interpretations deve loped by the panel".  
Furthermore, Article 17.12 of the DSU states that  "[t]he Appellate Body shall address each of the 
issues raised in accordance with paragraph 6 during the appellate proceeding".  The United States 
does not argue that Brazil has failed to appeal an issue of law or a legal interpretation.  Thus, the 
United States is not asserting that Brazil could not have brought this claim on appeal or that we are legally precluded from addressing it.  The Unite d States' assertion is that it is not  necessary   for us to 
resolve Brazil's claim because Brazil is not requestin g us to make findings that would result in DSB 
rulings and recommendations.   
746. We agree. Article 3.3 of the DSU explains that the aim of the WTO's dispute settlement 
system is the "prompt settlement of situations in which a Member considers that any benefits accruing 
to it directly or indirectly under the covered agre ements are being impaired by measures taken by 
another Member".  For its part, Article 3.4 of th e DSU provides that "[r]ecommendations or rulings 
made by the DSB shall be aimed at achieving a satisfactory settlement of the matter".  Similarly, Article 3.7 states that "[t]he aim of the dispute se ttlement mechanism is to se cure a positive solution to 
a dispute".  The Appellate Body, moreover, has cau tioned that "[g]iven the explicit aim of dispute 
settlement that permeates the DSU , ... Article 3.2 of the DSU  is [not] meant to encourage either panels 
or the Appellate Body to 'make law' by clarifying existing provisions of the  WTO Agreement   outside 
the context of resolving a particular dispute".
 1171  
747. In this case, Brazil's claim on appeal is limite d to the Panel's appli cation of the burden of 
proof.  Brazil has expressly stated that it is not requ esting us to complete the analysis.  In view of 
Brazil's request, our ruling would not result in recommendations or rulings by the DSB in respect of 
the ETI Act of 2000.  In these circumstances, we fail to see how our examination of Brazil's claim 
would contribute to the "prompt" or "satisfactory settlement" of this matter or would contribute to 
                                                      
1170United States' appellee's submission, para. 112. 
1171Appellate Body Report, US – Wool Shirts and Blouses , p. 19, DSR 1997:1, 323 at 340.  WT/DS267/AB/R 
 Page 283 
 
 
 "secure a positive soluti on" to this dispute.1172  Even if we were to disag ree with the manner in which 
the Panel applied the burden of proof, we would not make any findings in respect of the WTO-
consistency of the ETI Act of 2000.  We recognize th at there may be cases in which it would be useful 
for us to make a finding on an issue, despite the f act that our decision would not result in rulings and 
recommendations by the DSB.  In this case, howev er, we find no compelling reason for doing so on 
this particular issue. 
748. For these reasons, we decline Brazil's request th at we reverse the Panel's conclusion that 
Brazil did not make a  prima facie   case that the ETI Act of 2000 is inconsistent with the United 
States' WTO obligations.  In declining to rule on Brazil's request, we neither endorse nor reject the 
manner in which the Panel applied the burden of pr oof in the context of examining Brazil's claim 
against the ETI Act of 2000.   
I. Interpretation of Article XVI:3 of the GATT 1994  
1. Introduction  
749. Before the Panel, Brazil claimed that the United States applied its  domestic and export 
subsidies to upland cotton during the 1999-2002 marketing years in a manner that resulted in the 
United States having more than an equitable sh are of world export trade within the meaning of 
Article XVI:3 of the GATT 1994, and thereby cau sed serious prejudice within the meaning of 
Article XVI:1 of the GATT 1994.1173   
750. In addressing this claim, the Panel considered  whether paragraphs 1 and 3 of Article XVI 
could be considered together, to address both th e domestic support and export subsidy measures at 
issue.  The Panel said that "we do not believe th at these provisions are susceptible to such joint 
application", on the grounds that "each provision  – Article XVI:1 and Article XVI:3 – requires 
                                                      
1172Our approach is consistent with the approach of the Appellate Body in US – Steel Safeguards , 
where it did not find it necessary to  examine the Panel's findings on th e causation analysis because it had 
"already found that the measur es before [it] are inconsistent with Ar ticle XIX:1(a) of the GATT 1994 and with 
Articles 2.1, 3.1 and 4.2 of the Agreement on Safeguards ". (Appellate Body Report, US – Steel Safeguards , 
para. 483)  
The Appellate Body noted, in that appeal, that "several participants expressed an interest in having [it] 
rule on causation as it would provide guidance to Me mber on applying safeguard measures in the future 
consistently with their WTO obliga tions".  (Appellate Body Report, US – Steel Safeguards , para. 484)  Despite 
this request for guidance, the Appellate Body declined to make a ruling on this specific aspect of the case.  (Appellate Body Report, US – Steel Safeguards , paras. 485-491) 
1173Brazil's further submission to the Panel, para. 277. WT/DS267/AB/R 
Page 284  
 
 
 application in accordance with its own terms in re spect of measures that fall within its respective 
scope of application".1174   
751. The Panel dealt with Brazil's allegation that the subsidies at issue resulted in the United States 
enjoying "more than an equitable share of world export trade" under Article XVI:3 of the GATT 1994 
in the section of the Panel Report dealing with "Export Subsidies".1175  The Panel examined whether 
Article XVI:3 applies only to export subsidies, or  whether it also applied to all of the types of 
subsidies covered by Article XVI:1 as well.  The Panel found that:  
Article XVI:3 applies only to export subsidies as that term is now 
defined in the  Agreement on Agriculture   and the  SCM 
Agreement .1176   
752. Because the Panel had conclude d that Step 2 payments to exporters and export credit 
guarantees under the GSM 102, GSM 103 and SC GP programs constitute d export subsidies 
prohibited by the relevant provisions of the  Agreement on Agriculture  and the  SCM Agreement , the 
Panel—as it had done in respect of Brazil's clai ms under Article XVI:1 of the GATT 1994—exercised 
judicial economy with respect to Brazil's claim under Article XVI:3 of the GATT 1994.1177 
753. Brazil's appeal regarding the Panel's findings w ith respect to the application of Article XVI:3 
of the GATT 1994 has two elements.  First, Brazil appeals the Panel's finding that Article XVI:3 
applies only to export subsidies as th at term is now defined in the  Agreement on Agriculture   and the  
SCM Agreement .  Brazil stresses that its appeal in this rega rd, that is, the Panel's legal interpretation of 
the second sentence of Article XVI:3 of the GATT 1994, is  not conditional .1178  Brazil argues that, in 
reaching the view that Article XVI:3 applies only to  export subsidies, as currently defined in the  
SCM Agreement   and the  Agreement on Agriculture , the Panel misinterpreted the second sentence of 
Article XVI:3, which establishes disciplines upon "any form of subsidy which operates to increase the 
export of any primary product", that is, all subsidies that have an export-enhanc ing effect, and not just 
subsidies that are contingent on export performance.  According to Brazil, the focus of Article XVI:3 
                                                      
1174Panel Report, para. 7.992.  The Panel thus addressed elements of Brazil's claim in different parts of 
its Report.  The Panel's response to Brazil's allegati on of "serious prejudice" under Article XVI:1 of the 
GATT 1994 is dealt with in the section of the Panel Report addressing "Actionable Subsidies:  Claims of 
'Present' Serious Prejudice". ( Ibid., Section VII:G)  In the light of its findings of present serious prejudice under 
Articles 5(c) and 6.3(c) of the  SCM Agreement , the Panel exercised judicial economy with respect to Brazil's 
claim of serious prejudice under Article XVI:1 of the GATT 1994. ( Ibid., para. 7.1476) 
1175Ibid., Section VII:E. 
1176Ibid., para. 7.1016. 
1177Ibid., para. 7.1017. 
1178Brazil's other appellant's submission, para. 319.   WT/DS267/AB/R 
 Page 285 
 
 
 is upon the effect of subsidies in enhancing export s, and not upon formal distinctions between export 
contingent and other subsidies.1179   
754. Secondly, Brazil  conditionally   requests the Appellate Body to complete the analysis of its 
claim that United States price-contingent subsidies1180 result in the United States having a "more than 
equitable share of world export trade" in upland cotton, in violation of Article XVI:3, second 
sentence.1181  Brazil's request to complete the analysis is  conditional upon two events: (i) a reversal by 
the Appellate Body of the Panel's finding regarding  significant price suppression  (resulting in 
serious prejudice in terms of Articles 6.3(c) and 5(c) of the  SCM Agreement );  and, (ii) denial by the 
Appellate Body of Brazil's request for a ruling that the United States' measures at  issue resulted in an 
increase of the United States'  world market share  in upland cotton (resulting in serious prejudice in 
terms of Articles 6.3(d) and 5(c) of the  SCM Agreement ).1182  Brazil submits that there are sufficient 
factual findings by the Panel or undisputed fact s on the record to allow the Appellate Body to 
complete the analysis of Brazil's claim regarding violation of Article XVI:3 by the United States 
price-contingent subsidies.1183 
755. The United States emphasizes that the text of Ar ticle XVI distinguishes between "Subsidies in 
General" (Section A) and "Additional Provisions on  Export Subsidies" (Section B).  By locating 
Article XVI:3 in Section B, Members agreed that Article XVI:3 is a provision on export subsidies.1184  
The term "export subsidy" is now defined in the  SCM Agreement  and the  Agreement on Agriculture   
as referring to subsidies that are contingent on export performance.1185  Both the context provided by 
these Agreements, as well as their negotiating history, c onfirm that the export subsidies referred to in 
Article XVI:3 are also subsidies contingent on export performance.1186   
756. With respect to Brazil's conditional request to complete the analysis, the United States 
contends that, even if the Appellate Body rever ses the Panel's interpretation regarding the scope of 
Article XVI:3, there would be insufficient undisput ed facts on the record or factual findings by the 
Panel to complete the analysis.  The United States observes that the Panel did not make any findings 
                                                      
1179Brazil's other appellant's submission, paras. 323-327.  
1180That is, marketing loan payments, Step 2 paymen ts, market loss assistance payments and counter-
cyclical payments.  
1181Brazil's other appellant's submission, para. 318.  
1182Ibid., para. 319.  We observe that Brazil does not appeal  the Panel's findings with regard to 
Article XVI:1 and the relationship between Articles XVI:1 and XVI:3 (Panel Report, paras. 7.1470-7.1476), and does not appear to rely to any great extent on Article XVI:1 in its arguments relating to this part of its appeal. 
1183Brazil's other appellant's submission, paras. 371-379. 
1184United States' appellee's submission, para. 167.  
1185Ibid., para. 168.  
1186Ibid., paras. 169-180.  WT/DS267/AB/R 
Page 286  
 
 
 on causation relative to trade shares.  Nor has Brazil put forward a tenable standard for assessing what 
is more than an "equitable" trade share.1187   
2. Analysis  
757. Article XVI of the GATT 1994 contains two sectio ns.  "Section A" lays down certain rules 
for "Subsidies in General".  "Section B", contai ning paragraphs 2-5 of Article XVI, provides 
"Additional Provisions on Export Subsidies".  In Article XVI:2, the Members "recognize" that the provision of "a subsidy on the e xport of any product may have harmfu l effects ...".  Article XVI:3, the 
provision at issue in this part of Brazil' s appeal, sets forth that "[a]ccordingly":  
Members should seek to avoid the use of subsidies on the export of 
primary products.  If, however, a Member grants directly or 
indirectly any form of subsidy wh ich operates to increase the export 
of any primary product from its territory , such subsidy shall not be 
applied in a manner which results in  that Member having more than 
an equitable share of world export trade in that product, account being taken of the shares of the Me mbers in such trade in the product 
during a previous representative period, and any special factors 
which may have affected or may be affecting such trade in the 
product.*  ( ad note  omitted;  emphasis added)  
758. The Panel found "that Article XVI:3 applies only to export subsidies as that term is now 
defined in the Agreement on Agriculture  and the SCM Agreement ".
1188  In the light of its rulings under 
the  Agreement on Agriculture  and the  SCM Agreement  with regard to the United States' export 
subsidies at issue in the proceedings, the Panel ex ercised judicial economy with respect to Brazil's 
claims under Article XVI:3 of the GATT 1994.1189   
759. Brazil's appeal of these findings has two elements.  First, Brazil's appeal focuses on the phrase 
"any form of subsidy which operates to increase the export of any primary product".  It argues that the 
ordinary meaning of this phrase encompasses all subs idies with an export-enhancing effect, not just 
those that are  contingent  on export performance.  Second, Brazil requests the Appellate Body to 
complete the analysis and find that the United States'  price-contingent subsidies violate Article XVI:3, 
second sentence,  conditional   upon two events:  reversal by th e Appellate Body of the Panel's finding 
of significant price suppression and serious prejudice w ithin the meaning of Articles 6.3(c) and 5(c) of 
the  SCM Agreement , as well as denial, by the Appellate Body, of Brazil's appeal concerning the 
interpretation and application of Articles 6.3(d) and 5(c) of the  SCM Agreement .   
                                                      
1187United States' appellee's submission, paras. 181-187. 
1188Panel Report, para. 7.1016. 
1189Ibid., para. 7.1017  WT/DS267/AB/R 
 Page 287 
 
 
 760. With respect to the second element of Brazil' s appeal, we note that, above, we upheld the 
Panel's finding that the effect of the price-contingent subsidies at issue in these proceedings is 
significant price suppression within the meaning of Article 6.3(c) of the  SCM Agreement .1190  W e  
observe, therefore, that the initial condition upon whic h Brazil's request to complete the analysis of 
this claim rests is  not  made out, and thus there is no need fo r us to complete the analysis and to 
examine whether or not the United States subsidies challenged by Brazil resulted in the United States 
having more than an equitable share of world export trade in upland cotton.    
761. Nor do we believe that it is necessary to make a finding on the interpretation of the phrase 
"any form of subsidy which operates to increase the export of any primary product" in the second 
sentence of Article XVI:3 of the GATT 1994 in order to resolve this dispute.  Given our ruling under 
Article 6.3(c) of the  SCM Agreement ,  we observe that, although any ruling by the Appellate Body on 
the scope of the subsidies covere d by Article XVI:3 of the GATT 1994 in the abstract might at best 
offer some degree of "guidance", it would not affect the resolution of this dispute.1191  Indeed, 
irrespective of whether we were to uphold or reve rse the Panel's finding on this issue, upon adoption 
of the recommendations and rulings by the DS B, the United States would be under no additional 
obligation regarding implementation.  Thus, although we recognize that there may be cases in which it 
would be useful for us to make a finding on an issue, despite the fact that our finding would not result in recommendations and rulings by the DSB, we find no compelling reason for doing so in this case in 
respect of this particular issue. 
762. We therefore believe that an interpretation of  the phrase "any form of subsidy which operates 
to increase the export" in Article XVI:3 of the GATT 1994 is unnecessary for purposes of resolving 
this dispute.  We emphasize that  we neither uphold nor reverse the Pa nel's interpretation of this phrase 
in the second sentence of Article XVI:3.   
                                                     
 
1190Supra , para. 496. 
1191We note in this regard that, in US – Steel Safeguards , the Appellate Body noted that "several 
participants expressed an interest in having [it] ru le on causation as it would provide guidance to Members on 
applying safeguard measures in the future consistently  with their WTO obligations".  (Appellate Body Report, 
US – Steel Safeguards , para. 484) (original emphasis)  Despite this request for guidance, the Appellate Body 
declined to make a ruling on this specific aspect of the case. (Appellate Body Report, US – Steel Safeguards , 
paras. 485-491) WT/DS267/AB/R 
Page 288  
 
 
 VIII.  Findings and Conclusions 
763. For the reasons set out in this Report, the Appellate Body: 
(a) as regards procedural matters: 
(i) in relation to production flexibility contract payments and market loss 
assistance payments: 
- upholds  the Panel's finding, in paragraphs 7.118, 7.122, 7.128, 
and 7.194(ii) of the Panel Report, that Articles 4.2 and 6.2 of the 
DSU do not exclude expired measures from the potential scope of consultations or a request for establishment of a panel and, therefore, that production flexibility contract payments and market loss assistance payments fell within the Panel's terms of reference;  and 
- finds
 that the Panel set out the findings of fact, the applicability of 
relevant provisions, and the basic ra tionale behind this finding, as 
required by Article 12.7 of the DSU;  and 
(ii) in relation to export credit guarantee programs: 
- upholds  the Panel's ruling, in paragra ph 7.69 of the Panel Report, that 
"export credit guarantees to facilitate the export of United States upland cotton, and other eligible agricultural commodities ... are within its terms of reference";  and 
- upholds
 the Panel's ruling, in paragraph 7.103 of the Panel Report, 
that "Brazil provided a statement of available evidence with respect to export credit guarantee measures relating to upland cotton and eligible United States agricultural pr oducts other than upland cotton, 
as required by Article 4.2 of the  SCM Agreement ";  WT/DS267/AB/R 
 Page 289 
 
 
 (b) as regards the application of Article 13 of the  Agreement on Agriculture   to this 
dispute: 
(i) in relation to Article 13(a)(ii): 
- upholds  the Panel's finding, in paragraphs 7.388, 7.413, 7.414, 
and 8.1(b) of the Panel Report, that production flexibility contract 
payments and direct payments are not green box measures that  
fully conform to paragraph 6(b) of Annex 2 of the Agreement on 
Agriculture ; and, therefore, are not exempt from actions under 
Article XVI of GATT 1994 and Part III of the  SCM Agreement  by 
virtue of Article 13(a)(ii) of the  Agreement on Agriculture ;  and 
- declines to rule  on Brazil's conditional request that the Appellate 
Body find that the updating of base acres for direct payments under 
the FSRI Act of 2002 means that direct payments are not green box measures that fully conform to para graph 6(a) of Annex 2 of the  
Agreement on Agriculture ;  and, therefore, are not exempt from 
actions under Article XVI of GATT 1994 and Part III of the  SCM 
Agreement   by virtue of Article 13(a)(ii) of the  Agreement on 
Agriculture ;  and 
(ii) in relation to Article 13(b)(ii): 
- modifies
 the Panel's interpretation, set out in paragraph 7.494 of the 
Panel Report, of the phrase "support to a specific commodity" in Article 13(b)(ii) of the  Agreement on Agriculture ;  but upholds
 the 
Panel's finding, in paragraphs 7.5 18 and 7.520 of the Panel Report, 
that Step 2 payments to domestic users, marketing loan program 
payments, production flexibility contract payments, market loss 
assistance payments, direct payments, counter-cyclical payments, crop insurance payments, and cott onseed payments (the "challenged 
domestic support measures") granted "support to a specific 
commodity", namely, upland cotton; WT/DS267/AB/R 
Page 290  
 
 
 - declines to rule  on the United States' appeal that only the price gap 
methodology described in paragraph 10 of Annex 3 of the  
Agreement on Agriculture   may be used to measure the value of 
marketing loan program payments and deficiency payments for the purposes of the comparison required by Article 13(b)(ii) of the  Agreement on Agriculture ;  and 
- upholds
 the Panel's finding, in paragraphs 7.608 and 8.1(c) of the 
Panel Report, that the "challe nged domestic support measures" 
granted, in the years 1999, 2000, 2001 and 2002, support to a specific commodity, namely, upland cotton, in excess of that decided during the 1992 marketing year;  and, therefore, that these measures are not 
exempt from actions based on Articles 5 and 6 of the SCM 
Agreement  and Article XVI:1 of the GATT 1994 by virtue of 
Article 13(b)(ii) of the  Agreement on Agriculture ;  
(c) as regards serious prejudice: 
(i) in relation to Article 6.3(c) of the  SCM Agreement : 
- upholds
 the Panel's finding, in paragraphs 7.1416 and 8.1(g)(i) of the 
Panel Report, that the effect of the marketing loan program payments, Step 2 payments, market loss assistance payments, and 
counter-cyclical payments (the "p rice-contingent subsidies") is 
significant price suppression within the meaning of Article 6.3(c) of the  SCM Agreement ,  by in turn upholding the Panel's findings: 
(A) regarding the "market" and "price" in assessing whether "the 
effect of the subsidy is ... significant price suppression ... in 
the same market" within the meaning of Article 6.3(c) of the  
SCM Agreement :   
- in paragraphs 7.1238-7.1240 of the Panel Report, 
that the "same market" may be a "world market"; 
- in paragraph 7.1247 of the Panel Report, that a 
"world market" for upland cotton exists;  and  WT/DS267/AB/R 
 Page 291 
 
 
 - in paragraph 7.1274 of the Panel Report, that "the A-
Index can be taken to reflect a world price in the 
world market for upland cotton";  and 
(B) regarding the "effect" of the price-contingent subsidies under 
Article 6.3(c) of the  SCM Agreement : 
- in paragraphs 7.1312 and 7.1333 of the Panel Report, 
that "significant price suppression" occurred within 
the meaning of Article 6.3(c); 
- in paragraphs 7.1355 and 7.1363 of the Panel Report, 
that "a causal link exists" between the price-contingent subsidies and the significant price 
suppression found by the Panel under Article 6.3(c) 
and that this link is not attenuated by other factors raised by the United States; 
- in paragraphs 7.1173, 7.1186, and 7.1226 of the 
Panel Report, that it was not required to quantify 
precisely the benefit conferred on upland cotton by the price-contingent subsidies and, consequently, not identifying the precise amount of counter-cyclical 
payments and market loss assistance payments that 
benefited upland cotton;  and 
- in paragraph 7.1416 of the Panel Report, that the 
effect of the price-contingent subsidies for marketing years 1999 to 2002 "is significant price suppression 
... in the period MY 1999-2002";  and 
- finds
 that the Panel, as required by Article 12.7 of the DSU, set out 
the findings of fact, the applicability of relevant provisions, and the basic rationale behind its finding, in  paragraphs 7.1416 and 8.1(g)(i) 
of the Panel Report, that the effect of the price-contingent subsidies is 
significant price suppression within the meaning of Article 6.3(c) of the  SCM Agreement ;  and WT/DS267/AB/R 
Page 292  
 
 
 (ii) in relation to Article 6.3(d) of the  SCM Agreement : 
- finds  it unnecessary, for the purposes of resolving this dispute, to rule 
on the interpretation of the phr ase "world market share" in 
Article 6.3(d) of the  SCM Agreement , and neither upholds nor 
reverses the Panel's finding s in this regard;  and 
- declines to rule  on Brazil's conditional request for the Appellate 
Body to find that the effect of the price-contingent subsidies is an 
increase in the United States' world market share in upland cotton within the meaning of Article 6.3(d) of the  SCM Agreement ;   
(d) as regards user marketing (Step 2) payments: 
(i) upholds
 the Panel's findings, in paragra phs 7.1088, 7.1097-7.1098, and 8.1(f) 
of the Panel Report, that Step 2 payments to  domestic users   of United States 
upland cotton, under Section 1207(a) of the FSRI Act of 2002, are subsidies contingent on the use of domestic ove r imported goods that are inconsistent 
with Articles 3.1(b) and 3.2 of the  SCM Agreement ;  and 
(ii) upholds
 the Panel's findings, in para graphs 7.748-7.749, 7.760-7.761, 
and 8.1(e) of the Panel Report, that Step 2 payments to  exporters   of United 
States upland cotton, pursuant to Section 1207(a) of the FSRI Act of 2002, are subsidies contingent upon export performance within the meaning of 
Article 9.1(a) of the  Agreement on Agriculture   that are inconsistent with 
Articles 3.3 and 8 of that Agreement and Articles 3.1(a) and 3.2 of the  SCM 
Agreement ; 
(e) as regards export credit guarantee programs: 
(i) upholds
 the Panel's finding, in paragraphs  7.901, 7.911, and 7.932 of the 
Panel Report, that Article 10.2 of the  Agreement on Agriculture   does not 
exempt export credit guarantees from the export subsidy disciplines in 
Article 10.1 of that Agreement1192; 
(ii) finds  that the Panel did not improperly apply the burden of proof in finding 
that the United States' export credit guarantee programs are prohibited export 
                                                      
1192See Separate Opinion, supra , paras. 631-641.  WT/DS267/AB/R 
 Page 293 
 
 
 subsidies under Article 3.1(a) of the  SCM Agreement   and are consequently 
inconsistent with Article 3.2 of that Agreement; 
(iii) declines to find  that the Panel erred by failing to make the necessary findings 
of fact in assessing whether the export credit guarantee programs are provided at premium rates that are in adequate to cover long-term operating 
costs and losses within the meaning of item (j) of the Illustrative List of 
Export Subsidies annexed to the  SCM Agreement ;  and, consequently, 
(iv) upholds
 the Panel's finding, in paragraph 7. 869 of the Panel Report, that "the 
United States export credit guarantee programmes at issue—GSM 102, GSM 103 and SCGP—constitute a  per se   export subsidy within the meaning 
of item (j) of the Illustrative List of Export Subsidies in Annex I of the  SCM 
Agreement ", and upholds
 the Panel's findings, in paragraphs 7.947 and 7.948 
of the Panel Report, that these export credit guarantee programs are export subsidies for purposes of Article 3.1(a) of the  SCM Agreement   and are 
inconsistent with Articles 3.1(a) and 3.2 of that Agreement;  and 
(v) finds
 that the Panel did not err in exercising judicial economy in respect of 
Brazil's allegation that the United States' export credit guarantee programs are prohibited export subsidies, under Article 3.1(a) of the  SCM Agreement ,  
because they confer a "benefit" within the meaning of Article 1.1 of that 
Agreement;   
(f) as regards circumvention of export subsidy commitments: 
(i) reverses
 the Panel's finding, in paragra ph 7.881 of the Panel Report, that 
Brazil did not establish actual circumvention in respect of poultry meat and pig meat;  finds
, however, that there are insuffi cient uncontested facts in the 
record to complete the legal analysis to determine whether the United States' 
export credit guarantees to poultry meat a nd pig meat have been applied in a 
manner that "results in" circumvention of the United States' export subsidy commitments, within the meaning of Article 10.1 of the  Agreement on 
Agriculture ; 
(ii) modifies
 the Panel's interpretation, in paragraphs 7.882-7.883 and 7.896 of 
the Panel Report, of the phrase "threatens to lead to .... circumvention" in Article 10.1 of the  Agreement on Agriculture   to the extent that the Panel's WT/DS267/AB/R 
Page 294  
 
 
 interpretation requires "an unconditional  legal entitlement" to receive the 
relevant export subsidies as a condition for a finding of threat of 
circumvention, but upholds , for different reasons, the Panel's finding, in 
paragraph 7.896 of the Panel Report, that Brazil has not established that "the export credit guarantee programmes at issue are generally applied to 
scheduled agricultural products other than rice and other unscheduled 
agricultural products (not supported under the programmes) in a manner 
which threatens to lead to circumve ntion of United States export subsidy 
commitments within the meaning of Article 10.1 of the Agreement on 
Agriculture ";  and 
(iii) finds
 that the Panel did not err in confin ing its examination of Brazil's threat 
of circumvention claim to scheduled products other than rice and 
unscheduled products not supported unde r the United States' export credit 
guarantee programs;   
(g) as regards the ETI Act of 2000, declines  Brazil's request that the Appellate Body 
reverse the Panel's conclusion that Brazil did not make a  prima facie   case that the 
ETI Act of 2000 is inconsistent with the United States' WTO obligations;  and 
(h) as regards Article XVI:3 of the GATT 1994: 
(i) finds  it unnecessary, for the purposes of resolv ing this dispute, to rule on the 
interpretation of the phrase "any form of subsidy which operates to increase 
the export" in Article XVI:3 of th e GATT 1994, and neither upholds nor 
reverses the Panel's finding s in this regard;  and 
(ii) declines to rule  on Brazil's conditional request for the Appellate Body to find 
that the price-contingent subsidies cau se the United States to have "more than 
an equitable share of world export trade" in upland cotton, in violation of the 
second sentence of Article XVI:3 of the GATT 1994. 
764. The Appellate Body recommends  that the Dispute Settlement Bo dy request the United States 
to bring its measures, found in this Report and in th e Panel Report as modified by this Report to be 
inconsistent with the  Agreement on Agriculture   and the  SCM Agreement , into conformity with its 
obligations under those Agreements.  WT/DS267/AB/R 
 Page 295 
 
 
 Signed in the original in Geneva th is 10th day of February 2005 by:  
    
 
_________________________ 
Merit E. Janow 
Presiding Member 
 
 
   _________________________ _________________________  Luiz Olavo Baptista A.V. Ganesan 
 Member Member 
 WT/DS267/AB/R 
Page 296  
 
 ANNEX 1 
 WORLD TRADE  
ORGANIZATION  WT/DS267/17 
20 October 2004  
 (04-4441) 
 Original:   English 
 
 
UNITED STATES – SUBSIDIES ON UPLAND COTTON 
 
Notification of an Appeal by the United States  
under paragraph 4 of Article 16 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes ("DSU")  
   The following notification, dated 18 October 2004, from the Delegation of the United States, 
is being circulated to Members.   
 
_______________ 
 
Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the 
Settlement of Disputes  ("DSU") and Rule 20 of the Working Procedures for Appellate Review, the 
United States hereby notifies its decision to appeal  to the Appellate Body certain issues of law 
covered in the Report of the Panel on United States – Subsidies on Upland Cotton (WT/DS267/R) and 
certain legal interpretations develope d by the Panel in this dispute.  
 1. The United States seeks review by the Appellate Body of the Panel's legal conclusion that 
certain U.S. decoupled income support measures – that is, production flexibility contract payments 
under the Federal Agricultural Impr ovement and Reform Act of 1996 ("1996 Act"), direct payments 
under the Farm Security and Rural Investment Act of 2002 ("2002 Act"), and "the legislative and 
regulatory provisions which establish and maintain  the [direct payments] programme" – are not 
exempt from actions under Article 13(a) of the Agreement on Agriculture .
1  This conclusion is in error 
and is based on erroneous findings on issues of law and related legal interpre tations.  These erroneous 
findings include, for example, that these decoupled income support measures do not conform to 
Annex 2. 
2. The United States seeks review by the Appellate Body of the Panel's legal conclusion that 
certain U.S. domestic support measures2 are not exempt from actions under Article 13(b) of the 
Agreement on Agriculture .3  This conclusion is in error and is  based on erroneous findings on issues 
of law and related legal interpre tations.  These erroneous findings include, for example, the Panel's 
finding that the challenged U.S. measures granted support to a specific commodity in excess of that 
decided in marketing year 1992 and therefore breached  the proviso of Article 13(b) in each year from 
marketing year 1999-2002.  
                                                      
1See, e.g. , Panel Report, paras. 8.1(b), 7.337-7.414. 
2See Panel Report, para. 7.337. 
3See, e.g.,  Panel Report, paras. 8.1(c), 7.415-7.647.  WT/DS267/AB/R 
 Page 297 
 
 
 
 3. The United States seeks review by the Appellate Body of the Panel's legal conclusion that 
U.S. export credit guarantees under the GSM 102,  GSM 103, and SCGP export credit guarantee 
programs in respect of unscheduled agricultura l products supported under the programs and one 
scheduled commodity (rice) are "export subsidies app lied in a manner which results in circumvention 
of United States export subsidy commitments, within the meaning of Article 10.1 of the Agreement on 
Agriculture ," are therefore inconsistent with Article 8 of the Agreement on Agriculture , and are not 
exempt from actions under Article 13(c) of the Agreement on Agriculture .4  This conclusion is in error 
and is based on erroneous findings on issues of law and related legal interpre tations.  These erroneous 
findings, include, for example, the Panel's findi ng that export credit guarantees, notwithstanding 
Article 10.2 of the Agreement on Agriculture , constitute measures subject to Article 10.1 of the 
Agreement on Agriculture .  
4. The United States seeks review by the Appellate Body of the Panel's legal conclusion that 
U.S. export credit guarantees under the GSM 102,  GSM 103, and SCGP export credit guarantee 
programs in respect of other scheduled agricultural products constitute export  subsidies within the 
meaning of Article 10.1 of the Agreement on Agriculture .5  This conclusion is in error and is based on 
erroneous findings on issues of law and related legal interpretations.  These erroneous findings, 
include, for example, the Panel's finding that e xport credit guarantees, notwithstanding Article 10.2 of 
the Agreement on Agriculture , constitute measures subject to Article 10.1 of the Agreement on 
Agriculture .  
5. The United States seeks review by the Appellate Body of the Panel's legal conclusion that 
U.S. export credit guarantees under the GSM 102,  GSM 103, and SCGP export credit guarantee 
programs in respect of unscheduled agricultura l products supported under the programs and one 
scheduled commodity (rice) are per se  export subsidies prohibited by Articles 3.1(a) and 3.2 of the 
Agreement on Subsidies and Countervailing Measures  ("SCM Agreement").6  This conclusion is in 
error and is based on erroneous fi ndings on issues of law and relate d legal interpretations.  These 
erroneous findings include, for example, the Pa nel's finding that the program for each product 
constitutes an export subsidy for purposes of the WTO Agreements and is provided by the United 
States at premium rates which are inadequate to  cover long-term operating costs and losses of the 
programs within the meaning of item (j) of the Illustrative List of Export Subsidies in Annex I of the SCM Agreement.  
6. The United States seeks review by the Appellate Body of the Panel's legal conclusion that 
section 1207(a) of the 2002 Act, which provides for user  marketing (Step 2) payments to exporters of 
upland cotton, is an export subsidy that  is listed in Article 9.1(a) of the Agreement on Agriculture  that 
is inconsistent with U.S. obligati ons under Articles 3.3 and 8 of the Agreement on Agriculture , is not 
exempt from actions under Article 13(c) of the Agreement on Agriculture , and is inconsistent with 
Articles 3.1(a) and 3.2 of the SCM Agreement.
7  This conclusion is in error and is based on erroneous 
findings on issues of law and rela ted legal interpretations.  These erroneous findings include, for 
example, the Panel's finding that payments under th e user marketing (Step 2) program are contingent 
on export performance.   
7. The United States seeks review by the Appellate Body of the Panel's legal conclusion that 
section 1207(a) of the 2002 Act providing for user ma rketing (Step 2) payments to domestic users of 
upland cotton is an import substitution subsidy prohibited under Articles 3.1(b) and 3.2 of the 
                                                      
4See, e.g.,  Panel Report, paras. 8.1(d)(1), 7.762-7.945. 
5See, e.g.,  Panel Report, paras. 8.1(d)(2), 7.762-7.945. 
6See, e.g.,  Panel Report, paras. 8.1(d)(1), 7.787-7.869, 7.946-7.948. 
7See, e.g.,  Panel Report, paras. 7.678-7.761, 8.1(e). WT/DS267/AB/R 
Page 298  
 
 Agreement on Subsidies and Countervailing Measures .8  This conclusion is in error and is based on 
erroneous findings on issues of law and related le gal interpretations.  These erroneous findings 
include, for example, the Panel's finding that dome stic support payments that are consistent with a 
Member's domestic support reduction commitments under the Agreement on Agriculture  may 
nonetheless be prohibited under the SCM Agreement.  
8. The United States seeks review by the Appellate Body of the Panel's legal conclusion that 
"the effect of the mandatory, price contingent United States subsidies at issue – that is, marketing loan programme payments, user marketing (Step 2) paym ents and MLA payments and CCP payments – is 
significant price suppression in the same world market for upland cotton in the period MY 1999-2002 within the meaning of Articles 6.3(c) and 5(c)" of the SCM Agreement.
9  This conclusion is in error 
and is based on erroneous findings on issues of law and related legal interpre tations.  These erroneous 
findings include, for example, the following:  
(a) the Panel's finding that Brazil need not de monstrate, and the Panel need not find, the 
amount of the challenged subsidy that benefits  the subsidized product, upland cotton;  
 
(b) the Panel's finding that subsidies not directly tied to current production of upland 
cotton (decoupled payments) need not be allocated  to all products produced and sold by  the 
firms receiving such subsidies;  
 
(c) that the Panel could make findings concer ning subsidies that no longer existed at the 
time of panel establishment and that present serious prejudice could be, and was, caused by 
such subsidies; 
 
(d) the Panel's finding that the challenged s ubsidies provided to cotton producers "passed 
through" to cotton exporters; 
 
(e) the Panel's finding that there was price suppression "in the same market"; 
 (f) the Panel's finding that significant price suppression existed; 
 
(g) the Panel's finding that the price suppression it found under an erroneous legal 
standard was "significant";  
 
(h) the Panel's finding that "the effect of" the U.S. subsidies "is" significant price suppression; 
 
(i) the Panel's finding that "significant price suppression" is sufficient to establish 
"serious prejudice" for purposes of Articles 5(c) and 6.3 of the SCM Agreement; and 
 
(j) the Panel's finding that its "'present' se rious prejudice findings include findings of 
inconsistency that deal with the FSRI Act of  2002 and subsidies granted thereunder in MY 
2002."
10 
 
9. The United States seeks review by the Appellate Body of the Panel's finding that decoupled 
payments made with respect to non-upland cotton base acres were within its terms of reference.11  
This finding is in error and is  based on erroneous findings on issues of law and related legal 
                                                      
8See, e.g.,  Panel Report, paras. 7.1018-7.1098, 8.1(f). 
9Panel Report, paras. 7.1416, 7.1107-7.1416, 8.1(g)(i). 
10See, e.g. , Panel Report, para. 7.1501. 
11See, e.g. , Panel Report, paras. 7.129-7.136.  WT/DS267/AB/R 
 Page 299 
 
 
 
 interpretations.  These erroneous findings include , for example, the Panel's finding that these 
payments were measures at issue within the m eaning of Articles 4.4 and 6.2 of the DSU.   
10. The United States requests the Appellate Body to  find that the Panel failed to set out the 
findings of fact, the applicability of the relevant pr ovisions, and the basic ra tionale behind its findings 
and recommendations, as required by Article 12.7 of the DSU.  The Panel's failure to set these out 
include, for example, the findings or lack of findings concerning the following areas: the amount of 
the challenged subsidies, including the amount of paym ents not directly tied to current production of 
upland cotton (decoupled payments); that significan t price suppression existed; the degree of price 
suppression it deemed "significant"; that "the effect  of" the U.S. subsidies "is" significant price 
suppression; that decoupled payments made with re spect to non-upland cotton base acres were within 
its terms of reference; and the basis for its ability to  make findings with respect to subsidies that no 
longer existed at the time of panel establishment.  
11. The United States seeks review by the Appellate Body of the Panel's finding that export credit 
guarantees to facilitate the export of "other eligib le agricultural commodities" besides upland cotton 
were within its terms of reference.12  This finding is in error and is based on erroneous findings on 
issues of law and related legal in terpretations.  These erroneous findings include, for example, the 
Panel's finding that such export credit guarantees were  included in Brazil's consultation request and its 
finding that, contrary to Articles 4.2, 4.4, and 6.2 of the DSU, it could examine measures that were not 
included in Brazil's request for consultations.  
12. The United States seeks review by the Appellate Body of the Panel's finding that Brazil 
provided the statement of available evidence requi red by Article 4.2 of the SCM Agreement with 
respect to export credit guarantee measures relating to eligible United States agricultural products 
other than upland cotton, and that accordingly, Br azil's claims concerning these measures were within 
the terms of reference of this dispute.13  This finding is in error and is based on erroneous findings on 
issues of law and related legal interpretations.  
13. In the event Brazil appeals the Pa nel's exercise of judicial economy with respect to Brazil's 
claims concerning the compatibility of U.S. export credit guarantee measures with Part III of the SCM 
Agreement,14 in this U.S. appeal the United States co nditionally requests the Appellate Body to find 
that Brazil also failed to provide a statement of av ailable evidence as required by Article 7.2 of the 
SCM Agreement, and that accordingly, Brazil's claims concerning these measures would not be within the terms of reference of this dispute.  
14. The United States seeks review by the Appellate Body of the Panel's legal conclusion that two 
types of expired measures, production flexibility c ontract payments and market loss assistance 
payments, were within the Panel's terms of referen ce.  This conclusion is in error and is based on 
erroneous findings on issues of law and related le gal interpretations.  These erroneous findings 
include, for example, the Panel's finding that measures that are no longer in existence as of the date of 
establishment of a panel are nonetheless within a panel's terms of reference.
15  
_______________ 
 
                                                      
12See, e.g. , Panel Report, para. 7.69. 
13See, e.g. , Panel Report, para. 7.103. 
14See, e.g. , Panel Report, para. 7.78. 
15See, e.g. , Panel Report, para. 7.104-7.122. WT/DS267/AB/R 
Page 300  
 
 ANNEX 2 
 
 
Table  1:  Comparison of Support for Purposes of Article 13(b)(ii) of the Agreement on Agriculture  (using 
budgetary outlays  for marketing loan program pay ments and deficiency payments) 
 
 
$ million MY 1992 MY 1999 MY 2000 MY 2001 MY 2002 
Step 2 payments (domestic users) * 102.7 165.8 260 144.8 72.4 
Crop insurance payments * 26.6 169.6 161.7 262.9 194.1 
Cottonseed payments * 0 79 184.7 0 50 
PFC payments  + 0 434.9 411.7 329.5 0 
MLA payments + 0 432.8 438.3 452.3 0 
DP payments + 0 0 0 0 391.8 
CCP payments + 0 0 0 0 864.9 
Marketing loan program * 866 1761 636 2609 897.8 
Deficiency payments * 1017.4 0 0 0 0 
Total 2012.7 3043.1 2092.4 3798.5 2471 
 
  
Table  2:  Comparison of Support for Purposes of Article 13(b)(ii) of the Agreement on Agriculture  (using 
price gap methodology  for marketing loan program payments  and deficiency payments)     
 
$ million MY 1992 MY 1999 MY 2000 MY 2001 MY 2002 
Step 2 payments (domestic users) * 102.7 165.8 260 144.8 72.4 
Crop insurance payments * 26.6 169.6 161.7 262.9 194.1 
Cottonseed payments * 0 79 184.7 0 50 PFC payments 
+ 0 434.9 411.7 329.5 0 
MLA payments + 0 432.8 438.3 452.3 0 
DP payments + 0 0 0 0 391.8 
CCP payments + 0 0 0 0 864.9 
Marketing loan program § -84 -133 -136 -162 -130 
Deficiency payments § 867 0 0 0 0 
Total 912.3 1149.1 1320.4 1027.5 1443.2 
  WT/DS267/AB/R 
 Page 301 
 
 
 
  
Table  3:   Values Attributable  to the Price-Contingent Subsidies 
 
$ million MY 1999 MY 2000 MY 2001 MY 2002 
Marketing loan program * 1761 636 2609 897.8 
Step 2 payments (domestic users & exporters) # 279.3 445.3 235.7 177.8 
MLA payments + 432.8 438.3 452.3 0 
CCP payments + 0 0 0 864.9 
Total 2473.1 1519.6 3297 1940.5 
 
  
 
Notes to Tables:  
 
 For the panel's findings regarding the values of support relevant for the analysis under 
Article 13(b)(ii) of the  Agreement on Agriculture , see Panel Report, para. 7.596. 
 
* Panel Report, para. 7.596.  
+ The values of production flexib ility contract payments, market loss assistance payments, direct 
payments, and counter-cyclical payments are based on the " cotton to cotton " methodology , discussed 
supra , paras. 377-380.  Figures are drawn from Panel Report, para. 7.641.   
 
§ Panel Report, para. 7.564 a nd footnote 727 to para. 7.565.  
 
# For the value of Step 2 payments to domestic u sers, see Panel Report, para. 7.596.  To these figures 
we have added data submitted by the United States for the value of Step 2 payments to exporters :  see 
United States' response to questions posed by the Panel, Panel Report, p. I-126, para. 211. 
 
 
__________