WORLD TRADE  
ORGANIZATION  WT/DS267/RW 
18 December 2007 
 
 (07-5499) 
 Original:   English 
  
 
     
 
    
 
 
UNITED STATES – SUBSIDIES ON UPLAND COTTON 
 
Recourse to Article 21.5  of the DSU by Brazil  
 
 
 
 
Report of the Panel 
 
  WT/DS267/RW 
 Page i 
 
 
  TABLE OF CONTENTS 
Page  
 
I. INTRODUCTION ................................................................................................................... .1 
II. BACKGROUND ..................................................................................................................... ..2 
III. FACTUAL ASPECTS ..............................................................................................................4  
A. PRODUCTS AT ISSUE ....................................................................................................................4  
B. DEVELOPMENTS CONCERNING THE MEASURES FOUND TO BE WTO -INCONSISTENT BY 
THE ORIGINAL PANEL ..................................................................................................................5  
1. User marketing (Step 2) payments, ma rketing loan payments, market loss 
assistance payments and co unter-cyclical payments .............................................................5  
(a) User marketing (Step 2) payments..............................................................................................5  
(b) Marketing loan payments........................................................................................................ ....5 
(c) Market loss assistance payments ................................................................................................ 7 
(d) Counter-cyclical payments...................................................................................................... ....7 
2. Export credit guarantees....................................................................................................... ...8 
IV. PARTIES' REQUESTS FOR FIND INGS AND RECOMMENDATIONS.......................10  
V. ARGUMENTS OF THE PARTIES ......................................................................................12  
VI. ARGUMENTS OF THE THIRD PARTIES ........................................................................12  
VII. INTERIM REVIEW...............................................................................................................12  
A. CHANGES REQUESTED BY THE PARTIES REGARDING THE "FACTUAL ASPECTS " SECTION 
OF THE INTERIM REPORT ...........................................................................................................12  
B. CHANGES REQUESTED BY THE PARTIE S WITH RESPECT TO THE PANEL 'S DESCRIPTION 
OF ARGUMENTS OF THE PARTIES ...............................................................................................12  
C. REQUESTS FOR CHANGES WITH RESPECT TO THE PANEL 'S FACTUAL AND LEGAL 
ANALYSIS ............................................................................................................................... ...13 
D. EDITORIAL CORRECTIONS ..........................................................................................................25  
VIII.  PROCEDURAL MATTERS..................................................................................................25  
A. REQUEST OF BRAZIL THAT THE PANEL EXERCISE ITS DISCRETION TO SEEK CERTAIN 
INFORMATION FROM THE UNITED STATES UNDER ARTICLE 13 OF THE DSU ..........................25  
B. REQUEST OF THE UNITED STATES FOR OPEN HEARING ............................................................28  
C. SERVICING OF SUBMISSIONS .....................................................................................................29  
D. REQUEST OF THE EUROPEAN COMMUNITIES FOR A FINDING OR RULING ON THE 
PANEL 'S COMPOSITION .............................................................................................................31  
E. LEAST DEVELOPED COUNTRY MEMBERS .................................................................................31  
IX. GENERAL CONSIDERATIONS AND ISSUES RELATING TO THE SCOPE 
OF THIS PROCEEDING ......................................................................................................31  
A. STANDARD OF REVIEW , BURDEN OF PROOF AND RULES OF TREATY INTERPRETATION ............31  
1. Standard of review............................................................................................................. .....31  WT/DS267/RW  
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  2.
 Burden of proof................................................................................................................ .......32  
3. Rules of treaty interpretation ................................................................................................3 4 
B. SCOPE OF THIS PROCEEDING UNDER ARTICLE 21.5  OF THE DSU ................................................34  
1. Introduction................................................................................................................... ..........34  
2. Whether Brazil's claims relating to export credit guarantees for pig meat and 
poultry meat are outside the scope of this proceeding.........................................................34  
(a) Main arguments of the parties.................................................................................................. .34 
(b) Main arguments of third parties................................................................................................ 36 
(c) Evaluation by the Panel ........................................................................................................ ....37  
3. Whether Brazil's claims with respect to the marketing loan and counter-cyclical 
payment programmes  are outside the scope of this proceeding ..........................................39  
(a) Whether Brazil's claims with  respect to the marketing loan payment and counter-
cyclical programmes are outside the scope of this proceeding because these programmes were not subject to recommendations and rulings of the DSB in the original proceeding ............................................................................................................ .......39
 
(i) Main arguments of the parties .................................................................................................. 39 
(ii) Main arguments of third parties ...............................................................................................4 2 
(iii) Evaluation by the Panel........................................................................................................ ....44  
(b) Whether Brazil's claims with respect to the marketing loan and counter-cyclical 
payment programmes  are outside the scope of this proceeding because these 
programmes have not been changed in r esponse to DSB recommendations and rulings 
or otherwise and therefore are not "measures taken to comply" within the meaning of 
Article 21.5 of the DSU ........................................................................................................ ....48  
4. Whether Brazil's claim regarding the failure of the United States to take 
measures between 22 September 2005 and 31 July 2006 is outside the scope of this proceeding ................................................................................................................ ........48
 
(a) Main arguments of the parties.................................................................................................. .48 
(b) Main arguments of third parties................................................................................................ 49 
(c) Evaluation by the Panel ........................................................................................................ ....50  
5. Whether "payments" made after 21 September 2005 pursuant to the marketing 
loan and counter-cyclical payment programmes are within the scope of this proceeding..................................................................................................................... ...........52
 
(a) Main arguments of the parties.................................................................................................. .52 
(b) Evaluation by the Panel ........................................................................................................ ....53  
X. FINDINGS ON BRAZIL'S CLAIMS OF "PRESENT" SERIOUS PREJUDICE 
UNDER ARTICLES 5(C) AND 6.3 OF THE SCM AGREEMENT ...................................55  
A. INTRODUCTION .........................................................................................................................55  
B. BRAZIL 'S CLAIM OF "PRESENT " SERIOUS PREJUDICE WITHIN THE MEANING OF 
ARTICLES 5(C) AND 6.3 (C) OF THE SCM AGREEMENT .................................................................56  
1. Introduction – overview of the ma in arguments of the parties...........................................56  
2. Arguments of th ird parties..................................................................................................... 58  WT/DS267/RW 
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  3. Preliminary considerations relating to the Panel's evaluation of Brazil's claim 
under Articles 5(c) and 6.3(c) of the SCM Agreement ..........................................................59  
(a) Text of legal provisions ....................................................................................................... .....59  
(b) Period to be considered by the Panel ........................................................................................60  
(i) Main arguments of the parties .................................................................................................. 60 
(ii) Main arguments of third parties ...............................................................................................6 0 
(iii) Evaluation by the Panel........................................................................................................ ....60  
(c) Whether marketing loan and counter-cycli cal payments are specific subsidies .......................61  
(d) Magnitude of the marketing loan and counter-cyclical payments ............................................62  
(i) Marketing loan payments........................................................................................................ ..62 
(ii) Counter-cyclical payments...................................................................................................... ..63 
(e) Product at issue, like product, re levant "market" and "price"...................................................68  
(f) Significant price suppression as the effect of the subsidy.........................................................70  
4. The alleged "substantial proportionate influence" of US upland cotton 
production and exports......................................................................................................... ..72 
(a) Main arguments of the parties.................................................................................................. .72 
(b) Evaluation by the Panel ........................................................................................................ ....73  
5. "Structure, design and operation" of the marketing loan and counter-cyclical 
payments....................................................................................................................... ...........75  
(a) Main arguments of the parties.................................................................................................. .75 
(b) Evaluation by the Panel ........................................................................................................ ....76  
6. Alleged "large magnitude" of the market ing loan payments and counter-cyclical 
payments....................................................................................................................... ...........89  
(a) Main arguments of the parties.................................................................................................. .89 
(b) Evaluation by the Panel ........................................................................................................ ....90  
7. Alleged "link between high levels of US s ubsidies and high levels of US planted  
acreage, production and exports" .........................................................................................92  
(a) Main arguments of the parties.................................................................................................. .92 
(b) Evaluation by the Panel ........................................................................................................ ....95  
8. Alleged "discernible temporal coincidence" of suppressed world market prices 
and large marketing loans and counter-cyclical payments.................................................97  
(a) Main arguments of the parties.................................................................................................. .97 
(b) Evaluation by the Panel ........................................................................................................ ....98  
9. Alleged gap between long-term costs of production and market revenues of US 
upland cotton producers.......................................................................................................1 03 
(a) Main arguments of the parties.................................................................................................1 03 
(b) Evaluation by the Panel ........................................................................................................ ..107  
(i) Description of the data on commodity cost and returns .........................................................108  WT/DS267/RW  
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  (ii)
 Whether certain items (land, unpaid lab our and capital recovery costs) should be 
included as variable costs..................................................................................................... ..109  
(iii) Cash or opportunity costs ...................................................................................................... .109 
(iv) Total or variable costs of production......................................................................................111  
(v) The role of off-farm income .................................................................................................... 113 
(vi) US upland cotton producers' long-term cost s of production and market revenues ................115  
(vii) Other arguments ................................................................................................................ .....117  
10. The economic simulation model submitted by Brazil in this proceeding.........................120  
(a) Introduction................................................................................................................... ..........120  
(b) Main arguments of the parties.................................................................................................1 20 
(i) Structure of the model......................................................................................................... ....122  
(ii) Parameters of the model ........................................................................................................ .123 
(c) Evaluation by the Panel ........................................................................................................ ..125  
11. Impact of the eliminatio n of Step 2 payments ....................................................................125  
(a) Introduction................................................................................................................... ..........125  
(b) Main arguments of the parties.................................................................................................1 26 
(c) Evaluation by the Panel ........................................................................................................ ..128  
(i) Assessing the effects on US cotton exports .............................................................................128  
(ii) Indirect effect on marketing loan and counter-cyclical payments ..........................................129  
12. Other factors impacting the world market price for upland cotton ................................131  
(a) Main arguments of the parties.................................................................................................1 31 
(b) Evaluation by the Panel ........................................................................................................ ..131  
13. Summary and conclusion of the Panel's analysis of Brazil's claim of serious 
prejudice within the meaning of Articles 5(c) and 6.3(c) of the SCM Agreement ............132  
C. CLAIM OF BRAZIL OF "PRESENT " SERIOUS PREJUDICE WITHIN THE MEANING OF 
ARTICLES 5(C) AND 6.3( D) OF THE SCM AGREEMENT ...............................................................134  
1. Main arguments of the parties.............................................................................................134  
2. Evaluation by the Panel........................................................................................................ 135 
XI. BRAZIL'S CLAIM OF THREAT OF SERIOUS PREJUDICE UNDER 
ARTICLES 5(C) AND 6.3 OF THE SCM AGREEMENT ................................................137  
XII. BRAZIL'S CLAIM OF "PRESENT" SERIOUS PREJUDICE UNDER 
ARTICLES 5(C), 6.3(C) AND 6.3(D) OF THE SCM AGREEMENT  AS A 
RESULT OF THE FAILURE OF THE UNITED STATES TO TAKE ANY 
ACTION BETWEEN 22 SEPTEMBER 2005 AND 31 JULY 2006.................................137  
XIII.  ATTACHMENT 1:  OVERVIEW OF NEW ECONOMIC LITERATURE ON COUNTER-CYCLICAL PAYMENTS ..............................................................................138
 
A. IMPACT  OF COUNTER-CYCLICAL  PAYMENTS ............................................................138  
1. Studies cited by the United States........................................................................................138   WT/DS267/RW 
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  2. Studies cited by Brazil ........................................................................................................ ..139  
B. ARE  COUNTER-CYCLICAL  PAYMENTS  CAPITALIZED  INTO  HIGHER  LAND  
VALUES?........................................................................................................................ .......141  
1. Studies cited by the United States........................................................................................141  
XIV.  FINDINGS ON BRAZIL'S CLAIMS UNDER ARTICLES 10.1 AND 8 OF THE 
AGREEMENT ON AGRICULTURE AND ARTICLES 3.1(A), 3.2 AND 4.7 OF 
THE SCM AGREEMENT  WITH RESPECT TO EXPORT CREDIT 
GUARANTEES..................................................................................................................... 142 
A. INTRODUCTION .......................................................................................................................142  
1. Description of the export credit guarantees at issue in this dispute .................................142  
2. Summary of the original panel and Appe llate Body's findings concerning export 
credit guarantees.............................................................................................................. .....143  
B. BRAZIL 'S CLAIMS WITH RESPECT TO EXPO RT CREDIT GUARANTEES OUTSTANDING ON 
1 JULY 2005 .......................................................................................................................... ..144  
1. Introduction................................................................................................................... ........144  
2. Main arguments of the parties.............................................................................................145  
3. Main arguments of third parties .........................................................................................146  
4. Evaluation by the Panel........................................................................................................ 146 
(a) Introduction................................................................................................................... ..........146  
(b) Panel and Appellate Body reports in Brazil – Aircraft (Article 21.5 – Canada) ....................147  
(c) Whether the obligation to "withdraw the s ubsidy" includes an obligation to abstain 
from performing on outstanding financial commitments........................................................148  
(d) Meaning of the term "withdraw" ............................................................................................151  
C. BRAZIL 'S CLAIMS CONCERNING GSM  102 EXPORT CREDIT GUARANTEES ISSUED 
AFTER 1 JULY 2005 .................................................................................................................152  
1. Introduction................................................................................................................... ........152  
2. Brazil's claims under Articles 8 and 10.1 of the Agreement on Agriculture .....................152  
3. Are GSM 102 export credit guarantees "export subsidies" – legal bases for 
Brazil's arguments ............................................................................................................. ...154  
4. Brazil's arguments under item (j) of the I llustrative List of Export Subsidies ...............156  
(a) Original panel's analysis under item (j) of the Illustrative List of Export Subsidies ..............156  
(i) Past performance of the programmes.....................................................................................156  
(ii) Structure, design and operation of the programme ................................................................158  
(iii) Overall conclusion by the original panel................................................................................158  
(iv) Appellate Body................................................................................................................. .......159  
(b) "Quantitative" analysis under item (j).....................................................................................159  
(i) Main arguments of the parties ................................................................................................15 9 
(ii) Evaluation by the Panel........................................................................................................ ..160  
(c) Comparison with MPRs under the OECD Arrangement ........................................................167  WT/DS267/RW  
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  (i)
 Main arguments of the parties ................................................................................................16 7 
(ii) Main arguments of  third parties ............................................................................................168  
(iii) Evaluation by the Panel........................................................................................................ ..168  
(d) Structure, design and operation of the GSM 102 programme ................................................171  
(i) Main arguments of the parties ................................................................................................17 1 
(ii) Evaluation by the Panel........................................................................................................ ..172  
(e) Overall conclusion of the Panel's analysis under item (j) of the Illustrative List ...................180  
5. Whether the United States has applied GSM 102 guarantees in a manner that 
results in circumvention of its export subsidy commitments under the Agreement 
on Agriculture ........................................................................................................................181  
(a) Introduction................................................................................................................... ..........181  
(b) Unscheduled products........................................................................................................... ..181  
(c) Scheduled products ............................................................................................................. ....182  
6. Claims that GSM 102 export credit guarantees are inconsistent with Articles 
3.1(a) and 3.2 of the SCM Agreement ..................................................................................185  
D. CLAIMS WITH RESPECT TO LYSINE , LYOCELL AND WOOD PRODUCTS .....................................186  
XV. CONCLUSIONS AND RECOMMENDATION ................................................................188  
  WT/DS267/RW 
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  LIST OF ANNEXES 
 
ANNEX A 
 
FIRST WRITTEN SUBMISSIONS OF PARTIES AND THIRD PARTIES 
 
Contents Page 
Annex A-1 Executive Summary of the First Written Submission of Brazil A-2 
Annex A-2 Executive Summary of the First Written Submission of the 
United States (Including Request for Preliminary Rulings) A-9 
Annex A-3 Third Party Submission of Argentina A-18 
Annex A-4 Third Party Submission of Australia A-22 
Annex A-5 Third Party Submission of Canada A-31 
Annex A-6 Third Party Submission of Chad A-38 
Annex A-7 Third Party Submission of the People's Republic of China A-52 
Annex A-8 Third Party Submission of the European Communities A-57 
Annex A-9 Third Party Submission of Japan A-72 
Annex A-10 Third Party Submission of New Zealand A-79 
 
ANNEX B 
 
REBUTTAL SUBMISSIONS OF PARTIES 
 
Contents Page  
Annex B-1 Executive Summary of the Rebuttal Submission of Brazil   B-2 
Annex B-2 Executive Summary of the Rebuttal Submission of the 
United States B-8 
Annex B-3 Executive Summary of Brazil's Submission Regarding US Requests 
for Preliminary Ruling  B-16 
 
ANNEX C 
 
ORAL STATEMENTS OF PARTIES AND THIRD PARTIES AT THE 
MEETING WITH THE PANEL  
 
Contents Page 
Annex C-1 Opening Statement of Brazil (Executive Summary) C-2 
Annex C-2 Closing Statement of Brazil C-10 
Annex C-3 Opening Statement of the United States (Executive Summary) C-18 
Annex C-4 Closing Statement of the United States C-26 
Annex C-5 Third Party Oral Statement of Argentina C-29 
Annex C-6 Third Party Oral Statement of Australia C-34 
Annex C-7 Third Party Oral Statement of Canada C-37 
Annex C-8 Third Party Oral Statement of Chad C-40 
Annex C-9 Third Party Oral Statement of the People's Republic of China C-45 
Annex C-10 Third Party Oral Statement of the European Communities C-47 
Annex C-11 Third Party Oral Statement of India C-56 
Annex C-12 Third Party Oral Statement of Japan C-58 
Annex C-13 Third Party Oral Statement of New Zealand C-61 
Annex C-14 Third Party Oral Statement of Thailand C-64 
 WT/DS267/RW  
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ANNEX D 
 
RESPONSES OF PARTIES TO THE PANEL'S QUESTIONS AND 
OTHER COMMENTS AND DOCUMENTS RECEIVED FROM PARTIES 
 
Contents Page 
Annex D-1 Brazil's Request for the Panel to Seek Production of Documents and 
Information Pursuant to Article 13 of the DSU D-2 
Annex D-2 Responses of Brazil to the Panel's Questions on the DSU Article 13 
Issue   D-18 
Annex D-3 Responses of the United States to the Panel's Questions on the DSU 
Article 13 Issue D-21 
Annex D-4 Comments of Brazil on the Oral Statements of the United States at 
the Meeting with the Panel  D-24 
Annex D-5 Comments of the United States on the Oral Statements of Brazil at 
the Meeting with the Panel  D-46 
Annex D-6 Responses of Brazil to the Pane l's First Set of Questions (Sections 
A-C)   D-78 
Annex D-7 Responses of Brazil to the Pane l's First Set of Questions (Sections 
D&E)   D-114 
Annex D-8 Responses of the United States to the Panel's First Set of Questions 
(Sections A-C)   D-134 
Annex D-9 Responses of the United States to the Panel's First Set of Questions 
(Sections D&E)   D-152 
Annex D-10 Brazil's Comments on the Responses of the United States to the 
Panel's First Set of Questions  D-177 
Annex D-11 United States' Comments on the Responses of Brazil to the Panel's 
First Set of Questions D-220 
Annex D-12 Responses of Brazil to the Pa nel's Second Set of Questions   D-269 
Annex D-13 Responses of the United St ates to the Panel's Second Set of 
Questions    D-355 
Annex D-14 Brazil's Comments on the Responses of the United States to the 
Panel's Second Set of Questions  D-443 
Annex D-15 United States' Comments on the Responses of Brazil to the Panel's 
Second Set of Questions D-518 
 
 
ANNEX E 
 
COMMUNICATIONS FROM PARTIES 
 
Contents Page 
Annex E-1 Letter of the United St ates dated 7 November 2006 E-2 
Annex E-2 Letter of the United St ates dated 20 November 2006 E-5 
Annex E-3 Letter of the United St ates dated 21 November 2006 E-8 
Annex E-4 Letter of Brazil dated 22 November 2006 E-10 
Annex E-5 Letter of Brazil dated 24 November 2006 E-13 
Annex E-6 Letter of Brazil dated 18 December 2006 E-15 
Annex E-7 Letter of the United St ates dated 19 December 2006 E-16 
Annex E-8 Letter of Brazil dated 22 January 2007 E-19  WT/DS267/RW 
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  Contents Page 
Annex E-9 Letter of Brazil dated 7 February 2007 E-21 
Annex E-10 Letter of the United St ates dated 12 February 2007 E-22 
 
 
ANNEX F 
 
COMMUNICATIONS FROM THE PANEL TO PARTIES 
 
Contents Page 
Annex F-1 Communication of 8 November 2006 F-2 
Annex F-2 Communication of 27 November 2006 F-3 
Annex F-3 Communication of 28 November 2006 F-4 
Annex F-4 Communication of 20 December 2006 1 F-5 
Annex F-5 Communication of 17 January 2007 F-6 
Annex F-6 Communication of 22 January 2007 F-7 
Annex F-7 Communication of 16 February 2007 F-8 
Annex F-8 Communication of 21 March 2007 F-9 
 
 
ANNEX G 
 
WORKING PROCEDURES AND TIMETABLE OF THE PANEL 
 
Contents Page 
Annex G-1 Working Procedures  G-2 
Annex G-2 Timetable (Final) G-5 
 
 
ANNEX H 
 
REQUEST FOR THE ESTABLISHMENT OF A PANEL 
 
Contents Page 
Annex H-1 Request for the Establis hment of a Panel by Brazil H-2 
 
                                                      
1  This communication was sent to the Pa rties as well as to the Third Parties. WT/DS267/RW  
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  TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Australia – Salmon  
(Article 21.5 – Canada)  Panel Report, Australia – Measures Affecting Importation of Salmon – Recourse 
to Article 21.5 of the DSU by Canada , WT/DS18/RW, adopted 20 March 2000, 
DSR 2000:IV, 2031 
Brazil – Aircraft  (Article 21.5 – Canada)
  Appellate Body Report, Brazil – Export Financing Programme for Aircraft 
 – Recourse by Canada to Article 21.5 of the DSU , WT/DS46/AB/RW, adopted 
4 August 2000, DSR 2000:VIII, 4067 
Brazil – Aircraft  
(Article 21.5 – Canada)  Panel Report, Brazil – Export Financing Programme  for Aircraft – Recourse by 
Canada to Article 21.5 of the DSU , WT/DS46/RW, adopted 4 August 2000, as 
modified by Appellate Body Report, WT/DS46/AB/RW, DSR 2000:IX, 4093 
Canada – Aircraft  
(Article 21.5 – Brazil)  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft – Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/AB/RW, 
adopted 4 August 2000, DSR 2000:IX, 4299 
Canada – Aircraft  
(Article 21.5 – Brazil)  Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft  
– Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/RW, adopted 
4 August 2000, as modified by Appellate Body Report, WT/DS70/AB/RW, DSR 2000:IX, 4315 
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 Appellate Body Report, WT/DS103/AB/R, WT/DS113/AB/R, DSR 1999:VI, 2097 
Canada – Dairy  
(Article 21.5 – New Zealand 
and US)  Panel Report, Canada – Measures Affecting the Importation of Milk and the 
Exportation of Dairy Products – Recourse  to Article 21.5 of the DSU by New 
Zealand and the United States , WT/DS103/RW, WT/DS113/RW, adopted 
18 December 2001, as reversed by Appellate Body Report, WT/DS103/AB/RW, 
WT/DS113/AB/RW, DSR 2001:XIII, 6865 
Canada – Dairy  
(Article 21.5 – New Zealand and US II)
  Appellate Body Report, Canada – Measures Affecting the Importation of Milk 
and the Exportation of Dairy Products – Second Recourse to Article 21.5 of the DSU by New Zealand and the United States , WT/DS103/AB/RW2, 
WT/DS113/AB/RW2, adopted 17 January 2003, DSR 2003:I, 213 
Chile – Price Band System 
(Article 21.5 – Argentina) Appellate Body Report, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products – Recourse to Article 21.5 of the DSU by Argentina , WT/DS207/AB/RW, adopted 22 May 2007 
EC – Bed Linen  
(Article 21.5 – India)  Appellate Body Report, European Communities – Anti-Dumping Duties on 
Imports of Cotton-Type Bed Linen from I ndia – Recourse to Article 21.5 of the 
DSU  by India , WT/DS141/AB/RW, adopted 24 April 2003, DSR 2003:III, 965  
EC – Bed Linen  
(Article 21.5 – India)  Panel Report, European Communities – Anti-Dumping Duties on Imports of 
Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSU  by 
India , WT/DS141/RW, adopted 24 April 2003, as modified by Appellate Body 
Report, WT/DS141/AB/RW, DSR 2003:IV, 1269  
EC – Export Subsidies on 
Sugar Appellate Body Report, European Communities – Export Subsidies on Sugar , 
WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, adopted 19 May 2005 
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 
Korea – Commercial Vessels Panel Report, Korea – Measures Affecting Trade in Commercial Vessels , 
WT/DS273/R, adopted 11 April 2005  WT/DS267/RW 
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  Short Title Full Case Title and Citation 
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 – Countervailing Measures 
on Certain EC Products 
(Article 21.5 – EC) Panel Report, United States – Countervailing Measures Concerning Certain 
Products from the European Communities – Recourse to Article 21.5 of the DSU 
by the European Communities , WT/DS212/RW, adopted 27 September 2005 
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  Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" , 
WT/DS108/R, adopted 20 March 2000, as modified by Appellate Body Report, 
WT/DS108/AB/R, DSR 2000:IV, 1675 
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 Appellate Body Report, WT/DS108/AB/RW, DSR 2002:I, 119 
US – FSC  
(Article 21.5 – EC II) Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Second Recourse to Article 21.5 of the DSU by the European 
Communities , WT/DS108/AB/RW2, adopted 14 March 2006 
US – FSC  
(Article 21.5 – EC II) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" 
 – Second Recourse to Article 21.5 of the DSU by the European Communities , 
WT/DS108/RW2, adopted 14 March 2006, upheld by Appellate Body Report, 
WT/DS108/AB/RW2 
US – Oil Country Tubular 
Goods Sunset Reviews Appellate Body Report, United States – Sunset Reviews of Anti-Dumping 
Measures on Oil Country Tubular Goods from Argentina , WT/DS268/AB/R, 
adopted 17 December 2004, DSR 2004:VII, 3257 
US – Oil Country Tubular Goods Sunset Reviews  
(Article 21.5 – Argentina) Appellate Body Report, United States – Sunset Reviews of Anti-Dumping 
Measures on Oil Country Tubular Goods fr om Argentina – Recourse to Article 
21.5 of the DSU by Argentina , WT/DS268/AB/RW, adopted 11 May 2007 
US – Shrimp  
(Article 21.5 – Malaysia)  Panel Report, United States – Import Prohibition of Certain Shrimp and Shrimp 
Products – Recourse to Article 21.5 of the DSU by Malaysia , WT/DS58/RW, 
adopted 21 November 2001, upheld by Appellate Body Report, 
WT/DS58/AB/RW, DSR 2001:XIII, 6529 
US – Softwood Lumber IV 
(Article 21.5 – Canada) Appellate Body Report, United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada – Recourse by Canada to Article 21.5 of the DSU , WT/DS257/AB/RW, adopted 20 December 2005  
US – Softwood Lumber VI 
(Article 21.5 – Canada) Appellate Body Report, United States – Investigation of the International Trade 
Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of the 
DSU by Canada , WT/DS277/AB/RW, adopted 9 May 2006  
US – Upland Cotton Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R, adopted 21 March 2005 
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R, and 
Corr.1, adopted 21 March 2005, as modified by Appellate Body Report, 
WT/DS267/AB/R WT/DS267/RW  
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  Short Title Full Case Title and Citation 
US – Wool Shirts and Blouses  Appellate Body Report, United States – Measure Affecting Imports of Woven 
Wool Shirts and Blouses from India , WT/DS33/AB/R and Corr.1, adopted 
23 May 1997, DSR 1997:I, 323 
  WT/DS267/RW 
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  I. INTRODUCTION 
1.1 On 18 August 2006, Brazil requested the establishm ent of a panel pursuant to Article 21.5 of 
the Dispute Settlement Understanding ("DSU") concer ning the alleged failure of the United States to 
implement the recommendations and rulings of the Dispute Settlement Body ("DSB") in US – Upland 
Cotton .1   
1.2 At its meeting of 28 September 2006 the DSB decided, in accordance with Article 21.5 of the 
DSU, to refer this matter, if possible, to the original panel.   
1.3 The terms of reference of the Panel are the following: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by Brazil in document WT/DS267/30, the matte r referred to the DSB by Brazil in that 
document, and to make such finding s as will assist the DSB in making the 
recommendations or in giving the rulings provided for in those agreements."  
1.4 On 18 and 20 October 2006, Brazil and the United States respectively requ ested the Director-
General to determine the composition of the Pane l in accordance with Article 8.7 of the DSU.  
Article 8.7 of the DSU provides: 
"If there is no agreement on the panelists within 20 days after the date of the 
establishment of a panel, at the request of  either party, the Director-General, in 
consultation with the Chairman of the DSB and the Chairman of the relevant Council 
or Committee, shall determine the com position of the panel by appointing the 
panelists whom the Director-General consid ers most appropriate in accordance with 
any relevant special or additional rules or  procedures of the covered agreement or 
covered agreements which are at issue in th e dispute after consulting with the parties 
to the dispute. The Chairman of the DSB shall inform the Members of the 
composition of the panel thus formed no later than 10 days after the date the 
Chairman receives such a request." 
1.5 On 25 October 2006, the Director-General de termined the composition of the Panel as 
follows: 
Chairman: Mr. Eduardo Pérez Motta Members: Mr. Mario Matus 
   Mr. Ho-Young Ahn.
2 
 1.6 Argentina, Australia, Canada, Chad, China,  the European Communities, India, Japan, 
New Zealand, and Thailand reserved their rights to participate in the Panel proceedings as third 
parties. 
1.7 The Panel met with the parties to the disput e on 27-28 February 2007.  The Panel met with 
the third parties on 28 February 2007.  
1.8 The Panel submitted its interim report to the pa rties on 27 July 2007 and submitted its final 
report to the parties on 15 October 2007. 
                                                     
 
1 WT/DS267/30.  
2 WT/DS267/31.  WT/DS267/RW  
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  II. BACKGROUND 
2.1 This dispute concerns the disagreement betw een Brazil and the United States, within the 
meaning of Article 21.5 of the DSU, as to "the exis tence or consistency with a covered agreement of 
measures taken to comply with the reco mmendations and rulings" of the DSB in US – Upland 
Cotton.
3   
2.2 The report of the original panel in US – Upland Cotton  was circulated to Members on 
8 September 2004.   
2.3 The original panel found that certain measures of the United States were inconsistent with the 
Agreement on Agriculture  and/or the Agreement on Subsidies and Countervailing Measures (" SCM 
Agreement ").   
2.4 First , the original panel found that export credit guarantees under the GSM 102, GSM 103 
and SCGP export credit guarantee programmes4 were inconsistent with Articles 10.1 and 8 of the 
Agreement on Agriculture  and Articles 3.1(a) and 3.2 of the SCM Agreement  in respect of exports of 
upland cotton and other unscheduled agricultural products supported under these programmes and in 
respect of one scheduled product (rice).5  The original panel also found that in respect of exports of 
unscheduled agricultural products not supporte d under the programmes and other scheduled 
agricultural products, export credit guarantees unde r the GSM 102, GSM 103 and SCGP export credit 
guarantee programmes were not inconsistent with Articles 10.1 and 8 of the Agreement on 
Agriculture.6  
2.5 Second , the original panel found that section 1207(a) of the Farm Security and Rural 
Investment Act of 2002 ("FSRI Act of 2002") provid ing for user marketing (Step 2) payments to 
exporters of upland cotton was inconsiste nt with Articles 3.3 and 8 of the Agreement on Agriculture  
and Articles 3.1(a) and 3.2 of the SCM Agreement7 and that section 1207 (a) of the FSRI Act of 2002 
providing for user marketing (Step 2) payments to  domestic users of upland cotton was inconsistent 
with Articles 3.1(b) and 3.2 of the SCM Agreement .8  
2.6 Third , the original panel found that the effect of  certain mandatory, price-contingent subsidy 
measures of the United States9 was significant price suppression within the meaning of Article 6.3(c) 
of the SCM Agreement  in the same world market constituting serious prejudice to the interests of 
Brazil within the meaning of Article 5(c) of the SCM Agreemen t.10   
                                                      
3 As discussed below, the United St ates considers that cer tain claims of Brazil are not properly within 
the scope of this proceeding because they do not pe rtain to a disagreement regarding "the existence or 
consistency with a covered agreement of measures take n to comply with the recommendations and rulings".  
Infra,  Section IX.B. 
4 See infra , paras. 3.13-3.16. 
5 Panel Report, US – Upland Cotton , paras. 7.875, 7.881 and  8.1(d)(i).  
6 Panel Report, US – Upland Cotton, paras. 7.896 and. 8.1(d)(ii).   Thus the Panel concluded that these 
export credit guarantees were exempt from actions based on Article XVI of the GATT 1994 and Article 3 of the 
SCM Agreement .  
7 Panel Report, US – Upland Cotton , paras. 7.749, 7.760-7.761 and 8.1(e).  
8 Panel Report, US – Upland Cotton , paras. 7.1097-7.1098 and 8.1(f).  
9 Marketing loan programme payments, user mark eting (Step 2) payments, market loss assistance 
payments and counter-cyclical payments.  See infra , paras. 3.7-3.11.  
10 Panel Report, US – Upland Cotton , paras. 7.1416 and  8.1(g)(i).   WT/DS267/RW 
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  2.7 In respect of the measures found to be inconsistent with the Agreement on Agriculture , the 
original panel recommended pursuant to Article 19.1 of the DSU that  the United States bring its 
measures into conformity with the Agreement on Agriculture .11   
2.8 In respect of the measures found to be subsidies prohibited under Articles 3.1(a) and 3.2 and 
3.1(b) and 3.2 of the SCM Agreement , the original panel recommended pursuant to Article 4.7 of the 
SCM Agreement  that the United States withdraw the prohibited subsidy without delay, i.e. at the latest 
within six months of the date of adoption of the panel report by the DSB or 1 July 2005, whichever 
was earlier.12 
2.9 In respect of the measures subject to the finding of 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 original panel stated the 
following: 
"[W]e recall that, in respect of the subsidies subject to our conclusion in 
paragraph 8.1(g)(i) above, pursuant to Article 7.8 of the SCM Agreement : 
'7.8 Where a panel report or an Appellate Body report is adopted 
in which it is determined that an y subsidy has resulted in adverse 
effects to the interests of another Member within the meaning of Article 5, the Member granting or  maintaining such subsidy shall 
take appropriate steps to remove the adverse effects or shall withdraw the subsidy.' 
Accordingly, upon adoption of this report, the United States is under an obligation to 
'take appropriate steps to remove the adve rse effects or ... withdraw the subsidy'."
13 
2.10 The Appellate Body report in the original pr oceeding in this dispute was circulated to 
Members on 3 March 2005.   
2.11 The Appellate Body upheld the findi ng in paragraph 7.869 of the original panel report that the 
export credit guarantee programmes at issue constituted 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 the finding 
in paragraphs 7.947 and 7.948 of the original  panel report that these export credit guarantee 
programmes were inconsistent with  Articles 3.1(a) and 3.2 of the SCM Agreement .14  The Appellate 
Body reversed the finding in paragraph 7.881 of  the original panel report that Brazil had not 
established that the application of export credit guarantees had resulted in actual circumvention of 
export subsidy commitments for pig meat and poultr y meat.  The Appellate Body considered that 
there were insufficient facts in th e record to enable it to complete the legal analysis to determine 
whether the export credit guarantees had been applied in a manner that resulted in actual 
circumvention of the export subsidy commitments of the United States.15  
2.12 The Appellate Body upheld the findings in paragraphs 7.1088, 7. 1097-7.1098 and 8.1(f) of 
the original panel report that Step 2 payments to domestic users of upland cotton under 
section 1207(a) of the FSRI Act of 2002 were inc onsistent with Articles 3.1(b) and 3.2 of the SCM 
Agreement  and the findings in paragraphs 7.748-7.749, 7.760-7.761 and 8.1(e) of the original panel 
                                                      
11 Panel Report, US – Upland Cotton , para. 8.3(a). 
12 Panel Report, US – Upland Cotton , paras. 8.3(b) and (c).  
13 Panel Report, US – Upland Cotton , para. 8.3(d). 
14 Appellate Body Report, US – Upland Cotton , paras. 674 and 763(e)(iv).  
15 Appellate Body Report, US – Upland Cotton , paras. 693-694 and 763(f)(i).  WT/DS267/RW  
Page 4  
 
  report that Step 2 payments to exporters of US upland cotton under section 1207(a) of the FSRI Act of 
2002 were inconsistent with Articles 3.3 and 8 of the Agreement on Agriculture  and Articles 3.1(a) 
and 3.2 of the SCM Agreement .
16  
2.13 The Appellate Body upheld the finding in para graphs 7.1416 and 8.1(g)(i) of the original 
panel report that the effect of certain price c ontingent subsidies was significant price suppression 
within the meaning of Article 6.3(c) of the SCM Agreement .17   
2.14 On 21 March 2005, the DSB adopted the report of the Appellate Body in US – Upland Cotton  
and the report of the original panel, as modified by the Appellate Body report .  
III. FACTUAL ASPECTS 
A. PRODUCTS AT ISSUE  
3.1 The original panel described the products at issue as follows:  
"This dispute principally concerns allege d United States subsidies in respect of 
'upland cotton' ( Gossypium hirsutum ).  This is defined in relevant United States 
legislation as: 
'Planted and stub cotton that is produced from other than pure strain 
varieties of the Barbadense species, any hybrid thereof, or any other 
variety of cotton in which one or more of these varieties predominate.'  
In relation to Brazil's claims that Un ited States export credit guarantee measures 
constitute export subsidies under the Agreement on Agriculture  and the 
SCM Agreement , the dispute concerns upland cotto n and other eligible agricultural 
products as well."
18 (footnotes omitted) 
3.2 In this compliance dispute, there is no disagre ement between the parties on the description of  
upland cotton, and thus, the Panel considers that  the above description of upland cotton remains 
accurate.   
3.3 The original panel explained that "[u]pland cotton harvested from a field has cotton lint and 
cottonseed", that "[g]inning involves separating co tton lint from cottonseed", and that "[u]nless 
otherwise indicated, references in this report to upl and cotton ordinarily refe r to upland cotton lint."19  
In this proceeding, there is no disagreement between th e parties that the term "upland cotton" refers to 
upland cotton lint.  
3.4 While the product at issue in Brazil's claims of serious prejudice is upland cotton, with respect 
to Brazil's claims under the Agreement on Agriculture  and the SCM Agreement  relating to export 
credit guarantees, this compliance dispute concerns  upland cotton and the following products:  (i) 
three agricultural products for which the Unite d States has entered export subsidy reduction 
                                                      
16 Appellate Body Report, US – Upland Cotton , paras. 552, 583-584 and 763(d). 
17 Appellate Body Report, US – Upland Cotton , paras. 496 and 763(c). 
18 Panel Report, US – Upland Cotton , paras. 7.197-7.198. 
19 Panel Report, US – Upland Cotton , footnote 258.  WT/DS267/RW 
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  commitments ("scheduled products") – rice, poultry meat and pig meat20 – and (ii) "unscheduled 
products" for which export credit guarant ees were provided after 1 July 2005.21 
3.5 The products described in (i) and (ii) in the preceding paragraph as well as upland cotton, all 
fall within the product coverage of the Agreement on Agriculture.22 
3.6 In addition, three other products (lysine, lyoce ll and wood products) are the subject of claims 
by Brazil that the United States provided export s ubsidies in the form of export credit guarantees, 
inconsistently with its obligations under the SCM Agreement .23  
B. DEVELOPMENTS CONCERNING THE MEASURES FOUND TO BE WTO -INCONSISTENT BY THE 
ORIGINAL PANEL24  
1. User marketing (Step 2) payments, marketing loan payments, market loss assistance 
payments and counter-cyclical payments  
(a) User marketing (Step 2) payments  
3.7 The term "user marketing (Step 2)  payments" as used in the or iginal panel report refers to 
payments made under the upland cotton user marke ting certificate or "Step 2" programme, a special 
marketing loan provision for upland cotton in section 1207(a) of the FSRI Act of 2002.  This 
programme provided for marketing certificates or cash payments to eligible domestic users and 
exporters of eligible upland cott on when certain market conditions ex isted such that US cotton pricing 
benchmarks were exceeded.25  On 1 February 2006, the Congress of the United States adopted 
legislation repealing the Step 2 subsidy progra mme for upland cotton effective as of 1 August 2006.26   
(b) Marketing loan payments 
3.8 Marketing loan payments are provided for in  sections 1201-1205 of the FSRI Act of 2002.  
The original panel describ ed these measures as follows: 
"Marketing loan programme payments fo r upland cotton began in 1986 and have 
continued under successive legislati on, including the Federal Agriculture 
                                                      
20 The United States requests that the Panel rule th at Brazil's claims concer ning poultry meat and pig 
meat are outside the scope of this pr oceeding.  US First Written Submission, paras. 24-30.  The Panel addresses 
this request of the United States below in Section IX.B.2. 
21 Brazil has identified the follo wing products as having benef ited from GSM 102 export credit 
guarantees since 1 July 2005: cotton, oilseeds (including soybeans and soybean meal), protein meals, fresh 
vegetables, hides/skins, tallow, corn products.  Braz il's First Written Submission, para.  450 and note 622. 
22 Article 2 and Annex 1 of the Agreement on Agriculture .  In particular, the Panel notes that the 
Agreement covers products under Harm onized System Headings 52.01 to 52 .03 (raw cotton, waste and cotton 
carded and combed). 
23 Brazil included these products in the list of un scheduled products that benefited from GSM 102 
export credit guarantees.  Following an argument by th e United States that these products fall outside the 
product coverage of the Agreement on Agriculture , Brazil indicated that, with resp ect to these three products, it 
makes no claims under the Agreement on Agriculture  but maintains its claims under the SCM Agreement .  See 
US Rebuttal Submission, para. 83, Brazil's Response to Panel Question 50 and US Comments thereon.  See 
infra , Section XIV.D for the Panel's determination that Brazil 's claims concerning thes e products are outside the 
scope of these proceedings.  
24 The inclusion of a measure in th is section and the terms used to describe the measure are without 
prejudice to the Panel's position on the preliminary objec tions raised by the United States with respect to 
whether certain measures are properly  within the scope of this proceedin g under Article 21.5 of the DSU.  
25 Panel Report, US – Upland Cotton , para. 7.209.  
26 Section 1103 of the Deficit Reduction Act of 2005, reproduced in Exhibit Bra-435.  WT/DS267/RW  
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  Improvement and Reform Act of 1996 (' FAIR Act of 1996') and the FSRI Act of 
2002.  The marketing loan programme is intended to minimize potential loan forfeitures by providing interim financing to  eligible producers on their eligible 
production and facilitate the orderly distri bution of eligible commodities throughout 
the year.  Accordingly, rather than selling the crop at harvest when prices tend to be 
at their lowest, the proceeds of the interi m loan enable producers to pay off their 
expenses when they become due, while storing their pledged harvested crop as collateral and repaying the loan when market conditions are potentially more 
favourable.  
Under the FAIR Act of 1996, marketing assistance loans for upland cotton were 
provided to producers for upland cotton harvested on a farm containing eligible 
cropland covered by a production flexibility contract [...].  The loans for upland 
cotton were made on conditions prescribed by the Secretary for a term of ten months.  The legislation provided that the loan rate for upland cotton was determined by the Secretary for each year's crop at a rate that was no less than the smaller of 85 per cent 
of the five year Olympic average of county spot market prices, or 90 per cent of the 
Northern Europe-based average price but wh ich should be not less than 50 cents per 
pound and not more than 51.92 cents per pound.  The loan rates for the 1999, 2000, 2001 and 2002 crops of upland cotton were each determined at 51.92 cents per 
pound.  The loans were non-recourse, so a producer had the option to deliver to the CCC [Commodity Credit Corporation] th e quantity of a commodity pledged as 
collateral for the loan as payment in full wh en the loan was due to be repaid.   
Under the FSRI Act of 2002, marketing assistance loans continue to be provided, but 
certain features of the programme have b een changed.  In particular, loans are 
provided to producers for any upland cotton produced on a farm, the term of a marketing assistance loan for upland cotton is  now nine months and the loan rate for 
upland cotton is fixed by the Act itself at 52 cents per pound for the 2002 through 
2007 crop years.  
The repayment rate for marketing loans is the lower of the adjusted world market 
price and the loan rate plus interest.  When  the adjusted world market price is lower 
than the loan rate, the producer repays at le ss than the loan rate and the difference is 
referred to as a 'marketing loan gain'.  Alternatively, a producer may forego a 
marketing loan and receive a 'loan deficiency payment' in the amount of the 
difference between the lower adjusted wo rld market price and the loan rate.  
Additionally, in October 1999, the FAIR  Act of 1996 was amended to include 
provisions for the issuance of 'commodity certificates', available to producers, 
including upland cotton producers, to use in acquiring 1998 through 2002 crop 
collateral pledged to CCC for a commodity loan.  Marketing loan gains, loan 
deficiency payments and commodity certif icate exchange gains are collectively 
referred to below as 'marketing loan programme payments'.  
When loans are repaid, the CC C charges interest at a rate 1 per cent higher than the 
rate it pays the Treasury.  The CCC forgives interest and pays storage charges for the 
loan period when upland cotton under loan is forfeited, and also on redemption of 
upland cotton under loan where the repayment amount is too low to satisfy the loan 
amount and those charges."
27 (footnotes omitted) 
                                                      
27 Panel Report, US – Upland Cotton , paras. 7.204-7.208.  WT/DS267/RW 
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  3.9 It is not in dispute that the United States con tinues to provide marketing loan payments to US 
producers of upland cotton and that the legislativ e and regulatory provisions governing these 
marketing loan payments have not been changed.   
(c) Market loss assistance payments 
3.10 Market loss assistance payments were provided for in four separate pieces of legislation.28 
The original panel describ ed these measures as follows: 
"Market loss assistance ('MLA') payments we re made under four separate pieces of 
legislation, one each for the years 1998 through 2001.  They were ad hoc  emergency 
and supplementary assistance provided to producers in order to make up for losses sustained as a result of recent low commodity prices. 
The 1998 MLA payments were intended essentially as a 50 per cent additional 
[production flexibility contract] paymen t.  The 1998, 1999 and 2001 Acts each 
appropriated a dollar amount to assistance which was divided among PFC payment recipients proportionately to their respective previous PFC payment.  The 2000 Act provided for payments at the same contract payment rates as the 1999 Act.  MLA 
payments were only made to recipients enrolled in the PFC programmes."
29 
(footnotes omitted) 
(d) Counter-cyclical payments 
3.11 Counter-cyclical payments are provided for in sections 1101-1108 of th e FSRI Act of 2002.  
The original panel described  these measures as follows:   
"The counter-cyclical payments ('CCP') pr ogramme was also established by the FSRI 
Act of 2002.  It provides support to producer s (as defined) based on historical acreage 
and yields for the same commodities as [d irect payments], including upland cotton. 
An eligible producer must enter into an  annual agreement in order to receive 
payments for a crop year.  The eligibility requirements and planting flexibility requirements are the same as for the DP programme.  CCP payments, like DP 
payments, are made to producers on farms for which payment yields and base acres 
are established for each of the 2002 th rough 2007 crop years of each covered 
commodity. 
CCP payments depend on the current prices of commodities.  They are provided to 
producers with base acres and yields for a covered commodity for each of the 2002 
through 2007 crop years whenever the effec tive price falls below the target price, 
which is fixed by the Act at 72.4 cents per pound for upland cotton.  The effective 
price for a commodity is the sum of the DP payment rate [...], plus the higher of the 
national average farm price for the marketi ng year or the loan rate [...].  The 
difference between the effective price and th e target price is the CCP payment rate.  
Consequently, the CCP payment rate, DP pa yment rate and, where applicable, the 
                                                     
 
28 Market loss assistance payments were provided pursuant to the following Acts: the Agriculture, 
Rural Development, Food and Drug Administration and Related Agencies Appropriation Act of 1999 for the 
1998 crop;  the Agriculture, Rural Development, Food and Drug Administration and Related Agencies 
Appropriation Act of 2000 for the 1999 crop;  the Agriculture Risk Protection Act of 2000 for the 2000 crop; and the Crop Year 2001 Agriculture Econo mic Assistance Act fo r the 2001 crop.  
29 Panel Report, US – Upland Cotton , paras. 7.216-7.217. WT/DS267/RW  
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  loan rate, are equal to the difference be tween the market price and 72.4 cents per 
pound. 
CCP payments are made on 85 per cent of  the base acreage for each commodity 
multiplied by the corresponding payment rate multiplied by the applicable payment yield.  An owner who elected to have hi s or her base acreage calculated on the basis 
of the four-year average of planted acr eage during the 1998 through 2001 crops, had a 
one-time opportunity partially to 'update' CCP payment yields for CCP payments for 
all covered commodities, using one of two methods which both included the farm's 
average yields for the 1998 through 2001 crop years."
30 (emphasis original, footnotes 
omitted) 
3.12 It is not in dispute that the United States c ontinues to provide counter-cyclical payments to 
US producers of upland cotton and that the legislative and regulatory provisions governing these counter-cyclical payments have not been changed.   
2. Export credit guarantees  
3.13 The original panel examined three export credit guarantee programmes administered by the 
United States Department of Agriculture (US DA) through the Commodity Credit Corporation 
(CCC):
31  the General Sales Manager 102 ("GSM 102" ) programme, the General Sales Manager 103 
("GSM 103") programme and the Supplier Cred it Guarantee Programme ("SCGP").  Brazil 
challenged the programmes "as such" and "as applied"32 to exports of upland cotton and other eligible 
agricultural commodities.33  All three programmes were used to guarantee the repayment of credit 
made available to finance commercial expor t sales of US agricultural commodities.   
3.14 The original panel described th e three programmes as follows:  
"General Sales Manager 102 ('GSM 102') 
Under the GSM 102 export credit guarant ee programme, the CCC is authorized to 
guarantee the repayment of credit made ava ilable to finance commercial export sales 
of agricultural commodities from privately owned stocks on cred it terms between 90 
days and three years.  The CCC generally covers 98 per cent of the principal and a 
portion of the interest.  The CCC selects agricultural commodities and products according to market potential.  The CCC do es not provide financing, but rather 
guarantees payments due from foreign banks.  To secure such a payment guarantee, once a firm export sale exists, the United Stat es exporter must apply prior to the date 
of exportation.  The exporter pays a fee calculated on the dollar amount guaranteed, 
based on a schedule of rates applicable to different credit periods.  There is a statutory 
cap on the fee charged of 1 per cent of the gua ranteed dollar value of the transaction.  
In terms of financing, the CCC-approved fore ign bank issues an irrevocable letter of 
credit in favour of the United States exporter,  ordinarily advised or confirmed by the 
financial institution in the United States wh ich agrees to extend credit to the foreign 
                                                     
 
30 Panel Report, US – Upland Cotton , paras. 7.223-7.226. 
31 The CCC is a wholly-owned government corporation within the USDA; it has no employees and 
carries out the majority of its programmes through the pe rsonnel and facilities of the Farm Service Agency.  See 
Panel Report, US –  Upland Cotton , footnote 346. 
32 Because the original panel adopted a "programme-w ide" analytical approach  under item (j) of the 
Illustrative List of Export Subsidies in Annex I to the SCM Agreement , it did not view the distinction between 
Brazil's "as such" and "as applied" claims as a determinative one.  Panel Report, US – Upland Cotton , 
para. 7.763. 
33 Panel Report, US – Upland Cotton , para. 7.69.  WT/DS267/RW 
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  bank.  If the foreign bank fails to make any payment as agreed, the exporter is 
required to submit a notice of default to the CCC.  The CCC pays a valid claim for loss.  
General Sales Manager 103 ('GSM 103') 
The GSM 103 programme operates in a similar fashion to GSM 102.  The main 
differences between the two programme s include: export credit guarantees under 
GSM 103 are "intermediate term credit guarantees" issued for terms from three to 10 years; there are additional statutory require d determinations to be made when the 
CCC issues guarantees; and there is no statutory cap on the origination fees that may be charged by the CCC in connection with an  export credit guarantee transaction.   
Supplier Credit Guarantee Programme ('SCGP') 
Under the SCGP, the CCC is authorized to  issue guarantees for the repayment of 
credit made available for a period not exceeding 180 days by a United States exporter to a purchaser of United States agricultural commodities in a foreign country.  These 
direct credits must be secured by promissory notes signed by the importers.  The CCC 
does not provide financing, but rather guarantees payment due from the importer.  
Typically, the CCC guarantees a portion (65 pe r cent) of the value of the exports 
(principal only;  the guarantee does not cove r interest).  The exporter negotiates terms 
of export credit sales with the importer.   Once a firm export sale exists, the United States exporter must apply for a payment guara ntee prior to the date of exportation.  
The exporter pays a fee for the guarantee calculated on the guaranteed portion of the 
value of the export sales.  There is a statutory cap on the fee charged of 1 per cent of 
the guaranteed dollar value of the transaction.  The importer must issue a dollar-denominated promissory note in favour of the United States exporter in the form 
specified in the applicable country or  regional programme announcement.  The 
United States exporter may negotiate an arrange ment to be paid, in full or in part, by 
assigning the right to proceeds that may b ecome payable under the CCC's guarantee 
to a United States financial institution.  If the foreign bank fails to make any payment, 
the exporter or assignee is required to submit a notice of default to the CCC. The CCC pays a valid claim for loss."
34 (footnotes omitted) 
3.15 Under the GSM 102 and GSM 103 export credit gu arantee programmes, the fees charged by 
the CCC varied with the guaranteed dollar value of  the transaction, the repayment period, and the 
principal repayment interv al (annual or semi-annual).35  Under the SCGP, fees varied with the 
repayment period (up to 90 days or 90 to 180 days).36     
3.16 Following the adoption of the original pa nel and Appellate Body reports, the USDA 
announced, on 30 June 2005, that as of 1 July 2005,  the CCC would no longer accept applications for 
payment guarantees under the GSM 103 programme.37  It also announced that the CCC would 
henceforth use a new fee stru cture for the GSM 102 and SCGP programmes.  Under the new 
schedule, fees were increased and fees now vary  with country risk, repayment term (tenor) and 
repayment frequency (annual or semi-annual).38  Countries are classified in  eight risk categories (0-7); 
                                                      
34 Panel Report, US – Upland Cotton , paras. 7.242-7.244. 
35 Panel Report, US – Upland Cotton , para. 7.820. 
36 Panel Report, US – Upland Cotton , para. 7.821 and footnote 975. 
37 Exhibits Bra-502 and Bra-503.  
38 "Fee rates will be based on the country risk that CCC is undertaking, as well as the repayment term 
(tenor) and repayment frequency (annual or semi-annual) under the guarantee.  For the GSM-102 programme, WT/DS267/RW  
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  countries in the riskiest category (category 7) are ineligible.
39  Lastly, in October 2005, the 
United States ceased issuing export credit guarantees under the SCGP.40  
IV. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS  
4.1 With respect to its claims relating to adverse effects within the meaning of Article 5 of the 
SCM Agreement , Brazil  requests the Panel to make the following findings:  
(a) The United States failed to take any measures to remove the adverse effects or to 
withdraw the three price-contingent upland cotton subsidy programmes under the 
FSRI Act of 2002 between 22 September 2005 and 31 July 2006.  
(b) The US measure eventually taken to comply , i.e. the amendment of the FSRI Act of 
2002 to repeal Section 1207(a), providing for Step 2 payments, is insufficient to 
ensure compliance with the DSB recomme ndations and rulings, because the resulting 
basket of measures is inconsistent with Articles 5 and 6 of the SCM Agreement .  In 
particular, Brazil requests the compliance Pa nel to find that the marketing loan and 
counter-cyclical payment programmes of the FSRI Act of 2002 cause "present" serious prejudice to the interests of Brazil in the form of (a) significant price 
suppression in the world market for upland co tton and (b) an increase in the US world 
market share of upland cotton.  
(c) The US measure eventually taken to comply is insufficient to ensure compliance with 
the DSB recommendations and rulings, becau se the resulting basket of measures is 
inconsistent with Articles 5(c) and 6.3(c) as well as footnote 13 of the SCM 
Agreement .  In particular, Brazil requests the compliance Panel to find that the 
marketing loan and counter-cyclical payment programmes of the FSRI Act of 2002 
cause a threat of serious prejudice to the inter ests of Brazil in the form of a threat of 
significant price suppression in the world mark et for upland cotton.  The Panel need 
only decide this claim if it is unable to find that there is "present" serious prejudice  
from marketing loan and counter-cyclical payment programmes of the FSRI Act of 
2002; and 
(d) The failure of the United States to take any measure to remove the adverse effects or 
to withdraw the three price-contingent upland cotton subsidy programmes under the 
FSRI Act of 2002 between 22 September 2005 and 31 July 2006 causes "present" serious prejudice to the interests of Brazil in the form of significant price suppression in the world market for upland cotton and an  increase in the US world market share, 
in violation of Articles 5(c), 6.3(c) and (d) of the SCM Agreement .  The Panel need 
only reach this claim if it is unable to make  findings in favour of Brazil with respect 
to Brazil's claims summarized under (a)-(c) above.
41   
4.2 With regard to its claims under the Agreement on Agriculture  and the SCM Agreement 
relating to export credit guarantees, Brazil request s the Panel to make the following findings:  
                                                                                                                                                                     
country risk will be based on the country of the foreign obligor (opening bank), as determined by the CCC.  For 
the SCGP, country risk will be based on the country of the foreign obligor (importer), as determined by the 
CCC."  Exhibit Bra-504. See also Exhi bits Bra-502, Bra- 505 and Bra-506.  
39 A number of countries that were previously eligible were reclassified into this ineligible risk 
category.  See US First Written Submission, footnote 15 and Exhibit US-2. 
40 See US First Written Submission, para. 20 and Exhibit Bra-513.  The United States indicates that 
"[a]t present, [it] has no plan to resume the SCGP either in the same or different form."  US First Written 
Submission, para. 20. 
41 See Brazil's First Written Submission, para. 461.  WT/DS267/RW 
 Page 11 
 
 
  (a) With respect to those export credit guarantees under the GSM 102, GSM 103 and 
SCGP programmes that were outstanding on 1 July 2005, "measures taken to 
comply" within the meaning of Article 21.5 of the DSU do not exist.  
(b) The "measures taken to comply" by the United States with regard to the GSM 102 
export credit guarantee programme are incons istent with Articles 10.1 and 8 of the 
Agreement on Agriculture .  
(c) The "measures taken to comply" by the United States with regard to the GSM 102 
export credit guarantee programme are inconsiste nt with Articles 3.1( a) and 3.2 of the 
SCM Agreement . 42   
4.3 Brazil requests that, on the basis of the fi ndings requested above, the Panel make the 
following recommendations:  
(a) The United States has failed to comply fully with its obligation, under Article 7.8 of 
the SCM Agreement , to "remove the adverse effects or … withdraw the subsidy", and 
the original Article 7.8 recommendation of the DSB therefore remains in effect, and 
applies to the full extent of the findings requested above.   
(b) The United States has failed to comply fully with its obligation, under Article 4.7 of 
the SCM Agreement , to "withdraw the subsidy", and the original Article 4.7 
recommendation of the DSB therefore remains in effect, and applies to the full extent of the findings requested above.  
(c) The United States has failed to bring itself in to conformity with its obligations under 
the Agreement on Agriculture , and the original recommendation of the DSB therefore 
remains in effect, and applies to the fu ll extent of the findings requested above.
 43  44 
4.4 The United States  requests the Panel to reject the claims of Brazil in their entirety and to find 
that the United States has complied with the recomme ndations and rulings of the DSB and, further, 
that the measures of the United States taken to comply are not inconsistent with the SCM Agreement  
or the Agreement on Agriculture .45   
4.5 The United States requests the Panel to make prel iminary rulings that certain claims of Brazil 
are not within the scope of this proceeding.46  
4.6 In respect of Brazil's claims of "present" seri ous prejudice and threat of serious prejudice, the 
United States submits that: (i) Brazil fails to substan tiate its arguments in support of the claim that the 
effects of the elimination of the Step 2 programme  are modest; (ii) Brazil does not demonstrate that 
the marketing loan or counter-cyclical programmes mandate a breach of WTO obligations; (iii) Brazil 
fails to make a prima facie  case of "present" serious prejudice within the meaning of Articles 5(c) and 
6.3(c) (significant price suppression) of the SCM Agreement; (iv) Brazil  fails to make a prima facie  
case of  "present" serious prejudice   under Articles 5(c) and 6.3(d) (inc reased market share) of the 
                                                      
42 See Brazil's First Written Submission, para. 462. 
43  See Brazil's First Written Submission, para. 463. 
44 In this connection, Brazil also observes that the deadlines for implementation of the original 
recommendations and rulings of the DSB continue to be 1 July 2005 (for the export credit guarantee-related 
recommendations and rulings) and 21 September 2005 (for the adverse effects-related recommendations and 
rulings).  Brazil's First Written Submission, para. 464.  
45 US First Written Submission, para. 344.  
46 See infra , para. 9.7.  The Panel addresses the issue of wh ether, as argued by the United States, certain 
claims of Brazil are not properly with in the scope of this proceeding in S ections IX.B.2-5 of this Report.   WT/DS267/RW  
Page 12  
 
  SCM Agreement ; and (v) Brazil fails to make a prima facie  case of threat  of serious prejudice pursuant 
to Articles 5(c) and 6.3(c) of the SCM Agreement .
47  
4.7 In respect of Brazil's claims regarding export credit guarantees, the United States submits that 
export credit guarantees have been provided un der the GSM 102 programme subsequent to 
1 July 2005 consistently with WTO obligations of the United States and that the United States has 
taken action to withdraw the subsidy with r espect to GSM 102, GSM 103 and SCGP export credit 
guarantees issued prior to 1 July 2005.48    
V. ARGUMENTS OF THE PARTIES 
5.1 The arguments of the parties, as submitted, or  as summarized in their executive summaries as 
submitted to the Panel, are attached as Annexes.  
5.2 The responses of the parties to questions of  the Panel, their comments on each other's 
responses and other relevant documents  submitted by the parties are also attached as Annexes.  
VI. ARGUMENTS OF THE THIRD PARTIES 
6.1 The arguments of the third parties ar e attached to this Report as Annexes.49   
VII. INTERIM REVIEW 
7.1 The Panel submitted its interim report to the pa rties on 27 July 2007.  On 3 September 2007, 
the parties submitted written requests for review of precise aspects of the interim report.  Neither party requested that the Panel hold an interim review meeting.  On 17 September 2007, the parties 
submitted written comments on each other's written requests for review.   
7.2 The Panel has modified aspects of the interim re port in light of the parties' requests and 
comments where the Panel considered it appropriate.  The Panel has also made technical corrections 
and changes of an editorial nature.  
A. 
CHANGES REQUESTED BY THE PARTIES REGARDING THE "FACTUAL ASPECTS " SECTION OF THE 
INTERIM REPORT  
7.3 The United States  proposes changes to paragraphs 3. 7, 3.13 and 3.16 in the "Factual 
Aspects" Section of the interim report (paragraphs  3.7, 3.13 and 3.16 of this Report).  The Panel  
considers that these proposed changes correct certai n factual errors or inaccuracies in the interim 
report and has therefore amended the concerned pa ragraphs in accordance with the request of the 
United States.   
B. CHANGES REQUESTED BY THE PARTIE S WITH RESPECT TO THE PANEL 'S DESCRIPTION OF 
ARGUMENTS OF THE PARTIES  
7.4 The Panel has made a number of amendments to  the interim report pursuant to requests by 
one of the parties to amend certain paragraphs of the report in order to better reflect arguments made 
by that party in the course of the proceeding.  Th e Panel has made such changes to paragraphs 4.5; 
9.19 (footnote 101); 9.28 (footnote 111); 9.62 (footnote 163); 9.56; 10.6; 10.46 (footnote 254); 10.73; 10.118; 10.155; 10.156; 10.163 (footnote 443); 10.165; 10.200; 10.200 (footnote 481); 14.16 and 
                                                     
 
47 US First Written Submission, paras. 149, 196, 203 and 332 and US Rebuttal Submission, para. 405.   
48 US First Written Submission, paras. 60-142 and 143-145.  
49 India and Thailand did not make written submissions.  WT/DS267/RW 
 Page 13 
 
 
  footnote 588, and 14.122 (footnote 728) of the in terim report (paragraphs 4.5; 9.19 (footnote 105); 
9.29 (footnote 115); 9.64 (footnote 165); 9.58; 10.6; 10.46 (footnote 256); 10.73; 10.118; 10.155; 10.156; 10.163 (footnote 450); 10.165; 10.205; 10.205 (footnote 497); 14.16 and footnote 604, and 14.122 (footnote 747) of this Report).  
7.5 The United States  requests the Panel to add a footnote to  the first sentence of paragraph 8.29 
of the interim report (paragraph 8.29 of this Repor t) with the following text:  "For purposes of this 
dispute, the United States did not object to Chad  being considered as a least-developed country 
Member".  The United States notes in this respect th at the issue of whether Chad is a least-developed 
country Member was not discussed by either party a nd that no relevant evidence was presented to 
support such a finding.  Brazil  opposes the change proposed by the United States.  
7.6 The Panel declines to make the change requested by the United States.  The reference in the 
interim report to Chad as a least-developed country Member is consistent with the WTO practice to 
rely on the UN classification of least-developed countries.
50  Moreover, the United States has not 
stated in this proceeding that it did not object to  Chad being considered a least-developed country 
Member for purposes this dispute.  Therefore, the sentence suggested by the United States is not an 
accurate reflection of an argumen t made in this proceeding.  
7.7 The United States  notes that paragraph 9.7 of the interim report (paragraph 9.7 of this 
Report) appears to omit a summary of an additiona l argument of the United States and requests that 
this paragraph be revised to add the objection of  the United States that Brazil's claims against the 
marketing loan and counter-cyclical programmes are outside the scope of this dispute because these 
measures were not measures taken to comply under Article 21.5 of the DSU.  Brazil has not 
commented on this suggested change. 
7.8 The Panel  agrees with the United States that the in terim report does not adequately reflect the 
two distinct bases of the preliminary objections of  the United States to Brazil's claims regarding the 
marketing loan and counter-cyclical payment progr ammes.  To address this issue, the Panel has 
amended the title of Section IX.A.3 and h as added new paragraphs  9.28 and 9.55.  
C. REQUESTS FOR CHANGES WITH RESPECT TO THE PANEL 'S FACTUAL AND LEGAL ANALYSIS  
7.9 The United States  requests that the Panel delete footnote 108 to the last sentence of 
paragraph 9.25 of the interim report (footnote 112 to  the last sentence of paragraph 9.25 of this 
Report) in which the Panel notes that in interpretin g the concept of "measures taken to comply" in 
Article 21.5 of the DSU, the Appellate Body has taken into consideration the need for prompt 
compliance with DSB recommendations and rulings.  The United States argues that the need for 
prompt compliance with DSB recommendations and rulings does not somehow convert a claim 
outside the scope of an Article 21.5 proceeding into one that is properly before the compliance panel.  
The United States also observes that Brazil itself has implicitly recognized that any export credit 
guarantees for pig meat and poultry meat are outside the scope of this proceeding by bringing a separate case in WT/DS365 challenging US export credit guarantees in respect of all scheduled and 
unscheduled products.   
7.10 Brazil  objects to the suggestion of the United States to  delete this footnote.   Brazil submits, in 
this respect, that the Panel's citation to the stat ements made by the Appellate Body regarding the 
promotion of prompt compliance is correct as a matter of law and that the Panel is entitled to consider 
that the argument of the United States that GSM 102 export credit guarantees for pig meat and poultry 
                                                     
 
50 It should be noted that the original panel treated Benin and Chad as least-developed country 
Members and that there is nothing in the original panel report to indicate that the United States had expressed a 
view or a reservation on that issue.  Panel Report, US – Upland Cotton , para. 7.54. WT/DS267/RW  
Page 14  
 
  meat are outside the scope of this proceeding will not promote prompt compliance with DSB 
recommendations and rulings.  Brazil rejects the argumen t of the United States that the fact that Brazil 
has raised the consistency of GSM 102 export credit guarantees in a consultation request in 
WT/DS365 constitutes an implicit recognition by Br azil that GSM102 export credit guarantees for pig 
meat and poultry meat are outside the scope of this proceeding.   
7.11 The Panel declines to delete the footnote to the last  sentence of paragraph 9.25 of the interim 
report (footnote 112 to the last sentence of paragraph 9.25 of this Report).  In this footnote, the Panel 
refers to a statement of the Appellate Body in US – Oil Country Tubular Goods Sunset Reviews 
(Article 21.5 – Argentina), paragraph 151, which the Panel consider s to provide further support for its 
view that Brazil's claims regarding export credit guarantees for pig meat and poultry meat are properly 
within the scope of this proceeding.  The United States does not contest the factual accuracy of the 
Panel's citation to the statement of the Appellate Body.   As is already clear from the fact that the Panel 
makes this point in a footnote, the Panel relies on this statement simply as an additional element in 
support of the main arguments set out in paragra phs 9.24-9.25 of the interim report (paragraphs 9.24-
9.25 of this Report).  The Panel remains of the view  that the notion that the purpose of Article 21.5 of 
the DSU is to promote prompt compliance with DSB recommendations and rulings is a pertinent 
consideration that supports the Pane l's conclusion that Brazil's claims are within the scope of this 
proceeding.  Finally, the Panel sees no merit to the argument of the United States that the Panel 
should construe Brazil's request for consultations  in WT/DS365 as constituting an implicit recognition 
by Brazil that Brazil's claims relating to GSM102 export credit guarantees for pig meat and poultry meat are not within the scope of this proceeding.  
7.12 With regard to paragraph 9.78 of the inte rim report (paragraph 9.80 of this Report), Brazil  
suggests that the Panel may wish to provide a mo re detailed explanation as to why the rulings in US – 
Softwood Lumber IV  support the Panel’s conclusion that marketing loan and counter-cyclical 
payments made after 21 September 2005 are "measu res taken to comply" within the meaning of 
Article 21.5 of the DSU.  Brazil refers, in this re gard, to the arguments that it has advanced on this 
issue in this proceeding.  The United States  disagrees with Brazil’s suggestion.  The United States 
submits that Brazil errs in suggesting that  the panel and Appellate Body reports in US – Softwood 
Lumber IV (Article 21.5 – Canada) support finding  that the US measures at issue are measures taken 
to comply.  
7.13 The Panel  agrees with Brazil that paragraph 9.78 of the interim report (paragraph 9.80 of this 
Report) does not sufficiently explain why the Panel considers that its reasoning is supported by the 
reports of the panel and the Appellate Bo dy in previous Article 21.5 proceedings.   The Panel has 
amended this paragraph to state more clearly why the Panel considers that its reasoning is supported 
by the Appellate Body's statement in US – Softwood Lumber IV (Article 21.5 – Canada)  that 
"measures taken to comply" in Article 21.5 of the DSU include "measures with a particularly close 
relationship to the declared 'measure taken to co mply', and to the recomme ndations and rulings of 
the DSB".   
7.14 Brazil  requests the Panel to ame nd paragraph 9.79 of the interim report (paragraph 9.81 of 
this Report) by deleting the words "to the extent" in  the first line, the word "are" in the second line, 
and the comma and the word "they" after "prejudice"  in the fifth line.  Brazil submits that these 
proposed changes are consistent with its comment on paragraph 9.78 of the interim report and with 
the reasoning underlying the Panel's conclusion that  marketing-loan and counter-cyclical payments 
made after 21 September 2005 are within the scope of this proceeding.  The United States  disagrees 
with Brazil's proposed changes.  The United States  considers that the wording of paragraph 9.79 
makes clear that the existing marketing loan and co unter-cyclical payments could be provided by the 
United States on different conditions that were fou nd to be inconsistent with the provisions of the 
SCM Agreement .   WT/DS267/RW 
 Page 15 
 
 
  7.15 The Panel  declines to make the chang es requested by Brazil to paragraph 9.79 of the interim 
report (paragraph 9.81 of this Repor t).  The Panel considers that these changes are inconsistent with 
the text of the immediately preceding paragra phs and that Brazil has offered no convincing 
explanation as to why these changes are warranted.  
7.16 With respect to the paragraph 10.23 of the inte rim report (paragraph 10.23 of this Report), the 
United States  considers that it is inaccurate to state th at there is "no disagreement" between the 
parties regarding the "general order of magnitude" of marketing loan payments made by the United 
States to upland cotton producers in MY 2004 and MY 2005.  The United States notes that while Brazil and the United States have submitted identical figures for the amount of marketing loan payments in MY 2005, with respect to the amount  of marketing loan payments in MY 2004 the 
figures submitted by the parties have continued to di ffer.  The United States thus requests the Panel to 
delete the reference to MY 2004 in this paragraph.  Brazil objects to the request of the United States, 
arguing that any difference between Brazil’s and the US figures for MY 2004 is negligible.   
7.17 The Panel  has amended paragraph 10.23 of the in terim report (paragraph 10.23 of this 
Report) by deleting the statement that "there is no disagreement" between the parties regarding the 
general order of magnitude of marketing loan  payments in MY 2004 and MY 2005 and by adding 
language that makes clear that it is the Panel, rather  than the parties, that considers that the figures 
supplied by the parties on marketing loan paym ents for MY 2004 and MY 2005 are of the same 
general order of magnitude.   
7.18 The United States  requests that the Panel revise the text  of footnote 236 to paragraph 10.40 
of the interim report (footnote 238 to paragraph 10.40 of this Report) to make it clear that the response 
of the United States to Panel question 55 does no t imply agreement with the "cotton-to-cotton" 
methodology.  Brazil opposes this request, arguing that  the change requested by the United States is 
unnecessary as the interim report already summarizes the arguments of the United States on the 
"cotton-to-cotton" methodology. 
7.19 The Panel has amended the text of footnote 236 to  paragraph 10.40 of the interim report 
(footnote 238 to paragraph 10.40 of this Report) to clarify that in posing question 55 the Panel was not 
asking whether the United States agreed with "B razil's methodology or the "cotton-to-cotton" 
methodology.    
7.20 With respect to paragraph 10.95 of the interi m report (paragraph 10.95 of this Report), the 
United States requests the Panel either (1) to add a finding that the current economic literature 
supports the view that counter-cyclical payments do not appear to have had more than minimal 
production- and trade-distorting effects, inter alia , because the conditions under which such payments 
might in theory have greater effects have not been established in fact by Braz il in this proceeding, or 
(2) to explain its basis for rejecting each of the studies cited by the United States drawing the conclusion that the production effects of c ounter-cyclical payments are minimal.   
7.21 Brazil objects to this request of the United States.  Brazil argues that both parties have 
submitted significant evidence and arguments regardi ng the effects of counter-cyclical payments and 
that in its interim report the Panel has analyzed th e studies submitted by both parties in great detail.  
Since the Panel has explained its evaluation of these studies, there is no basis for the United States to 
request the Panel to explain its basis for rejecti ng the evidence and argument of the United States.  
Similarly, there is no basis for the Panel to conc lude that the economic literature supports the US 
position since the Panel has found exactly the opposite.   
7.22 The Panel considers that  paragraphs 10.90-10.95 of the interi m report adequately explain the 
conclusion drawn by the Panel from its review of th e economic studies referred to by the parties.  
However, in light of the comments of the United States, the Panel has made certain changes to WT/DS267/RW  
Page 16  
 
  paragraphs 10.91 and 10.92 of the interim report (par agraphs 10.91 and 10.92 of  this Report) to refer 
more specifically to certain studies cited by the United States.   
7.23 The United States  requests that the text of foot note 363 to the third sentence of 
paragraph 10.110 of the interim report (footnote 369 to  the third sentence of paragraph 10.110 of this 
Report) be revised to reflect that Step 2 payments  were only made to users of upland cotton rather 
than to producers.  Brazil  opposes the change requested by the United States on the ground that Step 
2 payments were made not only to users but also to exporters of cotton.   
7.24 The Panel  considers that while the United States is correct that Step 2 payments were not 
made to producers, Brazil is correct that such payments were made not only to users but also to 
exporters.  The Panel has therefore amended the text of footnote 363 to the third sentence of 
paragraph 10.110 of the interim report (footnote 369 to  the third sentence of paragraph 10.110 of this 
Report), to reflect that Step 2 payments were  made to users and exporters of cotton.   
7.25 With respect to paragraph 10.126 of the interi m report (paragraph 10.126 of this Report), the 
United States  requests the Panel to revise the statement in the second sentence that "neither Brazil 
nor the United States appear to have access to  recent data on foreign planted acreage."  The 
United States submits that foreign planted acreage da ta does not exist; therefore, it is not a question of 
access for either party.  Only the United States has a consistent public source of data on both planted 
and harvested acreage.  The United States requests th at the Panel revise the second sentence to read: 
"However, neither Brazil nor the United States appear to have access to recent data on foreign planted 
acreage; indeed such data do not appear to exist."  Brazil objects to the request of the United States on 
the ground that the United States is raising a new ar gument that foreign planted acreage data does not 
exist.  Brazil submits, in this regard, that it is not appropriate for a party to make new arguments at the 
interim review stage that were not made during the proceedings, much less to ask a panel to reflect 
those new arguments in its final report.  
7.26 The Panel has decided not to make the change to  paragraph 10.126 of the interim report 
proposed by the United States.  The question of whet her or not data on foreign planted acreage exists 
was not raised in this dispute.   
7.27 Brazil requests the Panel to amend paragraph 10.1 27 of the interim report (paragraph 10.127 
of this Report) because, as currently  formulated, the paragraph can be construed to be in contradiction 
with other findings made by the Panel in its interim re port.  Brazil refers in particular to the statement 
of the Panel in paragraph 10.127 that "Brazil's cl aim of insulation of US producers from market price 
signals applies when expected prices are below  their intervention levels" but "this insulation does not 
apply when expected cotton prices are above their in tervention levels".  Brazil considers that, taken 
out of context, this statement might be construed to be in contradiction with the Panel's finding in 
paragraph 10.81 of the interim report (paragraph 10.81 of this Report) that marketing loan payments 
affect the level of acreage planted to cotton even when the expected market price for upland cotton at 
the time of planting is higher than the marketing loan rate.  Brazil requests that the Panel revise 
paragraph 10.127 "to eliminate any basis for concl uding that paragraph 10.127 conflicts in any way 
with the Panel's earlier findings regarding the role of marketing loan and count er-cyclical payments in 
insulating US upland cotton farmer s from market price signals".   
7.28 The United States  opposes the changes proposed by Brazil to paragraph 10.127 of the interim 
report.  The United States considers that Brazil is attempting to substitute its own view that, regardless 
of the expected price level or other factors, upland cotton producers are insulated from market signals 
and that marketing loan and counter-cyclical paym ents always have effects on the production of 
upland cotton that lead to significant price suppressi on.  The Panel, in Section X.7 of the interim 
report, has examined, inter alia , the US evidence of the relative st ability of the US share of world 
production and exports over the entire period of the FSRI Act of 2002, and has rejected Brazil’s  WT/DS267/RW 
 Page 17 
 
 
  extreme view that US upland cotton producers are always insulated from market price signals.  The 
United States also submits that even Brazil’s proposed edits conced e that producers are responding to 
market signals when expected prices are above the market loan rate.   
7.29 The Panel agrees with Brazil that certain statements in paragraph 10.127 of the interim report 
(paragraph 10.127 of this Report) do not entirely accu rately reflect the Panel's findings regarding the 
issue of the insulation of US cotton producers form ma rket prices.  The Panel's finding is that whether 
expected market prices at the time of planting are a bove the levels that will trigger marketing loan and 
counter-cyclical payments is a factor that affects the degree of insulation of US cotton producers from 
market price signals but not th e existence of such insulation per se .  The Panel has amended the 
paragraph to better convey this idea.  
7.30 With respect to paragraph 10.146 of the inte rim report, (paragraph 10.146 of this Report),  
Brazil  requests the Panel to delete the term "necessar ily" from the last sentence of the paragraph.   
Brazil states that the inclusion of this word could be read as suggesting that, absent a clear 
"discernable temporal coincidence", there is an  increased burden for a complaining Member to 
demonstrate adverse effects.  Brazil considers that this is particularly troublesome in proceedings 
under Article 21.5 of the DSU because there is alr eady a finding adopted by the Dispute Settlement 
Body that the challenged subsidies cause adverse e ffects.  Similarly, a complaining Member that 
challenges a long-existing distortion of a market caus ed by long-term subsidization might not be able 
to establish that the effects of subsidies increased simply because the market distortion has continued 
to exist for a long time.  In Brazil’s view, as in the original proceeding, the existence of a "discernable 
temporal coincidence" can be a useful factor to assess  in an adverse effects claim.  However, it is not 
an indispensable element for establishing causation.   
7.31 The United States  objects to Brazil's request, arguing that there is no basis for Brazil’s 
argument that the word "necessarily" in the last sen tence of paragraph 10.146 of the interim report 
relates to the question of a party’s burden of proof .  The United States considers that the Panel is 
merely stating its own findings based on the evid ence presented with respect to causation.  The 
United States also submits that Brazil actually seems to imply that the burden of demonstrating 
adverse effects in proceedings under Article 21.5 of  the DSU should be less "b ecause there already is 
a finding adopted by the Dispute Settlement Bo dy that the challenged subsidies cause adverse 
effects".  In making this argument, Brazil ignores the fact that since the "challenged subsidies" in this 
proceeding are not the same ones as those at issue in the original proceeding, there is no finding with 
respect to payments made outside of MY 1999-2002.  Moreover, as stated by the Panel in 
paragraph 9.3 of the interim report,  "[t]he general rules regarding th e allocation of the burden of proof 
in WTO dispute settlement require that a party clai ming a violation . . . assert and prove its claim.  
These rules also apply to proceedings under Article 21.5 of the DSU."  Thus, Brazil must make a showing of adverse effects, assuming that its claim with respect to the marketing loan payment and 
counter-cyclical payment programmes is properly befo re the Article 21.5 compliance panel in the first 
place. 
7.32 The Panel  rejects Brazil's request to delete the term "necessarily" from the last sentence of 
paragraph 10.146 of the interim re port (paragraph 10.146 of this Report).  The Panel disagrees with 
Brazil's analysis of the implications of the use of this term.  The word "necessarily" in the last 
sentence of paragraph 10.146 simply underlines the point that price suppression can exist even though 
"recent years have not witnessed the sharp decline in  the world market price for upland cotton that 
occurred during the period considered by the original panel".  The Panel therefore considers that there 
is no basis for Brazil's argument that this word can  somehow be interpreted as implying a view of the 
Panel that "absent a clear 'discernible temporal  coincidence', there is an increased burden for a 
complaining Member demonstrating (sic) adverse eff ects" and that "a complaining Member would be 
required to explain that the absence of a discernabl e temporal coincidence does not break any causal 
link between the subsidies and the adverse effects."    WT/DS267/RW  
Page 18  
 
  7.33 The United States  requests that paragraph 10.162 of th e interim report (paragraph 10.162 of 
this Report) be amended to indicate that the new data begins with MY 2003, based on the more recent 
USDA cost survey, and that the MY 2002 da ta originates with the 1997 USDA survey.  Brazil objects 
to the US request, noting that USDA Survey Data is updated annually.  The Panel  has decided to 
substitute "data" for "updated information" at the beginning of the second sentence of 
paragraph 10.162 of the interim report.   
7.34 With regard to the Panel's statement in the last sentence of paragraph 10.166 of the interim 
report (paragraph 10.166 of this Report) that "[w]e th erefore consider the inclusion of land, labour and 
capital recovery costs in fixed (overhead) cost s as appropriate, being in accordance with the 
recommended methodology", the United States requests the Panel to differentiate between paid and 
unpaid labour costs and to treat paid labour cost s as variable.  The United States notes that with 
respect to paid labour that does not have farm ow nership claims, there is a difference in opinion on 
whether to classify the cost as fixed or variable, a nd that, as a conservative measure, the United States 
considers paid labour cost as a variable cost.  Brazil  has not commented on this request of the 
United States.    
7.35 The Panel does not consider that the change requested by the United States is appropriate. 
Whether paid labour costs are classified as variab le or fixed will have no effect on the cost of 
production analysis.  The Panel sees no reason why it s hould make a ruling on this matter when such a 
ruling would not affect its cost of production analysis.   
7.36 Brazil  requests the Panel to make changes to th e text of paragraph 10.176 of the interim 
report (paragraph 10.176 of this Report), to reflect th at there is no requirement that proof of long-term 
costs be produced over the lifetime of the challe nged measure.  Brazil notes that many subsidy 
programmes have been in place for many decades.  Moreover, any suggestion that cost of production 
data needs to cover the lifetime of a measure would be  inconsistent with claims of threat of serious 
prejudice under Articles 5 and 6 of the SCM Agreement  in particular.  Finally, the notion that the full 
lifetime of a measure should be the basis for assessing pr oof of adverse effects is inconsistent with the 
concept of a more recent reference period to assess the existence of present adverse effects.   
7.37 The United States  disagrees with Brazil’s argument that the Panel is possibly implying a 
requirement that proof of long-term costs be pr oduced over the lifetime of a challenged measure.  
Rather, the Panel simply states that the effect of  marketing loan and counter-cyclical payments is 
"best assessed" over the lifetime of the FSRI Act, but recognizes that data was unavailable for that 
entire time frame, and relies instead on the data that is available for MY 2002-2006.   
7.38 The Panel agrees with some of the concerns that Brazil has raised and has therefore made 
certain of the changes proposed by Brazil.  Howeve r, the Panel also agrees with the United States that 
other changes proposed by Brazil attempt to expand the universe of the cost data reviewed by the 
Panel.  The Panel therefore declines to make those changes.  
7.39 With respect to paragraph 10.188 of the interim  report (paragraph 10.193 of this Report), the 
United States
 submits that the Panel has not accounted for the argument of the United States that 
ginning costs should not be included in the calculatio n of the costs of production of upland cotton lint.  
The United States submits that it has demonstrated th at ginning costs are appropriately excluded from 
the calculation of costs of production of upland cotton lint, in light of the common practice in the United States of ginning costs being paid out of the proceeds gained by the gin from the sale of the cotton seed separated out in the ginning process.  The United States therefore requests the Panel to 
find that ginning costs should be excluded from th e calculation of the costs of production of upland 
cotton and to make adjustments accordingly to its cal culation of cotton revenue costs and returns.    WT/DS267/RW 
 Page 19 
 
 
  7.40 Brazil objects to the United States request for excl usion of ginning costs from the calculation 
of the costs of production of upland cotton lint.  First , Brazil observes that such an approach is 
inconsistent with the original panel’s approach, which, in making its cost of production-related 
findings, relied upon USDA cost data that included ginning costs and market returns from cottonseed.  
USDA cost of production data shows that the costs associated with ginning are far higher than the 
market value of cottonseed.  An exclusion of ginni ng costs and revenue would result in manipulated 
cost of production data that would paint an inappr opriately advantageous picture of the situation of 
US upland cotton farming.  Brazil submits, in this respect, that it has explained that the US approach 
would cut out a large portion of ginning costs and a much smaller portion of upland cotton producers' 
market revenue from cottonseed.  Second , Brazil notes that if one were to exclude ginning costs, for 
accuracy, at the very least, ginning revenues would also  have to be excluded.  However, the exclusion 
of such costs and revenues would result in an inadequate basis to assess medium-to-longer-term 
developments in the industry.   
7.41 The Panel agrees with the United States that the interim report does not address the argument 
made by the United States in this proceeding that ginning costs should be excluded from the 
calculation of the costs of production of upland cotto n lint.  Without taking a position on whether this 
argument is correct or not, the Panel has analysed th e revenue and cost data in two forms: (i) without 
cottonseed revenues and ginning costs as the US proposes and (ii) with cottonseed revenues and 
ginning costs as in the original dispute.  The results  of this analysis show that whether or not ginning 
costs are excluded from the calculation of the costs of production of upland cotton lint does not alter 
the Panel's conclusion that market revenues exceed tota l costs of production.  To reflect this analysis 
in the final report, we have am ended the interim report by adding  new paragraphs 10.185-10.188 and 
by changing the text of paragraphs 10.185-10.191 of  the interim report (paragraphs 10.189-10.196 of 
this Report).  
7.42 With respect to paragraph 10.214 of the interi m report (paragraph 10.219 of this Report), the 
United States  requests that the Panel delete the last sentence, which states that "a good model does 
not need a lot of extraneous bells and whistles".  In the view of the United States, a proper model 
estimating the degree of price suppression should be c onstructed to take into account as many relevant 
economic factors as possible.   
7.43 Brazil  objects to the request of the United States,  explaining that the Panel has correctly 
identified the advantages of Brazil’s model.  Brazil agrees with the Panel that a "simpler and more 
accessible model can be readily focu sed on the specific issue at hand" and that "it should include only 
relevant economic features that are crucial to a determination whether certain US Government 
payments led to significant price suppression."   
7.44 Notwithstanding Brazil's objection, the Panel has accepted the  request of the United States to 
delete the last sentence of para graph 10.214 of the interim report (p aragraph 10.219 of this Report).  
The Panel explains its assessment of the advantage of Brazil's model in the second and third sentences 
of the paragraph.  The statement in the fourth sentence of the paragraph that "a good model does not 
need a lot of extraneous bells and whistles" is not  essential in this respect and its deletion does not 
entail a substantive change.   
7.45 Brazil  requests that the Panel delete the phrase "it has not undergone any peer review" from 
paragraph 10.215 of the interim report (paragraph 10.220 of this Report).  Brazil expresses a concern 
that in future disputes economic models that ha ve not undergone a "peer review" will be heavily 
discounted or even discarded for that reason al one, leading to a "peer review" requirement for 
economic models offered, for example, in disput es involving claims of adverse effects under the SCM 
Agreement or in  proceedings under Articles 21.5 and 22.6 of the DSU.  Brazil submits that from a 
practical standpoint peer review can be a quite lengt hy and costly process.  A crucial consideration in 
determining the issue of "peer review" is the fact  that any economic model must be tailored to the WT/DS267/RW  
Page 20  
 
  particular facts and circumstances of a dispute.  Thus, any economic analysis presented to a panel or 
arbitrator in a case of adverse effects is likely to be  very recent in order to reflect current conditions of 
competition in the relevant market.  Given th e relatively short time-frames of WTO dispute 
settlement, it may simply not be possible to secure a timely "peer review" of an economic model specifically tailored to the current conditions of co mpetition.  Brazil also submits that a requirement 
for "peer review" is not supported by an examinati on of proceedings under Article 22 of the DSU.  A 
number of economic models have been presented to ar bitrators, but there is no evidence in any of the 
Article 22.6 arbitration reports that these models ha d been "peer reviewed".  Finally, Brazil claims 
that there is no precise definition of "peer review".   
7.46 The United States  notes that the phrase "it has not underg one any peer review" is a simple 
factual statement.  The United States also states, however, that the term "peer review" may not apply 
as well in this context so that a better means of  expressing the concern over potential deficiencies 
inherent in the economic model would be that th e model was not well-known and not widely-used for 
published research and analysis.   
7.47 The Panel agrees with Brazil that there exists no requirement that economic models 
submitted in WTO dispute settlement proceedings must  have been the subject of a process of peer 
review.  The Panel also notes that the United States concurs with Brazil that the term "peer review" 
may not be applicable in this context.  In light  of these considerations, the Panel has deleted the 
reference to peer review in the second sente nce of paragraph 10.215 of the interim report 
(paragraph 10.220 of this Report).  
7.48 Regarding the Panel's statement in paragraph 10.217 of the interim report (paragraph 10.222 
of this Report) that "price suppression has been the outcome of all the simulation results whether one 
uses the parameter values proposed by Brazil or the FAPRI and ATPSM parameter values proposed 
by the United States", the United States  submits that the appropriate question before the Panel is 
whether there has been significant price suppress ion, not simply any price suppression.  The 
United States argues that it has submitted the a lternative parameter valu es solely for purposes of 
showing that, even if one were to employ Br azil's modelling approach, correcting its flawed 
parameters shows that the price effects are not significant.  The United States requests the Panel to clarify that Brazil’s model has not "earn[ed] the conf idence of the Panel," and that it therefore has not 
contributed to the Panel’s finding of significant price suppression.   
7.49 Brazil objects to the request of the United States.  Brazil argues that in its examination of 
price suppression the Panel has thoroughly examined th e evidence and data provided by both parties.  
Like the original panel, the Panel has considered sev eral elements to be crucial in its analysis.  The 
price suppression results of Brazil's model, applyi ng the parameter sets both of Brazil and of the 
United States provided additional comfort to the Panel in its finding of price suppression because all 
parameter sets showed that the effect of the subsid ies is to suppress prices.  While the Panel has not 
endorsed a particular set of parameters, this is not  a sufficient basis for the United States to request 
that the Panel find that the model itself did not earn the Panel's confidence.   
7.50 The Panel rejects the request of the United States, since the Panel has adequately explained 
the role of the model in its analysis in paragr aphs 10.217 and 10.241-10.252 of the interim report 
(paragraphs 10.222 and 10.246-10.257 of this Report).  It is clear from the report that the Panel has 
used the results of the economic simulation model in  conjunction with other factors – the substantial 
proportionate influence of the United States on the world market for upland cotton,  the mandatory, 
and price-contingent nature and revenue-stabilizi ng effect of marketing loan and counter-cyclical 
payments, the order of magnitude of the marketi ng loan and counter-cyclical subsidies, and the 
significant gap between the total costs of production of US upland cotton producers and their market 
revenue – to arrive at its finding that the effect  of marketing loan payments and counter-cyclical 
payments is significant price suppression.     WT/DS267/RW 
 Page 21 
 
 
  7.51 Brazil  requests the Panel to amend paragraph 10.2 26 of the interim report (paragraph 10.231 
of this Report).  Brazil's concern with respect to th is paragraph pertains to the statement of the Panel 
that "it is not possible for the Panel to determine with any great deal of precision or confidence just 
how much of the projected decline in US exports of upland cotton is due to the elimination of the Step 
2 payments".  Brazil considers that, if read in isola tion, this statement could be taken to suggest that 
the Panel considers that it is unable to assess the effe cts of the withdrawal of the Step 2 subsidies and 
hence should not have concluded that the withdrawal  of these subsidies is insufficient to bring the 
United States into conformity with Articles 5 and 6 of the SCM Agreement .  Brazil proposes that the 
Panel add a statement to recall its finding in para graph 10.248 of the interim report (paragraph 10.253 
of this Report) that "even if the entire decline of US exports is attributable to the repeal of Step 2, we 
would still find that marketing loan and counte r-cyclical payments significantly suppress world 
prices".  Brazil also suggests that the Panel cite the evidence submitted by Brazil that not the entire 
decline in US exports is attributable to the removal of the Step 2 payments.   
7.52 The United States  disagrees with the change proposed  by Brazil.  The United States 
considers that Brazil's proposed change mis-characterizes the Panel's finding in paragraph 10.248 of 
the interim report (paragraph 10.253 of this Report) .  The Panel there notes that the "effect of the 
elimination of this subsidy on US exports and on the amounts of marketing loan payments and 
counter-cyclical payments suggests that the elimin ation of this subsidy does not affect the price 
suppressing effects of the marketing loan payments  and counter-cyclical payments in the world 
market for upland cotton".  However, in reachin g this conclusion, the Panel does not make the 
alternative assumption that Brazil clai ms it does, i.e. that "even if th e entire decline of US exports is 
attributable to the repeal of Step 2, we woul d still find that marketing loan and counter-cyclical 
payments significantly suppress world prices". 
7.53 The Panel declines to make the change proposed by Brazil to paragraph 10.226 of the interim 
report (paragraph 10.231 of this Report).  The Pane l considers that the text proposed by Brazil does 
not correctly reflect the finding of the Panel in paragraph 10.248 of the interim report (paragraph 
10.253 of this Report).  
7.54 The United States  requests the Panel to reiterate in paragraph 12.269 of the interim report 
(paragraph 12.2 of this Report) the conclusion draw n in paragraphs 9.68-9.69 of the interim report 
(paragraphs 9.70-9.71 of this Report) that it is not necessary for the Panel to make a finding on Brazil's claim of non-compliance by the United States in the period 22 September 31 July 2006.  Brazil  has not commented on this request.  The Panel  has amended paragraph 12.269 of the interim 
report (paragraph  12.2 of this Report) by inserting a reference to the panel's ruling in paragraph 9.68 
of the interim report (paragraph. 9.70 of this Report).  
7.55 The United States  requests that the Panel replace the word "underwrite" by "guarantee" in the 
first sentence of paragraph 14.5 of the interim report (paragraph 14.5 of this Report) to more 
accurately describe the GSM 102 and GSM 103 progra mmes.  The United States also requests the 
Panel to amend the paragraph to reflect the fact  that the GSM 103 programme no longer operates.  
Brazil  objects to the request of the United States.  The Panel
 has made the change requested by the 
United States as it considers that the term "guara ntee" more precisely describes the operation of the 
programmes at issue than the term "underwrite".  The Panel has also amende d paragraph 14.5 of the 
interim report to reflect the fact that the GSM 103 programme no longer operates.   
7.56 For clarity, the United States  suggests that a sentence be inserted after the first sentence of 
footnote 605 (paragraph 14.30) of the interim report (footnote 621 to paragraph 14.30 of this Report) 
to describe with more precision what was at issue in the Brazil – Aircraft (Article 21.5 – Canada)  
dispute.  The United States further requests that the last sentence of the footnote be revised to reflect 
more accurately its Opening Statement.  Brazil  does not comment on this request.  The Panel  has 
amended footnote 605 (footnote 621 in this Report) to reflect the US suggestion.  WT/DS267/RW  
Page 22  
 
  7.57 Brazil  requests that the Panel modify the first sentence of paragraph 14.67 of the interim 
report (paragraph 14.67 of this Report).  Brazil not es that, as the next sentence indicates, the source 
for Brazil's argument regarding re-estimates are not  US "budget" documents but are, rather, CCC 
Financial Statements.  The United States  does not oppose Brazil's request, but suggests alternative 
language to make it clear that Brazil exclusivel y referred to the CCC Financial Statements.  The Panel  
has amended paragraph 14.67 of the interim report (paragraph 14.67 of this Report) in accordance 
with the language suggested  by the United States. 
7.58 Both parties have asked that the Panel make cer tain changes to paragraph 14.76 of the interim 
report (paragraph 14.76 of this Report).  
7.59 Brazil 's concern lies with the use by the Panel of the term "inflated".  Brazil is concerned that 
that word is not neutral and ma y be misunderstood as indicating that  the Panel considered the initial 
estimate to be flawed through exaggera tion or deliberate overstatement.  The United States  objects to 
Brazil’s proposed edit.  The United States cons iders that adopting Brazil's suggestion would 
unnecessarily eliminate one of the two points made by the Panel in the last sentence of paragraph 14.76 – the Panel's rec ognition that it is possible that the initial subsidy estimates are 
inflated because they do not reflect the actual use of the programme.   
7.60 With respect to the same paragraph, the United States  is concerned that the Panel is imposing 
an impossible standard to achieve when it indi cates that "[i]n no case has the reduction turned a 
positive subsidy estimate into a negative one" and request s that the Panel eliminate that sentence.  The 
United States submits that re-estimates are not ca lculated from, or based on, the original subsidy 
estimates.  Consequently, the re-estimate process can never re-capture any difference between the 
original subsidy estimate and estimates based on the amount of guarantees actually issued.  Brazil  
considers that the United States misunderstands what it believes to be the intent of paragraph 14.76.  
7.61 The Panel  has made changes to paragraph 14.76 of the interim report (paragraph 14.76 of this 
Report) and to footnote 665 of the interim report (fo otnote 681 of this Report) to make it clear that 
what is at issue in this paragraph is not the re-estimate process that is mandated under the FCRA.  
Rather, the Panel, in this paragraph, is merely  describing the process by which the initial subsidy 
estimate is readjusted in the two subsequent budge ts that follow the first budget in which a subsidy 
estimate for a particular cohort is provided, and increasingly takes actual use of the programme into account.  The United States argued before the Panel that the initial subsidy estimate is unreliable 
because it is computed before any actual use is made of the GSM 102 programme.  In paragraph 14.76 the Panel responds to that argume nt of the United States.  The Panel therefore 
declines to delete the sentence iden tified by the United States.  With respect to the use of the word 
"inflated", the Panel has replaced that term by "overs tated" which, it believes, is more neutral and 
reflective of the Panel's intent. 
7.62 The United States  requests that the Panel clarify its characterization of the US position 
concerning the initial estimates in paragraph 14.78 of the interim report (paragraph 14.78 of this 
Report).  Brazil  objects to the US request.  The Panel
 has amended the paragraph to remove the word 
"indirectly" and clarify the terms "by themselves" in order to better reflect the argument of the United States.  The Panel does not understand the Unite d States to have requested any other change to 
the paragraph at issue.  
7.63 Brazil  makes a number of comments with respect to the second sentence of paragraph 14.81 
of the interim report (paragraph 14.81 of this Report).  First , the Panel dismisses the arguments of the 
United States that the subsidy re-estimates  demonstrate that GSM 102, GSM 103 and SCGP 
programmes were provided at no net cost to govern ment.  The Panel states that the evidence provided 
by the United States "do[es] not conclusively establish  that the programmes were provided at no net  WT/DS267/RW 
 Page 23 
 
 
  cost to the US Government".51  Brazil is concerned that this formul ation might be read to suggest that 
the Panel has imposed the burden of proof on the United States, which Brazil understands is not the 
case.  Brazil, therefore, suggests th at this passage be reformulated to  state that the evidence provided 
by the United States does not sufficiently rebut the evidence that the programmes were provided at a 
net cost to the US Government.  Second , the Panel characterizes negative subsidy numbers as 
indicative of "profitability".  Brazil requests that the Panel refer to the concept of "net cost", which the 
Panel has used elsewhere, instead  of the word "profitable".  Third , the Panel’s statement suggests that 
the re-estimated data provided by the United Stat es uniformly shows profitability across all cohorts, 
whereas the data provided by the United States, however, continues to project losses for several 
cohorts during the period FY 1992-2006.  The United States  objects to Brazil's suggested edits apart 
from the one which corrects language that would appear to place the burden of proof on the 
United States.   
7.64 The Panel  has amended the paragraph at issue (par agraph 14.81 of this Report) to adopt 
Brazil's suggestion with respect to the Panel's use of  the term "profitability", a term which the Panel 
had used as shorthand for the concept of "no net co st to the government."  The Panel has also taken 
note of Brazil's comment with respect to the fact  that the re-estimates data submitted by the 
United States does not project a negative subsidy estim ate in respect if all c ohorts and has inserted a 
mention to that effect in a foot note (footnote 689).  The Panel disagr ees, however, with Brazil that the 
second sentence of the paragraph may be interprete d as the Panel having imposed the burden of proof 
on the United States.  The Panel has clarified th e sentence at issue to better convey the intended 
meaning of the sentence.  
7.65 The United States  submits that footnote 673 of the interim report (footnote 690 of this 
Report) does not accurately reflect its arguments concerning the role played by original subsidy estimates in the original panel's conclusion that the programmes at issue fell within the scope of item 
(j) of the Illustrative List.  Brazil objects to the US request.  The Panel  considers that footnote 673 of 
the interim report (footnote 690 of this Report) accurately reflects the argument of the United States in 
its Response to Panel Question 105 and therefor e rejects the request of the United States.  
7.66 The United States  considers that the use of the word  "figure" in the third sentence of 
paragraph 14.83 of the interim report (paragraph 14. 83 of this Report) is confusing, as the previous 
sentence references the CCC’s estimated net cash outflow for export credit guarantees as of 30 September 2006, a "figure" that was not before the original panel.  Moreover, the United States indicates that while it agrees with the original pa nel's conclusion that the credit guarantee liability 
figure does not represent in any sense an actual loss,  the United States in no way accepts the original 
panel’s ultimate reliance on the cred it guarantee liability figure as an indicator of the estimated long-
term loss of the programmes to the US Government.  Brazil  opposes the second aspect of the US 
request.   
7.67 The Panel  takes note of the concern of the United St ates with respect to the use of the term 
"figure" in the sentence at issue and of its concern that it not be depicted as endorsing a view that the 
"credit guarantee liability" reported in the CCC's Fina ncial Statements indicates a future loss.  We 
have, for this reason, amended and moved the sen tence at issue to a new footnote (footnote 699) 
which quotes from the US Response to Panel Questi ons 107 and 108 and therefore, in the Panel's 
view, accurately reflects the arguments made by the United States.  
7.68 
The United States  submits that the Panel misconstrues its criticism of Brazil’s failure to 
include cash received when it states, in paragraph 14. 86 of the interim report (paragraph 14.86 of this 
Report) that "including these amounts would not allow a comparison with the re-estimates data 
submitted by the United States."  The United States e xplains that its point was not to facilitate a 
                                                      
51 Emphasis added. WT/DS267/RW  
Page 24  
 
  comparison with re-estimates data but was simply to offer a more accurate depiction of cash flows 
during the period of time identified by Brazil.  The Panel  has amended paragraph 14.86 of the interim 
report (paragraph 14.86 of this Report) to reflect the fact that the comment at issue was not made in 
response to an argument of the United States but ra ther reflected an additional reason why the Panel 
considered it inappropriate to include  amounts as sociated with recoveries on pre-1992 guarantees, as 
had been suggested by the United States.  
7.69 Brazil  requests that the Panel modify the fina l two sentences of paragraph 14.94 of the 
interim report (paragraph 14.94 of this Report).  In  paragraph 14.94, the Panel suggests that GSM 102 
fees are not subject to the OECD Arrangement "beca use", "the Arrangement only applies to official 
support for terms of two years or more".  This statement implies that GSM 102 guarantees are not 
subject to the OECD Arrangement because they are provided for tenors not covered by the 
Arrangement. Brazil notes that, as the Panel correc tly observes at paragraph 14.102, however, GSM 
102 provides for tenors (over 24 months) which are subject to the OECD Arrangement.  The United 
States  does not object to Brazil’s stylistic  edits to this paragraph. The Panel  has made the changes 
suggested by Brazil. 
7.70 With respect to paragraph 14.96 of the interi m report (paragraph 14.96 of this Report), the 
United States  asks the Panel to note that the US participa tion in the elaboration of the MPRs does not 
mean in any way that the United States views th e MPRs as a proper basis for comparison to GSM 102 
fees in this case.  Brazil  does not comment on this request.  The Panel  considers that there is no 
ambiguity in the interim report that the United States  considers that the MPRs are not applicable to 
GSM 102 export credit guarantees (see paragraph 14.92 of  the interim report, paragraph 14.92 of this 
Report) and therefore considers that the addition suggested by the United States is unnecessary.   
7.71 Brazil  and the United States  request that the Panel correct what they consider to be a factual 
inaccuracy in paragraph 14.117 of the interim report (paragraph 14.117 of this Report).  They indicate 
that there are 6, rather than 7, eligible country risk categories under the amended GSM 102 
programme.  The Panel  has deleted the reference to there being "7" eligible country risk categories in 
the body of paragraph 14.117, but has added a new footnote to that paragraph to explain that the 
parties have, in their submissions to the Panel, been  inconsistent in designating the number of eligible 
country risk categories.   
7.72 With respect to paragraph 14.115 of the inte rim report (paragraph 14.115 of this Report), 
Brazil  requests that the Panel either provide a cita tion to documentary evidence in support of the 
assertion of the United States that it "sets bank limits with respect to each foreign bank obligor" or, 
alternatively, that the Panel note that this asserti on in this respect is unsupported by documentary 
evidence.  The United States  objects to Brazil's suggestion.  
7.73 The Panel  considers that the main point of the last sentence of paragraph 14.115 does not 
concern whether the United States has established as a  fact that it sets bank limits with respect to each 
foreign obligor.  Rather, the sentence at issue indicat es that whether or not such bank limits exist does 
not alter the Panel's conclusion, in the first sentenc e of the same paragraph, that "GSM 102 fees are 
not risk-based insofar as they do no t take into account one of the main elements of risk associated 
with the guarantees, the risk of default that is spec ific to an individual foreign obligor."  In any case, 
the Panel does not understand Brazil to have challenge d, in its submissions to the Panel, the US 
assertion that it sets bank limits with respect to each foreign bank obligor.  The Panel therefore denies Brazil's request.  
7.74 The United States  requests that the Panel delete the pa renthetical, in the last sentence of 
paragraph 14.119 of the interim report (paragraph 14.119 of this Report), to the effect that "meaning 
that, for the United States, the other programmes were primarily responsible for any net cost to the US 
Government in the original proceeding".  The Unite d States disagrees to the extent that the sentence  WT/DS267/RW 
 Page 25 
 
 
  implies that the United States agrees that the thr ee export credit guarantee progr ammes resulted in any 
net cost or loss.  Brazil  objects to the US request.  The Panel  considers that the use of the term "any" 
in the sentence at issue ensured that the reader would not ascribe to the parenthetical the meaning 
which the United States suggests may be implied.  Nonetheless, the Panel is mindful of accurately 
reflecting the parties' arguments and has therefore deleted the parenthetical.  In any case, the Panel 
does not regard that sentence as essential to the unde rstanding of the Panel's discussion of this issue. 
7.75 Brazil  requests that the Panel modify the second sentence of paragraph 14.120 of the interim 
report (paragraph 14.120 of this Report), in which th e Panel indicates that it is "therefore unable to 
assess whether a 46 per cent average fee increase (23 pe r cent trade-weighted increase) is sufficient to 
ensure that the GSM 102 programme is not provided at  a net cost to the US Government."  Brazil has 
two concerns with this sentence.  First , Brazil is concerned that this formulation might be read to 
suggest that the Panel has imposed the burden of proof on the United States, which Brazil understands 
is not the case.  Second , Brazil believes that it would be prudent  to put the Panel’s statement in the 
context of its overall conclusion, in paragraph 14.131, that the ev idence as a whole demonstrates that 
the GSM 102 export credit guarantee programme is provided against premiums which involve a net 
cost to the US Government.  The United States  does not comment on Brazil's request with respect to 
this paragraph.  The Panel  does not consider that the language used in paragraph 14.120 of the interim 
report (paragraph 14.120 of this Report), gives rise to the concern expressed by Brazil.  The Panel 
therefore rejects Brazil's request to amend this paragraph. 
D. EDITORIAL CORRECTIONS  
7.76 In addition to the above-mentioned changes, the Panel has made a number of editorial 
changes and technical corrections.52 
VIII.  PROCEDURAL MATTERS 
A. REQUEST OF BRAZIL THAT THE PANEL EXERCISE ITS DISCRETION TO SEEK CERTAIN 
INFORMATION FROM THE UNITED STATES UNDER ARTICLE 13 OF THE DSU 
8.1 On 1 November 2006, prior to the organizati onal meeting of this Panel, Brazil submitted a 
document entitled "Brazil's Request to the Complian ce Panel to Pose Questions to the United States, 
under Article 13.1 of the DSU", in which it request ed the Panel to "exerc ise its discretion under 
Article 13.1 [of the DSU] to request the United St ates to produce documents and information relating 
to (a) payments to US producers of upland cotton under the US counter-cyclical payment programme 
and (b) the export credit guarantee programmes (p rincipally the GSM 102 export credit guarantee 
programme)".53  Brazil asserted that all the requested documents and information were "highly 
relevant to Brazil's claims and the issues before th is compliance Panel.  Therefore, Brazil considers 
that it is 'necessary and appropriate' for the complia nce Panel to seek the documents and information 
requested at this early stage of the compliance pr oceeding".  Brazil asked the Panel to "request the 
United States to produce this information within thr ee weeks of the date the Panel issues its request".  
8.2 On 7 November 2006, at the request of the Panel, the United States submitted comments on 
Brazil's request.  The United States requested th e Panel to decline Brazil's request stating, inter alia , 
                                                      
52 In the course of the interim re view, the Panel has noted that the paragraph numbers cited by the 
Parties in their submissions are sometimes different from the paragraph numbers that appear in the paper version 
of the submission the parties are referring to. The Panel understands that this discrepancy is often a result of the improper functioning of the electronic version submitted by one of the parties.  The Panel has endeavoured to 
correct any such discrepancies, but the Panel points out,  for the record, that the final report may still contain 
such discrepancies in the references to paragraph numbering of the parties' submissions.   
53 Excerpt from Brazil's 1 November 2006 submission. See item 1 of Annex D for the full text of this 
submission.  WT/DS267/RW  
Page 26  
 
  that "Brazil fails to explain how the Panel can assess whether any of the documents and information 
[it is seeking] is 'essential' or 'suitable' for th e Panel's objective assessment of the matter before it, and 
not to be used to make Brazil's prima facie  case for it, before either party has even had the opportunity 
to present any arguments or any evidence in support of its case".
54  
8.3 On 8 November 2006, the Panel communicated the following to the Parties: 
"The Panel declines to make a decision on Brazil's request at this point of time. The 
Panel will communicate to the parties its decision on this request after having received and considered Brazil's first submission. In this connection, the Panel reserves its right to amend the timetable  (and the working procedures, as necessary) 
in relation to this issue."
55   
8.4 On 17 November 2006, in accordance with the Panel's timetable, Brazil made its First Written 
Submission.  In relation to its request under Ar ticle 13 of the DSU concerning counter-cyclical 
payments, Brazil stated the following: 
"During informal discussions held [before the establishment of the Panel], Brazil 
requested the United States to provide the information needed to allocate counter-
cyclical payments to upland cotton production in MY 2003-2005.  The United States 
claimed that this information was 'confiden tial.'  In a letter to the compliance Panel 
dated 1 November 2006, Brazil requested the compliance Panel to request the United States, pursuant to Article 13.1 of th e DSU, to produce the exact same type of 
information that it finally produced during the original proceeding in response to 
repeated requests by the original panel, updated for MY 2003-2005.  Brazil reiterates 
its request based on the reasons set out in  this submission and in its letter of 
1 November 2006."
56 (footnotes omitted) 
8.5 Brazil also stated: 
"Furthermore, there is every reason to believe that a strong positive relationship 
continues to exist between upland cotton base acre holders receiving annual counter-
cyclical payments and upland cotton pr oduction.  As during the period MY 1999-
2002, the economics of high-cost upland cotton production in the United States compel that a significant majority of US upland cotton be grown on upland cotton base acres (or other types of high-payment base acreage such as rice and peanuts) 
during MY 2003-2005.  Brazil looks forward to receipt of this base and planted 
acreage information from the United States following a request by the compliance 
Panel to the United States pursuant to Article 13.1 of the DSU ."
57 (footnotes omitted) 
8.6 In its First Written Submission, Brazil did not refe r to its DSU Article 13 request in relation to 
export credit guarantee programmes.   
                                                      
54 Excerpt from the 7 November 2006 comments of the United States. See item 1 of Annex E for the 
full text of these comments. 
55 Panel's communication to the parties dated 8 November 2006, para. 1. See item 1 of Annex F for the 
full text of this communication. 
56 Brazil's First Written Submission para. 117. 
57 Brazil's First Written Submission para. 131.  WT/DS267/RW 
 Page 27 
 
 
  8.7 The United States further explained its position on this matter in a letter of 
20 November 2006.58  On 22 November 2006, Brazil subm itted comments on this letter of the 
United States.59  
8.8 On 27 November 2006, the Panel sent a communication to the parties stating that it "is of the 
view that it cannot conclude at this stage that it is necessary and appropriate within the meaning of 
Article 13 of the DSU to seek the information re quested by Brazil before the Panel has had the 
opportunity to review the arguments and supporting ev idence, if any, that will be presented by the 
United States in response to Brazil's argument re garding the causal relationship between certain 
subsidies and price suppression for upland cotton".60   
8.9 On 11 January 2007, Brazil filed its Rebuttal Submission.  In making its argument that 
marketing loan and counter-cyclical payments were  trade-distorting, Brazil stated the following: 
"Had the United States produced all data requ ested by Brazil, this data would allow 
Brazil to allocate counter-cyclical paymen ts to upland cotton planted on non-upland 
cotton base acreage under Brazil's Methodology, as determined to be 'appropriate' and conservative by the original panel (as detailed below, Brazil requests the compliance 
Panel to exercise its discretion under Artic le 13.1 of the DSU to request that the 
United States produce the same data for MY 2003-2005 that was available to the original panel for MY 2002)."
61 (footnote omitted) 
... "As noted above, the limited data that the United States produced (in the context of its 
flawed argument that counter-cyclical payments have no significant effects on 
production) does not allow Brazil to update th e amounts of counter-cyclical payments 
it allocates to upland cotton based on its  own methodology.  Therefore, Brazil 
reiterates its request, set out in its 1 N ovember 2006 letter to the compliance Panel, 
that the Panel exercise its discretion and request that the United States produce the same data for MY 2003-2005 that was available to the original panel for MY 2002."
62 
8.10 In its Rebuttal Submission Brazil did not refer to its DSU Article 13 request in relation to 
export credit guarantee programmes.   
8.11 On 17 January 2007, the Panel posed certain questions to the United States and to Brazil on 
Brazil's request under Article 13 of the DSU.63  Brazil and the United States submitted their responses 
to these questions on 19 January 2007.64  In relation to export credit guarantee programmes65, Brazil 
stated that it "continues to believe that the informat ion, documents and data re quested in [its request 
submitted on 1 November 2006] will assist the comp liance Panel in making 'an objective assessment 
of the matter before it,' within the meaning of Article  11 of the [DSU]".  In relation to counter-cyclical 
                                                      
58 The full text of the US letter dated 20 November 2006 is contained in item 2 of Annex E. 
59 The full text of Brazil's letter dated 22 November 2006 is contained in item 4 of Annex E. 
60 Excerpt from the Panel's communication dated 27 November 2006. The full text of this 
communication is contained in item 2 of Annex F. 
61 Brazil's Rebuttal Submission para. 165. 
62 Brazil's Rebuttal Submission para. 171.  
63 See item 5 of Annex F for the full text of the questions.  
64 See items 2 and 3 of Annex D for the full text of the responses of the United States and Brazil, 
respectively.  
65 The question read as follows: "Does Brazil deem that the questi ons posed [concerning export credit 
guarantee programs] submitted on 1 Novemb er [..] are now unnecessary?"   WT/DS267/RW  
Page 28  
 
  payments, the United States pointed out that it had actu ally provided, in an exhibit to its First Written 
Submission, the data (for MY 2005) sought by Brazil.  
8.12 On 22 January 2007, Brazil submitted another letter
66 regarding the data on counter-cyclical 
payments.  In this letter, while acknowledging th at the data provided by the United States for 
MY 2005 corresponded to what Brazil had sought, Braz il pointed out that the United States had still 
not submitted the data for MY 2003-2004 and MY 2006.  
8.13 On 5 February 2007, the United States filed its Rebuttal Submission.  In it, the United States 
reiterated that it had already submitted the data sought by Brazil in respect of counter-cyclical 
payments, and stated that MY 2006 data were not yet available and that earlier years were not relevant 
to Brazil's claim of "present" serious prejudice.  The United States therefore considered that Brazil's 
request was moot.67   
8.14 On 21 March 2007, the Panel issued the follo wing communication to the parties on this 
matter:  
"The Panel notes that Brazil's request was made prior to the filing of the written submissions 
in this case and that information on certain items  identified in that request has since been 
provided to the Panel.  The Panel also expects to receive information on issues raised in 
Brazil's request in response to the questions posed by the Pa nel on 15 March 2007.  The Panel 
considers that at this juncture it is not necessar y to seek more information in respect of issues 
identified in Brazil's request.  The Panel may, how ever, decide to request this information at a 
later stage of this proceeding and may ask ques tions to the parties at any time, in accordance 
with paragraph 7 of the Panel's working procedures."68 
 8.15 The Panel ultimately did not resort to Article 13 of the DSU concerning the above or any 
other issue. 
B. R
EQUEST OF THE UNITED STATES FOR OPEN HEARING  
8.16 During the organizational meeting held on 6 November 2006, the United States stated, in 
relation to paragraph 2 of the draft working procedures69, that it preferred the panel meeting to be 
opened to the public.  The United States acknowledge d that it could not secure agreement with Brazil 
on this issue, and requested that, given Brazil's refusal, the working procedures at least should indicate that the portions of the meeting where the Unite d States presented its position be open to the public. 
8.17 On 8 November 2006, the Panel sent a communication in which it stated as follows: 
"In relation to paragraph 2 of the working procedures, the Panel has noted that the 
United States wishes to open up the portion of the meeting where it presents its own views and statements, while Brazil opposes ope ning the meeting to the public.  The 
Panel draws the attention of the parties th at opening up of any portion of the Panel 
meeting entails logistical considerations . The Panel invites the United States to 
submit comments, by close of business of Tuesday 21 November, on how exactly it  
                                                     
 
66 See item 8 of Annex E for the full text of Brazil's letter.  
67 See US Rebuttal Submission, para. 278. 
68 Excerpt from the Panel's communication dated 21 March 2007.  See item 8 of Annex F for the full 
text of this communication. 
69 The Panel's draft working procedures paragraph 2 read as follows: "The Panel shall meet in closed 
session.  The parties to the dispute, and interested third parties, shall be present at the meetings only when 
invited by the Panel to appear before it."  (This paragraph remained unchanged in the final working procedures.)  WT/DS267/RW 
 Page 29 
 
 
  envisages such opening to be logistically me aningful. The Panel reserves its right to 
amend the working procedures in relation to this matter." 70  
8.18 On 21 November 2006, the United States submitte d, in response to the Panel's invitation 
above, its comments on the possible logistics of opening a specific part of the meeting.  The United States explained inter alia  that it "has invoked its right under Article 18.2 of the [DSU] to 
make statements of its own positions  public and, as an appropriate means to do this, has requested that 
the Panel exercise its authority to open to the public  the US statements and US answers to questions 
presented in the panel meeting".
71   
8.19 In a letter of 24 November 2006, Brazil indicated that it did not agree with the assertions of 
the United States, noting inter alia , that "nothing in Article 18.2 mandates or implies that to effect a 
Member's right to disclose its own positions or stat ements, panels must agree to open meetings to 
public observation" and that "a Member's right to  disclose its own positions cannot prejudice another 
Member's right to confidentiality".72 
8.20 On 28 November 2006, the Panel informed the parties as follows:  
"The Panel notes, first, that there is no precedent in WTO dispute settlement practice 
for a decision to open a (portion of) a panel meeting to the public based on a request 
by one party to a dispute that is opposed by another party.  Second, the Panel has 
carefully considered the argument of the Un ited States in its letter dated 21 November 
that in requesting the Panel to open to th e public US statements and US answers to 
questions presented in the panel meeting th e United States is exercising its right under 
Article 18.2 of the DSU, second sentence.  Th e Panel considers that there are various 
possible ways in which a party can disclose its statements to the public and that the 
United States has not explained why procedures the United States normally uses to disclose its statements in WTO dispute settlement proceedings to the public would not be adequate in this case.  Furthermore, the right of party to disclose its statements 
of its positions must also be reconciled w ith the obligation of confidentiality in the 
third sentence of Article 18.2.  Finally, the Panel considers that the practical 
arrangements proposed by the United States in its letter of 21 November 2006 pose serious practical and logistical difficulties.   
For the above reasons, we decline to grant the request made by the United States."
73 
(footnote omitted) 
C. SERVICING OF SUBMISSIONS  
8.21 On 18 December 2006, Brazil sent a letter to the Pa nel complaining about the late filing of the 
First Written Submission by the United States74 and requested that "the compliance Panel reject the 
United States' submission as not timely filed".75   
                                                      
70 Panel's communication to the parties dated 8 November 2006, paragraph 3.  See item 1 of Annex F 
for the full text of this communication. 
71 US letter dated 21 November 2006, second paragraph.  See item 3 of Annex E for the full text of this 
letter. 
72 See item 5 of Annex E for the full text of Brazil's letter of 24 November 2006.  
73 Excerpt from the Panel's communication dated 28 November 2006.  See item 3 of Annex F for the 
full text of this letter. 
74 Brazil stated that "the United St ates [...] filed the electronic version of its submission 12 hours late, 
on Saturday, 16 December at 5:24 a.m." WT/DS267/RW  
Page 30  
 
  8.22 On 19 December 2006, the United States sent a letter to the Panel stating that the Panel 
should reject Brazil's request, asserting inter alia  that "the DSU does not au thorize the 'rejection' of 
submissions for the inability of a Member to meet  precisely the time by which parties 'should provide 
their submissions' according to a panel's working pr ocedures.  To the contrary, the DSU provides that 
'[p]anel procedures should provide sufficient flex ibility so as to ensure high-quality panel reports, 
while not unduly delaying the panel process'".
76 (footnotes omitted) 
8.23 On 20 December 2006, the Panel communicated the following to the parties: 
"The Panel notes that Brazil requests the Pane l to 'reject the United States' submission 
as not timely filed'. The Panel declines to  do so.  However, the Panel regrets this 
delay by the United States, and requests th e United States to abide by the deadlines 
established by the Panel concerning its future submission(s)."77 
8.24 On 7 February 2007, Brazil sent a letter to the Panel complaining about the late filing of the 
Rebuttal Submission by the United States.78 Brazil requested that the compliance Panel "reject the 
United States' submission as not timely filed".79  
8.25 On 12 February 2007, the United States sent a letter to the Panel commenting on this letter 
from Brazil stating inter alia  that "Brazil has no basis for its request that the Panel reject the US 
Rebuttal Submission".80   
8.26 On 16 February 2007, the Panel communicated the following to the parties: 
"The Panel regrets that the United States has missed the deadlin e for the second time 
in this Article 21.5 proceeding. The Panel fi nds it extraordinary that the United States 
has missed so many deadlines in the original proceeding as well as in this Article 21.5 
proceeding.  
On the other hand, the Panel considers that there is no provision in the DSU that 
allows a panel to simply reject an entire submission as not timely. The Panel does not consider that the two cases cited by Braz il support Brazil's request. Thus, we decline 
to grant the request made by Brazil."
81 (footnote omitted) 
                                                                                                                                                                     
75 Excerpt from Brazil's letter dated 18 December 2006.  See item 6 of Annex E for the full text of this 
letter. 
76 Excerpt from US letter dated 19 December 2006. See item 7 of Annex E for the full text of this letter. 
77 Excerpt from the Panel's communica tion to parties dated 20 December 2006.  See item 4 of Annex F 
for the full text of this communication. 
78 Brazil stated that "the United States [...] filed the electronic version of its submission more than 
6 hours late - at 11:39 p.m. on Monday, 5 February".  
79 Excerpt from Brazil's letter dated 7 February 2007.  (footnote omitted.)  See item 9 of Annex E for 
the full text of this letter. 
80 Excerpt from US letter dated 12 February 2007.  See item 10 of Annex E for the full text of this 
letter. 
81 Excerpt from the Panel's communication dated 16 February 2007.  See item 7 of Annex F for the full 
text of this communication.  WT/DS267/RW 
 Page 31 
 
 
  D. REQUEST OF THE EUROPEAN COMMUNITIES FOR A FINDING OR RULING ON THE PANEL 'S 
COMPOSITION  
8.27 The European Communities , a third party to this proceeding, requests the Panel to make "a 
finding or ruling" with respect to "the propriety of [the Panel's] composition".82   
8.28 The Panel considers that it is not within its authority under the DSU to make a "finding or 
ruling" on an issue that has not b een raised by any of the parties to  the dispute and which concerns the 
application by the WTO Director-General of the DSU provisions regarding panel composition.83  The 
Panel fails to see how the "finding or ruling" requested by the Eur opean Communities would 
contribute to a positive solution to this dispute w ithin the meaning of Article 3.7 of the DSU.   
E. LEAST DEVELOPED COUNTRY MEMBERS  
8.29 Chad, a least-developed country Member, participat ed in this proceeding as a third party.  In 
accordance with Article 24.1 of the DSU, particular consideration was given to the special situation of 
this Member.  Chad made a detailed written submissi on and made an oral statement at the meeting of 
the Panel with the third parties on 28 February 2007.84  Chad was represented by a delegation which 
was headed by its Ambassador to the United Nations and Other International Or ganisations in Geneva 
and which also included staff members of the Advi sory Centre on WTO Law.  In its Submission and 
Oral Statement, Chad stressed that it had a special in terest in this proceeding in light of the critical 
importance of the cotton sector to its economy a nd of the commitments that WTO Members have 
undertaken with respect to cotton in the July 2004 Framework and at the Hong Kong Ministerial 
Conference.  Chad emphasized the benefits fo r Chad and other Sub-Saharan cotton-producing 
countries of full implementation by the United States of the DSB recommendations and rulings in this 
dispute and drew attention, in this regard, to r ecent studies that provide empirical evidence of the 
magnitude of these benefits.  Chad also submitted de tailed legal arguments in support of its view that 
the United States had not complied with the DSB re commendations and rulings.  The Panel refers to 
the arguments of Chad in the summaries  of arguments of the third parties. 
IX. GENERAL CONSIDERATIONS AND ISSUES RELATING TO THE SCOPE OF 
THIS PROCEEDING 
A. STANDARD OF REVIEW , BURDEN OF PROOF AND RULES OF TREATY INTERPRETATION  
1. Standard of review 
9.1 In respect of the standard of review that this Panel must apply, Article 11 of the DSU 
provides, in relevant part:  
"The function of panels is to assist the DSB in discharging its responsibilities under this 
Understanding and the covered ag reements.  Accordingly, a panel should make an objective 
assessment of the matter before it, including an objective assessment of the facts of the case 
and the applicability of and conformity with th e relevant covered agreements, and make such 
                                                      
82 EC Third Party Submission, paras. 6-30; EC Third Party Oral Statement, paras. 2-4.   
83 While the European Communities asserts that there is precedent in WTO dispute settlement practice 
that supports its position that the Panel has the authority to rule on the propriety of its own composition, and that 
the Panel is under a duty to address this issue because  "it is of fundamental importance for the correct 
interpretation of the DSU and for the smooth and equitable operation of the WTO dispute settlement system" 
(EC Third Party Submission, paras. 28-29), the Panel finds the arguments of the European Communities in this 
regard unpersuasive.   
84 Chad's Written Submission and Oral Statement were prepared with the cooper ation of the Advisory 
Centre on WTO Law.   WT/DS267/RW  
Page 32  
 
  other findings as will assist the DSB in making the recommendations or in giving the rulings 
provided for in the covered agreements."  
9.2 The Panel is cognizant of the need to give due consideration to the findings of the original 
panel in this dispute.  Proceedings under Article 21. 5 of the DSU do not occur in isolation but are part 
of a "continuum of events".  The Panel conducts it s analysis of the claims of Brazil "against the 
background of the original proceedings, and with  full cognizance of the reasons provided by the 
original panel".
85  86  The parties have expressed views on the issue of the weight that this Panel 
should accord to the legal and factual findings and reasoning of the panel in the original proceeding.87  
The Panel does not consider that it is necessary or appropriate for it to make a general statement on 
this question in the abstract.   
2. Burden of proof  
9.3 The general rules regarding the allocation of the burden of proof in WTO dispute settlement 
require that a party claiming a violation of a provi sion of a WTO agreement by another Member assert 
and prove its claim.88  These rules also apply to proceedings under Article 21.5 of the DSU.89  Brazil 
                                                      
85 Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US ), para. 121.  In the same report, the 
Appellate Body stated that "a panel acting pursuant to Article 21.5 of the DSU would be expected to refer to the 
initial panel report, particularly in cases where the im plementing measure is closely related to the original 
measure, and where the claims made in  the proceedings under Article 21.5 cl osely resemble the claims made in 
the initial proceedings".  Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US) , para. 109. 
86 We note, in this regard, that in reviewing the fi ndings of a panel in a proceeding under Article 21.5 
involving a determination of injury by a domestic inves tigating authority, the Appellate Body has observed that: 
 
"doubts could arise about the objective nature of an Article 21.5 panel's assessment if, on a specific issue, that panel were to deviate from th e reasoning in the original panel report in the 
absence of any change in the underlying evidence in the record and explanations given by the 
investigating authority in a redetermination.  These concerns are not, however, based on the 
binding effect of the adopted findings of the original panel".   
 
Appellate Body Report, US – Softwood Lumber VI  (Article 21.5 – Canada) , para. 103.  The Appellate 
Body made these observations in addressing an argument of Canada that the panel had "failed to make 
an objective examination of the ma tter before it because it failed to apply findings from  the original 
panel report even though these findings had been adopted by the DSB and are binding upon the parties 
to the dispute."  Appellate Body Report, US – Softwood Lumber VI  (Article 21.5 – Canada) , para. 101.   
87 E.g., Brazil's Response to Panel Question 2; US Response to Panel Question 2.  
88 Appellate Body Report, US – Wool Shirts and Blouses , p. 14.  With respect to these general rules on 
allocation of the burden of proof, the Appellate Body recently observed:  
 "... in WTO dispute settlement, as in most legal systems and internationa l tribunals, the burden 
of proof rests on the party that asserts the affi rmative of a claim or defence.  A complaining 
party will satisfy its burden when it establishes a prima facie  case by putting forward adequate 
legal arguments and evidence.  The nature and scope of arguments and evidence required 'will 
necessarily vary from measure to measure, provision to provision, and case to case'.  When a 
claim is brought against a WTO Member's legislation or regulation, a panel may, in some circumstances, consider that the text of the relevant legal instrument is sufficiently clear to 
establish the scope and meaning of the law.  However, in other cases, a panel may consider 
that additional evidence is necessary to do so.  Once the complaining party has established a prima facie case, it is then for the responding party to rebut it.   
A panel errs when it sustains a claim for which the complaining party has failed to make out a 
prima facie  case.  Nevertheless, a panel does not commit legal error merely by omitting to 
specify which party bears the burde n of proof in respect of each claim or defence.  Moreover, 
a panel is not obliged, in every instance, to make an explicit finding that a complaining party  WT/DS267/RW 
 Page 33 
 
 
  as the complaining party must therefore make a prima facie  case of violation of the relevant 
provisions of the WTO agreements invoked by Brazil,  which the United States must refute.  We also 
note, however, that it is generally for each party asserting a fact, whether complainant or respondent, to provide proof thereof.
90  In this respect, therefore, it is also for the United States to provide 
evidence for the facts which it asserts.  A prima facie  case is one which, in the absence of effective 
refutation by the other party, requires a panel, as a matter of law, to rule in favour of the party 
presenting the prima facie  case. 
9.4 The Appellate Body recently discussed the appli cation of the general rules on the allocation 
of burden of proof in the context of Article 21.5 of the DSU as follows:  
"The text of Article 21.5 expressly links the 'measures taken to comply' with the 
recommendations and rulings of the DSB con cerning the original measure.  A panel's 
examination of a measure taken to comply  cannot, therefore, be undertaken in 
abstraction from the findings by the original  panel and the Appellate Body adopted by 
the DSB.  Such findings identify the WTO-in consistency with respect to the original 
measure, and a panel's examination of a me asure taken to comply must be conducted 
with due cognizance of this background.  Thus, the adopted findings from the original 
proceedings may well figure prominently in proceedings under Article 21.5, especially where the measure taken to comply is alleged to be inconsistent with WTO 
law in ways similar to the original measure.  In our view, these considerations may influence the way in which the complaining party presents its case, and they may also be relevant to the manner in which an Article 21.5 panel determines whether that 
party has discharged its burden of proof and established a prima facie  case."
91 
                                                                                                                                                                     
has met its burden to establish a prima facie  case in respect of each element of a particular 
claim, or that the responding party has effectively rebutted a prima facie  case.  Thus, a panel 
is not required to make an explicit ruling that a complaining party has established a prima 
facie case of inconsistency before examining the re sponding party's defence and evidence.  At 
the same time, the mere articulation by a panel of the correct rules as to the burden of proof is not sufficient if the panel does not, in fact, prop erly allocate that burden in the case before it."  
Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina) , paras. 134-135.  
89 Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina), para. 136.  
New Zealand argues in its Third Party Submission that Article 7.8 of the SCM Agreement  affects the distribution 
of burden of proof in this proceeding under Article 21.5  of the DSU.  Specifically, New Zealand asserts that:  
 "[s]ince an implementing Member has the optio n of either withdraw ing the subsidising 
measure or removing the adverse effects, a Memb er that fails to withdraw the measure in 
question then should have the burden of showing that it has removed the adverse effects.   
Thus, in the present case proof by Brazil that the measures found by the original panel to 
cause adverse effects have not been withdrawn should establish a prima facie  case that 
implementation has not occurred and the burden should then shift to the United States to prove that the adverse effects caused by those subsidizing measures have been removed."    
 
New Zealand's Third Party Submission, para. 5.06.  The Panel finds no support in the text of Article 7.8 of the 
SCM Agreement  and Article 21.5 of the DSU for the propos ition that in a proceeding under Article 21.5 
involving an alleged failure to comply with Article 7.8 of the SCM Agreement , a Member which has not 
withdrawn the subsidy has the burden of showing that it has removed the adverse effects.  The Panel also notes Brazil's statement that, in the present case, "Brazil has the burden of dem onstrating under Article 7.8 that the 
United States did not take appropriate steps to remove the adverse effects caused by  the original basket of 
measures".  Brazil's Response to Panel Question 26, para. 20.  
90 Appellate Body Report, US – Wool Shirts and Blouses , p. 14.  
91 Appellate Body Report, Chile – Price Band System (Article 21.5 – Argentina),  para. 136.  WT/DS267/RW  
Page 34  
 
  3. Rules of treaty interpretation 
9.5 Article 3.2 of the DSU requires the Panel to appl y customary rules of public international law 
on the interpretation of treaties.  It is generally  accepted that these rules can be found in Articles 31-33 
of the Vienna Convention on the Law of Treaties of 1969 (" Vienna Convention ").  Article 31(1) of the 
Vienna Convention  provides: 
 
"A treaty shall be interpreted in good faith  in accordance with the ordinary meaning 
to be given to the terms of the treaty in their context and in the light of its object and purpose."
 
B. SCOPE OF THIS PROCEEDING UNDER ARTICLE 21.5  OF THE DSU  
1. Introduction 
9.6 Article 21.5 of the DSU provides: 
"Where there is disagreement as to the existen ce or consistency with a covered agreement of 
measures taken to comply with the recommenda tions and rulings such dispute shall be 
decided through recourse to these dispute settl ement procedures, including wherever possible 
resort to the original panel.  The panel shall ci rculate its report within 90 days after the date of 
referral of the matter to it.  When the panel c onsiders that it cannot provide its report within 
this time frame, it shall inform the DSB in writi ng of the reasons for the delay together with 
an estimate of the period within which it will submit its report." 
9.7 The United States requests that the Panel make preliminary rulings that certain claims of 
Brazil are outside the scope of Article 21.5 of the DSU because they are not claims relating to the 
"existence or consistency with a covered agr eement of measures taken to comply with the 
recommendations and rulings" of the DSB.  The Unite d States makes this request in respect of: (i) 
claims of Brazil relating to export credit guarant ees regarding exports of pig meat and poultry meat; 
(ii) claims of Brazil relating to the ma rketing loan and counter-cyclical payment programmes  in 
addition to payments  made under those programmes; and (iii) claims of Brazil regarding non-
compliance in a past period.92   
9.8 The United States also considers that payments  made under the marketing loan and counter-
cyclical payment programmes after 21 September 2005 are not properly within the scope of this proceeding.
93 
2. Whether Brazil's claims relating to export credit guarantees for pig meat and poultry 
meat are outside the scope of this proceeding 
(a) Main arguments of the parties 
9.9 The United States  argues that since export credit guarantees for pig meat and poultry meat 
were not found to be WTO-inconsistent in the or iginal proceeding they were not subject to DSB 
recommendations and rulings.  Therefore, GSM 102 e xport credit guarantees in respect of exports of 
pig meat and poultry meat are not "measures taken to comply" with the recommendations and rulings 
                                                      
92 US First Written Submission, paras. 22-56; US Rebuttal Submission, paras. 16-71.  
93 The United States did not make the argument that payments made after 21 September 2005 are not 
within the scope of this proceeding as part of its reque st for preliminary rulings in its First Written Submission 
but presented this argument at a later stage of the proceeding.  US Comments on Brazil's Response to Panel Question 15;  US Response to Panel Question 47; US Comments on Brazil's Response to Panel's Second Set of 
Questions, paras. 8-14.   WT/DS267/RW 
 Page 35 
 
 
  of the DSB and these measures and Brazil's claims re lating to these measures are not within the scope 
of this proceeding.94  
9.10 The United States considers that Brazil confuses the proper standard as to when claims are 
within the scope of Article 21.5 proceedings and incorrectly assumes that the standard is one of 
whether there has been a "final resolution" of the issue in the original proceeding.  Brazil 
misinterprets the Appellate Body report in EC – Bed Linen (Article 21.5 – India)  and confuses two 
distinct issues: the issue of the scope of a comp liance proceeding under Article 21.5 of the DSU, on 
the one hand, and the issue of when a claim agains t a specific measure or aspect of a measure can be 
considered to be "finally resolved" for pu rposes of WTO dispute settlement, on the other.95   
9.11 The United States submits that compliance pr oceedings under Article 21.5 of the DSU may 
address two types of matters.  First , that measures taken to comply with DSB recommendations and 
rulings do not exist.  Second , that measures taken to comply with DSB recommendations and rulings 
are not consistent with a covered agreement.   If a measure is not subject to any DSB 
recommendations and rulings because the measure ha s not been found to be WTO-inconsistent, there 
is no logical basis for any claim that a Member has not implemented the DSB recommendations and 
rulings in respect of that measure.  Moreover, unle ss the original measure itself is considered to be a 
measure taken to comply, there is no basis for claims to be made against the measure alleging that it is inconsistent with a covered agreem ent.  Thus, measures are outside the scope of Article 21.5 of the 
DSU when they have not been found to be WTO-in consistent and are not themselves measures taken 
to comply.
96  
9.12 The United States submits that specific expor t credit guarantees are "measures" and those 
guarantees provided in support of exports of pig meat, poultry meat and other scheduled products 
other than rice have never been subject to any DSB recommendations and rulings and are not 
measures taken to comply with any DSB reco mmendations and rulings .  Prior WTO dispute 
settlement reports do not support the proposition that the scope of this proceeding under Article 21.5 
can be extended to include claims against me asures that were never subject to any DSB 
recommendations and rulings and that are not measures taken to comply with any such 
recommendations and rulings.97  
9.13 Brazil requests the Panel to reject the preliminar y objection of the United States because this 
objection is contrary to Appellate Body jurispru dence on the scope of claims properly brought in 
compliance proceedings.98  While the Appellate Body held in EC – Bed Linen (Article 21.5 – India)  
that an unappealed finding in a panel report adopted  by the DSB must be treated as a final resolution 
to the dispute in respect of a particular claim and specific component of a measure, this limitation 
does not apply to Brazil's claims relating to e xport credit guarantees for pig meat and poultry meat 
because there has been no such final r esolution with respect to these claims.99  Thus, Brazil argues 
that it may bring these claims in this proceeding b ecause the original proceeding did not lead to a 
"final resolution" with respect to these claims.  
9.14 Brazil argues that its claims relating to export credit guarantees for pig meat and poultry meat 
relate to a measure taken to comply within the me aning of Article 21.5 of the DSU.  While Brazil's 
                                                      
94 US First Written Submission, para. 24-30.  The United States emphasizes that the relevant question 
is not whether, as argued by Brazil,  Brazil may "re-assert" its claims agai nst export credit gua rantees for exports 
of pig meat and poultry meat, but whether Brazil may do so in the context of a proceeding under Article 21.5 of 
the DSU.  
95 US Rebuttal Submission, paras. 10-15; US Response to Panel Question 10.  
96 US Response to Panel Question 6.  
97 US Comments on Brazil's Response to Panel Question 6.  
98 Brazil's Submission Regarding US Requests for Preliminary Ruling, para. 7.  
99 Brazil's Submission Regarding US Requests for Preliminary Ruling, paras. 9-12.  WT/DS267/RW  
Page 36  
 
  claims are product-specific, the measure at issue, the amended GSM 102 programme, applies in the 
same manner to all products covered by the pr ogramme.  There is no factual basis for the US 
argument that the measures at issue are the expor t credit guarantees for pig meat and poultry meat.
100   
9.15 Further, Brazil submits that the measure subject to its claims is a new measure and that a 
Member may present any claim in a proceeding unde r Article 21.5 with respect to a new measure.  
While panels have determined that a Member may not bring a new claim in a proceeding under 
Article 21.5 in respect of an aspect of a measure that remains unchanged from the original proceeding 
and that was not challenged in the original pro ceeding, that limitation does not apply to the present 
case because Brazil presents the same claim with resp ect to a new aspect of a new measure.  Referring 
to the Appellate Body report in EC – Bed linen (Article 21.5 – India),  Brazil asserts that it should not 
be held responsible for the absence of a fi nal resolution in the original proceeding.101  
(b) Main arguments of third parties  
9.16 Australia  submits that Brazil's claim relating to GSM 102 export credit guarantees issued in 
respect of pig meat and poultry meat may properly be considered by this Panel.   The situation in the 
present case is not that of a measure that was not  challenged in the original proceedings or, if 
challenged, was addressed in those proceedings a nd not found to be WTO-inconsistent.  The claim 
specifically made by Brazil in its request for estab lishment relates to the WTO-consistency of a new 
measure – guarantees issued under the revised GS M 102 programme – the revisions to which were 
implemented in response to the rulings and reco mmendations of the DSB.  Brazil is entitled to 
request, and the Panel is required to consider, the new measure in its totality, including the measure's 
application.102   
9.17 The European Communities  considers that in addressing the question whether GSM 102 
export credit guarantees relating to pig meat and poultr y meat are properly within the scope of this 
proceeding, the key issue before the Panel is the nexus or the degree of interrelatedness or 
interdependence between different elements of th e measure.  Thus, the Panel should examine the 
original measure at issue and the measure taken to  comply and, with particular reference to the 
elements of the measure that the United States argues are outside the terms of reference of the Panel, 
enquire into the extent to which these elements are interrelated or interdependent with the measures or 
elements of measures that the United States accepts as being within the Panel's terms of reference.  At 
first sight, the question of whether US export cred it guarantees relating to pig meat and poultry meat 
circumvent US commitments under the Agreement on Agriculture  and are inconsistent with the SCM 
Agreement  may not be necessarily interdependent with a nd not even necessarily interrelated with the 
same question regarding upland cotton.  However,  there are other factors that merit careful 
consideration, including the fact that the SCM Agreement  makes clear that a "programme" can be a 
measure, that the United States has admitted that th e measure at issue is a "programme" within the 
meaning of the SCM Agreement , that the original panel consistently referred to the GSM 102 
"programme", and that the United States has el ected to amend the GSM 102 programme generally, 
including with respect to pig meat and poultry meat.103   
9.18 Japan submits that the claim of Brazil regarding GSM 102 export credit guarantees for pig 
meat and poultry meat is within the scope of this proceeding.  The inability of the Appellate Body to 
complete the analysis with respect to a panel finding reversed by the Appellate Body is similar to the 
exercise of judicial economy in that in both cases th ere is no "final resolution" with respect to the 
                                                      
100 Brazil's Response to Panel Question 6, para. 21; Brazil's Comments on US Response to Panel 
Question 6.   
101 Brazil's Response to Panel Question 6, paras. 42-47.  
102 Australia's Third Party Submission, paras. 8-11.  
103 EC Third Party Oral Statement, para. 5-13.  WT/DS267/RW 
 Page 37 
 
 
  claim in question.  The recent panel report in US – Oil Country Tubular Goods Sunset Reviews 
(Article 21.5 – Argentina)  makes clear that this Panel has the authority to identify and assess the new 
measure taken by the United States to comply with the DSB recommendations and rulings, including the GSM 102 programme as applied to pig meat and poultry meat.
104   
(c) Evaluation by the Panel 
9.19 The United States request the Panel to make a pr eliminary ruling that Brazil's claims relating 
to GSM 102 guarantees in respect of exports of pig meat and poultry meat are outside the scope of 
this proceeding under Article 21.5 of the DSU.105   
9.20 The Panel recalls that the original panel found that in respect of twelve scheduled products, 
including pig meat and poultry meat, it had not been established that the United States had applied 
export credit guarantees constituting export subsidies within the meaning of Article 10.1 of the 
Agreement on Agriculture  in a manner resulting in circumventi on of export subsidy commitments of 
the United States.106  The Appellate Body reversed this finding  of the original panel, but considered 
that there were insufficient undisputed facts in the reco rd to enable it to complete the legal analysis to 
determine whether the United States had applied expor t credit guarantees with respect to pig meat and 
poultry meat in a manner resulting in circumven tion of export subsidy commitments of the 
United States. 107 
9.21 Thus, the issue before the Panel is whether in  this proceeding under Article 21.5 of the DSU 
Brazil may present claims relating to export credit guarantees for pig meat and poultry meat considering that: (i) Brazil presented such claims in  the original proceeding; (ii) the original panel 
rejected these claims;  (iii) the Appellate Body reve rsed the original panel's rejection of these claims, 
but found itself unable to complete the analysis; such that (iv) the original proceeding did not result in 
a finding of WTO-inconsistency in respect of expor t credit guarantees for pig meat and poultry meat.  
9.22 The phrase "measures taken to comply with th e rulings or recommendations" in Article 21.5 
of the DSU limits the scope of Article 21.5 proceedi ngs to a particular category of measures; "[i]f a 
claim challenges a measure which is not a 'measure taken to comply', that claim cannot properly be 
raised in Article 21.5 proceedings".
108  Thus, "[i]n an Article 21. 5 proceeding, the measure or 
measures taken to comply go to the heart of [a] panel's mandate".109  110   
9.23 The Panel considers that the fact that export credit guarantees for pig meat and poultry meat 
were not found to be WTO-inconsistent in the origin al proceeding and were therefore not subject to  
DSB recommendations and rulings does not necessarily m ean that the claims of Brazil with respect to 
export credit guarantees for pig meat and poultry meat  should be found to be  outside the scope of 
                                                      
104 Japan's Third Party Oral Statement, paras. 3-4.  
105 The United States does not argue that these clai ms are not covered by Brazil's request for the 
establishment of a panel (WT/DS267/30).  The Panel notes that paragraph 27 of this request refers to "upland 
cotton and other unscheduled products; an d rice, pig meat and poultry meat".  
106 Panel Report, US – Upland Cotton , para. 7.881.  
107 Appellate Body Report, US – Upland Cotton , paras. 692-694 and 763(f)(i).  
108 Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 78.  See also Appellate Body 
Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 36; Appellate Body Report, US – Softwood Lumber IV 
(Article 21.5 – Canada) , para. 65.   
109 Panel Report,  US – Countervailing Measures on Certain EC Products (Article 21.5 – EC);  
para. 7.35.  
110 Whether a measure identified in a panel request under Article 21.5 is a "measure taken to comply" 
within the meaning of Article 21.5 is a matter to be deci ded by the Article 21.5 panel, not by the parties to the 
dispute.  Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 78; Panel Report, US – 
Countervailing Measures on Certain EC Products (Article 21.5 – EC) , para. 7.7.  WT/DS267/RW  
Page 38  
 
  Article 21.5 of the DSU as not relating to "measure s taken to comply".  The Panel finds support for 
this view in the reasoning of several recent Appe llate Body and panel repor ts in proceedings under 
Article 21.5 of the DSU.   
9.24 The Panel notes, in particular, the observations of the Appellate Body in US – Softwood 
Lumber (Article 21.5 – Canada) : 
"Some measures with a particularly close rela tionship to the declared 'measure taken to 
comply', and to the recommendations and rulings  of the DSB, may also be susceptible to 
review by a panel acting under Ar ticle 21.5.  Determining whet her this is the case requires a 
panel to scrutinize these relationships, which ma y, depending on the particular facts, call for 
an examination of the timing, nature, and effect s of the various measures.  This also requires 
an Article 21.5 panel to examine the factual and legal background against which a declared 
'measure taken to comply' is adopted.  Only then  is a panel in a position to take a view as to 
whether there are sufficiently close links for it to characterize such an other measure as one 
'taken to comply' and, conseque ntly, to assess its consistency w ith the covered agreements in 
an Article 21.5 proceeding."
111    
9.25 The United States amended its GSM 102 programme in order to comply with the DSB 
recommendations and rulings in the original proceed ing.  The amendments made to the programme 
apply to exports of all products  covered under the programme, incl uding pig meat and poultry meat. 
The Panel does not agree with Brazil's argument that the measure that is the subject of its claims is the 
amended GSM 102 programme itself and that export credit guarantees with respect to pig meat and 
poultry meat are not themselves "measures".  In the Panel's view, that the amended programme 
applies to all products in the same manner does not  alter the fact that the application of the 
programme to an individual product constitutes a "measure".  Nevertheless, while accepting the 
argument of the United States that GSM 102 export credit guarantees in respect of exports of pig meat and poultry meat are measures, we consider that th ese measures have a "particularly close relationship 
to the declared measure taken to comply and to the recommendations and rulings of the DSB".  As 
noted above, the amended programme applies in th e same manner to all products covered by the 
programme.  Furthermore, the Panel notes that most of the legal and factual issues raised by Brazil's 
claims relating to export credit guarantees pertain to  the amended GSM programme in general without 
distinction between individual products to whic h the programme applies.  In addition, the 
United States has strongly argued that the Pane l should examine Brazil's claim solely under the 
standard contained in item (j) of the Illustrative List  of Export Subsidies, a standard that requires the 
Panel to analyze the GSM programme as a whole ra ther than in relation to particular products.
112   
9.26 The Panel also notes that Brazil's claims with respect to export credit guarantees for pig meat 
and poultry meat are not claims that were rejected in the original proceeding and that relate to an 
unchanged measure.  Rather with respect to a ne w measure – the application of the amended GSM 
102 programme to exports of pig meat and poultry m eat – Brazil makes a clai m in respect of which 
the original proceeding did not result in a finding as to whether or not the United States was acting 
                                                      
111 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 77. 
112 We note in this regard that in interpreting the scope of the phrase "measures taken to comply" in 
Article 21.5, the Appellate Body has taken into considera tion the fact that the purpose of Article 21.5 of the 
DSU is to promote prompt compliance with DSB recommendations and rulings and the consistency of measures taken to comply with the covered agreements by ma king it unnecessary for complainants to initiate new 
proceedings.  (Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – 
Argentina ), para. 151). The logic of the argument of the United States is that in order to obtain a finding on 
whether export credit guarantees for pig meat and poultr y meat are WTO-inconsistent, Brazil must commence a 
new panel proceeding in which Brazil will need to make the same legal and factual arguments as in this case.    WT/DS267/RW 
 Page 39 
 
 
  inconsistently with its WTO obligations.113  No previous panel or Appellate Body proceeding has 
addressed the precise question before us in this case  of whether a Member may assert a claim in an 
Article 21.5 proceeding in respect of which the Ap pellate Body found itself unable to complete the 
analysis in the original proceeding.  We find it si gnificant, however, that the Appellate Body recently 
held that a claim relating to an aspect of a measure  on which the panel in the original proceeding had 
exercised judicial economy was properly within the scope of Article 21.5 of the DSU.114  In our view, 
this demonstrates that a claim relating to a meas ure that has a sufficiently  close nexus with the 
measure taken to comply or with the DSB recomme ndations and rulings in the original proceeding 
can be within the scope of Article 21.5 even where th at measure itself has not been the subject of DSB 
recommendations and rulings in the original proceeding.   
9.27 In light of the foregoing considerations, the Panel finds  that the claims of Brazil relating to 
export credit guarantees for exports of pig meat and poultry meat are within the scope of this 
proceeding under Article 21.5 of the DSU.   
3. Whether Brazil's claims with respect to the marketing loan and counter-cyclical 
payment programmes  are outside the scope of this proceeding 
9.28 In support for its request for a preliminary rulin g that Brazil's claims regarding the marketing 
loan and counter-cyclical payment programmes ar e outside the scope of this proceeding, the 
United States argues, first, that these programmes were not subject to recommendations and rulings of 
the DSB in the original proceeding and, second , that these programmes are not "measures taken to 
comply" within the meaning of Article 21.5 of the DSU because they have not been changed in response to DSB recommendations and rulings or otherwise.   
(a) Whether Brazil's claims with respect to the marketing loan payment and counter-cyclical 
programmes are outside the scope of this proceeding because these programmes were not subject to recommendations and rulings of  the DSB in the original proceeding  
(i) Main arguments of the parties 
9.29 The United States  requests the Panel to make a preliminary ruling that Brazil's claims of 
(threat of) serious prejudice in respect of the marketing loan and counter-cyclical payment 
programmes  are outside the scope of this proceeding because these programmes are not measures to 
which the recommendations and rulings of the DS B in the original proceeding were addressed.
115  
9.30 The United States submits that Brazil made a cl ear distinction in the original proceeding 
between its actionable subsidy claims against programmes per se  and actionable subsidy claims 
against payments under specific programmes, and th at the original panel only made a finding of 
                                                      
113 The facts before us are in this respect significantly  different from the facts before the panel and the 
Appellate Body in EC – Bed Linen (Article 21.5 – India).   In that case, the original panel had rejected a claim of 
India that a certain aspect of a measure taken by th e European Communities was WTO-inconsistent.  However, 
in the Article 21.5 proceeding India raised the same cl aim with respect to the same  unchanged aspect of the 
original measure. 
114 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – 
Argentina ).  
115 The United States does not argue that these clai ms are not covered by Brazil's request for the 
establishment of a panel (WT/DS267/30), but argues that they are outside the Panel's terms of reference by virtue of the limited terms of reference contained in Article 21.5 of the DSU.  The Panel notes that in 
paragraphs 18 and 20 of this request Brazil refers to the "US marketing loan, and counter-cyclical payment 
programs under the FSRI Act of 2002, as amended, as well as payments made under those programs" and to "the US marketing loan and counter-cyclical payment programs under the FSRI Act of 2002, as amended, as 
well as payments mandated to be made thereunder".   WT/DS267/RW  
Page 40  
 
  WTO-inconsistency with regard to the claim of  "present" serious prejudice  against certain payments  
made in MY 1999-2002.  According to the United St ates, the original panel specifically rejected or 
declined to address Brazil's other serious prejudice claims.
116 117 
9.31 The United States submits that Brazil's claims are outside the scope of this proceeding, 
regardless of whether they are against the mark eting loan and counter-cyc lical payment programmes 
alone or against the programmes in addition to pa yments under the programmes.  The original panel 
did not make a finding of WTO-inconsistency against the Step 2, marketing loan and counter-cyclical 
payment programmes or against the programmes in addition to all payments thereunder. In this 
regard, the United States submits that there is no legal or factual basis for Brazil's assertion that "in the circumstances of this dispute a subsidy paymen t cannot be divorced from a subsidy programme".  
As a factual matter, the marketing loan and counte r-cyclical payment programme s, i.e. the statutory 
and regulatory provisions authorizing marketing loan  and counter-cyclical payments are distinct from 
the payments that they authorize.  Either th e statutory/regulatory provisions themselves or the 
measures resulting from their application, i.e. part icular payments, may be  challenged in dispute 
settlement, but each is a distinct measure.  The Ap pellate Body has clarified that "as such" and "as 
applied" claims are distinct, and there is no support in any Appellate Body report for Brazil's 
argument that the real world difference between a st atutory/regulatory provision and the measures that 
it authorizes must be disregarded.  With respect to Brazil's argument that because an analysis under 
Articles 5 and 6 of the SCM Agreement  focuses on the effects of the subsidy, no distinction can be 
made between a programme and the payments ma de under the programme, the United States submits 
that Brazil does not explain why the focus on effects in Part III of the SCM Agreement  would require 
that the statutory and regulatory provisions author izing payments be conflated with the payments 
themselves.  This argument of Brazil is also in contradiction with the fact that in the original 
proceeding Brazil itself made separate claims agains t the payments and the statutory and regulatory 
provisions.
118  
9.32 The United States asserts that Brazil did not challe nge, the original panel did not find, and the 
DSB did not make any recommendation or ruling ag ainst the marketing loan and counter-cyclical 
payment programmes or against the programmes in a ddition to the payments under the programmes.  
The measures that were the subject of Brazil's claims, and the panel's finding, of present serious prejudice were subsidies provided during MY 1999 -2002. The absence of any express reference to 
any legal/regulatory provisions in paragraphs 8.3(d) a nd 8.1(g)(i) of the original panel report confirms  
that the actionable subsidy-related conclusion a nd recommendation laid out therein do not apply to 
any programme as such, either alone or as part of any invented amalgam of programmes and 
payments.  As illustrated by Section VII:D of the panel report, where the original panel wanted to 
refer to programmes, as such, and payments  together, it expressly stated it was doing so.
119  T h e  
United States considers that in arguing that the original panel did make findings of WTO-inconsistency against the marketing loan and c ounter-cyclical payment programmes as such, Brazil 
relies on selectively cited language from the pa nel report taken out of its proper context.
120   
9.33 Brazil  argues that the preliminary objection of the United States rests on a 
mischaracterization of the claims of Brazil in this pr oceeding and of the findings of the original panel. 
                                                      
116US First Written Submission, paras. 31-33.  
117 The United States points out that the statement in paragraph 7.1501 of the original panel report that 
"the United States is obliged to take action concerning its present statutory and regulatory framework as a result of our 'present' serious prejudice finding" is not a re commendation. US First Written Submission, para. 39.  
118 US Rebuttal Submission, paras. 20-28.  
119 US Rebuttal Submission, paras. 30-43.  
120 US Rebuttal Submission, paras. 44-52.  See also US Comments on Brazil's Responses to Panel 
Questions 11 and 15.   WT/DS267/RW 
 Page 41 
 
 
  Brazil further argues that under established jurisprude nce, Brazil's claims fa ll squarely within the 
scope of this proceeding.  
9.34 Brazil submits that in this proceeding it is not  asserting a claim against US marketing loan 
and counter-cyclical payment programmes "as such".  The measures that constitute the subsidies at 
issue in this proceeding are the statutory and regulat ory provisions of the FSR I Act of 2002 relating to 
upland cotton and the mandatory and price-continge nt payments that have been made and will 
continue to be made during the lifetime of the FSRI Act of 2002, and Brazil makes no distinction 
between serious prejudice caused by the provisions  of the FSRI Act and serious prejudice caused by 
the payments mandated by those provisions.  It follow s from the particular nature of the obligations in 
Articles 5 and 6 of the SCM Agreement , which focus on the effects of subsidies, that a payment of a 
subsidy cannot be divorced from the subsidy prog ramme pursuant to which the payment is made.121  
Brazil argues that the idea that programmes and paymen ts together constitute th e subsidy is consistent 
with the approach of the original panel.  Brazil re fers to statements in the panel report that indicate 
that the panel considered that its findings in Sec tion VII:G and its conclusion in paragraph 8.1(g)(i) 
pertained to both the subsidy programmes under the FSRI Act and the pa yments mandated under 
those programmes.  Brazil also submits that a review of the submissions of the parties in the original 
proceeding shows that they both referred to the e ffects of the programmes as well as the effects of 
payments under the programmes.  Since the original  panel necessarily considered all forms of the 
subsidy, i.e. programmes and specific paymen ts made under the programmes, and since the 
United States did not appeal the original panel's fi nding that it was obliged to take action with respect 
to the statutory and regulatory framework under whic h subsidies were provided, the United States is 
precluded from challenging this Panel's authority to  review Brazil's claim regarding the marketing 
loan and counter-cyclical payment programmes.122  
9.35 Brazil argues that while recent jurisprudence has clarified that the original proceeding 
imposes limits on the scope of the claims that may be presented in an Article 21.5 proceeding, those 
limits do not apply to Brazil's claims regarding the marketing loan and counter-cyclical payment 
programmes.123  Brazil's claims against the adverse effects flowing from the programmes and the 
payments mandated under the programmes were iden tified in Brazil's request for establishment and 
involve measures taken to comply within the meaning of Article 21.5 of the DSU.124  Brazil further 
submits that the United States is factually incorrect in suggesting that the original panel rejected the 
serious prejudice claims of Brazil in respect of the marketing loan and counter-cyclical programmes.
125  Brazil also submits that the original pane l exercised judicial economy with respect to 
Brazil's claims of threat of serious prejudice and with respect to Brazil's per se  claims because the 
panel considered that its finding regarding "present"  serious prejudice  would oblige the United States 
to take action concerning its statut ory and regulatory framework.  Therefore, the exercise of judicial 
                                                      
121 Brazil's Submission Regarding US Requests for Preliminary Ruling, paras. 31-34.  
122 Brazil's Submission Regarding US Requests for Preliminary Ruling, paras. 36-40. 
123 Brazil's Submission Regarding US Requests for Preliminary Ruling, paras. 41-47.  Brazil points out 
in this connection that the fact that a panel in an origin al proceeding declines to a ddress certain claims does not 
prevent a party from raising the same claims in an Article 21.5 proceeding.   
124 Brazil's Submission Regarding US Requests for Preliminary Ruling, paras. 49-50. 
125 In this regard, Brazil refers in particular to the statement in paragraph 7.1501 of the panel report.  
Brazil also refers to para. 8.1(g)(i) of the report (particularly the phrase "mandatory price-contingent 
United States subsidy measures"), the definition of the measures at issue in para . 7.1107 of the report, 
statements in para. 7.1499 of the report, findings of the Panel regarding the "statutory and regulatory 
framework" providing for the subsidies at issue (for exampl e, the Panel's examination of the "structure, design 
and operation" of the programmes) and statements re flecting that the Panel assessed the effects caused by 
statutory and regulatory instruments that provide for the payment of the subsidies along with the magnitude of 
the payments.  Brazil's Submission Regarding US Re quests for Preliminary Ruling, paras. 52-62.  WT/DS267/RW  
Page 42  
 
  economy with respect to these claims confirms that  the Panel's finding with respect to "present" 
serious prejudice  covered the subsidy progra mmes as well the payments made thereunder.
126  
9.36 Brazil summarizes as follows the fa ctors that support its view that the original panel's finding 
of "present" serious prejudice included the subsid y programmes as well as the payments mandated by 
the subsidy programmes:  (i) the identification by th e panel of the measures at issue in the "present" 
serious prejudice section; (ii) the panel's reasoning re garding the "effect" of those measures; (iii) the 
panel's reasoning in explaining its decision not to exam ine Brazil's claims of "as such" violations, and 
(iv) the panel's description of the implementation action that the United States was obliged to take.127  
(ii) Main arguments of third parties 
9.37 Argentina  submits that the marketing loan and counter-cyclical payment programmes were 
subject to the findings and recommendations of the orig inal panel.  The panel specifically stated that 
the measures at issue included "legislative and regulatory provisions currently providing for the payment of measures".  Moreover, paragraph 8.1(g)(i ) of the panel report refers to "mandatory price-
contingent United States subsidy measures".  The pane l stated that its findings pertained to measures 
in force and subsidies paid in MY 2002 and that , as a result of its finding of "present" serious 
prejudice, the United States was "obliged to take action concerning its present statutory and regulatory 
framework".
128    
9.38 Australia  considers that the finding of the original panel in paragraph 8. 1(g)(i) of its report 
relates to certain payments rather than to the subsidy programmes as such.  However, Brazil is not 
seeking to challenge the marketing loan and counter-cyclical payment programmes per se  in this 
proceeding.  The focus of Brazil's case under Articles 5 and 6 of the SCM Agreement  is the continuing 
effects of the unamended programmes, i.e. payments  made under those programmes, rather than the 
programmes as such.  In this context, it is impos sible to analyze the price-contingent subsidy 
measures still in existence in isolation from the pr ogrammes that govern those measures.  Insofar as a 
consideration of those programmes is necessary to determine whether the price-contingent subsidy 
measures cause significant price suppression, the programmes may properly be considered by this 
Panel.129    
9.39 China  argues that the text of the report of the original panel makes clear that the serious 
prejudice finding of the panel applies to the marketing loan and counter-cyclical payment 
programmes.  China mentions in this regard re ferences made by the panel to the "legislative and 
regulatory provisions currently providing for the pa yment of" certain subsidies, including marketing 
loan and counter-cyclical subsidies, to "the le gislation pursuant to which the granting authority 
operates" and to the "structure, design and operation of these meas ures".  In addition, the panel 
specifically stated that, as a result of the panel' s finding of serious prejudice, the United States was 
"obliged to take action concerning its present statutory and regulatory framework".130    
9.40 Chad argues that the original panel described the measures at issue as including "the 
legislative and regulatory provisions currently pr oviding for the payment of measures".  Moreover, 
the panel explained that, as a consequence of its finding of serious prejudice, the United States was 
"obliged to take action concerning its present st atutory and regulatory fra mework", and found it 
unnecessary to address Brazil's claim of threat of serious prejudice.  Thus, the original panel clearly considered that its finding of serious prejudice incl uded not simply the payments themselves but also 
                                                     
 
126 Brazil's Submission Regarding US Requests for Preliminary Ruling, paras. 63-71.  
127 Brazil's Comments on US Response to Panel Question 45. 
128 Argentina's Third Party Oral Statement, paras. 5-12.  
129 Australia's Third Party Submission, paras. 14-15.  
130 China's Third Party Submission, paras. 12-13.   WT/DS267/RW 
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  the statutory and regulatory measures under which th e payments were made.  Chad considers that by 
describing the measures at issue in paragraph 8.1( g)(i) of its report as "mandatory" payments, the 
panel necessarily included the statutory and regu latory framework that made those payments 
mandatory.  Chad also argues that the United St ates appears to confuse the issue of whether a 
statutory provision is challenged as such with the altogether separate issue of whether a statutory 
provision mandating certain payments can be found to cause serious prejudice.  Brazil's claims in the 
original proceeding were "as applied" claims regarding measures that included legislative and 
regulatory provisions.  The distin ction sometimes made in WTO proceedings between "as such" and 
"as applied" claims does not mean that statutory or  regulatory provisions cannot be challenged on an 
"as applied" basis or that "as applied" claims are necessarily limited to the payments themselves to the 
exclusion of measures mandating those payments.131   
9.41 The European Communities  agrees with the United States that there is a meaningful 
distinction between an "as such" claim and an "as applied" claim and between a subsidy "programme" 
within the meaning of the SCM Agreement  and the provision of subsidies in individual cases under the 
programme.  A claim under Part III of the SCM Agreement  can pertain to either the subsidy 
programme, the provision of subsidy in individual instances or both.  These measures should normally 
not be conflated.  However, the European Co mmunities considers that where an entitlement is 
conditional upon the fulfilment of essentially factua l requirements and there is no discretion in the 
hands of a granting authority, it may be justifiable to treat the subsidy programme and payments made 
under the programme as indivisible for purposes of Article 21.5 proceedings.  The European Communities agrees with Brazil that the fact that the United States implemented the DSB 
recommendations and rulings by withdrawing the Step  2 programme supports the view that there was 
at least a sufficient nexus between the Step 2 paymen ts and the Step 2 programme.  Moreover, that the 
original panel assessed a bundle of payments under the three different programmes implies that it 
assumed that there was a sufficient nexus betw een the payments under the three different 
programmes.  If there is a sufficient nexus between  payments and programme for one programme and 
if there is a sufficient nexus between all payments, th is in turn suggests that there is a sufficient nexus 
between the three programmes, such that the whole bundle can and should be treated as indivisible for 
the purposes of this compliance panel.
132 
9.42 India submits that the original panel clearly descr ibed the measures at issue as comprising the 
"legislative and regulatory provisions currently providing for the payment of measures", including the marketing loan and counter-cyclical payments, and th at the panel clearly considered that its findings 
regarding "present" serious prejudice applied not on ly to payments but also to the statutory and 
regulatory framework of the FSRI Act of 2002 and its implementing obligations.  Therefore, the obligations of the United States in the implementati on period were not limited to payments made in a 
period in the past.
133  
9.43 New Zealand submits that, read properly in the context of the panel's decision as a whole, the 
finding of the original panel in paragraph 8.1(g)(i) of its report is not limited to the specific payments 
made in MY 1999-2002 but applies to the measures under which those payments are authorized and 
hence to the marketing loan and counter-cyclical payment programmes themselves.  The panel made a 
finding with respect to "the mandatory price-con tingent United States subsidy measures".  Payments 
are not mandatory subsidy measures; they are si mply the means by which the subsidy measures are 
implemented.  Moreover, it is clear from the report that the panel's analysis of the subsidy measures 
that caused price suppression was of the progr ammes under the FSRI Act of 2002 under which 
payments were made.  Finally, the statement of the panel in paragraph 7.1501 of its report that "the 
United States is obliged to take action concerni ng its present statutory and regulatory framework as a 
                                                      
131 Chad's Third Party Submission, paras. 22-31.  
132 EC Third Party Oral Statement, paras. 15-21.   
133 India's Third Party Oral Statement, para. 6.  WT/DS267/RW  
Page 44  
 
  result of our 'present' serious prejudice finding" gi ves meaning to the finding in paragraph 8.1(g)(i) 
relating to the "United States subsidy measure s" that constituted significant price suppression.
134  
(iii) Evaluation by the Panel 
9.44 The Panel interprets the scope of the original  panel's finding of "present" serious prejudice 
based on the terms used by the panel to express that finding.  The original panel's finding of "present" 
serious prejudice is contained in paragraphs  7.1416 and 8.1(g)(i) of the panel report.135   
9.45 Paragraph 7.1416 of the report reads as follows:  
"In conclusion, in light of all of these consider ations, we find that the effect of the mandatory, 
price contingent United States subsidies at is sue –  that is, marketing loan programme 
payments, user marketing (Step 2) payments  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 ."  
9.46 Paragraph 8.1(g)(i) of the report reads as follows:  
"the effect of the mandatory price-continge nt United States subsidy measures - marketing 
loan programme payments, user marketing (Step 2) payments, MLA payments and CCP 
payments - is significant price suppression in th e same world market within the meaning of 
Article 6.3(c) of the SCM Agreement  constituting serious prejudice to the interests of Brazil 
within the meaning of Article 5(c) of the SCM Agreement ;" 
9.47 In the Panel's view, there is no basis in the te xt of these paragraphs to interpret the measures 
subject to the original panel's finding as incl uding anything other than "subsidies" and "subsidy 
measures" defined in terms of the four categories of  "payments" identified by the panel.  The term 
"payments" in its ordinary meaning does not incl ude the legal provisions or programmes pursuant to 
which the payments are made.136  The explicit statement by the panel that the subsidies and subsidy 
                                                      
134 New Zealand's Third Party Submission, paras. 4.03-4.07.  
135 Paragraph 7.1416 is the concluding paragraph in section VII:G.3 of the report ("Claims under 
Articles 6.3(c) and 5(c) of the SCM Agreement ").  Paragraph 8.1(g)(i) appears in the "Conclusions and 
recommendations" section of the report.  We note that the Appellate Body Report in the original proceeding 
refers to the "finding [of serious prejudice] in paragraphs 7.1416 and 8.1(g)(i) of the Panel Report."  Appellate 
Body Report, US – Upland Cotton , paras. 249(c)(i), 395, 496 and 763(c)(i).  Thus, for example, in 
paragraph 763(c)(i), the Appellate Body upheld "the Pane l's finding, in paragraphs 7.1416 and 8.1(g)(i) of the 
Panel Report, that the effect of the marketing loan prog ram payments, Step 2 payments, market loss assistance 
payments, and counter-cyclical payments (the 'price-contingent') subsidies is significant price suppression within the meaning of Article 6.3(c) of the  SCM Agreement ".   
136 A careful reading of the original panel report as  a whole makes it clear that the panel generally 
equated "subsidies" with "payments" and that the term "payments" in this context does not include legal and 
regulatory provisions.  For example, one of the issu es addressed by the panel in response to preliminary 
objections raised by the United States was whether production flexibility contract payments and market loss 
assistance payments made under legislation that no longer ex isted were within the panel's terms of reference.  In 
its discussion of this issue the panel observed inter alia :   
 
"The Panel notes that Brazil pursues claims only in respect of the subsidies and domestic support provided under the expired programmes and authorizing legislation, in other words, 
the payments themselves .  Brazil does not seek any relief in respect of the PFC and MLA 
programmes or authorizing legislation 'as such'.  Therefore, the Panel only considers whether the payments are within its terms of reference." (emphasis added)  
  WT/DS267/RW 
 Page 45 
 
 
  measures at issue are certain kinds of payments, a nd the absence of any reference to legal provisions 
or subsidy programmes providing for the payments, therefore necessarily mean that the subsidies and 
subsidy measures do not include such le gal provisions or subsidy programmes.137  We also note, in 
this regard, that Section III of the panel report ("Parties' Requests for Findings and 
Recommendations") identifies the measures subject to Brazil's claims of "present" serious prejudice as 
"subsidies provided during MY 1999–2002" without mentioning the legal provisions or programmes 
providing for these subsidies.  The panel's finding of  "present" serious prejudice in paragraphs 7.1416 
and 8.1(g)(i) logically cannot have been broader in sc ope than the claims of Brazil in respect of which 
the panel made this finding.  Finally, the panel sp ecified the temporal scope of its finding when it 
stated in paragraph 7.1416 that the effect of the mandatory, price-contingent subsidies at issue was 
significant price suppression in the period MY 1999-2002.  
9.48 In support of its argument that the original panel's finding of "present" serious prejudice 
applied to payments and programmes, Brazil emphasi zes the original panel's explanation as to why 
the panel considered it not necessary or appropriate to address Brazil's claims of threat of serious 
prejudice under Articles 5(c) and 6.3(c) of the SCM Agreement.138   
9.49 We find Brazil's emphasis on these paragraphs in the panel report139 to interpret the scope of 
the panel's finding of "present" serious prejudice misplaced.  First , the finding of "present" serious 
prejudice is contained in paragraphs 7.1416 and 8. 1(g)(i), not in paragraphs 7.1499-7.1503.  As 
discussed above, consistent with Brazil's claims, para graphs 7.1416 and 8.1(g)(i) of the original panel 
report contain a finding that the effect of certain subsidies and subsidy measures, defined in terms of 
certain kinds of payments, is significant price suppression constituting serious prejudice to the 
interests of Brazil in the period MY 1999-2002.  These paragraphs do not refer in any way to 
programmes or legislation.  We do not see how the observations made by th e panel in paragraphs 
7.1499-7.1503 could be  used to support an interpretation of the panel's finding of "present" serious 
prejudice that is inconsistent with  the natural mean ing of the terms used by the panel in paragraphs 
7.1416 and 8.1(g)(i).  Second , there is no explicit statement in  paragraphs 7.1499-7.1503 that the 
panel had found that serious prejudice to the inter est of Brazil was the effect of subsidy programmes 
or legal provisions establishing subsidy progra mmes as well as payments made under those 
programmes.  The panel stated in paragraphs 7.1499 and 7. 1501 that "[o]ur finding of 'present' serious 
prejudice thus pertain[s] also to measures in for ce and subsidies paid in MY 2002..." and that "the 
Panel's 'present' serious prejudice findings include fi ndings of inconsistency that deal with the FSRI 
Act of 2002 and subsidies granted thereunder".  Th e panel did not state that it had found that, in 
addition to subsidies paid in MY 1999-2002, the FSR I Act itself was inconsistent with Articles 5 and 
6 of the SCM Agreement .   
                                                                                                                                                                     
Panel Report, US – Upland Cotton , para.  7.108. Thus, the panel understood "the subsidies and 
domestic support..." to refer to "the payments themselves", as distinguished from the "... programmes or authorizing legislation 'as such'".  Where the panel used the concept of payments in a broader sense to 
encompass regulatory provisions, it made an explicit statement to that effect.  See Panel Report, US – Upland 
Cotton , para. 7.337, footnote 466: "In this Section of our report, the Panel will consider the current programmes 
'as applied' and 'as such' together.  Therefore, references  to marketing loan programme, user marketing (step 2),
 
direct , counter-cyclical and crop insuran ce 'payments' include the legislative and regulatory provisions 
authorizing those payments, unless otherwise indicated."  No such statement can be found in the section of the 
original panel report that addresses Brazil's claims of serious prejudice.  
137 By using the words "mandatory" and "price contingent" to qualify "United States subsidy measures" 
the panel characterized the subsidies at issue in terms of certain conditions set out in the legal provisions 
governing those subsidies, but this does not alter the fact that the panel only made a finding of "present" serious prejudice  with respect to subsidies (defined as paymen ts) and not with respect to both subsidies and the legal 
provisions governing those subsidies.   
138 Brazil's Submission Regarding US Requests for Preliminary Ruling, paras. 36-39, 52, 59-60, 64-71; 
Brazil's Responses to Panel Questions 11 and 13, paras. 99-102, 105-106, 119, 126-128.   
139 Panel Report, US – Upland Cotton , paras. 7.1499-7.1503.  WT/DS267/RW  
Page 46  
 
  9.50 Similarly, the statement in paragraph 7.1501 of the report of the original panel that "the 
United States is obliged to take action concerni ng its present statutory and regulatory framework as a 
result of our 'present' serious prejudice finding" is an  expression of a view about the steps to be taken 
by the United States under Article 7.8 of the SCM Agreement  and does not mean that the Panel had 
found that the "present statutory and regulatory frame work" in addition to subsidies paid under that 
framework had itself caused serious prejudice.
140   
9.51 While the legal provisions or subsidy program mes pursuant to which the subsidies were 
provided were not themselves part of the measures subject to the original panel's finding  in 
paragraphs 7.1416 and 8.1(g)(i), it is clear that in  making this finding the original panel took into 
consideration these legal provisi ons or subsidy programmes.  The panel undertook "an analysis 
focusing on the existence and nature  of the subsidies in question by examining their structure, design 
and operation with a view to discerning their effects".141  The panel considered that "the nature of the 
United States subsidies at issue – in terms of thei r structure, design and ope ration – is relevant in 
assessing whether or not they have price suppressing effects".142  In finding that there was 
"significant" price suppression, the panel relied inter alia  upon the "the market-price contingent, 
counter-cyclical, nature of the marketing loan programme [and] the user marketing (Step 2) 
programme".143  The panel observed that "the structure, design and operation of the marketing loan 
programme has enhanced production and trade-distorting effects".144  145  The panel found that "the 
structure, design and operation of these three m easures constitutes evidence supporting a causal link 
with the significant price suppression we have found to exist".146   
9.52 In our view, it is self-evident that in order to  properly analyze the effect of a subsidy for 
purposes of an analysis under Articles 5 and 6 of the SCM Agreement,  the subsidy must be examined 
in light of the conditions and criteria contained in the legal and regulatory framework that governs the 
granting of that subsidy.  Therefore, in this sense  we concur with the argument of Brazil that it is 
difficult to divorce a payment of a subsidy from the programme or legal provisions pursuant to which the subsidy is provided.  As we understand the position of the United States, the United States does 
not contest that in order to evaluate whether a subs idy is inconsistent with a Member's obligations it 
may be necessary to analyze that subsidy in the c ontext of the legal and regulatory framework that 
defines the conditions under which the subsidy is granted.
147  It would appear that the preliminary 
objection of the United States reflects a concern that Brazil challenges the programmes as such,  as 
                                                      
140 Contrary to what Brazil argues, this statemen t cannot be treated as part of the panel's 
"recommendation".  As the panel recalled in paragraph 8.3(d), the obligations of the United States arising from the finding of serious prejudice are defined in Article 7.8 of the SCM Agreement .  There is no legal basis in the 
text of the SCM Agreement  or in the DSU to suggest that where a pa nel has made a finding of serious prejudice 
under Articles 5 and 6 of the SCM Agreement  it has the authority to make a "recommendation" other than in 
terms of Article 7.8 of the SCM Agreement .  
141 Panel Report, US – Upland Cotton , para. 7.1194.  
142 Panel Report, US – Upland Cotton , para. 7.1289.  
143 Panel Report, US – Upland Cotton , para. 7.1332.  
144 Panel Report, US – Upland Cotton , para. 7.1295.  
145 Similarly, in discussing the influence of counter-cyclical payments on production decisions, the 
Panel observed inter alia :  "The FSRI Act of 2002 provides, on an on-going basis, for payments under certain 
market conditions.  This contrasts with the ad hoc  nature of the MLA payments.  Under the FSRI Act of 2002, 
United States producers are currently aware that such pa yments are available under certain conditions and that 
there is no need to be uncertain as to whether [the] United States Congress may or may not decide to authorize 
such payments in a given year.  This certain claim on future payments under certain conditions increases 
United States producers' economi c stability." Panel Report, US – Upland Cotton , para. 7.1302, footnote 1410.  
146 Panel Report, US – Upland Cotton , para. 7.1349.  
147 US Comments on Brazil's Response to Panel Question 11, para. 50.   WT/DS267/RW 
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  that concept is commonly understood in WTO dispute settlement practice.148  The references in 
Brazil's First Written Submission to "programme" a nd "programmes" and certain statements made by 
Brazil during this proceeding could indeed be inte rpreted to suggest that Brazil is challenging 
programmes as such.149  However, Brazil has stated explicitly that it is not challenging the marketing 
loan and counter-cyclical payment programmes as such.150  While Brazil has emphasized that it is not 
possible to distinguish between the adverse effects of the statutory and regulatory provisions of the 
FSRI Act relating to upland cotton and the adver se effects of the payments mandated by these 
provisions151, Brazil does not request the Panel to find that, independently of their application in 
individual cases, the marketing loan and counter-c yclical payment programmes "will necessarily be 
inconsistent with"152 Articles 5 and 6 of the SCM Agreement .   
9.53 Given that Brazil is not seeking an "as such" finding, we consider that the preliminary 
objection of the United States is without object insofar as it would appear to be based on an interpretation of Brazil's claims as claims against programmes per se .
153 
9.54 The Panel finds  that, although the original panel's finding of "present" serious prejudice did 
not apply to legal provisions or subsidy programmes in addition to subsidies and subsidy measures, it 
is not necessary for the Panel to make a ruling on  the preliminary objection of the United States 
because Brazil does not request the Panel to find that  the marketing loan and counter-cyclical payment 
programmes are WTO-inconsistent as such.  The Panel also concludes that the original panel's finding 
of serious prejudice was based on an analysis that  took into consideration the legal provisions or 
subsidy programmes pursuant to which the subsidies were provided.  The Panel considers that it is 
                                                      
148 As stated by the Appellate Body:  "[b]y definition, an 'as such' claim challenges laws, regulations, or 
other instruments of a Member that have general and prospective application, asserting that a Member's 
conduct—not only in a particular instan ce that has occurred but in future s ituations as well—will necessarily be 
inconsistent with that Member's WTO obligations.  In e ssence, complaining parties bringing 'as such' challenges 
seek to prevent Members ex ante  from engaging in certain conduct."  Appellate Body Report, US – Oil Country 
Tubular Goods Sunset Reviews , para. 172.  
149 For example, Brazil has stated that "[t]he measures  that constitute these 'subsidies' are the statutory 
and regulatory provisions of the FSRI Act of 2002 that relate to upland cotton, i.e. the marketing loan and 
counter-cyclical payment provisions, and the mandatory and price-contingent payments to US upland cotton farmers that have been and will continue to be made during the lifetime of the FSRI Act of 2002, i.e. until 
MY 2007, unless the measure is extended".  Brazil's Submission Regarding US Requests for Preliminary 
Ruling, para. 31.   
150 Brazil's Rebuttal Submission, Section 2.1.3 ("Brazil's Serious Prejudice Claims Do Not Constitute 
what the United States Calls 'As Such' Claims"); Braz il's Submission Regarding US Requests for Preliminary 
Ruling, para. 31 ("The United States claims that Braz il is asserting a claim against US marketing loan and 
counter-cyclical payment programs 'as su ch'.  This is erroneous.  Rather, Br azil is challenging in this proceeding 
the US subsidies inasmuch as they cause adverse effect s."); Brazil's Response to Panel Question 12, para. 112 
("While Brazil has challenged the marketing loan and counter-cyclical 'programs' and their mandatory, price-
contingent 'payments', to the extent that they cause adverse effects, it has not asserted an 'as such' claim 
regarding the marketing loan and counter-cyclical payment programs in the FSRI Act of 2002.").  At the meeting of the Panel with the parties Brazil confirmed, in  response to a question of the Panel, that it was not 
seeking a finding of the Panel under Articles 5 and 6 of the SCM Agreement  against the marketing loan and 
counter-cyclical payments programmes themselves, as distinguished from the payments made pursuant to those programmes.   
151 See, e.g., Brazil's Rebuttal Submission, paras. 34-35; Brazil's Submission Regarding the US 
Requests for Preliminary Ruling, paras. 33-34.  
152 Supra , footnote 148.    
153 The question of whether a measure can, as such, i.e. independently of its application, be inconsistent 
with the effects-based disciplines in Articles 5 and 6 raises  serious conceptual issues.  As Brazil is not seeking a 
finding that the subsidy programmes are as such inconsistent with Articles 5 and 6 of the SCM Agreement , the 
Panel does not need to address these issues.  WT/DS267/RW  
Page 48  
 
  appropriate in this proceeding to conduct a similar analysis of subsidies in the context of the legal 
provisions or subsidy programmes pursuant to  which the subsidies are granted.   
(b) Whether Brazil's claims with respect to the marketing loan and counter-cyclical payment 
programmes  are outside the scope of this proceeding because these programmes have not 
been changed in response to DSB recommendati ons and rulings or otherwise and therefore 
are not "measures taken to comply" within the meaning of Article 21.5 of the DSU   
9.55 As discussed above, Brazil does not request the Panel to find that the marketing loan and 
counter-cyclical payment programmes are WTO-inconsis tent as such.  For this reason, the Panel does 
not find it necessary to rule on the objection of th e United States that since the marketing loan and 
counter-cyclical programmes are not "measures taken to comply" within the meaning of Article 21.5 
of the DSU, Brazil's claims with respect to th ese programmes are not within the scope of this 
proceeding. 
4. Whether Brazil's claim regarding the failure of the United States to take measures 
between 22 September 2005 and 31 July 2006 is outside the sco pe of this proceeding  
(a) Main arguments of the parties 
9.56 Brazil  requests the Panel to find that the United St ates failed to take any measures to remove 
the adverse effects or to withdraw the three pri ce-contingent upland cotton subsidy programmes under 
the FSRI Act of 2002 between 22 September 2005 and 31 July 2006 and that, as a consequence, 
measures taken to comply with the adverse effect s-related recommendations and rulings of the DSB 
did not exist in this period.
154  Brazil also requests that the Panel conclude that the recommendation 
under Article 7.8 has not been complied with entirely and remains in effect.155   
9.57 Brazil argues that under Articles 7.8 and 7.9 of the SCM Agreement  the United States had 
until 21 September 2005 (six months after the date of adoption of the reports in the original 
proceeding) to withdraw the subsidies or to take ap propriate steps to remove their adverse effects.  
Since the United States repealed the Step 2 programme only on 1 August 2006 and did not take any action to amend the marketing loan and counter-c yclical payments provisions of the FSRI Act of 
2002, the United States has failed to adopt measures to comply within the implementation period.  
This means that the Panel can conclude that no measures to comply existed between 22 September 2005 and 31 July 2006.
156  Brazil submits that the panel report in Australia – Salmon 
(Article 21.5 – Canada)  provides relevant precedent for a finding  in an Article 21.5 proceeding that 
measures to comply did not exist in a past period.157  
9.58 The United States  asserts that Brazil's claim that there were no measures taken to comply in 
the period between 22 September 2005- 31 July 2006 is not within the scope of this proceeding.  First , 
assuming (incorrectly) that the DSB actionable subs idy-related recommendations are related to the 
Step 2, marketing loan, and counter-cyclical programm es, Brazil asserts that it is 'undisputed' that the 
United States failed to take measures to comply in a timely fashion, before the repeal of the Step 2 
programme on 1 August 2006.  Thus, in the view of the United States, Brazil does not even assert a 
'disagreement' as to the absence of measures taken to comply prior to 1 August 2006.158  Second , the 
issue of the timeliness of implementation is not  within the scope of a panel's mandate under 
Article 21.5 of the DSU.  Specifically, Article 21. 5 does not direct a panel to examine whether a 
                                                      
154 Brazil's First Written Submission, paras. 40 and 461.  
155 Brazil's First Written Submission, para. 46.  
156 Brazil's First Written Submission, paras. 39-46.  
157 Brazil's First Written Submission, para. 46, footnote 37.  
158 See US First Written Submission, para. 50.  WT/DS267/RW 
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  Member has implemented actionable subsidy-relate d recommendations within the six-month period 
provided for in Article 7.9 of the SCM Agreement.   The United States submits that not only is there no 
textual basis for the kind of finding requested by Br azil, but that a finding with respect to a factual 
situation that no longer exists is also inconsistent with the DSU objective of securing a positive 
solution to a dispute.  The United States submits th at prior panel reports in  Article 21.5 proceedings 
support its position that compliance must be examined  on the basis of the facts as they stand when a 
matter is referred to a compliance panel.159  
9.59 Brazil  submits that by arguing that there is no disagreement between the parties with respect 
to the existence of measures taken to comply th e United States acknowledges that it has not taken any 
measures to comply with the adverse effects-rela ted rulings and recommendations of the DSB by the 
end of the implementation period and requests the Pane l to make a finding to that effect.  Brazil also 
argues that Articles 7.9 and 7.10 of the SCM Agreement  constitute a legal basis for the kind of finding 
requested by Brazil.  Brazil argues that whether me asures taken to comply existed within the time-
frame specified in Article 7.9 is relevant to an an alysis under Article 21.5 of the "consistency" of such 
measures with the provisions of the covered agreem ents and that "Brazil's right to pursue the 
United States' failure to remove the adverse effect s or withdraw the subsidy, and the assessment of 
whether any proposed countermeasures are commensurate, are tied to the date on which the implementation period expires".
160  
(b) Main arguments of third parties 
9.60 Australia  argues that the Panel should refuse th e request of the United States for a 
preliminary ruling regarding Brazil's claim concer ning the failure of the United States to take 
measures to comply within the period 22 September 2005-1 July 2006.  Australia considers that an 
examination under Article 21.5 of the DSU of the "existence" of measures taken to comply can encompass a finding that no measures taken to comply exist.  Australia refers, in this respect, to the 
panel in Australia – Salmon (Article 21.5 – Canada),  which found that because the date of entry into 
force of measures taken to comply by Australia  occurred subsequent to the date upon which the 
reasonable period of time for implementation expired,  for the period of time that the new measures 
did not apply subsequent to that  date, "no measures taken to comply existed ... in the sense of 
Article 21.5".  Australia also argues that a prelim inary ruling cannot be granted in a way that would 
void rights under Article 22 of the DSU.  Article  22 rights would logically ensue from findings of 
inconsistency with Articles 7.8 and 7.9 of the SCM Agreement.  Thus,  if the Panel were to accept the 
preliminary ruling requested by the United States,  this would diminish the rights of Brazil under 
Article 22 of the DSU.
161   
9.61 The European Communities  disagrees with the view of the United States that Brazil's claim 
regarding non-compliance in a past period is not  within the scope of this proceeding under 
Article 21.5 of the DSU.  The European Communi ties considers that in making this argument the 
United States overlooks the fact that any act or omission may be a measure for purposes of WTO 
dispute settlement.  The European Communities also submits that there is nothing in the text of 
Article 21.5 of the DSU to limit the temporal appli cation of that provision in the manner advocated by 
the United States.162   
                                                      
159 US First Written Submission, paras. 49-56.  
160 Brazil's Submission Regarding US Requests for Preliminary Ruling, paras. 77-87. 
161 Australia's Third Party Submission, paras. 18-20.  
162 EC Third Party Oral Statement, paras. 25-30.  W ith respect to the merits of Brazil's claim, the  
European Communities argues that Members enjoy a certain measure of discretion in the implementation of the 
obligation under Article 7.8 of the SCM Agreement  to take appropriate steps to re move the adverse effects of the 
subsidy or withdraw the subsidy.  Ar ticle 7.8 does not necessarily require that a Member take positive action.  
Whether a Member has complied with  its obligation under Article 7.8 requires a careful analysis of the WT/DS267/RW  
Page 50  
 
  9.62 Japan  submits that the Panel has the authority to  make a finding on Brazil's claim regarding 
the non-compliance of the United States with the DSB recommendations and rulings in the period 
22 September 2005-31 July 2006.  Japan specifically rejects, in this regard, the argument of the United States that since there is no disagreement be tween the parties, Brazil's claim is outside the 
scope of this proceeding under Article 21.5 of the DS U.  Japan agrees with Australia's argument that a 
failure of the Panel to address Brazil's claim w ith respect to the alleged non-compliance of the 
United States in the period 22 September 2005-31 July 2006 would diminish rights of Brazil under 
Article 22 of the DSU.
163   
9.63 New Zealand  submits that the United States cannot claim that since it took no implementing 
action until 1 August 2006, that period is outside th e scope of this proceeding.  Article 21.5 of the 
DSU applies to the "existence" of measures, not just  to the consistency of measures actually taken to 
comply with the recommendations and rulings of the DSB.164  
(c) Evaluation by the Panel  
9.64 The United States requests the Panel to make a pr eliminary ruling that Brazil's claim that the 
United States failed to take any measures to remove the adverse effects or to withdraw the three price-
contingent upland cotton subsidy progra mmes under the FSRI Act of 2002 between 
22 September 2005 and 31 July 2006 and that, as a c onsequence, measures taken to comply with the 
adverse effects-related recommendati ons and rulings of the DSB did not  exist in this period, is not 
properly within the scope of this pr oceeding under Article 21.5 of the DSU.165  
9.65 It is not in dispute that the factual situati on referred to by Brazil in this request no longer 
existed at the time of the establishment of th e Panel as the United States repealed the Step 2 
programme effective 1 August 2006.  In this regard, th e parties disagree as to whether it is within this 
Panel's mandate under Article 21.5 of the DSU to make a finding as to whether the United States had 
complied with its obligations under Article 7.8 of the SCM Agreement  at the end of the six-month 
period provided for in Article 7.9 of the SCM Agreement, or whether the Panel's mandate under 
Article 21.5 only allows the Panel to determine whether the United States had complied with its 
obligations under Article 7.8 of the SCM Agreement  at the time of the establishment of the Panel.   
9.66 Brazil's request is based on two important premises.  First , the request assumes that under 
Article 21.5 of the DSU this Panel is required to make  findings in relation to factual situations at two 
different points in time.  Specifically, according to th e logic of Brazil's argument, the Panel is required 
to make a finding as to the "existence or consiste ncy with a covered agreement of measures taken to 
comply" as of the end of the period referred to by Brazil as the implementation period166 
(22 September 2005) in addition to a finding as to "e xistence or consistency w ith a covered agreement 
of measures taken to comply" as of the time of the establishment of the Panel.  Second , Brazil's 
request also assumes that the fact  that the United States did not take any action in the period 22 
September 2005-31 July 2006 with respect to the measures subject to the DSB recommendations and rulings in the original proceeding is a sufficient ba sis for this Panel to find that the United States 
                                                                                                                                                                    
 
particular facts and circumstances of each individual case.  Therefore, the fact that between 22 September 2005 
and 31 July 2006 the United States took no positive action to comply with the recommendations and rulings of 
the DSB does not necessarily warrant the conclusion that th e United States is in breach of Article 7.8.  EC Third 
Party Submission, paras. 34-48.   
163 Japan's Third Party Oral Statement, paras. 8-9.  
164 New Zealand's Third Party Submission, para. 4.02.  
165 The Panel notes that in its request for the establishment of a panel Brazil asserts that "[a]t least 
during the period 21 September 2005 through 31 July 2006, measures taken to comply did not exist, within the 
meaning of Article 21.5 of the DSU".  WT/DS267/30, para. 12.  
166 Brazil refers to the period of six m onths mentioned in Article 7.9 of the SCM Agreement  as the 
"implementation period".  See e.g. Brazil's Response to Panel Question 22, para. 159.  WT/DS267/RW 
 Page 51 
 
 
  failed to comply with its obligation under Article 7.8 of the SCM Agreement  to "take appropriate steps 
to remove the adverse effects or …withdraw the subsidy"167 and that, as a consequence, no measure 
taken to comply within the meaning of Article 21.5 of the DSU existed at the end of that period.  
9.67 With respect to the first premise of Brazil's ar gument, the Panel considers that a finding as to 
the "existence or consistency with a covered agreem ent of measures taken to comply" as of the end of 
the "implementation period" of Article 7.9 of the SCM Agreement  or of the reasonable period of time 
referred to in Article 21.3 of the DSU, in addition to  a finding as to the "existence or consistency with 
a covered agreement of measures taken to comply" as of the time of the establishment of a panel,  would be of little relevance to the effective reso lution of disputes.  Where a panel makes a finding 
under Article 21.5 of the DSU that a Member has not complied with the DSB recommendations and 
rulings in the original dispute, the consequence of that finding is that the Member remains subject to 
obligations that flow from the recommenda tion issued in the original proceeding
168 and is thus 
required to take steps to bring itself into compliance with that recommendation.  A finding by the panel that the Member also failed to comply with the DSB recommendations and rulings in the 
original proceeding at an earlier point in time woul d have no additional operativ e value in terms of the 
nature of the obligations of the Member in questio n.  On the other hand, if a panel under Article 21.5 
finds that the Member has brought itself into compliance with the DSB recommendations and rulings as of the time of the establishment of the panel, such a finding logically would supersede and render 
irrelevant any finding that the Member was not  in compliance with those recommendations and 
rulings at an earlier point in time.  Thus, in both cases a finding of a violation at the end of the reasonable period of time would be of a declaratory na ture and without practical implications as to the 
obligations of the Member in ques tion, unless one interprets the DSU to mean that a proceeding under 
Article 21.5 can create obligations for a Member to ta ke steps that must be effective as of the end of 
the reasonable period of time.  We see no textual su pport for such a retroactive interpretation of the 
DSU.   
9.68 Brazil argues that the provisions on countermeasures in Articles 7.9 and 7.10 of the SCM 
Agreement  provide support for its request that the Panel make a finding that the United States failed to 
take any measure at the end of what Brazil characterizes as the implementation period.
169  W e  
disagree with this argument.  We see nothing in the text of Article 21.5 or of other provisions of the DSU that suggests that, because of considerations re lating to the application of Articles 7.9-7.10 of 
the SCM Agreement  or Article 22.6 of the DSU, a panel mu st make a finding as to the existence or 
consistency of measures taken to comply as of the en d of the six-month period set out in Article 7.9 of 
the SCM Agreement  or the reasonable period of time rather than as of the time of the establishment of 
the panel.  Nothing in the text or context of Article  21.5 of the DSU indicates that one of the functions 
of a panel in a proceeding under Article 21.5 of the DSU is to assist arbitrators
170 in proceedings under 
Articles 7.10 of the SCM Agreement  or Article 22.6 of the DSU to determine the amount of 
countermeasures or the amount of suspension of concessi ons or obligations and th at, to this end, the 
panel must make findings as to the existence or c onsistency with a covered agreement of measures 
taken to comply other than as of the date of the es tablishment of a panel.  Brazil also argues that a 
right to apply countermeasures arises under Article 7.9 of the SCM Agreement  if the implementing 
Member fails to comply with Article 7.8 within six months of the date of a doption of the panel report 
or the Appellate Body report in the original pro ceeding, and that "[b]y pursuing its claim regarding 
                                                      
167 Brazil submits that Article 7.8 of the SCM Agreement  requires affirmative action to remove the 
adverse effects or withdraw the subsid y and that inaction is not sufficient in this respect.  Brazil's Responses to 
Panel Questions 22, 24-25 and 27.   
168 Panel Report, US – FSC (Article 21.5 – EC) .  
169 Brazil's Submission Regarding US Requests for Preliminary Ruling, paras. 79-85; Brazil's Response 
to Panel Question 21; Brazil's Comments on US Response to Panel Question 23; Brazil's Comments on US Response to Panel Question 43.  
170 Brazil's Response to Panel Question 21.  WT/DS267/RW  
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  the non-existence of measures on 21 September 2005, Br azil seeks a multilateral basis for the DSB to 
authorize countermeasures against the United Stat es for its failure to take any implementation 
measures by the date required in Article 7.9 of the SCM Agreement ".  However, while a finding by a 
panel under Article 21.5 of the DSU may be requir ed to provide "a multilateral basis" for DSB 
authorization of countermeasures under Article 7.9 of the SCM Agreement , it does not logically 
follow that such a panel must make a finding of no n-compliance as of the end of the six-month period 
refered to in Article 7.9 of the SCM Agreement .  
9.69 Finally, we note that in response to a Pane l question as to whether Brazil's request for a 
finding of non-compliance by the United States as of the end of the six-month period provided for in Article 7.9 of the SCM Agreement  is supported by prior panel practice in Article 21.5 proceedings, 
Brazil identifies only one panel report, Australia – Salmon (Article 21.5 – Canada ).  While we 
acknowledge that this panel re port contains findings of non-compliance in past periods
171, the 
United States points to other panel reports that ha ve concluded that it is not appropriate to make 
findings of non-compliance under Article 21.5 as of the end of the reasonable period of time.172   
9.70 Thus, we disagree with Brazil's argument that Article 21.5 of the DSU contemplates a finding 
on the existence or consistency with a covered agr eement of measures taken to comply at the end of 
the reasonable period of time in addition to a finding on the existence of a measure taken to comply as 
of the date of the establishment of a panel.  We therefore do not need to address the question whether 
the fact that the United States did not take action before  the expiry of the period of six months referred 
to in Article 7.9 of the SCM Agreement is a sufficient basis to find that the United States had not 
complied with Article 7.8 of the SCM Agreement  by that date.  
9.71 In light of the foregoing considerations, the Panel finds  that it is not appropriate to make a 
finding on Brazil's claim that the United States failed to take any measures to remove the adverse effects or to withdraw the three price-contingent upland cotton subsidy programmes under the FSRI Act of 2002 between 22 September 2005 and 31 July 2006 and that, as a consequence, measures taken 
to comply with the adverse effects-related recomme ndations and rulings of the DSB did not exist in 
this period. 
5. Whether "payments" made after 21 September 2005 pursuant to the marketing loan 
and counter-cyclical payment programmes are within the scope of this proceeding  
9.72 The Panel now turns to the question of whethe r payments made under the marketing loan and 
counter-cyclical payment programmes after 21 Septem ber 2005 are properly within the scope of this 
proceeding.  
(a) Main arguments of the parties 
9.73 The United States  argues that the subsidies subject to the obligation in Article 7.8 of the SCM 
Agreement  to "take appropriate steps to remove the a dverse effects or... withdraw the subsidy" were 
the subsidies provided during MY 1999-2002 which th e original panel had found to cause "present" 
serious prejudice in MY 1999-2002.
173  Since the only measure subject to the obligation under 
Article 7.8 were payments made until 31 Ju ly 2003 and since the payments made after 
21 September 2005 are not measures taken to comply  the United States considers that these payments 
are not properly within the scope of this proceeding.174  The United States considers that there is no 
                                                      
171 Panel Report, Australia – Salmon  (Article 21.5 – Canada) , paras. 7.30, 7.35 and 8.1(i).  
172 Panel Report, US – Shrimp (Article 21.5 – Malaysia) , paras. 5.12-5.13;  Panel Report , EC – Bed 
Linen (Article 21.5 – India) , para. 6.28.  
173 US Response to Panel Question 18; US Comments on Brazil's Response to Panel Question 15.  
174 US Response to Panel Question 47.   WT/DS267/RW 
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  merit to the argument of Brazil that, even assuming that the original panel's findings of "present" 
serious prejudice were "as applied" findings, s ubsequent payments under the same programme would 
still be subject to the implementation obligations of the United States.  The Appellate Body report that 
Brazil cites in support of that argument ( US – Softwood Lumber IV (Article 21.5 – Canada))  said 
nothing about whether a complaining party could in post hoc  fashion attempt to add to the measures 
found to be WTO-inconsistent by asserting that other measures not found to be WTO-inconsistent are 
similar.  Rather that dispute addressed the distinct issue of what measures could be considered to be 
part of the measure taken to comply.  Future pa yments under the marketing loan and counter-cyclical 
payment programmes in MY 2003-2007 are not measur es taken to comply with any recommendations 
and rulings.  To the contrary, they were original measures that were challenged by Brazil but against 
which the original panel made no finding of WTO-inconsistency.175   
9.74 Brazil argues that the subsidies subject to the obligation in Article 7.8 of the SCM Agreement 
include the legislative and regulatory subsidy pr ogrammes in the FSRI Act and the payments made 
under those programmes.  However, even assuming arguendo that the original panel's finding of 
serious prejudice only applied to payments made in MY 1999-2002, the reas oning of the Appellate 
Body in US – Softwood Lumber IV (Article 21.5 – Canada)  supports the view that subsequent 
payments made under these programmes are subject to the obligation in Article 7.8 because such 
subsequent payments have "a particularly close re lationship" to the recommendations and rulings of 
the DSB.176  177  Brazil also submits that Article 7.8 requi res a full and permanent removal of adverse 
effects and that this means that a Member may not replace a subsidy found to cause adverse effects with another subsidy that continues to cause the same  adverse effects.  Therefore, even if in this 
dispute the original panel had made findings limited to payments made in MY 1999-2002, the 
obligation of the United States under Article 7.8 woul d not be limited to the removal of the adverse 
effects of payments made in that period.
178  Brazil argues that if a panel makes a finding of "present" 
adverse effects, such a finding applies beyond the hi storical period considered by the panel and that 
the Member whose subsidies cause such adverse ef fects is therefor e obligated under Article 7.8 to 
take appropriate steps to fully withdraw the pr esent, ongoing and future effects of the subsidies.179  
Finally, Brazil also argues that the fact that the or iginal panel exercised judi cial economy with respect 
to future payments in 2003-2007 does not prevent Brazil from challenging those payments in this 
proceeding.  
(b) Evaluation by the Panel 
9.75 In order to determine whether payments made  under the marketing loan and counter-cyclical 
payment programmes after 21 September 2005 are with in the scope of this proceeding, we must 
consider whether such payments fall within the sco pe of the phrase "disagreement as to the existence 
or consistency with a covered agreement of measu res taken to comply with the recommendations and 
rulings" of the DSB in the original proceeding.  In this respect, the Panel's examination of the scope of 
"measures taken to comply" must also involve an examination of the recommendations and rulings of 
the DSB.180  
9.76 With respect to its finding of "present" seri ous prejudice the original panel recalled in 
paragraph 8.3(d) of its report that Article 7.8 of the SCM Agreement  provides as follows:  
                                                      
175 US Comments on Brazil's Response to Panel Question 15.   
176 Brazil's Response to Panel Question 15, paras. 145-150; Brazil, Response to Panel Question 24, 
para. 4.   
177 See also Brazil's Comments on US Respons e to Panel Question 44, paras. 41-47.  
178 Brazil's Response to Panel Question 24, paras. 13-14.  
179 Brazil's Comments on US Response to Panel Question 24, para. 39.   
180 Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada) , para. 68; Appellate 
Body Report, US – Oil Country Tubular Goods Sunset Reviews (Article 21.5 – Argentina) , para.142.  WT/DS267/RW  
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  "Where a panel report or an Appellate Body report is adopted in which it is 
determined that any subsidy has resulted in adverse effects to the interests of another 
Member within the meaning of Article 5, the Member granting or maintaining such 
subsidy shall take appropriate steps to rem ove the adverse effects or shall withdraw 
the subsidy." 
9.77 Under Article 7.8 of the SCM Agreement  the United States was obligated, with respect to the 
subsidies subject to the "present" serious prejudice fi nding of the original panel, to "take appropriate 
steps to remove the adverse effects or ... withdraw the subsidy".   
9.78 It is clear from the context that the adverse effects that must be removed are the adverse 
effects of the subsidy that has been determined to ha ve resulted in adverse effects.  Since the original 
panel made a finding of present serious prejudice in respect of subsidies provided during MY 1999-
2002, the question arises whether the obligation to take appropriate steps to remove the adverse 
effects only applies to payments of subsidies made in those years.   
9.79 It is not in dispute that the United States presently provides marketing loan and counter-
cyclical payments on the same legal basis and s ubject to the same conditions and criteria as the 
marketing loan payments and counter-cyclical paymen ts that were subject to the panel's finding of 
"present" serious prejudice.  In a situation where the subsidy in question has been found to be a 
prohibited one, the continued use of  the subsidy under the same conditio ns and criteria is inconsistent 
with a Member's obligation to "withdraw " the subsidy under Article 4.7 of the SCM Agreement.
181  
Thus, the concept of "withdrawal" must in any event be interpreted to mean that a Member must cease 
to act in a WTO-inconsistent manner with respect to that subsidy.  If a failure to cease conduct 
inconsistent with a Member's ob ligations under Article 3 of the SCM Agreement  is inconsistent with 
the obligation to withdraw the subsidy in Article 4.7 of the SCM Agreement , we see no logical reason 
why the same concept should not also apply to th e obligation that arises under Article 7.8 of the 
SCM Agreement  to withdraw the subsidy or to take appropr iate steps to remove the adverse effects of 
a subsidy that has been determined to result in adverse effects.  In our view, the remedy under 
Article 7.8 must be viewed in its relationship to the obligation in Article 5 not to cause through the 
use of any subsidy referred to in Articles 1.1 and 1.2 of the SCM Agreement  adverse effects to the 
interests of other Members.  It must serve to rest ore conformity with the Member's obligation to avoid 
causing adverse effects through the use of any subsid y.  As a consequence, a Member does not take 
appropriate steps to remove adverse effects of a s ubsidy if it continues to provide payments under the 
same conditions and criteria as the original subsidy in a manner that causes adverse effects.  The 
interpretation advocated by the United States, whereby the obligation under Article 7.8 of the 
SCM Agreement  is limited to the removal of the adver se effects caused by subsidies granted in a 
particular period of time, implies that it would not be possible to review in an Article 21.5 proceeding 
whether a Member causes adverse effects by contin uing to grant subsidies under the same conditions 
and criteria as the subsidies found to have caused adver se effects.  Such an inte rpretation fails to take 
into account the relationship between Article 7.8 and Article 5 of the SCM Agreement  and thus fails to 
interpret Article 7.8 in its proper context.  
9.80 We find further support for this approach in pane l and Appellate Body re ports on the scope of 
Article 21.5 of the DSU in which it has been held th at "measures taken to comply" include " measures 
with a particularly close relationship to the d eclared 'measure taken to comply', and to the 
recommendations and rulings of the DSB".182  As explained above, our interpretation of Article 7.8 
implies that if a Member continues to make paymen ts of a subsidy on the same legal basis and under 
                                                      
181 See Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada) , para. 45; Panel Report, Brazil 
Aircraft (Article 21.5 – Canada) , para. 6.8; Panel Report, Canada – Aircraft (Article 21.5 – Brazil) , para. 5.10 .   
182 E.g. Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada ), para. 77.  Supra, 
para. 9.24.  WT/DS267/RW 
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  the same conditions and criteria as the subsidy found  to have caused serious prejudice in the original 
proceeding, it must be possible for a panel in a proceeding under Article 21.5 of the DSU to examine a claim that the continued payment of that subs idy causes adverse effects within the meaning of 
Article 5 of the SCM Agreement .  To hold that in such a situation a Member that considers itself to be 
adversely affected by the subsidy must initiate an entirely new proceeding under the DSU would in 
our view undermine the effectiveness of Article 7.8.   Therefore, in light of our interpretation of 
Article 7.8, we consider that, where payments of a subsidy have been found to cause serious prejudice 
and the Member in question continues to provide the same subsidy under the same conditions and 
criteria, there exists "a particularly close relations hip" between the subsidy that the Member continues 
to provide and the recommendations and ruli ngs of the DSB in the original proceeding.  
9.81 In light of these considerations, the Panel c oncludes that to the extent marketing loan 
payments and counter-cyclical payments made by the United States after 21 September 2005 are 
provided under the same conditions and criteria as the marketing loan payments and counter-cyclical 
payments subject to the original panel's finding of "present" serious prejudice, they are subject to the 
obligation of the United States under Article 7.8 of the SCM Agreement  to take appropriate steps to 
remove the adverse effects of the subsidy.  As a cons equence, we also consider that Brazil's claim that 
the United States has failed to comply with its ob ligations under Article 7.8 with respect to these 
payments is properly before this Panel.  In our vi ew this claim pertains to a disagreement between the 
parties as to the "existence or consistency with a covered agreement of measures taken to comply" 
with the recommendations and rulings of the DSB.   
X. FINDINGS ON BRAZIL'S CLAIMS OF "PRESENT" SERIOUS PREJUDICE 
UNDER ARTICLES 5(C) AND 6.3 OF THE SCM AGREEMENT   
A. I
NTRODUCTION  
10.1 Brazil  requests the Panel to find that the measure taken by the United States to comply with 
the recommendations and rulings of the DSB, i.e. the amendment of the FSRI Act of 2002 to repeal 
section 1207(a) providing for Step 2 payments, is  insufficient to ensure compliance with those 
recommendations and rulings because the remaining pri ce-contingent subsidies are inconsistent with 
Articles 5 and 6 of the SCM Agreement .  In particular, Brazil requests the Panel to find that the 
marketing loan and counter-cyclical payment programmes183 of the FSRI Act of 2002 cause "present" 
serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the SCM Agreement  in 
the form of significant price suppression and an in crease in the US world market share of upland 
cotton within the meaning of, respectively, Articles 6.3(c) and 6.3(d) of the SCM Agreement .  
10.2 The United States  requests that the Panel find that the United States has complied with the 
recommendations and rulings of the DSB.  The United States submits that Brazil fails to substantiate 
its arguments in support of the claim that the effect s of the elimination of the Step 2 programme are 
                                                      
183 As formulated in para. 461 of Brazil's First Writte n Submission, Brazil's request is with respect to 
the marketing loan and counter-cyclical programmes .  The Panel notes, however, that Brazil has clarified that it 
does not request the Panel to make a finding that the programmes or legal provisions pursuant to which 
marketing loan and counter-cyclical payments are made ar e, as such, inconsistent with Articles 5 and 6 of the 
SCM Agreement .  Supra, footnote 150.  In light of this clarifi cation the Panel will hereinafter refer to the 
subsidies subject to Brazil's serious prejudice claims as marketing loan and counter-cyclical payments.  The 
Panel emphasizes, however, that as discussed above ( supra, para. 9.52) a proper analysis of the effect of the 
marketing loan and counter-cyclical payments for purposes of Articles 5 and 6 of the SCM Agreement  must 
examine them in the context of the legal and regulatory framework that defines the nature, conditions and 
criteria under which these payments will be made.   WT/DS267/RW  
Page 56  
 
  modest and that Brazil fails to make a prima facie  case of "present"  serious prejudice within the 
meaning of Articles 5(c) and 6.3(c) and 6.3(d) of the SCM Agreement .
184  
10.3 The Panel addresses Brazil's claim of "present" serious prejudice within the meaning of 
Articles 5(c) and 6.3(c) of the SCM Agreement  in Section X.B of this Report.  The Panel addresses 
Brazil's claim of "present" serious prejudice within the meaning of Articles 5(c) and 6.3(d) of the 
SCM Agreement  in Section X.C of this Report.  
B. BRAZIL 'S CLAIM OF "PRESENT " SERIOUS PREJUDICE WITHIN THE MEANING OF ARTICLES 5(C) 
AND 6.3 (C) OF THE SCM AGREEMENT   
1. Introduction – overview of the main arguments of the parties  
10.4 Brazil  submits that marketing loan and counter-c yclical payments made pursuant to the FSRI 
Act of 2002 cause significant price suppression in the world market for upland cotton within the 
meaning of Article 6.3(c) of the SCM Agreement  and thereby cause "present" serious prejudice to the 
interests of Brazil within the meaning of Article 5(c) of the SCM Agreement .  The United States  
submits that Brazil has not made a prima facie  case under Articles 5(c) and 6.3(c) of the 
SCM Agreement .  
10.5 In support of its claim that US marketing loan and counter-cyclical payments cause 
significant price suppression in the world market for upland cotton, Brazil submits that:185  
(a) US upland cotton production and exports  continue to expand and exercise a 
substantial proportionate influe nce on prices in the world market for upland cotton.   
(b) The level of US planted acreage, pr oduction and exports heavily impacts world 
market prices of upland cotton, as evidenced by data showing broa d similarities in the 
trends of the five major price indices relied upon by the original panel.  Moreover, 
upland cotton prices during MY 2002-2005 have  remained well below historic levels. 
(c) The magnitude of the marketing loan a nd counter-cyclical payments remains very 
large.  
(d) The structure, design and operation of the marketing loan and counter-cyclical 
payments186 stimulate US upland cotton production by insulating US producers from 
market forces.  
                                                      
184 The United States also submits that Brazil has faile d to demonstrate that the marketing loan payment 
and counter-cyclical payment programmes mandate a breach of WTO obligations.  US First Written 
Submission, paras. 196-202.  The Panel understands that the United States made this argument in its First Written Submission on the assumption that Brazil was challenging the marketing loan and counter-cyclical 
payment programmes as such.  Because Brazil has made it clear  that it does not claim in this proceeding that the 
marketing loan and counter-cyclical payment prog rammes at issue are WTO-inconsistent as such ( supra , 
footnote 150), we do not need to address this argument of the United States.   
185 Brazil also submits that marketing loan and counte r-cyclical payments are specific subsidies, that 
US and Brazilian upland cotton are like products, that there exists a world market for upland cotton and that the 
A-Index represents the world market price.  See infra , paras. 10.20 and 10.42-10.44.   
186 We note that in the title of the relevant section of its First Written Submission, Brazil refers to the 
structure, design and operation of "US marketing loan and counter-cyclical payments ", but Brazil elsewhere in 
the same section also uses the phrase "nature of marketing loan and counter-cyclical payment programs , in 
terms of their structure, design and operation".  Brazil's First Written Submission, Section 7.8.     WT/DS267/RW 
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  (e) There remains a strong link between high leve ls of US subsidies and high levels of 
US planted acreage, production and exports during MY 2002-MY 2005, which is due to the fact that marketing loan and count er-cyclical payments insulate US cotton 
producers from market price signals.   
(f) There remains a discernible temporal coin cidence of suppressed world market prices 
and large marketing loan and countercyclical payments.   
(g)  Marketing loan and counter-cyclical paym ents continue to cover a significant portion 
of US upland cotton producers' long-term costs of production.   
(h) Economic studies support a finding that marketing loan and counter-cyclical 
payments continue to cause significant price suppression.   
(i) The factors relied upon by the original panel as the basis for its conclusion regarding 
the "significance" of the price suppression caused by the subsidies provided by the United States continue to exist.
187    
10.6 Brazil argues that the effects of the US marke ting loan and counter-cyclical payments alone 
cause significant price suppression.  Although Step 2 payments caused significant price suppression in 
and of themselves during MY 2005, this does not detract from the significant, independent price 
suppressing effects of the marketing loan and count er-cyclical payments.  The removal of Step 2 
payments has had a relatively modest impact on US  production, US exports and world market prices 
for upland cotton, compared to the effects of marketing loan and counter-cyclical payments.188  Other 
factors impacting the world market price of upland cotton do not account for the significant price suppressing effects caused by marketing loan and counter-cyclical payments.
189   
10.7 In support of its argument that Brazil fails to make a prima facie  case of WTO inconsistency 
under Articles 5(c) and 6.3(c) of the SCM Agreement,  the United States  submits that: 
(a) The structure, design and operation of the marketing loan and counter-cyclical 
payments do not support Brazil's claim of significant price suppression.   
(b) The facts demonstrate that US producers a nd exporters have reacte d to market signals 
and are not "insulated" by the marketing lo an and counter-cyclical payments.  Brazil 
fails to demonstrate the alleged strong link between marketing loan and counter-
cyclical payments and US planted acreage, production and exports.  
(c) "Absolute" increases in US production are the effect of improvements in yields, not 
the marketing loan and counter-cyclical payments.  
(d) Brazil fails to demonstrate a "temporal coincidence" between marketing loan and 
counter-cyclical payments and the alleged price suppression.   
(e) Brazil fails to demonstrate that US produ cers would "switch to alternative crops" in 
the absence of marketing loan and counter-cyclical payments.   
(f) Brazil attempts to attribute the price effects of other factors to the marketing loan and 
counter-cyclical payments.   
                                                      
187 Brazil's First Written Submission, paras. 88-209.  
188 Brazil's First Written Submission, paras. 191-209.  
189 Brazil's First Written Submission, paras. 210-211. WT/DS267/RW  
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  (g) The econometric modeling cited by Braz il is flawed and greatly exaggerates any 
effects of removing the marketing loan and counter-cyclical payment programmes. 
(h) Brazil has not demonstrated that "the effect" of the marketing loan and counter-
cyclical payments is "significant" price suppression.
190  
2. Arguments of third parties 
10.8 Argentina  considers that by maintaining the marketing loan and counter-cyclical payment 
programmes the United States has  failed to comply  with its obligation un der Article 7.8 of the SCM 
Agreement  to take appropriate steps to remove the a dverse effects or withdraw the subsidy.  The 
evidence submitted by Brazil demonstrates that th e marketing loan and counter-cyclical payment 
programmes continue to cause adverse effects on the interests of Brazil and other cotton-producing 
countries such as Argentina in the form of significant price suppression.191  
10.9 Australia submits that the Panel should consider wh ether the United States, by repealing the 
Step 2 payment programme while maintaining the two other price-contingent subsidies (payments 
under the marketing loan and counter-cyclical paym ent programmes), has take n appropriate steps to 
remove the adverse effects or withdraw the subs idies within the meaning of Article 7.8 of the SCM 
Agreement  in accordance with the DSB recommendations and rulings.  Australia recalls, in this 
respect, that in making its findings the original pane l examined each price-contingent subsidy measure 
in turn before considering the collective operation of those measures, and that it is clear from the 
panel's analysis that each of the price-contingent  measures individually was found to have a trade-
distorting effect.192  
10.10  Chad  argues that the United States has not properl y implemented the original panel's findings 
regarding the marketing loan and counter-cycli cal payment programmes.  As the only action 
undertaken by the United States is the repeal of the Step 2 programme with effect from 
1 August 2006, it is clear that the United States has not withdrawn or amended the marketing loan or 
counter-cyclical payment programmes found to be WT O-inconsistent.  Moreover, the repeal of the 
Step 2 programme cannot be considered to have re moved the adverse effects of the marketing loan 
and counter-cyclical payments.  The marketing loan and counter-cyclical payment programmes 
accounted for the vast majority of the adverse effect s found by the original panel.  In this respect, 
Chad points to empirical studies that have found that  the measures most detrimental to Chad are the 
US domestic support programmes, rather than export subsidies under the Step 2 programme.  Chad 
submits that since the United States has not ch anged the marketing loan and counter-cyclical 
programmes that were subject to the original pane l's finding, this Panel s hould rely on the legal and 
factual conclusions drawn by the original panel concerning the existence, nature and potential for 
price suppression of those measures.  The price effe cts of these measures have continued and indeed 
gotten worse since the original panel made its finding and Chad and other West African cotton-producing countries have continued to lose market share.
193  
10.11  India  submits that the original panel examined carefully and separately the individual nature, 
operation and magnitude and price-suppressing effect s of the marketing loan payment programme, the 
counter-cyclical payment programme and the Step 2 payment programme and found that the vast majority of the price-suppressing and adverse effects were caused by the marketing loan and counter-cyclical payment programmes, rather than by the St ep 2 payments.  Therefore, the withdrawal of the 
                                                     
 
190 US First Written Submission, paras. 204-331. 
191 Argentina's Third Party Submission, paras. 5-8.  
192 Australia's Third Party Submission, paras. 25-31.   
193 Chad's Third Party Submission, paras. 22-46.  WT/DS267/RW 
 Page 59 
 
 
  Step 2 programme for upland cotton cannot be said to  have also removed the adverse effects of the 
marketing loan and counter-cyclical payment programmes.194  
10.12  New Zealand submits that the  various arguments of the United States  on the removal of the 
Step 2 payment programme leave intact the fundame ntal point made by Brazil, that even in the 
absence of the Step 2 payment programme the marketing loan and counter-cyclical payment 
programme still result in significant price suppression within the meaning of Article 6.3.(c) of the 
SCM Agreement  and thus cause serious prejudice to the interests of Brazil.  Regarding the argument 
of the United States that Brazil has failed to make a prima facie  case of WTO-inconsistency of the 
marketing loan and counter-cyclical payment progra mmes, New Zealand argues th at an approach that 
would put the burden on Brazil to prove once again what Brazil already proved before the original 
panel would risk depriving the provisions in Part III of the SCM Agreement  on actionable subsidies of 
their useful effect.  Similarly, New Zealand considers that the attempt of the United States to reargue what it had argued before the original panel is not consistent with the objective of Article 7.8 of the 
SCM Agreement  and of Article 21.5 of the DSU.  New Zealand argues that counter-cyclical payments 
are not real decoupled payments because they ar e linked to prices.  The proposition that marketing 
loan payments are distorting is self-evident because these payments are amber box measures, the 
category in which are included the non-prohibited measures with the most distorting effect on 
production and trade.  Moreover, the arguments of  the United States on marketing loan payments 
ignore that it is the expectations of producers th at are important, and that those expectations are 
generated because of the existence of the applie d administrative prices under the marketing loan 
programme, not because of the financial transfers in any year.  New Zealand considers that the 
United States does not and cannot demonstrate that planting decisions of US cotton producers were 
shaped by market factors.  W ith respect to the arguments of the United States on the econometric 
modelling provided by Brazil, New Zealand submits that these arguments are either an attempt to 
reargue what was litigated before, and disposed of, by the original panel and the Appellate Body, or 
are inconsequential.   
3. Preliminary considerations relating to the Pa nel's evaluation of Brazil's claim under 
Articles 5(c) and 6.3(c) of the SCM Agreement   
(a) Text of legal provisions 
10.13  Article 5(c) of the SCM Agreement  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.
13 
____________________ 13
  The term "serious prejudice to the interests of another Member" is used in this 
Agreement in the same sense as it is used in paragraph 1 of Article XVI of GATT 
1994, and includes threat of serious prejudice."   
10.14  Article 6.3(c) of the SCM Agreement  reads as follows:   
                                                      
194 India's Third Party Oral Statement, para. 5.  WT/DS267/RW  
Page 60  
 
  "6.3 Serious prejudice in the sense of para graph (c) of Article 5 may arise in any 
case where one or several of the following apply: 
 [...]  (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." 
(b) Period to be considered by the Panel   
(i) Main arguments of the parties  
10.15  Brazil submits that in analyzing Brazil's claims  of "present" serious prejudice the Panel 
should use as reference period MY 2005 (1 Augus t 2005-31 July 2006), which is the most recently 
completed marketing year for which complete data is  available.  The Panel can also use partial data 
for MY 2006 if such data is credible and reliable.   Brazil submits that by conducting a counter-factual 
analysis the Panel can isolate the effects of the ma rketing loan and counter-cyclical payments made in 
MY 2005 from the effects of Step 2 payments made  in MY 2005.  Brazil argues that the Panel can 
also use data for the period MY 2002-MY 2005 in  order to assess the continued relevance of the 
findings of the original panel.
195  
10.16  The United States  argues that Brazil's claims of "present" serious prejudice pertain to the 
present marketing year, MY 2006.  The use of the term "is" in Article 6.3(c) of the SCM Agreement  
("the effect of any subsidy is ... significant price suppression") means that the relevant period is the 
immediate present rather than a historical period.  While it may be appropriate to use historical data as 
a proxy for the present period when complete data is not available for that period, where relevant data 
is available for MY 2006 or part thereo f the Panel should consider that data.196    
(ii) Main arguments of third parties 
10.17  The European Communities  argues that the Panel must examine recent relevant data 
reasonably available, including, where possible, data for MY 2006.197   
(iii) Evaluation by the Panel 
10.18  The claim of Brazil under Article 6.3(c) of the SCM Agreement  requires an analysis by the 
Panel as to whether "the effect of the subsidy … is  … significant price suppression".  While the SCM 
Agreement  does not contain a specific provision on the period to be considered for this purpose198, the 
                                                      
195 Brazil's First Written Submission, para. 49; Brazil's Rebuttal Submissi on, paras. 22-25; Brazil's Oral 
Statement, paras. 19-20; Brazil's Responses to Panel Questions 28 and 74.  
196 US First Written Submission, para. 229; US Rebutta l  Submission, paras. 215-216; US Response to 
Panel Question 28.  
197 EC Third Party Submission, paras. 53-58; EC Third Party Oral Statement, para. 36.  The European 
Communities considers that in establishing claims of "pre sent" serious prejudice, Members are required to rely 
on the most recent relevant data reasonably available to them.   
198 The original panel addressed the issue of what it te rmed the "reference period" to be used in its 
analysis as follows:   
 "The Panel concurs with the United States assertio n that MY 2002 is a relevant year 
for our serious prejudice inquiry.  It represents a recent period for which essentially 
complete data exists.  The identification of 'significant price suppression' flowing  WT/DS267/RW 
 Page 61 
 
 
  use of the present tense logically implies the need to make a determination with respect to the present 
period.  The United States has put before us some da ta relating to MY 2006.  Given that our task is to 
decide whether or not significant price suppression "i s" the effect of the marketing loan and counter-
cyclical payments at issue in this proceeding we see no reason to exclude data relating to MY 2006 to 
the extent that it is available.199  We note that while Brazil has argued that the Panel should rely 
primarily on data for MY 2005, Brazil does not contest that it is appropriate for the Panel to use data 
pertaining to MY 2006 to the extent that  such data is reliable and credible.200  A n  i m p o r t a n t  
consideration reinforcing the need to take into acco unt data pertaining to the period since July 2006 is 
that the "measure taken to comply" by the United States – the elimination of the Step 2 programme – 
was effective as of the beginning of MY 2006.   
10.19  Moreover, while our determination relates to the present period, we agree with the 
observation of the original panel that considerati on of developments over a longer period of time 
"provides a more robust basis for a serious prej udice evaluation than merely paying attention to 
developments in a single year".201  
(c) Whether marketing loan and counter-cycli cal payments are specific subsidies  
10.20  The Panel considers that marketing loan paym ents and counter-cyclical payments to US 
upland cotton producers pursuant to the relevant provisions of the FSRI Act of 2002 are "subsidies" 
within the meaning of Article 1.1 of the SCM Agreement,  which are "specific" within the meaning of 
Article 1.2 of the SCM Agreement  and that Part III of the SCM Agreement  therefore applies to these 
measures.202  We recall, in this regard, that the original  panel found that the measures at issue in that 
case, including marketing loan payments and coun ter-cyclical payments, constituted "subsidies" 
                                                                                                                                                                     
from 'the effect of the subsidy' calls for an evaluation of this effects-based 
phenomenon that cannot be conducted in the abstract.  Rather, discerning adverse 
effects of subsidies seems to us to require reference to a recent historical period.  We 
believe, however, that it is important for the establishment of "current" serious 
prejudice that such prejudice would be established to exist up to, and including, a 
recent point in time.   
We also believe that subsidies granted prior to MY 2002 are relevant to our 
evaluation.  Consideration of developments over a period longer than one year, while 
not necessarily required (at least in Articles 5(c) and 6.3(c)) provides a more robust 
basis for a serious prejudice evaluation than merely paying attention to developments 
in a single recent year.  It may put such developments in a broader temporal context.  In addition, having found that the subsidies exist and have been provided over a 
longer period of time than one year, it would be inappropriate to look at trends only in 
the last year to arrive at any conclusion on serious prejudice.  It may, for example, be 
that the market may well already be distorted in a given year due to subsidies."   
Panel Report, US – Upland Cotton , paras. 7.1198-7.1199. 
199 Indeed, the failure to take into account relevant and available data placed before us pertaining to the 
period since July 2006 would not be consistent with the requirement under Article 11 of the DSU that a panel 
"make an objective assessment of the matter before it, including an objective asse ssment of the facts of the 
case…"    
200 We note that the original panel, which was estab lished on 18 March 2003, considered data covering 
the period MY 2002, which ended on 31 July 2003.  Thus, the panel took into account data covering a period of 
4 ½ months following its establishment.  
201 Supra , footnote 198. 
202 Article 5 of the SCM Agreement  applies to "any subsidy referred to in paragraphs 1 and 2 of 
Article 1" of the SCM Agreement .  Thus in order for any measure to be an "actionable subsidy" subject to the 
provisions in Articles 5-7 of the SCM Agreement  the measure must be a "specifi c subsidy" within the meaning 
of Articles 1.1 and 1.2 of the SCM Agreement .   WT/DS267/RW  
Page 62  
 
  within the meaning of Articles 1.1(a) and 1.1(b) of the SCM Agreement  and that these subsidies were 
"specific" within the meaning of Article 2 of the SCM Agreement .
203  It is not disputed that the 
provisions of the FSRI Act of 2002 concerning mark eting loan and counter-cyclical payments have 
not been changed since the original panel conducted its analysis.  The United States has not contested 
the argument made by Brazil in this proceeding th at marketing loan and counter-cyclical payments 
constitute specific subsidies.204   
(d) Magnitude of the marketing loan and counter-cyclical payments  
10.21  The original panel considered that while a ser ious prejudice analysis under Part III of the 
SCM Agreement  does not require a precise quantification of the amount of a subsidy205, "the general 
order of magnitude of a subsidy may be a relevant consideration in a serious prejudice analysis in a 
particular case (where such informati on is probative and readily available)".206  The Appellate Body 
held that the magnitude of a subsidy and its relationshi p to prices is a relevant factor to consider in an 
analysis of whether the effect of a subsidy is significant price suppression207, but that Article 6.3(c) of 
the SCM Agreement  does not oblige a panel "to quantify precisely the amount of a subsidy benefiting 
the product at issue in every case.  A precise, de finitive quantification of the subsidy is not 
required".208  However, the Appellate Body also consider ed that the original panel could have been 
more explicit as to what it meant by refe rring to "very large amounts" of subsidies.209   
10.22  The Panel provides below an overview of the factual information submitted by the parties 
with regard to the magnitude of the marketing loan and counter-cyclical payments to US upland 
cotton producers.   
(i) Marketing loan payments 
10.23  The Panel considers that the figures provided by the parties regarding the marketing loan 
payments made by the United States to upland cotton producers in MY 2004 and MY 2005210 are in 
the same "general order of magnitude."211  
10.24  The following table compares the figures provi ded by Brazil and the United States on the 
magnitude of marketing loan payments:   
                                                      
203 Panel Report, US – Upland Cotton , paras. 7.1120 and 7.1154.   
204 Brazil's First Written Submission, paras. 64-78. 
205 Panel Report, US – Upland Cotton , paras. 7.1167, 7.1177 and 7.1179.  
206 Panel Report, US – Upland Cotton , footnote 1289.  
207 Appellate Body Report, US – Upland Cotton , para. 461.  
208 Appellate Body Report, US – Upland Cotton , para. 467.  
209 Appellate Body Report, US – Upland Cotton , para. 468.  
210 Brazil's First Written Submission,  paras. 108 and 111 (Table 6) and Exhibit Bra-471; US Response 
to Panel Question 4, paras. 13-14; Brazil's Comments on US  Response to Panel Question 4, para. 14 and Exhibit 
Bra-639. 
211 Supra , para. 10.21.   WT/DS267/RW 
 Page 63 
 
 
  Table 1:  Marketing Loan Payments, MY 2002-2005 
(million US$) 
Source MY 2002 MY 2003 MY 2004 MY 2005 
Brazil's First Written 
Submission, Table 6 898 184 1,842 1,257 
US Response to 
Panel Question 4 – – 1,780 1,269 
Brazil's Comments 
on US Response to 
Panel Question 4  – – 1,812 1,269 
 
10.25  Brazil has also provided data on projected marketing loan payments in the period MY 2006- 
2010.  This data shows that the projected amount of  marketing loan payments in MY 2006 is US$650 
million based on USDA Budget Estimates212, US$475 million based on data from the Food and 
Agricultural Policy Research Institute ("FAPRI")213, and US$757 million based on February 2007 
USDA stochastic projections.214  215 
(ii) Counter-cyclical payments 
10.26  The parties disagree on the magnitude of counter-cyclical payments made by the 
United States to upland cotton producers.  This disag reement is the result of different approaches to 
                                                      
212 According to Table 26 of the First Written Submission of Brazil, which is based on USDA Budget 
Estimates, marketing loan payments are expected to amount to US$650 million in MY 2006, US$541 million in 
MY 2007, US$433 million in MY 2008, US$407 million in MY 2009 and US$407 million in 2010.  Brazil's First Written Submission, paras. 281-282 and Exhibit Bra-456.   
213 In Table 27 of its First Written Submission Brazil pr ovides estimates of marketing loan payments in 
the period MY 2006-2010 based on the July 2006 FAPRI Baseline Update for US Agricultural Markets.  This Table indicates that the amount of marketing loan payments will be US$475 million in MY 2006, 
US$190 million in MY 2007, US$50 million in MY 2008, US$0 in MY 2009 and US$0 in MY 2010.
  Brazil's 
First Written Submission, para. 286 (Table 27) and Exhibit Bra-479.  
214 In response to a question of the Panel, Brazil explains that the figures in Table 27 of its First Written 
Submission reflect deterministic projections of outlays, which by their very nature tend to underestimate 
outlays.  The most up to date (February 2007) USDA deterministic and stochastic projections of upland cotton budget outlays show that the degree of this underestimati on is very significant.  According to the February 2007 
USDA stochastic projections, the amounts of marketing loan payments will be US $757 million in MY 2006, 
US$798 million in MY 2007, US$515 million in MY 2008, US$468 million in MY 2009 and US$477 million in 2010.  Brazil's Response to Panel Question 89, para. 189 (Table 4).  The United States submits that Brazil's 
response is incorrect because the figures on government  outlays in Table 27 of Brazil's First Written Submission 
were not projected by FAPRI but were estimated by Braz il.  Moreover, the values reported by FAPRI are, in 
fact, based on a stochastic approach.  US Comments on Brazil's Response to Panel Question 89.   
 215 The United States considers that the FAPRI data provided by Brazil on the projected amounts of 
marketing loan payments are entirely consistent with a market report of the International Cotton Advisory 
Committee and recent projections by the US Congressiona l Budget Office of higher world market prices for 
cotton in MY 2006 and MY 2007.  At these higher prices, any marketing loan  payments are likely to be small.  
US Response to Panel Question 82.  Brazil contests this argument of the United States.  Brazil considers that in 
making this argument the United States is making the mistake of relying on expected prices without taking into 
account the probability that actua l prices will be lower than expected prices .  Brazil refers in this respect to the 
USDA February 2007 stochastic projections of marketing loan payments, which are higher than the July 2006 FAPRI projections.  Brazil argues that the February 2007 USDA projections are more reliable than the July 
2006 FAPRI projections.  Brazil's Comments on US Response to Panel Question 82.  WT/DS267/RW  
Page 64  
 
  the question of how the counter-cyclical paymen ts at issue in this case should be allocated
216 to actual 
production of upland cotton.  
10.27  Two main issues have arisen in this regard.  First , as in the original proceeding, Brazil has 
used two methodologies for allocating counter-cyc lical payments to actual production of upland 
cotton, referred to as "Brazil's methodology"  and the "cotton-to-cotton" methodology.217  Whereas 
Brazil asserts that "Brazil's methodology" was endorsed in the original proceeding, the United States 
argues that this allocation methodology was spec ifically rejected by the Appellate Body.  Second , the 
parties disagree on whether counter-cyclical paymen ts should be allocated in accordance with the 
methodology found in Annex IV of the SCM Agreement .  
10.28  According to the First Written Submission of Brazil , "counter-cyclical payments allocated to 
actual upland cotton production" amounted to US$869 million in MY 2002, US$260 million in MY 
2003, US$913 million in MY 2004 and US$914 million in MY 2005.218  In its Rebuttal Submission, 
Brazil asserts that, calculated in accordance with th e "cotton-to-cotton" methodology, the amounts of 
counter-cyclical payments allocated to upl and cotton were US$851.5 million in MY 2002, 
US$237.2 million in MY 2003, US$823.5 million in MY 2004 and US$832.0 million in MY 2005.219  
In its Opening Statement, Brazil, referring to E xhibit Bra-625, submits that applying (an updated) 
"Brazil's methodology", counter-cyclical payments  allocated to cotton production amounted to 
US$868 million in MY 2005 and that applying (an updated) "cotton-to-cotton" methodology, the 
amount of counter-cyclical payments allocated  to cotton production was US$838 million in MY 
2005.220  221  Brazil asserts, in this regard, that the orig inal panel described "Brazil's methodology" as 
                                                      
216 The counter-cyclical payments at issue in this case are calculated on the ba sis of historical cotton 
base acres and are not tied to actual production of upland cotton .  We recall in this respect the observations of 
the original panel:   
 
"The PFC, MLA, DP and CCP programmes permit planting flexibility and do not require production.  Eligibility for these payments depends on production of specific covered 
commodities in a base period, not the year of the payment.  Payments are calculated with 
respect to these 'base acres', at a rate speci fic to each covered commodity, as described in 
Section VII:C of this report.  Recipients who hold upland cotton base acres, in respect of 
which payments are calculated at  the upland cotton rate, coul d have since ceased production 
of upland cotton.  Recipients who hold other base acres, in respect of which payments are 
calculated at the rate for other specific covered commodities, could have since commenced 
production of upland cotton."  (footnote omitted, emphasis added)   
 
Panel Report, US – Upland Cotton , para. 7.635.  
217 For a description of "Brazil's methodology" see Panel Report, US – Upland Cotton , para. 7.642 and 
footnote 836.  For a description of the "cotton-to-cotton" methodology see Panel Report, US – Upland Cotton  
para. 7.641 and footnote 835.   
218 Brazil's First Written Submission, para. 111 (Table 6) and Exhibit Bra-471.  Brazil explains that 
these allocated amounts of counter-cyclical payments are derived by multiplying (a) the ratio of allocated upland 
cotton counter-cyclical payments in MY 2002  (869.4 m illion) to total upland cotton counter-cyclical payments 
in MY 2002 (US$1.309 billion) by (b) total upland cott on counter-cyclical payments in MY 2003-2005.  Brazil's 
First Written Submission, paras. 116-118.  The figure of US$869.4 million for allocated counter-cyclical 
payments in MY 2002 is based on the application of "Brazil's methodology".   
219 Brazil's Rebuttal Submission, paras. 173-174, Ta ble 5.  Brazil observes that the limited data 
provided by the United States in this proceeding does not enable Brazil to update the amounts of counter-
cyclical payments allocated to upland cotton based on "Brazil's methodology". 
220 Brazil's Opening Statement, para. 40.   
 221 With regard to the difference between the figu res mentioned in Brazil's First Written Submission, 
Rebuttal Submission and Opening Statement, Brazil has explained, in response to Panel Question 66, that: (i) 
the figures in Table 6 of Brazil' s First Written Submission reflect an  allocation according to "Brazil's 
Methodology" using data available at the time of the preparation of that submission; (ii)  the figures in Table 5 
of Brazil's Rebuttal Submission reflect an allocation according to the "cotton-to-cotton methodology" using the  WT/DS267/RW 
 Page 65 
 
 
  "appropriate" and that the Appellate Body endorsed  "Brazil's methodology" when it affirmed the 
original panel's findings.222  223  
10.29  Brazil submits that the argument of the Unite d States on the allocation of counter-cyclical 
payments on the basis of the methodology set out in Annex IV of the SCM Agreement  is inconsistent 
with the findings of the panel and the Appellate Body in the original proceeding.  Brazil considers that 
the calculation provided by the Unite d States is in any event incorrect and that, correctly applied, the 
amount of counter-cyclical payments allocated to  cotton production in accordance with Annex IV of 
the SCM Agreement  is US$577 million in MY 2005.224  
10.30  The United States  submits that there is no basis for Brazil's argument that counter-cyclical 
payments should be allocated according to "Braz il's methodology" since that methodology was only 
addressed in the original panel's Peace Clause an alysis and was not relied upon by the panel.  
Moreover, the methodology was specifica lly rejected by the Appellate Body.225  In response to a 
question of the Panel, the United States indicates that  it has "tested" the figures in Table 5 of Brazil's 
Rebuttal Submission and that applying the "cott on-to-cotton" methodology the figures for counter-
cyclical payments allocated to cotton production are US$820 million in MY 2004 and 
US$825 million in MY 2005.226  
10.31  The United States submits that under Article 6.3(c) of the SCM Agreement  Brazil must 
identify the subsidized product for each of the t ypes of subsidies from which it claims serious 
prejudice.227  In this regard, the United States considers that in the case of counter-cyclical payments, 
which are not tied to the production or sale of  any particular product, Annex IV of the 
SCM Agreement  contains an appropriate, economica lly neutral, allocation methodology.228  T h e  
amount of counter-cyclical payments allocated to  upland cotton production in accordance with this 
methodology is US$386.6 million in MY 2005.229   
10.32  The following tables compare the results of the various calculations provided by the parties of 
the amounts of counter-cyclical payments to US upland cotton producers. 
                                                                                                                                                                     
data in the table in paragraph 224 of the US First Wr itten Submission; (iii) the figures in paragraph 40 of 
Brazil's Opening Statement reflect allocations accordi ng to, respectively, "Brazil's methodology" and the 
"cotton-to-cotton methodology" using the updated data provided by the United States in Exhibit US-64; and (iv) the figures in Table 5 of Brazil's Rebuttal Submission do not supersede the figures in Table 6 of Brazil's First 
Written Submission. 
222 Brazil's Comments on US Response to Panel Question 3, para. 7; Brazil's Opening Statement, para. 
40.  Brazil refers to paragraph 469 of the Appellate  Body Report as support for this contention.  
223 Brazil argues that while the methodology applied by the Appellate Body might have related to 
counter-cyclical payments w ith respect to upland cotton base only, the finding that "support to" upland cotton 
exceed support decided in 19 92 includes any support for upland cotton and is not limited to counter-cyclical 
payments for upland cotton base only.  Brazil's Comments on US Response to Panel Question 3, para. 9.  
224 Brazil's Comments on US Response to Panel Question 3. 
225 US Rebuttal Submission, paras. 278-280. 
226 US Response to Panel Question 4, para. 16. 
227 US Response to Panel Question 3, para. 7.  The United States refers in this regard to the statement 
of the Appellate Body in the original proceeding that the "subsidized product" must be properly identified for 
purposes of significant price suppression under Article 6.3(c) of the SCM Agreement and that,  if challenged 
payments do not in fact subsidize the "subsidized product", this may undermine the conclusion that the effect of 
the subsidy is significant price suppression.  Appellate Body Report, US – Upland Cotton , para. 472. 
228 US Response to Panel Question 3, paras. 7-11.  The United States notes that Annex IV of the SCM 
Agreement  is not directly applicable to Articles 5(c) and 6.3(c) , but that it provides essential context as it is the 
only allocation methodology that Members have agreed in the SCM Agreement  and that specifically deals with 
the question of how to allocate subsidies that are not tied to the production or sale of a given product.  US 
Response to Panel Question 3, para. 10.  
229 US Response to Panel Question 3, para. 12. WT/DS267/RW  
Page 66  
 
  Table 2A:  Counter-Cyclical Payments (non-Annex IV Methodology), MY 2002-2005 
 
(million US$) 
Source MY 2002 MY 2003 MY 2004 MY 2005 
Brazil's First Written Submission 
Table 6 869.0 260.0 913.0 914.0 
Brazil's Rebuttal Submission 
Table 5 851.5 237.2 823.5 832.0 
US Response to Panel Question 4   – 237.0 820.0 825.0 
Brazil's Opening Statement – – – 868/838 
Brazil's Comments on US 
Response to Panel Question 4 – – – 868.0 
 
Table 2B:  Counter-Cyclical Payments  (Annex IV Methodology), MY 2004-2005 
 
(million US$) 
Source MY 2004 MY 2005 
US Response to Panel Question 3 
(Annex IV methodology) 437.3 386.6 
Brazil's Comments on US Response 
to Panel Question 3 (Annex IV methodology (a)) 540 468 
Brazil's Comments on US Response 
to Panel Question 3 (Annex IV methodology (b)) – 577 
 
10.33  Brazil submits data on projected counter-cycli cal payments in MY 2006-2015.  Based on 
USDA Budget Estimates, allocated  counter-cyclical payments to US upland cotton producers are 
projected to amount to US$715 million in MY 2006, US$516 million in MY 2007 and 
US$449 million in MY 2008, MY 2009 and MY 2010.230  Based on the July 2006 FAPRI Baseline 
Update for US Agricultural Markets, project ed allocated counter-cyclical payments are 
US$912 million in MY 2006, US$825 million in  MY 2007, US$732 million in MY 2008, 
US$679 million in MY 2009 and US$686 million in MY 2010.231  
10.34  The Panel first addresses the argument of the United States that counter-cyclical payments 
calculated on the basis of cotton base acres should be  allocated to cotton production in accordance 
with Annex IV of the SCM Agreement.   
10.35  We recall that the original panel and the Appellate  Body rejected the view that Article 6.3 of 
the SCM Agreement  requires a precise quantification of the subsidy and that the allocation 
methodology provided for in Annex IV of the SCM Agreement  should be used in this connection.232  
                                                      
230 Brazil's First Written Submission, para. 282 (Table 26).   
231 Brazil's First Written Submission, para. 286 (Table 27).  
232 Panel Report, US – Upland Cotton , paras. 7.1159-7.1190; Appellate Body Report, US – Upland 
Cotton,  paras. 461-473.  We note that the original panel discussed the issue of whether and how subsidies 
should be quantified and allocated in an analysis under Article 6 of the SCM Agreement  in response to an 
argument of the United States that Brazil had failed to pr operly identify "the subsidized product for each of the 
types of subsidies from which it claims serious prejudice".  Panel Report, US – Upland Cotton , para. 7.1159.  In  WT/DS267/RW 
 Page 67 
 
 
  We see no basis to accept in this proceeding the same  argument of the United States that was rejected 
by the panel and the Appellate Body in the origin al proceeding.  We also note that the methods 
actually relied upon by the panel a nd the Appellate Body to determine the amounts of counter-cyclical 
payments allocated to upland cotton production were not based on the methodology set out in 
Annex IV of the SCM Agreement .  Thus, we reject the argument of  the United States that for the 
purposes of this proceeding the amount of count er-cyclical payments benefiting upland cotton 
production should be determined by using the allocation methodology provided for in Annex IV of 
the SCM Agreement .   
10.36  With respect to the disagreement between the parties as to the appropriateness of using 
"Brazil's methodology" to allocate the cotton base acres counter-cyclical payments to actual 
production of upland cotton, we consider that it is cl ear from the Appellate Body report in the original 
proceeding that the Appellate Body did not endorse that methodology.  First , in the context of its 
analysis of issues raised with respect to the application of Article 13 (b)(ii) of the Agreement on 
Agriculture , the Appellate Body made the following observations: 
"We underline that these Panel findings do not pertain to all payments to current  
producers of upland cotton, but rather are limited to payments to producers with 
respect to historic upland cotton base acres.  Indeed, we see little in the Panel's 
finding or on the record that would allow us to discern a link between the support-conferring measures with respect to non-co tton 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 production 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' alternative calculation, sufficiently demonstrates a discernible link between payments under base acre dependent measures (related to upland cotton) and upland cotton."
233  (footnotes 
omitted, original emphasis) 
10.37  Thus, in upholding the panel finding that the US domestic support measures in question 
granted support to upland cotton in excess of that decided during MY 1992234, the Appellate Body 
                                                                                                                                                                     
our view, the considerations which led the original panel to reject the argument that Brazil had failed to properly 
identify the product benefiting from the subsidies at issue remain relevant.   
233 Appellate Body Report, US – Upland Cotton , para. 380.  In paragraph 384 of the Report, the 
Appellate Body observed:  
 
"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 coun ter-cyclical payment measures, calculated in 
accordance with the 'co tton to cotton' methodology, are support granted to the specific 
commodity upland cotton in the sens e of Article 13(b)(ii) of the Agreement on Agriculture."   
 
Finally, the Appellate Body stated that   
 "In our review above, we have concluded that, for purposes of the comparison envisaged by 
Article 13(b)(ii), the values of the four m easures, 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 using the 'cotton to cotton' 
methodology, and we have therefore modified the Panel's findings in this regard...."   
 Appellate Body Report, US – Upland Cotton , para. 392.  
234 Appellate Body Report, US – Upland Cotton , para. 393. WT/DS267/RW  
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  calculated the amount of counter-cyclical payments  to upland cotton in accordance with the "cotton-
to-cotton" methodology.
235  
10.38  Second , in reviewing the serious prejudice finding of the original panel, the Appellate Body 
upheld the panel's conclusion regarding the amount of the subsidies at issue.  In this respect, the 
Appellate Body referred inter alia  to paragraph 7.641 of the origin al panel report, which is the 
paragraph that contains figures reflec ting the "cotton-to-cotton" methodology.236  The Appellate Body 
referred to the same figures as support for its observati on that even using certain alternative allocation 
methodologies, the panel's conclusion regarding the ge neral magnitude of pri ce-contingent subsidies 
stood.237  
10.39  The Panel considers that Brazil has not presente d any persuasive argument as to why it would 
be appropriate to apply in this proceeding an allocation methodology that was specifically rejected by 
the Appellate Body in the original proceeding.  
10.40  In light of the above considerations, the Pane l concludes that the amount of counter-cyclical 
payments allocated to upland cotton production must be calculated based on the "cotton-to-cotton" 
methodology.  The information before us i ndicates that in MY 2005 this amount was 
US$838 million.238  
10.41  Finally, the Panel notes that the parties have al so made arguments on the likely impact of the 
removal of Step 2 payments on the amounts of ma rketing loan and counter-cyclical payments in 
future years.  The Panel addresses that issue below in Section X.B.11 of this Report.  
(e) Product at issue, like product, relevant "market" and "price"  
10.42  The Panel notes that the parties agree that the product at issue for purposes of Brazil's claims 
of "present" serious prejudice is upland cotton lint.239  Brazil recalls that the original panel had found 
that US upland cotton is like Brazilian upland cotton and submits evidence to demonstrate that this 
finding remains valid.240  The United States has not contested Brazil's position on this issue.241  
                                                      
235 Appellate Body Report, US – Upland Cotton , Annex 2, Tables 1-3.  
236 Appellate Body Report, US – Upland Cotton , para. 468 and footnote 631.  
237 Appellate Body Report, US – Upland Cotton , para. 469 and Annex 2, Table 3.  The notes to the 
Tables in Annex 2 state explicitly that "[t]he values of production flexibility contract payments, market loss 
assistance payments, direct payments , and counter-cyclical payments ar e based on the 'cotton to cotton' 
methodology, discussed supra , paras. 377-380.  Figures are drawn from Panel Report, para. 7.641".  Thus, we 
disagree with Brazil that the Appellate Body's observations in paragraph 469 amount to an endorsement of 
"Brazil's methodology".  Brazil's Opening Statement, para. 40.   
238 Exhibit Bra-625 and US Response to Panel Ques tion 55.  The Panel notes that this question was 
posed to the United States with the explanation that the Panel "is not asking whether the US agrees with these 
[i.e. 'Brazil's methodology' and the 'cotton-to-cotton'] methodologies". 
239 US Response to Panel Question 3, para. 9; Brazil's Comments on US Response to Panel Question 3, 
para. 4.  The Panel recalls in this respect that the original panel explained that, as used in the panel's report, the 
term "upland cotton" ordinarily refers  to upland cotton lint.  Panel Report, US – Upland Cotton , footnote 258.  It 
is the Panel's understanding that in this proceeding Brazil and the United States also use the term "upland 
cotton" to refer to upland cotton lint.  
240 Brazil's First Written Submission, para. 80 and Annex II ("Declaration by Andrew Macdonald"). 
241 The original panel observed that it was not entirel y clear from the text of Article 6.3(c) of the SCM 
Agreement  whether the requirement to establish a "subsidized product" and a "like product" applies to a price 
suppression analysis.  The panel nevertheless decided to address these concepts because its "examination of 
'prices' in the world market necessarily relate[d] to  'prices' of certain 'products' ". Panel Report, US – Upland 
Cotton , footnote 1333.  The Appellate Body noted that since the panel and the participants agreed that US 
upland cotton and Brazilian upland cotton must be "in the same market" it was not necessary to decide whether  WT/DS267/RW 
 Page 69 
 
 
  10.43  Under Article 6.3(c) of the SCM Agreement , the Panel must determine whether the effect of 
the subsidy is significant price suppression "in the same market".  Brazil submits that in this case the 
relevant market for purposes of Article 6.3(c) is th e world market for upland cotton.  We note that the 
original panel found that the term "same market" in  Article 6.3(c) can be interpreted "as including a 
geographical area which may embrace the entire world"242 and that such a "world market" did, in fact, 
exist in the case of upland cotton.243  The Appellate Body upheld these conclusions of the panel.244  
We note that the United States does not contest that the relevant market for purposes of our analysis under Article 6.3(c) is the world market for upland cotton.  Therefore, in determining whether the 
effect of the subsidies at issue is significant pri ce suppression "in the same market", we will treat the 
world market for upland cotton as the relevant market.  
10.44  As pointed out by Brazil, the original panel f ound that the relevant "price" for purposes of its 
analysis under Article 6.3(c) was the world market price for upland cotton, as represented by the A-Index.
245  246  Brazil submits that this Panel should adopt  the same approach and use the A-Index as 
reflecting the world market price for upland cotton.  The Panel finds the arguments of Brazil in this 
regard persuasive.247  The Panel also notes that the Unite d States has not contradicted Brazil's 
arguments regarding the existence of a world ma rket price for upland cotton and the A-Index as 
representing this world market price.248  In light of these considerati ons, the Panel finds that a world 
"market" exists for upland cotton and that the A-Inde x represents the "price" relevant to the analysis 
of price suppression under Article 6.3(c) of the SCM Agreement .249  
                                                                                                                                                                     
the "like product" requirement applied to a price suppression analysis.  Appellate Body Report, US – Upland 
Cotton , para. 407 and footnote 453.  The panel in Korea – Commercial Vessels  concluded that the concept of 
"like product" does not apply to an analysis of price suppression or price depression under Article 6.3(c) of the 
SCM Agreement .  Panel Report, Korea – Commercial Vessels , paras. 7.538-7.560.   
242 Panel Report, US – Upland Cotton , para. 7.1243.  See also Panel Report, Korea – Commercial 
Vessels , paras. 7.564-7.565.  
243 Panel Report, US – Upland Cotton , paras. 7.1246-7.1247. 
244 Appellate Body Report, US – Upland Cotton , paras. 410-411.  
245 Panel Report, US – Upland Cotton , para. 7.1274.  
 246 The original panel described the "A-Index" as "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".  The panel clarified in a footnote that "the prices are quoted c.i.f. Northern Europe".  
Panel Report, US – Upland Cotton , paras. 7.1264 and footnote 1374.  Brazil has explained in this proceeding 
that in March 2003 the basis for the calculation of th e A-Index was changed to re flect the fact that Asian 
importers now account for three quarters  of total imports of upland cotton.   The A-Index proper now reflects 
values for delivery c.i.f. to Far Eastern ports (A(FE)In dex).  Cotlook continues to publish an A(NE)Index which 
reflects values for delivery c.i.f. Northern European  ports.  Brazil submits that  the A(FE)Index and the 
A(NE)Index are almost perfectly aligned and that the technical change in the A-Index does not affect the 
conclusion that the A-Index represents the world ma rket price for upland cotton.  Brazil's First Written 
Submission, paras. 85-86 and Annex II (Declaration by Andrew Macdonald), footnote 4.   
247 Brazil's First Written Submission, para. 84.  
248 The United States has argued in this proceeding that the fact that the A-Index had to be changed to 
reflect the growing importance of China in the world ma rket supports the US argume nt that price trends for 
upland cotton cannot be explained without taking into  account the influence of China.  US First Written 
Submission, paras. 312-313.  However, the United States has not contested that the A-Index represents the world market price of upland cotton.   
249 We also note that the Appellate Body held in the original proceeding that it was sufficient for the 
original panel to analyze the price of upland cotton in general in the world market and that the panel was not required to find significant price suppression specifically with respect to the price of Brazilian upland cotton in 
the world market.  Appellate Body Report, US – Upland Cotton , paras. 415-418.  WT/DS267/RW  
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  (f) Significant price suppression as the effect of the subsidy  
10.45  The original panel defined "price suppression" as re ferring 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 incr ease is less than it otherwise would have been".
250   The 
Appellate Body ruled that this description of the meaning of "price suppression" reflected the ordinary 
meaning of that term.251  252  In this proceeding neither party h as contested this definition of "price 
suppression".   
10.46  The Panel considers that, as discussed in th e Appellate Body report in the original 
proceeding253, a determination of whether price suppression exists is difficult to separate from an 
analysis of the effect of the subsidy.  Brazil h as explained that in light of the comments of the 
Appellate Body in the original proceeding254, it has adopted a "unitary" approach, which does not 
separate the question of the existence of signifi cant price suppression from the issue of the causal 
relationship between significant price suppression and the subsidies at issue.255  The United States has 
not questioned this "unitary" approach in this proceeding.256  Therefore, while we note that the 
original panel determined in three separate analyti cal steps that (i) there was price suppression in the 
world market for upland cotton, (ii) this price suppression was significant and (iii) a causal relationship existed between this significant price suppression and certain price-contingent 
subsidies
257, in this proceeding we will not make a determination as to whether significant price 
                                                      
250 Panel Report, US – Upland Cotton , para. 7.1277. 
251 Appellate Body Report, US – Upland Cotton , para. 424.  
252 Similarly, the panel in Korea – Commercial Vessels  noted that the parties in that dispute understood 
the term "price suppression" in Article 6.3(c) of the SCM Agreement "to refer to  the situation where prices have 
not increased when, or have increased less than, they otherwise would have".  Panel Report, Korea – 
Commercial Vessels , para. 7.533.   
253 Appellate Body Report, US – Upland Cotton , para. 433.  ("...the ordinary meaning of the transitive 
verb 'suppress' implies the existence of  a subject (the challenged subsidies) an d an object (in this case, prices in 
the world market for upland cotton).  This suggests that it would be difficult to make a judgment on significant price suppression without taking into account th e effect of the subsidies.")  See also Panel Report, Korea – 
Commercial Vessels , para. 7.537: 
 "...the existence of a flat or declining price tren d, on its own, would not be a sufficient basis on 
which to conclude that prices were 'suppressed' or 'depressed'.  For such a conclusion to be 
reached, the causes of these observed trends would need to be examined.  In other words, 
price depression is not simply a decline in pr ices but a situation where prices have been 
'pushed down' by something .  Price suppression is where pri ces have been restrained by 
something .  In other words, for a finding of 'price suppression' or price depression' in the sense 
of SCM Article 6.3(c), there must not only be  a flattened or downward price trend as a 
prerequisite, but in addition this trend must be  the result of an exogenous factor, namely the 
subsidy or subsidies in question.  Thus, the analysis that seems to be called for by the 
Agreement (by virtue of the concepts of pri ce suppression and price de pression themselves), 
concerns what the price movements for the relevant ships would have been in the absence of (i.e. 'but for') the subsidies at issue." (emphasis original) 
254 Appellate Body Report, US – Upland Cotton , paras. 432-434. 
255 Brazil's First Written Submission, paras. 55-58.   
256 In the original proceeding the United States argued before the Appellate Body that the panel had 
erred in adopting a bifurcated approach under which the original panel made a finding of price suppression 
before making a prior finding of the effect of the subsidy.  Appellate Body Report, US – Upland Cotton , para. 
430.  The Appellate Body rejected that argument and held that "the text of Article 6.3 (c) does not, however, 
preclude the approach taken by the Panel to examine first whether significant price suppression exists and then, 
if it is found to exist, to proceed further to examine wh ether the significant price suppre ssion is the effect of the 
subsidy."  Appellate Body Report, US – Upland Cotton , para.  431.  
257 Panel Report, US – Upland Cotton , paras. 7.1275-7.1363.    WT/DS267/RW 
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  suppression exists separately from whether significant price suppression is the effect of the subsidies 
at issue.258   
10.47  Closely related to this, the Panel notes the argument of Brazil that an analysis of price 
suppression under Article 6.3(c) is necessarily of a c ounterfactual nature, focusing on the situation 
that would exist but for the subsidies at issue.  The United States has not contested this argument of 
Brazil.  We note that the original panel did not ex plicitly use the concept of a counterfactual analysis 
and that the panel did to some extent re ly on an analysis of trends in prices.259  At the same time, it is 
clear that key elements of the panel's analysis in volved an examination of the situation that would 
have existed but for the subsidies at issue.  Thus, fo r example, the panel found that the fact that prices 
had declined from 1996 through the beginning of 2002 and increased from 2002 was not conclusive 
as to whether or not there was price suppression:  "[w]e 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".260  In its analysis of the design, structur e and operation of the subsidies at issue the 
panel found that certain price-contingent subsidies resulted in "lower world market prices than would 
prevail in their absence".261  Based on an examination of the co sts of production and market revenues 
of US upland cotton producers, the panel concluded 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."
262  
10.48  As noted above, the panel in Korea – Commercial Vessels has interpreted Article 6.3(c) of the 
SCM Agreement  as requiring a "but for" approach to the analysis of whether the effect of a subsidy is 
significant price suppression.263   
                                                      
258 We note that the Appellate Body has stated that  "Article 6.3(c) does not set forth any specific 
methodology for determining whether the effect of a subsidy is significant price suppression" and that 
"Article 6.3(c) is silent as to the se quence of steps to be followed in assess ing whether the effect of a subsidy is 
significant price suppression".  Appellate Body Report, US – Upland Cotton , paras.  427 and 431.  While the 
Appellate Body saw no legal error in the approach taken by the original panel, it is clear that the Appellate Body 
did not consider that Article 6.3(c) required that approach.  
259 Panel Report, US – Upland Cotton , paras. 7. 1286-7.1288. 
260 Panel Report, US – Upland Cotton , para. 7.1288.  
261 Panel Report, US – Upland Cotton , paras. 7.1291 and 7.1295. 
262 Panel Report, US – Upland Cotton , paras. 7.1353.  The panel concluded its discussion of costs of 
production in relation to market revenue by observing that "the existence of this gap between upland cotton 
producers' total costs and market revenue, on the one hand, and the effect of the subsidies, on the other hand, was to sustain a higher level of output than would have occurred in the absence of the United States subsidies at 
issue".  Panel Report, US – Upland Cotton , para. 7.1354.  
263 Supra , footnote, 253.  The panel also observed:   
 
"As noted supra, we believe that the text of Article 6.3(c)  implies a 'but for' approach to causation 
in respect of price suppression/p rice depression.  Price suppression  is the situation where prices 
have been restrained by something, and price depression is the situation where prices have been 
pushed down by something.  So the question to be answered is whether the 'something' is 
subsidization.  Looking at a counterfactual situation, i.e. trying to determine what prices would have been in the absence of the subsidy, seems to us the most logical and straightforward way to 
answer this question."   
 Panel Report, Korea – Commercial Vessels , para. 7.612.  The panel considered that this "but for" approach was 
consistent with the approaches taken by the panels in Indonesia – Autos  and in US – Upland Cotton .  WT/DS267/RW  
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  10.49  Thus, in order to determine whether the effe ct of marketing loan payments and counter-
cyclical payments to upland cotton producers is significant price suppression within the meaning of 
Article 6.3(c) of the SCM Agreement , the Panel will determine whether, but for these subsidies, the 
world market price
264 for upland cotton "would have increased [significantly], or would have 
increased by [significantly] more  than was in fact the case".265  
10.50  The Panel concurs with the original panel that  the word "significant" in "significant price 
suppression" in Article 6.3(c) of the SCM Agreement  relates to the degree of price suppression in the 
context of the price that has been affected and that the significance of any degree of price suppression 
may vary from case to case, de pending upon the factual circumstances.266  As stated by the original 
panel,  
"… for a basic and widely traded comm odity, such as upland cotton, a relatively 
small decrease or suppression of prices could be significant because, for example, profit margins may ordinarily be narrow, product homogeneity means that sales are 
price sensitive or because of the sheer size of  the market in terms of the amount of 
revenue involved in large volumes traded on the markets experiencing the price 
suppression."
267 
10.51  Finally, like the original panel, we conduct an  examination of the collective effects of the 
marketing loan and counter-cyclical payments.268  We recall, in this respect, that the original panel 
made a finding that certain price-contingent subs idies (marketing loan payments, counter-cyclical 
payments, Step 2 payments and market loss assistance payments) collectively were a cause of significant price suppression in the world market for upland cotton.  The panel did not find that each 
of these four subsidies, taken individually, was a cause of significant price suppression nor did it 
pronounce on the relative importance of each of these subsidies in causing significant price suppression.   
4. The alleged "substantial proportionate influe nce" of US upland cotton production and 
exports 
(a) Main arguments of the parties 
10.52  Brazil  submits that US upland cotton production and exports continue to expand and exercise 
a "substantial proportionate influence" on prices in the world market for upland co tton.  In the view of 
Brazil, the United States is "the single most important market influencing world market prices" of upland cotton.
269  In this connection, Brazil presents data  showing that in MY 2005 the US share of 
world upland cotton production was 20.9 per cent and th e US share of the world market for exports of 
                                                      
264 We recall that the Appellate Body found that the original panel had not erred by not conducting a 
separate analysis of Brazilian prices in the world market.  Appellate Body Report, US – Upland Cotton , 
paras. 415-418. 
265 Panel Report, Korea – Commercial Vessels , para. 7.615.  
266 Panel Report, US – Upland Cotton , paras. 7.1328-7.1329.  The Panel also notes the observation 
made by the panel in Korea – Commercial Vessels , para. 7.571 that "only price suppression or price depression 
of sufficient magnitude  or degree, seen in the context of the par ticular product at issu e, to be able to 
meaningfully affect suppliers should be found to be 'significant' in the sense of SCM Article 6.3(c)".  
267 Panel Report, US – Upland Cotton , para. 7.1330.  
268 Panel Report, US – Upland Cotton , para. 7.1192.  See also Panel Report, Korea – Commercial 
Vessels , para. 7.616.  
269 Brazil's First Written Submission, para. 89.   WT/DS267/RW 
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  upland cotton was 39.6 per cent.  During the period MY 2002-2005 the volume of US production 
increased by 40.7 per cent and the volume of US exports increased by 54.8 per cent.270  
10.53  The United States  submits that Brazil's argument that the United States is "the single most 
important market influencing world market pr ices" of upland cotton is overly simplistic and 
inconsistent with the realities of the world cotto n market.  In particular, Brazil fails to account 
properly for the important role of China's trade in cotton.271   
(b) Evaluation by the Panel 
10.54  The original panel relied upon what it termed a substantial proportionate influence of the 
United States in the world upland cotton market as one  of four factors that cumulatively supported a 
finding of a causal link between certain of th e challenged subsidies and significant price 
suppression.272  This substantial proportionate infl uence of the United States resulted inter alia  from 
the magnitude of US production and export of upland cotton.273  The United States was the world's 
second largest producer , and the world's largest exporter , of upland cotton.274   
10.55  The Appellate Body considered that, when view ed in conjunction with other findings made 
by the original panel, the "substantial proportiona te influence" of the United States in the world 
market for upland cotton seemed to support the pa nel's conclusion of the existence of a causal 
relationship between the price-contingent  subsidies and significant price suppression.275 
10.56  The data provided by the United States276 indicates that in MY 2005  the US share of world 
cotton production was 20.9 per cent and that the US share of world upland cotton production averaged 19.7 per cent during the period MY 2002-2005 (see Ta ble 3).  The US share of world exports was 
40.1 per cent in MY 2005.  During the period MY 2002-2005 the US share of world exports averaged 
40.5 per cent.   
                                                     
 
270 Brazil's First Written Submission, paras. 92-93, Figures 2 and 3.  
271 US First Written Submission, paras. 308-318.  US Rebuttal Submission, paras. 387-396.  
272 Panel Report, US – Upland Cotton , paras. 7.1347-7.1348.   
273 Panel Report, US – Upland Cotton , paras. 7.1285 and 7.1348.  
274 In the period MY 1999 –2002, the United States accounted for approximately 20 per cent of world 
production of upland cotton.  The share of the United States in world production of upland cotton was 19.2 per 
cent in MY 1999, 19.3 per cent in MY 2000, 20.6 per cent in MY 2001 and 19.6 per cent in MY 2002.  The share of the United States in world exports of upland cotton was 23.5 per cent in MY 1999, 24.5 per cent in 
MY 2000, 37.3 per cent in MY 2001 and 39.9 per cent in MY 2002.  Panel Report, US – Upland Cotton , 
paras. 7.1282-7.1283.   
275 Appellate Body Report, US – Upland Cotton , para. 449:   
 
"We agree that, in and of itself, the degree of in fluence of the United States in the world 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 pric e-contingent subsidies increased United States 
production 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 make 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."  
276 Exhibit US-27.   WT/DS267/RW  
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  Table 3:  US and World Cotton Exports and Production, MY 2002-2005 
 
MY United States 
(in 1000 480 lb bales) World 
(in 1000 480 lb bales) US Share of World 
Exports and Production 
 Exports Production Exports Production Exports Production 
2002 11,900 17,209 30,325 88,251 39.2% 19.5% 
2003 13,758 18,255 33,221 95,267 41.4% 19.2% 
2004 14,436 23,251 35,022 120,394 41.2% 19.3% 
2005 18,036 23,890 44,935 114,142 40.1% 20.9% 
Average 14,533 20,651 35,876 104,514 40.5% 19.7% 
Source: Exhibit US-27.  
 
10.57  Given that complete data for MY 2006 is not ava ilable, the Panel has relied on projections of 
production and exports provided by the United States.277  These projections of US and world 
production and exports were made in  February 2007, halfway through MY 2006.  According to these 
projections, the absolute volumes of US cotton pr oduction and exports in MY 2006 will decline by 9 
per cent and 19.6 per cent, respectively, from MY 2005 levels.  Since the average "error" of USDA 
projections is only 0.1 per cent for US cotton production and 4 per cent for US exports278, the Panel 
considers that these USDA projections of a declin e in production and exports in MY 2006 are very 
likely to materialize.  Taken together with proj ections of world production and exports, they indicate 
that the US share of world upland cotton produc tion is projected to fall from 20.9 per cent in 
MY 2005 to 18.6 per cent in MY 2006.  Further, the US share of world exports of upland cotton is projected to fall from 40.1 per cent in MY 2005 to 36.3 per cent in MY 2006.     
                                                     
 
277 The source of the US projections of producti on and exports is the USDA's World Agricultural 
Supply and Demand Estimates (WASDE) report, which provi des forecasts of supply and demand for major US 
and global crops and US livestock .  The February 2007 projection of US production and exports for MY 2006 
is contained in Exhibit US-114 while corresponding figures for world production and exports are taken from 
WASDE 443-27. 
278 Given that a lower degree of certainty attach es to these projections, the Panel asked the 
United States to provide the information on how final ma rketing year data on the variables of interest would 
differ from projections made in February of the same marketing year.  The idea is to compare projections made in the middle of a given marketing year with the final estimate for the complete ma rketing year.  The closer 
February projections are to final estimates of production and export for the same marketing year, the more 
reliable we judge these projections to be.  The United States provided the Panel with this data spanning the period from MY 1992-2005.   (Exhibit US-145)   Using this information, we have estimated how much these 
February projections have differed from the final marketing year data:  
Table 4:  Difference Between Final Es timates And Projections, MY 1992-2005 
Item Production Exports 
Average difference: (Final estimate minus 
February projection) 0.1% 4.0% 
Standard deviation of difference 0.6% 6.6% 
Source: Exhibit US-145. 
 
Over the period MY 1992-2005, projections of US production made in February underestimated the final 
production number by only an average of 0.1 per cent (with a standard deviation of 0.6 per cent).  The corresponding underestimate for US exports is 4 per cent (with a standard deviation of 6.6 per cent).  Projections 
of US cotton production have been more accurate than projections of US exports.   WT/DS267/RW 
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  10.58  In our view, even taking into account the projections for MY 2006, the figures on the relative 
magnitude of US production and e xports of upland cotton at present are not significantly different 
from the figures that formed the b asis for the original panel's finding that the United States exerted a 
substantial proportionate influence on the world mark et for upland cotton.  The US share of world 
upland cotton production was 19.6 per cent in MY 2002,  20.9 per cent in MY 200 5 and is projected to 
be 18.6 per cent in MY 2006.  The US share of wo rld exports of upland cotton was 39.9 per cent in 
MY 2002, 39.8 per cent in MY 2005 and is projected to be 36.3 per cent in MY 2006.  In light of 
these figures and taking into account other evidence presented by Brazil279, the Panel considers that 
the United States exerts a substantial proportionate influence on the world market for upland cotton.  
This substantial proportionate influe nce of the United States, analyzed in light of the totality of the 
evidence before us, as discussed in the next sub-secti ons, is an element that supports a finding that the 
marketing loan and counter-cyclical payments to  US upland cotton producers cause significant price 
suppression in the world market for upland cotton.  
5. "Structure, design and operation" of the marketing loan and counter-cyclical payments 
(a) Main arguments of the parties 
10.59  Brazil  argues that the "structure, design and oper ation" of the marketing loan and counter-
cyclical payments280 stimulate US upland cotton production by insulating US producers from market 
forces.  In support of this argument, Brazil refers to  the magnitude of the marketing loan payments in 
MY 2004 and MY 2005, the fact that the legislative provisions in question have not been changed, 
economic studies presented in the original proceeding, and the fact that during most of the period MY 2002-2005 the adjusted world price was below the marketing loan rate.  In Brazil's view, these 
factors show that the conclusion of the original  panel that marketing loan payments stimulate 
production and exports and suppress prices continues to apply.
281  Similarly, the findings of the 
original panel on the effects of counter-cyclical pa yments on production, expor ts and prices of upland 
cotton also remain applicable.  In this regard, Br azil refers to the magnitude of the counter-cyclical 
payments in MY 2004 and MY 2005, the fact that the legislative provisions in question have not been 
changed, economic studies presented in the original  proceeding, and the continued existence of a 
strong positive relationship between  upland cotton base acre holders receiving annual counter-cyclical 
payments and upland cotton production.282  Referring to the original panel's findings that price-
contingent US subsidies isolated US cotton farmers from market forces, Brazil argues that data on the 
importance of marketing loan and counter-cyclical pa yments in stabilizing US upland cotton farmers' 
revenues demonstrates that this in sulating effect continues today.283   
10.60  The United States  argues that Brazil has not provided  any persuasive evidence that the 
structure, design and operation of the marketing loan and counter-cyclical payments programme 
support Brazil's claims of significant price suppression.   With respect to marketing loan payments, the 
United States submits that an analysis of planti ng decisions made by US upland cotton producers in 
light of the conditions that exist at the time of  planting (January-March) shows that for the present 
marketing year, MY 2006, payments under the mark eting loan programme did not distort production 
decisions.  Since the average Ne w York futures price in January-March 2006 was well above the 
marketing loan rate, US upland cotton producers did not expect to receive marketing loan payments 
                                                      
279  The Panel notes, in particular, the evidence provid ed by Brazil on the similarity in trends in certain 
US domestic prices and the world market price for upland cotton (Brazil's First Written Submission, Figures 4 
and 5), a factor also relied upon by the original panel.  Panel Report, US – Upland Cotton , para. 7.1311. The 
Panel also notes the analysis prepared by Brazil's consultant of the functioning of the world market for upland cotton.  Brazil's First Written Submission, A nnex II (Declaration by Andrew Macdonald).  
280 Supra , footnote 186. 
281 Brazil's First Written Submission, paras. 123-127;  Brazil's Rebuttal Submission, paras. 101-110. 
282 Brazil's First Written Submission, paras. 128-131.   Brazil's Rebuttal Submission, paras. 111-118. 
283 Brazil's First Written Submission, paras. 133-136 and Figure 8.  WT/DS267/RW  
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  upon harvest, and these payments could not have fi gured in their planting decisions for MY 2006.
 284  
The United States submits, in this respect, that even  in earlier marketing years planting decisions of 
US upland cotton producers were not shaped by exp ectations about marketing loan payments but by 
market factors.  With respect to counter-cyclical  payments, the United States argues that (i) research 
based on recent empirical data does not support Brazi l's claim that counter-cyclical payments have 
significant trade-distorting effects; (ii) significant amounts of decoupled payments are capitalized into 
higher land values; and (iii) data comparing base acr es to planted acreage does not demonstrate that 
counter-cyclical payments have significant effects on production.285  The United States also submits 
that Brazil does not demonstrate that the size of the outlays under the marketing loan and counter-
cyclical payment programmes support the existence of a causal link.286  
(b) Evaluation by the Panel 
10.61  The question before the Panel is whether the stru cture, design and operation of marketing loan 
payments and counter-cyclical payments provided by the United States pursuant to the FSRI Act of 
2002 support a finding that the effect of these s ubsidies is "present" significant price suppression in 
the world market for upland cotton within the meaning of Article 6.3(c) of the SCM Agreement .  
10.62  Because Brazil asserts that, based on the eviden ce which it has submitted in this proceeding, 
this Panel should reach the same conclusions as the original panel regarding the price suppressing 
effects of the structure, design and operation of the marketing loan payments and counter-cyclical 
payments, we begin by providing a summary of the or iginal panel's analysis th at formed the basis for 
those conclusions.   
10.63  The original panel first examined the "nature" of the subsidies in determining whether price 
suppression existed in the world market for upland cotton.287  The panel considered that the "nature of 
the US subsidies at issue – in terms of their stru cture, design and operation – is relevant in assessing 
whether or not they have price suppressing effects".288  The panel attached particular importance to 
the "directly price-contingent" nature of certain subsidies.289   
10.64  Regarding marketing loan payments, the origin al panel pointed out that under the marketing 
loan programme benefits to producers resulted when  the adjusted world market price was below the 
marketing loan rate and that the payments were mandatory290, that the magnitude of the marketing 
loan payments was counter-cyclical and increased with the difference between the adjusted world 
price and the marketing loan rate291, and that the marketing loan payments insulated the revenue of US 
                                                      
284 US First Written Submission, paras. 226-235; US Rebuttal Submission, paras. 268-275. 
285 US First Written Submission, paras. 207-225; US Rebuttal Submission, paras. 224-267.   
286 US First Written Submission, paras. 236-241; US Rebuttal Submission, paras. 267-280. 
287 Panel Report, US – Upland Cotton , paras. 7.1289-7.1307.  In determining whether price suppression 
existed in the world market for upland cotton, the panel also considered the relative magnitude of the US production and exports and the general price trends.  Panel Report, US – Upland Cotton , paras. 7.1281-7.1288.  
288 Panel Report, US – Upland Cotton , para. 7.1289.  
289The panel explained that in light of certain guiding  considerations outlined earlier in its report, the 
distinction between "directly price-contingent" subsidies and other subsidies before it was critical "in terms of 
the nexus which the subsidies have to any price suppression and to the subsidized product".  Thus, the panel 
considered it highly relevant that certain US subs idies under consideration, including marketing loan 
programme payments and counter-cyclical programme paymen ts were "directly linked to world market prices".  
Panel Report, US – Upland Cotton , paras. 7.1289-7.1290.  
290 Panel Report, US – Upland Cotton , para. 7.1291. 
291 Panel Report, US – Upland Cotton, paras. 7.1292-7.1294 .  The panel also observed that the data 
before it showed that "the marketing loan subsidy by the United States government, at certain points, was 
greater than the market value of the product"  and that "it accounted for more than half  of the difference between 
the adjusted world price and the ma rketing loan rate (and thus of United States upland cotton producer 
revenue)".  Panel Report, US – Upland Cotton, para. 7.1294 (original emphasis).   WT/DS267/RW 
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  upland cotton producers from a dec line in the adjusted world price.292  The panel considered that the 
marketing loan payments "stimula te production and exports and result in lower world market prices 
than would preva il in their absence"293 and that the "structure, design and operation of the marketing 
loan programme has enhanced produc tion and trade-distorting effects".294  The panel also observed 
that data for the period MY 1999-2002 showed that , because of the impact of marketing loan 
payments on production of upland cotton, a decline in US prices did not result in a decline in US 
production or export, that the structure of the measure  affected world market prices generally, and that 
for most of the period under consideration the ad justed world market price was below the marketing 
loan rate.295  Finally, the panel noted that the amount of the subsidies was "very large".296   
10.65  Also as part of its examination of whether price suppression existed, the original panel stated 
the following with respect to counter-cyclical payments:  
"We agree with the view of USDA econom ists that, due to their market-price 
contingency, [counter-cyclical paymen ts] may influence production decisions 
indirectly by reducing total and per unit re venue risk associated with price variability 
in some situations.  In the price range from  the loan rate up to the target price minus 
the [direct payments] rate, changes in pr oducer revenues due to changes in market 
prices are partly offset by the countercyc lical payments if the base acreage crop is 
planted, thereby reducing to tal revenue risk associated with price variability.  We 
have confirmed a strong positive relationship between upland cotton (base acre) producers receiving annual payments and upl and cotton production.  Moreover, the 
payments are mandatory, under certain market conditions."
297  (footnotes omitted) 
10.66  It is clear from these statements that a key el ement in the original panel's analysis of the 
structure, design and operation of marketing loan  payments and counter-cyclical payments was the 
idea that the price-contingent nature of these subsidies made US upland cotton production less 
responsive to market prices by insulating the reve nue of US upland cotton producers from declines in 
prices.  It is also clear, however, that closely re lated to this, the panel attached importance to the 
magnitude of these subsidies in the period under consideration.   
10.67  The original panel highlighted these two themes  in its conclusion on the existence of price 
suppression:   
"As we have just indicated, several of the United States subsidies are directly linked 
to world prices for upland cotton, thereby numbing the response of United States 
producers to production adjustment decisions when prices are low .  We have readily 
available information on the record showing us that the price-contingent subsidies in 
question involve very large amounts of Un ited States government money benefiting 
United States upland cotton .  In our view, the collective operation of these subsidies 
was akin to a very large, counter cyclical , deficiency payment laced with additional 
enhancements.  We believe that the structur e, design and operation, particularly of the 
                                                      
292 Panel Report, US – Upland Cotton , para. 7.1294:  "The 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."  
293 Panel Report, US – Upland Cotton , paras. 7.1291 and 7.1295. 
294 Panel Report, US – Upland Cotton, paras. 7.1295.   
295 Panel Report, US – Upland Cotton , paras. 7.1294 and 7.1296.  
296 Panel Report, US – Upland Cotton , para. 7. 1297.  
297 Panel Report, US – Upland Cotton , para. 7.1302.  WT/DS267/RW  
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  price-contingent subsidies, constitutes st rong evidence supporting a finding of price 
suppression."
298  299 (emphasis added) 
10.68  Having found that price suppression existed300 and that this price suppression was 
significant301, the original panel also referred to the structure, design and operation of the price-
contingent subsidies at issue in its examination of whether this significant price suppression was the 
effect of certain of the subsidies at issue.  The panel again emphasized the "insulating" effect and the 
magnitude of the price-contingent subsidies at issue:   
"Second, we recall our examination of the nature of the United States subsidies at issue.  In 
particular, we recall that several of the Unite d States subsidies – marketing loan programme 
payments, the user marketing (Step 2) payments, MLA payments and CCP payments – are 
directly linked to world prices for upland co tton, thereby insulating United States producers 
from low prices .  We believe that the structure, d esign and operation of these three measures 
constitutes evidence supporting a causal link with  the significant price suppression we have 
found to exist.  Furthermore, while we do not be lieve that it is strictly necessarily 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 ."302  (emphasis added, footnote omitted) 
10.69  By contrast, the original panel considered that  Brazil had not established that significant price 
suppression was the effect of certain subsidies – pr oduction flexibility payments, direct payments and 
crop insurance payments – that were not price-con tingent.  The panel considered that these non-price 
contingent subsidies were "more concerned with income support than directly with world price 
effects" and were "of a different nature, and t hus effect" than the price-contingent subsidies.303   
10.70  The Appellate Body upheld the original panel's finding that the effect of certain price-
contingent subsidies was 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 , and in so doing rejected various  arguments of the United States, 
including in respect of the panel's analysis of the structure, design and operation of the marketing loan 
and counter-cyclical subsidies.304   
10.71  It is not in dispute that the conditions of application of the marketing loan and counter-
cyclical payments, as defined in  the relevant provisions of the FSRI Act of 2002, are the same at 
present as when the original panel analyzed these measures.  Therefore,  there has been no change with 
respect to the mandatory, price-contingent and counter-cyclical nature of these subsidies.   
10.72  Apart from the fact that the provisions of th e FSRI Act of 2002 regarding marketing loan 
payments and counter-cyclical payments have rema ined unchanged, Brazil refers to several other 
factors, including the magnitude of these subsides in  recent years, in light of which Brazil considers 
that this Panel should reach the same conclusions as the original panel regarding the effects of the 
                                                      
298 Panel Report, US – Upland Cotton , para. 7.1308.  
 299The panel considered that the parallelism between declining US price and world market prices in the 
period under consideration was evidence that increased US production and supply had caused price suppression.  
Panel Report, US – Upland Cotton , paras. 7.1309-7.1311.  
300 Panel Report, US – Upland Cotton , para. 7.1312.  
301 Panel Report, US – Upland Cotton , para. 7.1333. 
302 Panel Report, US – Upland Cotton , para. 7.1349.  
303 Panel Report, US – Upland Cotton , paras. 7.1307 and 7.1350.   
304 Appellate Body Report, US – Upland Cotton , paras. 395-496.  WT/DS267/RW 
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  structure, design and operation of marketing lo an payments and counter-cyclical payments on 
production, exports and prices of US upland cotton.305  
10.73  The United States does not contest that the effect of marketing loan and counter-cyclical 
payments on revenues of US upland cotton producers could affect acreage and production of upland 
cotton.  However, the United Stat es argues that the relevant question is whether, taking into account 
the particular structure and design of the marke ting loan and counter-cyclical payment programmes 
and the way that they operate under marketing cond itions at present, payments under the programmes 
are in fact  having production effects, and if so, whether the degree  of the effect is so significant that it 
is resulting in "present" significant price suppress ion.  The United States submits that in this 
proceeding Brazil has failed to demonstrate, thr ough a proper analysis of the factors actually 
considered by US upland cotton producers in thei r annual planting decisions and of the way that 
marketing loan and counter-cyclical payments interact with these planting decisions, that the effect of 
marketing loan and counter-cyclical payments is to induce US upland cotton producers to increase the 
level of upland cotton acreage above what it would ha ve been in the absence of those payments.  The 
United States emphasizes in this r espect that a proper analysis of annual planting decisions of upland 
cotton producers must take into account the fact th at producers must base their planting decisions on 
expectations with regard to factors such as weathe r, demand, supply, prices of upland cotton and other 
crops, and variable costs.  Moreover, the United Stat es considers that Brazil has not demonstrated that 
the degree of any effect of marketing loan and c ounter-cyclical payments on production is such as to 
cause "present" significant price suppression.306   
10.74  In our view, the United States made the same arguments in the original proceeding.  For 
example, before the original panel the United States argued, with regard to marketing loan payments,  
that "Brazil has failed to make a proper analysis  of the conditions actually faced by producers in 
making production decisions using futures prices, which reveals no expected impact from marketing 
loans except for MY 2002".307  In this connection, the United States also submitted that "[i]n no 
marketing year from 1999-2001 would the marketing loan  rate have impacted planting decisions and 
in marketing year 2002 the marketing loan rate did not prevent price-responsive acreage 
adjustment".308   
10.75  As noted above, the original panel considered, in respect of marketing loan payments, that 
"the payments stimulate production and exports and result in lower world market prices than would 
prevail in their absence" and that "the struct ure, design and operation of the marketing loan 
programme has enhanced production and trade-distorting effects".309  It is clear from these statements 
that the panel did not consider that the fact that in  certain years expected market prices at the time of 
planting exceeded the marketing lo an rate meant that marketing loan payments had only minimal 
effects on production in those years.310  However, while the United States argued before the Appellate 
Body that "the Panel failed to address the releva nt economic decision faced by United States upland 
                                                      
305 Supra , para. 10.59. 
306 E.g. US Rebuttal Submission, paras. 222 and 287-291;  US Opening  Statement paras. 62-64; US 
Reponses to Panel Questions 51, 53 and 54.  US Comm ents on Brazil's Response to Panel Question 62.   
307 US Further Rebuttal Submission  (18 November 2003), Section IV.G. 
308 US Further Rebuttal Submission (18 November 2003), Section IV.G.6. 
309 Panel Report, US – Upland Cotton , paras. 7.1291 and 7.1295.  
310 The United States interprets these statements to mean that the panel noted "that the particular design 
and operation of the marketing loan program is such that it may have more than non- or minimally-trade-distorting effects given the particular market conditions  that prevail."  US Response to Panel Question 54, 
para. 105.  While we do not disagree that the panel's analysis must be understood in the context of the 
"particular market conditions" that prevailed in the period considered by the panel, it is clear that the panel did 
not adopt the particular methodology for analyzing the relevance of market conditions advocated by the 
United States in the or iginal proceeding.   WT/DS267/RW  
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  cotton farmers at the time of planting, namely, the decision of whether to plant upland cotton or 
alternative crops (and how much of each)"
 311, the Appellate Body rejected this argument.312   
10.76  We also note that specifically with regard to th e argument of the United States that marketing 
loan payments have minimal effects on planting de cisions if the expected market price at the time 
planting decisions are made is above the marke ting loan rate, the Appellate Body observed: 
"During the oral hearing, the United States presented 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.  
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.   
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 al ways substantially higher than the  actual   
price realized at the time of harvest of the crop.  This suggests that although farmers 
had expected higher prices in making their planting decisions, they were also aware 
that if actual prices were ultimately lower,  they would be 'ins ulated' by government 
support, including not only marketing loan program payments but also counter-cyclical payments, which were based on a ta rget upland cotton price of 72.4 cents per 
pound.  We are therefore satisfied that the Panel adopted a plausible view of the facts 
in connection with expected prices and plan ting 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 parties the same meaning and weight as do the parties'."
313  (emphasis original,  
footnotes omitted) 
10.77  Thus, even if expected market prices at the time of planting are higher than the marketing 
loan rate and producers do not expect to receive marketing payments at that time314, the availability of 
marketing loan payments can be considered to in fluence planting decisions.  While US upland cotton 
producers may be uncertain at the time of planting as to whether actual harvest prices will be below 
the marketing loan rate, there is no uncertainty as to the fact that, if actual harvest prices are below the 
marketing loan rate, they will receive marketing loan  payments.  Therefore, the logic of the original 
panel's analysis regarding the re venue-stabilizing impact of the pr ice-contingent, counter-cyclical 
nature of marketing loan payments and the conse quent impact on the level of production applies even 
                                                      
311 Appellate Body Report, US – Upland Cotton , para. 440.  In arguing that the original panel had 
ignored the relevant production decision faced by US cott on farmers at the time of pl anting, the United States 
referred 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".  Appellate Body Report, US – Upland Cotton, para. 38 .  
312 Appellate Body Report, US – Upland Cotton , paras. 440-445.  The Appellate Body considered that 
the original panel had, in fact, addressed upland cotton planting decisions, expected prices and expected market 
revenue in paragraph 7.1362 of its report.  Appellate Body Report, US – Upland Cotton , para. 441.  
313 Appellate Body Report, US – Upland Cotton , paras. 444-445. 
314 We note that Brazil disagrees with the United States that in most recent years US upland cotton 
producers have not expected to receive marketing loan payments.  See Brazil's Rebuttal Submission, 
paras. 104-105.    WT/DS267/RW 
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  if one accepts that, as argued by the United States, it is necessary to take into account producers' price 
expectations.315  
10.78  We note that the Appellate Body also uphe ld the original panel's conclusion in 
paragraph 7.1349 of the panel report that the fact th at certain subsidies were directly related to the 
world market prices for upland cotton supported a fi nding of the existence of a causal relationship 
between these subsidies and significant price suppr ession.  In that context, the Appellate Body 
reviewed and affirmed the conclusions drawn by th e original panel from its earlier assessment of the 
structure, design and operation of the price-contin gent subsidies, including the panel's statements 
concerning the effects of these s ubsidies on production and exports.316   
10.79  The United States argues that Article 11 of the DSU requires this Panel to carry out an 
"objective assessment of the matter before it" and that  "there is no basis to automatically adopt for 
purposes of this proceeding the same factual conclusi ons drawn by the original panel about the effects 
of the marketing loan, counter-cyclical payment,  and Step 2 payments in a different period".317   
10.80  We note, in this regard, that in its discussion of the argument of the United States concerning 
the role of expected market prices, the Appellate Body referred to the fact that in four of the five years 
under consideration the actual market price at th e time of harvest was below the expected market 
price at the time of planting.318  The evidence shows that this pa ttern has persisted in more recent 
years.319  The Panel also has evidence before it, provided by Brazil but not contested by the 
                                                      
315 Brazil does not disagree that it is "important to look at the way that the marketing loan  and counter-
cyclical payments programs actually operate and interact  with production decisions".  Brazil's Comments on US 
Response to Panel Question 51, para. 71.  Brazil also agr ees that the expectations of  US cotton producers are a 
relevant factor to consider in an assessment of the eff ects of the marketing loan an d counter-cyclical payments.  
Brazil's Comments on US Response to Panel Question 51, paras. 70-80.   
316 Appellate Body Report, US – Upland Cotton , para. 450: 
   
"The second reason the Panel provided for finding a 'causal link' was its view that the price-contingent subsidies 'are directly linked to wo rld prices for upland cotton'.  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.  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 loan 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'.  As a result, 
during the 1999-2002 marketing years, United States production and exports remained stable or increased, even though prices of United States upland cotton decreased.  The Panel found 
that Step 2 payments stimulate domestic and foreign demand for United States upland cotton 
by 'eliminating any positive difference between Unite d States internal prices and international 
prices of upland cotton'.  The Pa nel stated that Step 2 payments  'result in lower world market 
prices than would prevail in their absence'.  Finally, the Panel found that market loss 
assistance payments and counter-cyclical payments  are made in response to low prices for 
upland cotton and stimulate United States production of upland cotton by reducing the 'total 
and per unit revenue risk associated with price variability'.  The United States contends that 
the Panel's analysis of the price-contingent su bsidies was 'deficient'.  However, the Panel 
found that the price-contingent subsidies stimulated United States production and exports of 
upland cotton and thereby lowered United States upland cotton prices.  This seems to us to 
support the Panel's conclusion that the effect of the price-contingent subsidies is significant 
price suppression."  (original emphasis, footnotes omitted)  
317 US Response to Panel Question 54, para. 102. 
318 Supra , para. 10.76. 
319Brazil submits that a comparison of the adjusted world price and the average December price of the 
futures contract at the time of planting shows that in  the period 1996-2005 the adjusted world price was on WT/DS267/RW  
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  United States, that in most recent years the adjust ed world price has been below the marketing loan 
rate.
320  
10.81  Given that in most recent years actual market prices have been lower than expected market 
prices at the time of planting and that the adjusted world price has been below the marketing loan rate, 
the Panel considers that it is reasonable to conclude  that the fact that US cotton producers know that 
they will receive marketing loan payments whenever  the adjusted world pri ce is below the marketing 
loan rate continues to be an important factor affe cting the level of acreage planted to cotton (and thus 
the level of production), even when, as in MY 2006 , the expected market price for upland cotton at 
the time of planting is higher than the marketing loan rate.321  The Panel also notes in this regard that 
according to FAPRI and USDA data, the projected amount of marketing loan payments in MY 2006 
is very significant.322  
10.82  Thus, in arguing that because the expected  market price for MY 2006 was above the 
marketing loan rate, marketing loan payments did not significantly affect th e planting decisions of 
upland cotton producers, the United States makes an ar gument that was already rejected by the panel 
and the Appellate Body in the original proceeding.323  Nothing in the facts presented to the Panel in 
this proceeding would appear to warrant a conc lusion different from the conclusion drawn by the 
panel and the Appellate Body in the original proceeding.   
10.83  Moreover, while the discussion in the preceding pa ragraphs has focused on the impact of the 
structure, design and operation of marketing loan payments on acreage and production when analyzed 
from the short-term perspective of how these paymen ts interact with annual planting decisions, the 
Panel considers that this impact should also be an alyzed from the long-term perspective of how these 
subsidies influence the economic viability of US upland cotton farming.  Article 6.3(c) of the SCM 
Agreement  does not prescribe a particular methodology for determining whether significant price 
suppression is the effect of a subsidy.  It is clear to us that whether production of a particular product 
is higher than would have been the case in the ab sence of the subsidy is often a critical issue in 
establishing whether the effect of the subsidy is significant price suppression.  However, nothing in 
the text of Article 6 suggests that this can only be  examined from a short-term perspective.  In our 
view, the type of effect of a subsidy on production relevant to the analysis under Article 6.3(c) can 
also be demonstrated on the basis of a longer-term perspective that focuses on how the subsidy affects 
decisions of producers to enter or to exit a given indust ry.  The Panel considers, in this regard, that the 
evidence on the record, notably the evidence regarding the role of ma rketing loan and counter-cyclical 
payments in covering the difference between the ma rket revenue of US upland cotton producers and 
their costs of production, supports the view that these subsidies have a long-term impact on acreage 
and production of upland cotton by affecting decisions of US cotton farmers to enter or exit cotton farming.  The Panel addresses this issue below in section X.B.9.   
                                                                                                                                                                    
 
average 17.3 per cent below the December futures contract price.  Brazil's Rebuttal Submission, para. 105 and 
Exhibit Bra-564.   
320 Data submitted by Brazil shows that for most of the period from August 1999 to February 2007, the 
adjusted world price was below the marketing loan rate.  Brazil's Response to Panel Question 62, Figure 1, and 
Exhibit Bra-673.   
321 In order to assess the significance of the eff ect of marketing loan payments on acreage and 
production under current conditions, we obviously must ta ke into consideration other factors, such as the 
magnitude of these subsidies and their importance to the revenues of US upland cotton producers.  We discuss 
these factors below.  
322 Supra , para. 10.25 and accompanying footnotes.  
323 We recall, in this respect, the observation made by the Appellate Body that "doubts could arise 
about the objective nature of an Article 21.5 panel's assessm ent if, on a specific issue, that panel were to deviate 
from the reasoning in the original panel report in the absence of any change in the underlying evidence in the 
record…"  Appellate Body Report, US - Softwood Lumber VI (Article 21.5 – Canada) , para. 103.   WT/DS267/RW 
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  10.84  The Panel now turns to the issues that have been  raised in this proceeding specifically with 
respect to the design, structure and operation of counter-cyclical payments.   In this regard, the parties  
disagree on (i) whether  recent economic litera ture referred to by the United States  contradicts Brazil's 
claim that counter-cyclical payments have signifi cant trade-distorting effects and whether significant 
amounts of decoupled payments are capitalized into higher land values, and (ii) whether the existence 
of what Brazil characterizes as a strongly positive relationship between US upland cotton farmers and 
upland cotton production demonstrates that counte r-cyclical payments have significant effects on 
production.  
10.85  The Panel first considers the recent economic litera ture referred to by the United States.   
10.86  The United States  argues that recent economic literature that reflects the results of research 
based on empirical data finds no evidence that c ounter-cyclical payments are the cause of any 
significant changes in plantings.324   In the view of the United States, these new studies and reviews 
show that counter-cyclical payments have no effects on crop-specific production decisions and minimal effects on overall production.   
10.87  Brazil , for its part, criticizes the studies referred to by the United States and submits other 
new studies.
325   Brazil contends that these studies are consis tent with the original panel's finding that 
counter-cyclical payments sustain high le vels of acreage, production and exports.326    
10.88  The United States  also argues that the question of wh ether counter-cyclical payments are 
capitalized into higher land values has a bearing on the extent to which counter-cyclical payments 
provide incentives to farm operators to increase prod uction of upland cotton.  If a significant part of 
upland cotton farm land is rented by operators inst ead of being owned by them and if most of the 
counter-cyclical payments end up as higher land values, and thus in landowners' rather than operators' 
hands, then there may be little production effect from th e payments.  In this regard, the United States 
refers to studies that the United States claims find that decoupled payments, such as counter-cyclical 
payments, are capitalized into land values and land rents.327   
10.89  Brazil  argues that the price-contingent nature of  counter-cyclical subsidies means that they 
can be very large in one year and small or non-existent in another year  and that, hence, such payments 
are not as easily capitalized into land values as deco upled payments.  Brazil submits that a comparison 
of actual land rents and the amount of direct and c ounter-cyclical payments per acre demonstrates that 
only a relatively small portion of the counter-cyclical payments could possibly be shifted to land rents 
                                                      
324 The studies referred to by the United States in clude: "Risk Considerations in Supply Response: 
Implications for Counter-Cyclical Payments' Production Impact" by William Lin and Robert Dismukes (Exhibit US-34); "Counter-Cyclical Payments Under the 2002 Farm Act: Production Effects Likely to be Limited" by 
Paul Westcott (Exhibit US-35); "US Ag ricultural Policy: Overview and Recen t Analyses" by Edwin C. Young, 
Anne Effland, Paul Westcott and Demcey Johnson (Exhibit US-40); and "Another Look at Decoupling: Additional Evidence on the Production Effects of Direct Payments" by B. Goodwin and A. Mishra (Exhibit US-
41).  
325 The new studies submitted by Brazil include: "Are  'Decoupled' Farm Payments Really Decoupled? 
An Empirical Evaluation" by B. K. Goodwin and A. Mishra (Exhibit BRA-618); "Farm-Level Production Effect 
From Participation in Government Commodity Programs: Did the 1996 Federal Agricultural Improvement and 
Reform Act Make a Difference?" by Nigel Key, Ruben Lubowski and Michael Roberts (Exhibit BRA-566); "Supply Response to Counter-Cyclical Payments and Base Acre Updating under Uncertainty: An Experimental 
Study" by Christopher R. McIntosh, Jason F. Shogren and Erik Dohlman (Exhibit BRA-565); and "How 
Distorting Are Direct Payments?" by Erik J. O'Don oghue and James Whitaker (Exhibit BRA-568).       
326 Brazil's Rebuttal Submission, para. 144. 
327 These include the USDA ERS study "Structure and Finances of US Farms: 2005 Family Farm 
Report" reproduced in Exhibit US-67 and the OECD study "A Review of Empirical Studies of the Acreage and Production Response to US Production Flexibility Contract  Payments Under the Fair Act and Related Payments 
Under Supplementary Legislation" reproduced in Exhibit US-32. WT/DS267/RW  
Page 84  
 
  or capitalized into the value of land.
328  While Brazil recognizes the possibility that certain landowners 
might capture a portion of counter-cyclical payments , this assessment does not change the fact that 
upland cotton counter-cyclical payments are tied to prices and increase US upland cotton production 
and exports.    
10.90  The Panel recalls that in assessing the productio n impact of counter-cyclical payments, the 
original panel relied upon several USDA studies329 to conclude that, due to their market-price 
contingency, counter-cyclical payments "may infl uence production decisions indirectly by reducing 
total and per unit revenue risk associated with price variability in some situations".330  As the 
United States points out in this proceeding, these studies did not reflect experience with the counter-
cyclical payment programme itself.331  The Panel therefore considers that the studies cited by the 
United States and Brazil in this proceeding are rele vant insofar as they provide new information not 
available to the original panel reflecting the experience with the operation of counter-cyclical 
payments to upland cotton.  Both academics and USDA staff have contributed to this recent literature.  
This is we believe the most recent set of studies avai lable.  The Panel has reviewed this new literature 
and weighed the findings of the experts carefully.332  The conclusion that we draw from our review of 
this literature is the same as that of the original pa nel i.e. that "due to their market-price contingency, 
[counter-cyclical payments] may influence production decisions indirectly by reducing total and per 
unit revenue risk associated with pr ice variability in some situations". 333    
10.91  Turning to the literature cited by the United States, the Panel notes that none of the recent 
studies submitted by the United States specifically  analyzes the experience with counter-cyclical 
payments to growers of upland cotton.  We find that: 
(a) Instead of counter-cyclical payments, full y decoupled payments or programmes that 
antedated the counter-cyclical programme (s uch as the production flexibility contract 
payments) were studied.  For instance, the Goodwin and Mishra study published in 2005
334 examines the extent to which production flexibility contract or Agricultural 
Market Transition Act (AMTA) payments under the FAIR Act affected the acreage 
decisions of a set of farms in the US Co rn Belt who grew corn, wheat, and soybeans. 
(b) Instead of empirical studies of the effects of counter-cyclical payments: 
(i) A survey of other studies was undertaken.  The Young, Effland, Westcott and 
Johnson paper335 presents an overview of recent US agricultural policies 
under the 1996 and 2002 Farm Acts.  The paper surveys recent analyses regarding the effects of those policies; 
                                                     
 
328 Brazil's Rebuttal Submission, paras. 146-148. 
329 The studies include the USDA paper "The 2002 Farm Act, Provisions and Implications for 
Commodity Markets" (November 2002), reproduced in Exhibit BRA-42 and a 2002 USDA ERS report to the 
United States Congress contained in "Farm Program Payments and the Economic Viability of Production 
Agriculture", reproduced in Exhibit BRA-130. 
330 Panel Report, US – Upland Cotton , para 7.1302. 
 331 The FSRI Act of 2002, which authorized countercyclical payments for the first time, entered into 
force only on 13 May 2002.  The period examined by the panel in determining "present" serious prejudice was 
MY 1999-2002.  
332 Attachment 1 (Section XIII), contains a summary of the studies submitted by the parties.  
333 Panel Report, US – Upland Cotton , para. 7.1302. 
334 See supra , footnote 324. 
335 See supra , footnote 324.  WT/DS267/RW 
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  (ii) A simulation of the effects of these pa yments was undertaken.  The Lin and 
Dismukes study336 attempts to simulate the acr eage effects of counter-cyclical 
payments for three crops – corn, soybeans and wheat.  The simulation is based on an acreage model, which was estimated using state-level data during 1991-2001 (before counter-cyclical paymen ts came into effect), drawn from 
farms in the Northcentral region  of the United States; and 
(iii) A conceptual analysis of the effect s of counter-cyclical payments was 
attempted.  The Westcott paper
337 considers the case of a hypothetical corn 
farmer who plants all of his hundred acres of corn base with corn.  It examines how the farmer's revenues are affected by counter-cyclical 
payments (among other subsidies) depe nding on realizations of the market 
price. 
Thus, the relevance of these studies to the present dis pute is somewhat limited.  We also note some 
variation in the type and quality of the studies: some are published or slated to be published in 
academic journals while others are articles in  newsletters or unpublished manuscripts.   
10.92  Many of these observations also apply to the st udies provided by Brazil.  While the parties 
have drawn widely differing conclusions from these studies, the Panel has also found that the studies 
tend to converge on some important points.  First , there is no disagreement in the recent literature 
cited by both parties that counter-cyclical pa yments can or may have production effects.  Second , the 
studies cited by the parties are also in some agreement about the mechanisms by which these 
payments can encourage additional production.  Incr eased wealth can reduce risk aversion, leading 
farmers to increase production.  The presence of dire ct payments will allow credit-constrained farmers 
to finance the purchase of more farm inputs.  Fa rmers may be willing to produce more output since 
counter-cyclical payments, which vary with the outpu t price, can reduce revenue risk.  Payments may 
allow producers to cover fixed costs and thus may allow marginal farmers who would otherwise be 
forced to shut down to remain in production.  If farmers believe that future payments are based on 
current production, because of the possibility of updating base acres, they may increase the current 
production of those crops for which they expect to receive future payments.
338   
10.93  Where the studies differ is in their assessment of the magnitude of these production effects.  
The studies cited by the United States argue that the production effects of counter-cyclical payments are likely to be small, while the papers cited by Braz il contend that the effects are substantial.  Almost 
all of the papers have focused on the acreage respons e by farmers to the payments.  There appears to 
have been a surge of interest in  the research community on the question of the production effects of 
decoupled payments.  It would seem that this recent lite rature is fairly divided on the magnitude of the 
production impact of counter-cyclical payments.  Academics and USDA economists can be found on 
both sides of the question.   
10.94  With respect to the issue of whether counte r-cyclical payments are capitalized into higher 
land values, the Panel considers that this in no  way implies that the payments have no production 
effects.  While the OECD study cited by the United States concluded that most of the impact of production flexibility contract and market loss assistance payments pass-through to higher land values, enough seems to have been left in the ha nds of farm operators to create a modest production 
effect.  Given that counter-cyclical payments, in c ontrast to production flexibility contract payments, 
are price-contingent, there is a presumption that the output effect of counter-cyclical payments will be 
higher than that of the production flexibility payments.    
                                                     
 
336 See supra , footnote 324. 
337 See supra , footnote 324. 
338 The Panel understands that the issue of base acreage updating is not an issue before it.  WT/DS267/RW  
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  10.95  Thus, in our assessment, the current state of th is academic and policy research is such that 
even though the experts disagree among themselves about the exact magnitude of the production effects of counter-cyclical payments, there is no disa greement about the direction of those effects nor 
on the mechanisms by which the production effects ar e transmitted.  Thus, counter-cyclical payments 
can increase production and these production effects occur because increased  wealth reduces risk 
aversion, the availability of the payments relieves credit constraints and provides some insurance from 
fluctuations in revenues and the payments allow farmers to cover fixed costs of production.    
10.96  The Panel now turns to the arguments of Brazi l and the United States on the issue of whether 
the relationship between upland cotton farmers recei ving counter-cyclical payments and upland cotton 
production supports a finding that the effect of counte r-cyclical payments, by virtue of their structure, 
design and operation, is significant price suppression in the world market for upland cotton.   
10.97  In support of its argument that the structure,  design and operation of the counter-cyclical 
payments insulate US cotton producers from ma rket forces and thereby stimulate production, Brazil  
submits that there continues to be a "strong pos itive relationship" between upland cotton base acre 
holders receiving annual counter-cyclical  payments and upl and cotton production.
339  T h e  
overwhelming majority of US upland cotton is  grown on farms holding upland cotton base.  
Moreover, the evidence also shows that the amount of upland cotton acreage of recipients who over- 
planted their cotton base remains at a low level co mpared to 1999-2001.  Brazil considers that it is 
unimportant that, as argued by the United States, some 40 per cent of upland cotton base acreage is not planted to upland cotton and that an average of 17 per cent of upland cotton acreage is on farms with cotton planted acreage that exceeded cott on base acreage or on farms with no cotton base 
acreage.
340  Brazil submits that its claim pertains to the effect of counter-cyclical subsidies in 
maintaining  production of US upland cotton by keeping current producers of upland cotton in 
business and that it is not arguing that counter-cyclical subsidies induce  production.  Therefore, the 
focus of the analysis should be on the relationship between current US upland cotton producers and upland cotton counter-cyclical subsidies.  From this perspective, the key fact is that the overwhelming 
majority of current US upland cotton production is  undertaken by historic upland cotton producers 
that receive upland cotton-counter-cyclical payments .  The percentage of US upland cotton acreage on 
farms with upland cotton base acres is essentially the sa me as in the period considered by the original 
panel.  Similarly, the fact that cotton producers planted 40 per cent fewer acres to cotton than in the 
base period is irrelevant to Brazil's claim that count er-cyclical subsidies received by current producers 
of upland cotton are critical to ensure a profit for those farms that currently do produce upland cotton.  
In any event, this percentage is essentially the same as in the period c onsidered by the original panel.  
Brazil submits that the fact that, as argued by the United States, US upland cotton was grown historically and continues to be grown today in certain regions of the United States supports Brazil's 
argument that by providing for counter-cyclical payments based on historical base acres the US 
Congress intended to support curre nt production of upland cotton.
341  
                                                      
339 Brazil's First Written Submission, para. 131.  Brazil refers to the statement of the original panel that 
the evidence before the Panel showed "a strongly pos itive relationship between those recipients who hold 
upland cotton base acres and those who continue to plant upland cotton..."  Panel Report, US – Upland Cotton , 
para. 7.637.   
340 Brazil's Rebuttal Submission, paras. 153-165.   
341 Brazil's Comments on US Responses to Panel Qu estions 29 and 54.  Brazil submits that in 
MY 2005, 83 per cent of cotton planted acreage was on cotton base acreage.  This is the more significant portion 
of US upland cotton acreage.  Moreover, of the remaining 17 per cent, 12 per cent was on farms that "overplanted" their cotton base acreage and 5 per cent was on farms that did not have any upland cotton base 
acreage.  In other words, 95 per cent of US upland cotton acreage is on farms that hold upland cotton base.  
These facts, according to Brazil, demonstrate that ther e continues to be a strong positive relationship between 
upland cotton (base acre) producers r eceiving annual payments and upland cotto n production.  In regard to the 
argument of the United States that 40 per cent of upland cotton base acres are not currently planted to upland  WT/DS267/RW 
 Page 87 
 
 
  10.98  The United States  argues that data comparing base to planted acreage does not demonstrate 
that counter-cyclical payments have significant eff ects on production.  The fact that there is some 
overlap between current and historic productio n of upland cotton in the United States is not 
remarkable.  What is notable is that the data shows that counter-cyclical  payments do not induce 
recipients to continue planting cotton.  Over the period MY 2002-2005 an average of 17 per cent of 
US cotton planted acreage was on farms with cotton planted acreage that exceeded cotton base acres 
or on farms with no cotton base acres at all.  Moreover, traditional US cotton producers receiving 
counter-cyclical payments planted approximately 40 per cent fewer cotton acres over MY 2002-2005 
than in the period used to  calculate cotton base acres.342  Brazil's attempts to dismiss these facts as 
unimportant are inexplicable and baseless.  Give n that Brazil is arguing that counter-cyclical 
payments induce US producers to produce cotton even though they are not required to do so to receive 
the payments, it would seem to be very importa nt whether in fact, US producers holding upland 
cotton base acres are continuing to produce upland co tton and if so, whether they are producing cotton 
in such a way as to eviden ce the significant production effects that Br azil has alleged.  Brazil fails to 
explain what the fact that 95 per cent of US upland cotton planted acreage was on farms that held 
upland cotton base acreage has to do with its claim that counter-cyclical payments have significant 
production inducing effects.  The United States not es in this respect th at the same "positive 
relationship" exists between upla nd cotton production and recipients of direct payments, which were 
not found to have significant price suppressing effects in the original proceeding.343  The facts show 
that US farmers use the planting flexibility afforded  by the direct and counter-cyclical payments and 
that counter-cyclical payments do not induce producers to grow cotton where they would not 
otherwise have done so.  Upland cotton is grown in a limited number of regions in the United States 
where the weather and other conditions are ideal fo r upland cotton production.  The fact that many 
farmers who planted upland cotton in the historical period continue to produce some cotton today simply means that it makes sense for these produ cers to grow cotton given their experience and 
expertise, their equipment and the particular growi ng conditions.  Therefore, what matters in order to 
assess the effects of counter-cyclical payments on pr oduction is not the percentage of farms producing 
upland cotton that received upland cotton counter-cyc lical payments but the level of acreage planted 
to cotton vis-à-vis  upland cotton base acres.
344  
10.99  The Panel notes that the original panel f ound a "strongly positive relationship between 
recipients who currently plant upland cotton and thos e whose payments are calculated with respect to 
upland cotton base acres and whose payments are th erefore calculated at the upland cotton–specific 
payments rate".345  More specifically, the panel determined on the basis of data provided by the 
United States that:  
"a very large proportion of farms with upl and cotton base acres continue to plant 
upland cotton in the year of payment.  The data provided also shows that the overwhelming majority of farms enrolle d in the programmes which plant upland 
cotton also hold upland cotton base."
346 (footnote omitted)    
                                                                                                                                                                     
cotton, Brazil notes that at no time in recent history has US upland cotton acreage been 18.4 million acres – the 
amount of upland cotton base.  The high level of upland cotton base relative to production reflects the fact that 
with consecutive base updates, US farms elected to update only if that would increase their high payment upland 
cotton base.  In case an update would have decreased high payment upland cotton base in favour of lower payment crop base, US farms declined to update.  Thus, US upland cotton base acres are not a reliable measure 
to compare to annual US upland cotton acreage.  
342 US First Written Submission, paras. 220-225.  
343 US Rebuttal Submission, paras.  263-266.   
344 US Response to Panel Question 29; US Response to Panel Question 54, paras. 109-111.  
345 Panel Report, US – Upland Cotton , para. 7.583.  
346 Panel Report, US – Upland Cotton , para. 7.636.  The panel provided precise figures on these 
relationships in Tables A-1 and A-2.   WT/DS267/RW  
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  10.100  The original panel provided figures on this rela tionship in Tables A-1 and A-2 of its report 
and observed that: 
"These figures show a strongly positive rela tionship between those recipients who 
hold upland cotton base acres and those who c ontinue to plant upland cotton, despite 
their entitlement to plant other crops, which is indicative of the relationship between 
payments calculated with respect to upl and cotton base acreage and recipients who 
plant upland cotton.  These figures also show that upland cotton production within these four programmes is almost exclusivel y taking place on farm s which hold upland 
cotton base acres."
347   
10.101  The original panel referred to this positive rela tionship in support of certain aspects of its 
findings on serious prejudice.348  With respect to the structure, design and operation of counter-
cyclical payments the panel observed:  
"We agree with the view of USDA econom ists that, due to their market-price 
contingency, CCPs may influence production decisions indirectly by reducing total 
and per unit revenue risk associated with pr ice variability in some situations.  In the 
price range from the loan rate up to the target price minus the DP payment rate, 
changes in producer revenues due to changes in  market prices are partly offset by the 
countercyclical payments if the base acreag e crop is planted, thereby reducing total 
revenue risk associated with price variability.  We have confirmed a strong positive 
relationship between upland cotton (base acre) producers receiving annual payments 
and upland cotton production.  Moreover, the payments are mandatory, under certain 
market conditions."349  (footnotes omitted, emphasis added) 
10.102  The evidence provided by Brazil in this pro ceeding shows that the facts regarding the 
relationship between base acres and planted acreage ar e not significantly different from the facts that 
formed the basis for the Panel's conclusion regarding the existence of a "strongly positive 
relationship" between upland cotton base acre holders  receiving annual counter-cyclical payments and 
upland cotton production.350  The United States has not questione d the factual accuracy of the data 
submitted by Brazil on the existence of  this relationship.  In other words, the United States does not 
contest that, as argued by Brazil, the overwhelming majority of current US upland cotton production is undertaken by historic upland cotton producer s that receive upland cotton counter-cyclical 
payments.  Rather, the United States contests that  this relationship supports Brazil's claim of 
significant price suppression.  However, the Panel c oncurs with Brazil that this relationship between 
upland cotton base acre holders and upland cotton prod uction is significant in that it suggests that 
cotton counter-cyclical payments play a role in maintaining the level of acreage and production at a 
higher level than would otherwise be the case.  In addition, as noted above,  this relationship is 
essentially the same as in the period considered by th e original panel.  We therefore see no basis in 
this proceeding to arrive at a conclusion different fro m that of the original panel with respect to this 
issue.   
                                                     
 
347 Panel Report, US – Upland Cotton , para. 7.637. 
348 Panel Report, US – Upland Cotton , paras. 7.1119, 7.1226, 7.1302, footnote 1417 and para. 7.1362. 
349 Panel Report, US – Upland Cotton , para. 7.1302.  
350 Table 3 of Brazil's Rebuttal Submission shows that in MY 2005, 95 per cent of US upland cotton 
planted acreage was planted on farms th at received upland cotton counter-cycli cal payments.  This table is an 
updated version of a table in the original panel report th at showed that the percentage of upland cotton planted 
acres on farms with upland cotton base acres was  92.9 in MY 1999, 92.0 in MY 2000, 91.3 in MY 2001 and 
96.1 in MY 2002.  Panel Report, US – Upland Cotton , para. 7.636, Table A-2.  In addition, the Panel notes that 
while the United States emphasizes that 40 per cent of upland cotton base acreage is not planted to upland 
cotton, Brazil has pointed out that during the period consider ed by the original panel this percentage was similar.   WT/DS267/RW 
 Page 89 
 
 
  10.103  The Panel therefore finds that a strongly positiv e relationship exists between recipients of 
upland cotton counter-cyclical payments who hold upland cotton base acres and those who continue 
to plant upland cotton and that this factor is an  element that provides support for a finding that the 
counter-cyclical payments, because of their struct ure, design and operation, have price-suppressing 
effects.  
10.104  In conclusion, based on an analysis of the ar guments and evidence presented to the Panel in 
this proceeding regarding the structure, design and operation of the marketing loan and counter-
cyclical payments to US upland cotton producers, th e Panel considers that these subsidies affect the 
level of US upland cotton acreage and production as a result of their mandatory and price-contingent 
nature and their revenue-stabilizing effect.  In this respect, the Panel concurs with the view of the 
original panel that these subsidies protect or "ins ulate" revenues of US upland cotton producers when 
prices are low.  It is important to emphasize, how ever, that in determining whether the structure, 
design and operation of these subsidies support a finding of significant price suppression under 
current factual conditions , we need to consider this factor in conjunction with other facts.  The Panel 
considers, in this regard, that viewed together with other evidence on the record, including the fact 
that the adjusted world price in most recent y ears has been below the ma rketing loan rate, the 
magnitude of the marketing loan and counter-cycli cal payments, the importance of these subsidies as 
a share of the revenues of US upland cotton producer s and their role in covering a significant part of 
the costs of production of these producers351, it is reasonable to conclude that without these subsidies 
the level of US upland cotton acreage and production would likely be significantly lower.   
10.105  As discussed above352, the original panel relied upon the d esign, structure and operation of the 
marketing loan and counter-cyclical payments in c onjunction with the magnitude of the subsidies.  
We therefore now turn to the argument of Braz il that the magnitude of the marketing loan and 
counter-cyclical payments supports a finding that th e effect of marketing loan and counter-cyclical 
payments is significant price suppression.   
6. Alleged "large magnitude" of the market ing loan payments and counter-cyclical 
payments  
(a) Main arguments of the parties 
10.106  Brazil  argues that the magnitude of US marketing loan and counter-cyclical payments under 
the FSRI Act of 2002  remains very large and that this is evidence supporting the existence of a causal 
link between these two subsidies and significant price suppression in the world market for upland 
cotton.  The elimination of Step 2 payments has not significantly reduced the overall magnitude of the 
price-contingent subsidies.353  Brazil considers that the significan ce of the magnitude of the marketing 
loan and counter-cyclical payments must be assessed in light of the fact that, as found by the original 
panel, these subsidies are provided in respect of a fungible, widely-traded product.  Because of the 
high subsidization rate from the marketing loan  payments and counter-cyclical payments, US 
producers and exporters have a significant advantag e over their competitors in securing sales in the 
world market.  Brazil submits that the large magn itude of the marketing loan payments is highly 
significant in light of their trade-distorting nature .  The panel and Appellate Body reports in the 
original proceeding and the panel reports in Indonesia – Autos  and Korea – Commercial Vessels 
                                                      
351 Infra, Sections X.B.6 and X.B.9.  
352 Supra , paras. 10.66-10.67.  
353 Brazil asserts that while the ad valorem  rate of subsidization from Step 2 payments was 6.7 per cent 
in MY 2005, the ad valorem  subsidization rate from marketing loan payments and counter-cyclical payments in 
MY 2005 was 42 per cent.   WT/DS267/RW  
Page 90  
 
  support the view that the amount of a subsidy is an important factor to consider in a price suppression 
analysis.
354  
10.107  The United States  submits that Brazil does not demonstrate that the size of the outlays under 
the marketing loan and counter-cyclical payment pr ogrammes supports the existence of a causal link 
between these payments and the exis tence of significant price suppression.355  Labelling the annual 
amounts of marketing loan and counter-cyclical paym ents as "large" or "very large" says nothing 
about the effects of these payments on world market  prices.  The size of outlays under the marketing 
loan and counter-cyclical payment programmes cannot be meaningfully addressed apart from an actual examination of their design, structure and operation.  Brazil provides no evidence to 
substantiate its contention that marketing loan a nd counter-cyclical payments provide an "enormous 
advantage" to US producers and exporters "to secure sales" in the world market.  While Brazil appears 
to suggest that US exporters use marketing loan and counter-cyclical paymen ts to undercut foreign 
cotton prices, Brazil provides no evidence to support  this assertion.  Moreover, Brazil has failed to 
explain the relevance of this assertion to its claim, which is a claim of price suppression rather than price undercutting.
356   
(b) Evaluation by the Panel 
10.108  The original panel considered that a precise qua ntification of the amount of a subsidy was not 
required in a serious prejudice analysis under Part III of the SCM Agreement357, but that "the general 
order of magnitude of a subsidy may be a relevant consideration in a serious prejudice analysis in a 
particular case (where such informati on is probative and readily available)".358  The panel noted that 
as it had readily available information on the general order of magnitude of many of the subsidies at 
issue, it would take this into account in determining whether or not significant price suppression 
and/or serious prejudice existed.359  The panel relied upon the magnitude of the subsidies at issue, 
which it characterized as "very large", as a factor supporting its findings that price suppression 
existed360, that this price suppression was significant361 and that a causal link existed between certain 
price-contingent subsidies and the significan t price suppression which it had found to exist.362  
10.109  The Appellate Body held that the original pane l had not erred in its assessment of the amount 
of the subsidies for the purposes of its analysis under Article 6.3(c) of the SCM Agreement .363  The 
Appellate Body also held that the magnitude of a subsidy and its relationship to prices is a relevant 
factor to consider in an analysis of whether th e effect of a subsidy is significant price suppression 364, 
                                                      
354 Brazil's First Written Submission, paras. 10 7-119; Brazil's Rebuttal Submission, paras.  167-179.   
355 The United States addresses this issue as part of its arguments on the design, structure and operation 
of the subsidies at issue.  US First Written Submissi on, paras. 236-241; US Rebuttal Submission, paras. 276-
280. 
356 US First Written Submission, paras. 236-241; US Rebuttal Submission, paras. 276-280.  
357 Panel Report, US – Upland Cotton , paras. 7.1167, 7.1177 and 7.1179.  
358 Panel Report, US – Upland Cotton , footnote 1289.  
359 Panel Report, US – Upland Cotton , para. 7.1194.  The "readily ava ilable information" referred to by 
the panel was information contained in section VII:D and in footnote 895 of the panel report.  
360 Panel Report, US – Upland Cotton , paras. 7.1297 and 7.1308.  
361 Panel Report, US – Upland Cotton, para. 7.1332 .  
362 Panel Report, US – Upland Cotton , para. 7.1349.  
363 Appellate Body Report, US – Upland Cotton , para. 473.  
364 The Appellate Body stated:    
 
 "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 prej udice, a panel will need to consider the  WT/DS267/RW 
 Page 91 
 
 
  but that Article 6.3(c) of the SCM Agreement  does not oblige a panel "to quantify precisely the 
amount of a subsidy benefiting the product at issue in every case.  A precise, definitive quantification 
of the subsidy is not required".365  The Appellate Body also considered that although the panel could 
have been more explicit as to what it meant by th e "very large amounts" of subsidies, the information 
before the panel clearly supported the panel's gene ral statements on the magnitude of the subsides.366  
10.110  We have summarized the data on record with respect to the magnitude of marketing loan 
payments and counter-cyclical payments in Tables 1 and 2.367  The evidence before the Panel 
indicates that in MY 2005 the total amount of marketing loan payments to upland cotton producers and of counter-cyclical payments allocated to upland cotton was higher than in MY 2002.
368  We also 
note that the amount of marketing loan payments an d counter-cyclical payments in MY 2005 is of the 
same order of magnitude as the total amount in MY 2002 of the price-contingent subsidies subject to 
the original's panel finding of "present" serious prejudice.369  At the same time, we also note that the 
amount of projected marketing loan payments in MY 2006 is significantly less than the amount of marketing loan payments in MY 2005.
370   
10.111  The Panel considers, in light of the approach taken by the panel and Appellate Body in the 
original proceeding, that in determining whether the magnitude of the subs idies at issue in this 
proceeding supports a finding that the effect of th ese subsidies is significant price suppression, it is 
necessary to examine this factor in relation to other factors.  Thus, the relevance of the magnitude of 
the subsidies in this connection must  also be assessed in light of our analysis above of the structure, 
design and operation of the subsidies.  We reca ll, in this respect, our conclusion regarding the 
important revenue-stabilizing effect of these mandator y, price-contingent subsidies.  In the latter 
regard, the evidence before us indicates that mark eting loan and counter-cyclical payments play a 
                                                                                                                                                                     
effects of the subsidy on prices.  The magnitude of the subsidy is an important factor 
in this analysis.  A large subsidy that is closely linked to prices of the relevant 
product is likely to have a greater impact on prices than a small subsidy that is less closely linked to prices.  All other things being equal, the smaller the subsidy for a 
given product, the smaller the degree to wh ich it will affect the costs or revenue of 
the recipient, and the smaller its likely impa ct on the prices charged by the recipient 
for the product.  However, the size of a subs idy is only one of the factors that may be 
relevant to the determination of the effects of a challenged subsidy.  A panel needs to 
assess the effect of the subsidy taking into account all relevant factors."  
 
Appellate Body Report, US – Upland Cotton , para. 461 (footnote omitted).    
365 Appellate Body Report, US –  Upland Cotton , para. 467. 
366 Appellate Body Report, US – Upland Cotton, para. 468. 
367 Supra , paras. 10.24 and 10.32. 
368 As can be seen from Tables 1 and 2, the total amount of marketing loan payments in MY 2005 was 
US$1.269 billion and the amount of counter-cyclical pa yments allocated to upland cotton was US$838 million .  
The total amount of marketing loan and counter-cyclical payments to US upland cotton producers was US$2.107 billion in MY 2005.   In MY 2002, the amount of marketing loan payments was US$898 million while 
the amount of counter-cyclical payments allocated to upland cotton was US$851.5 million.  
369 According to Table 6 in Brazil's First Written Submission, the amount of  Step 2 payments in 
MY 2002 was US$429 million.  No market loss assistance payments were made in MY 2002.  Thus, the total 
amount of marketing loan and counter-cyclical payments to upland cotton producers and of Step 2 payments to 
upland cotton users and exporters was US$2.179 billion in MY 2002. 
370 As noted above, Brazil has pointed to three different projections of the amount of marketing loan 
payments MY 2006:  US$650 million,  US$475 million and US$757 million.  Brazil argues that  the more recent 
and reliable of these projections is the February 2007 US DA projection (US$757 million).  However, even if we 
take the lowest of the three figures mentioned by Brazil we note that the total amount of marketing loan and 
counter-cyclical payments in MY 2006 is projected to be well above US$1 billion.    WT/DS267/RW  
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  significant role in stabilizing the revenues of US upland cotton producers.
371  The share of marketing 
loan payments and counter-cyclical payments in to tal revenues of US upland cotton producers was 35 
per cent in MY 2004 and 27 per cent in MY 2005.372  This data on the share of marketing loan and 
counter-cyclical payments in US upland cotton producer s' revenues is especially important in light of 
our finding regarding the gap between costs of pr oduction and market revenues of US upland cotton 
producers.373  In our view, when considered in conjuncti on with other factors, the order of magnitude 
of the marketing loan payments and counter-cyclical  payments supports a finding of significant price 
suppression, even when account is taken of the de cline in the amount of marketing loan payments 
projected for MY 2006.374   
7. Alleged "link between high levels  of US subsidies and high le vels of US planted  acreage, 
production and exports"  
(a) Main arguments of the parties 
10.112  Brazil  argues that there remains a strong link betw een high levels of US subsidies and high 
levels of US planted acreage, production and expor ts during MY 2002-2005, which is due to the fact 
that marketing loan and counter-cyclical payments insulate US cotton producers from market price 
signals.375  Brazil asserts in this connection that, regardl ess of the type of price examined, US planted 
acreage, production and exports do not respond signif icantly to market prices and have increased 
significantly in recent years.376  377  Brazil provides graphs demonstrating that while US acreage does 
not show any relationship to futures prices, forei gn acreage reacts to changes in expected prices.378  
Brazil also provides graphs demonstrating that  US upland cotton production and exports do not 
respond significantly to changes in either movement s or absolute levels of the US farm price.379   
10.113  Brazil provides a table to show the amounts of US planted and harvested acreage, yields, US 
production and US exports of upland cotton over th e MY 1999-2005 period that were achieved under 
the revenue protection afforded US upland cotton pro ducers by the effects of the marketing loan and 
counter-cyclical payment programmes.   
                                                      
371 Brazil's First Written Submission, para. 133, Figure 8; Brazil's Comments on US Response to Panel 
Question 51, para. 72, Figure 1.   
372 Brazil's First Written Submission, para. 135.     
373 Infra , Section X.B.9  
374 Supra , footnote 370. 
375 Brazil's First Written Submission, para. 137.   
376 Brazil's First Written Submission, paras.  139-149; Brazil's Rebuttal Submission,  paras. 209-231.    
377 Brazil asserts that US planted acreage, after falli ng slightly in MY 2002 and 2003, has increased 
every year since.  MY 2006 acreage, planted in the spring of 2006, is es timated to be the highest in five years, 
and, at 14.96 million acres, only a half-million acres below the ten-year high reached in MY 2001.  Overall, US planted acreage during MY 2002-2005 has remained at levels that are similar to 10- and 15-year averages – 
periods during which US upland cotton producers also bene fited from large US subsidies.  Brazil's First Written 
Submission, para. 140 and  Exhibit Bra-447 (Upland Cotton Supply and Use). 
378 Brazil's First Written Submission, Figure 9;  Brazil's Rebuttal Submission,  Figures 8  and 9.  
379 Brazil's First Written Submission, Figures 10 and 11.   WT/DS267/RW 
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  Table 5:  US Upland Cotton Production, Exports and Acreage, MY 1999-2006 
 
MY 1999 2000 2001 2002 2003 2004 2005 2006 
Production (million bales) 16.294 16.799 19.603 16.531 17.8 23 22.505 23.260  
Exports (million bales) 6.303 6.303 10.603 11.266 13.220 13.618 17.437  
Planted acres (million 
acres) 14.584 15.347 15.499 13.714 13.301 13.409 13.975 14.995 
Harvested acres (million 
acres) 13.138 12.884 13.560 12.174 11.826 12.809 13.534  
Yield (bales per acre) 1.240 1.304 1.446 1.358 1.507 1.757 1.719  
 
Source: Brazil's First Written Submission, Table 12.380  
 
10.114  Brazil asserts that the record amount of US upland cotton production in MY 2001 was 
surpassed in MY 2004 by 15 per cent and that MY 2 005 saw yet another record level of production.  
Production in MY 2005 was 43 per cent higher than in MY 1999.381  Since MY 1999, US exports 
have increased even more rapidly than production.  In MY 2005, US upland cotton exports were 177 
per cent higher than in MY 1999.  MY 2001, 2002, 2003, 2004 and 2005 each established new record 
volumes of US exports.  Exports in MY 2005 were, in fact, larger than total US upland cotton 
production  in MY 1999, 2000 and 2002.382  
10.115  Brazil submits that in arguing that US cotton producers are not insulated from market signals 
the United States makes arguments that were already rejected in the original proceeding.  According 
to Brazil, the United States effectively asks this  Panel to overturn the finding of the panel and 
Appellate Body that the structure, design and ope ration of the marketing loan and counter-cyclical 
subsidies insulate US upland cotton producers from ma rket forces by stabilizing their revenue at very 
high levels.  Adverse effects within the meaning of Articles 5 and 6 of the SCM Agreement  result not 
from increases as such but from production and exports in excess of what would have been the levels 
of production and exports in the absence of the subs idies.  But for the marketing loan and counter-
cyclical payments, US producers would have been mo re responsive to market price signals.  The very 
fact that the US shares of world production and export s have remained stable is  evidence of the effect 
of the marketing loan and counter-cyclical subsidies.383 
10.116  Brazil submits that the argument of the United St ates that US cotton planting decisions should 
be explained by the ratio of upland cotton futur es prices to soybeans futu res prices was already 
rejected by the panel and Appellate Body in th e original proceeding and is not supported by the 
evidence submitted by the United States.384  
10.117  The United States  argues that US upland cotton producer s and exporters have reacted to 
market signals and are not insulated by the marke ting loan and counter-cyclical payment programmes.  
First , stable US shares of world production and exports confirm that the marketing loan and counter-
                                                      
 380 Brazil compiled this table from Exhibit Bra-447 (Upland Cotton Supply and Use) and, for planted 
acreage in MY 2006, Exhi bit Bra-449 (Cotton and Wool Outlook, USDA, Oct ober 2006, p. 9, accessed 
October 2006 at http://usda.mannlib.cornell.edu/usda/current/CWS/CWS-10-13-2006.pdf). Brazil notes that 
evidence on harvested acres, yield per harvested acre, pr oduction, and exports is not yet available for MY 2006. 
 381 Brazil's First Written Submission, para 147. 
 382 Brazil's First Written Submission, para 148. 
383 Brazil's Rebuttal Submission, paras. 195-208.  Brazil also submits that the US share of world 
production has in fact increased in MY 2005. 
384 Brazil's Rebuttal Submission, paras.  214-215. WT/DS267/RW  
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  cyclical payment programmes are not insu lating US producers from market signals.
385  The fact that 
these shares have been stable shows that US upland cotton producers are affected by market signals in 
the same ways as foreign producers.386  According to the United States, Brazil has no credible answer 
to a fundamental question in this regard – if US producers continue to plant and produce, and US 
exporters continue to export, in circumstances where "any rational non-subsidized producer" would 
have "reduced plantings, productio n, and exports," why has US share of world production and world 
exports not increased over the life of the FSRI Act of 2002?387  The United States submits that it has 
not argued that adverse effects within the meaning of Articles 5 and 6 of the SCM Agreement  can only 
be found if there are increases in production, acreag e and exports, but that increased US share of 
production is a necessary implication of Brazil's theory of market insulation.   
10.118  Second, the United States argues that Brazil fails to demonstrate the alleged strong link 
between marketing loan and counter-cyclical pa yments and US planted acreage, production and 
exports.  Brazil's analysis of the sensitivity of US planted acreage, production and exports to prices is 
flawed in that it does not properly reflect the fact ors taken into consideration by US farmers when 
making their production decisions.  Since farmers do not only consider the cotton futures price but 
also take into account other factors, such as weat her conditions, prices of competing crops, changes in 
technology, labour and input prices and marketing e fforts, it is not surprising that planted acreage 
does not correlate with the cotton futures price.388  Regarding Brazil's comparison of US cotton 
production to the farm price, the United States subm its that Brazil firstly assumes, incorrectly, that 
planting decisions could be explained through an examination of cotton prices alone.  Moreover, in 
comparing US upland cotton production in a marketing year to the average US farm price for the 
same marketing year, Brazil assumes that US farmers know at the time that they plant what the actual 
farm price will be in the upcoming marketing y ear, which does not start until August.  Finally, 
producers do not decide on production, but on plantings .  Ultimate production is affected by weather 
and other factors affecting yields.389 
10.119  The United States argues that it is apparent from Brazil's chart390 that foreign acreage (even 
harvested acreage) is many orders of magnitude great er than US planted acreage.  Plotted against each 
other in a chart, US planted acreage will inevitabl y appear to be flat relative to foreign acreage.391  
The United States also submits that a comparison of  US acreage and foreign acreage to futures prices 
of upland cotton shows that neither US nor foreign harvested acreage moves closely in line with futures prices of cotton alone.
392  
                                                      
385 US First Written Submission, Section VI.C.2(a).  Th e United States provides charts to show that the 
US shares of world production and exports of upland cotton have remained stable over the life the FSRI Act of 2002 in paras. 243 and 247 of its First Written Submission.  In paras. 283-284 of its Rebuttal Submission, the 
United States provides charts to show  that the US share of world production has been stable from well before 
either  the marketing loan or the counter-cyclical payment programme came into effect.   
386 With respect to the increase in  the US share of world exports in the period MY 1999-2002, the 
United States argues that th is increase did not reflect an increase in US share of world production.  In other 
words, US producers were not increasing their production relative to foreign producers in order to gain market 
share, as Brazil has suggested.  Rather, a greater propor tion of US production was being exported.  The reason 
for this was the decline in US mill use resulting from the declining competitiveness of the US textile industry 
and increasing US imports of textiles and clothing in the same period.  US First Written Submission, para 249.   
387 US Rebuttal Submission, para 283. 
388 US First Written Submission, paras. 255-261.  
389 US First Written Submission, para 262-263.  The United States also argues that, if one compares 
both US and foreign production to movements in the A-In dex, the same alleged "absence" of a "link" between 
absolute production levels and prices is apparent in  both cases.  US First Written Submission, para. 265. 
390 Brazil's Rebuttal Submission, para. 221, Figure 8.  
 391 US Rebuttal Submission, para 303. 
 392 US Rebuttal Submission, para 308.  WT/DS267/RW 
 Page 95 
 
 
  10.120  The United States argues that "absolute" incr eases in US production are "the effect" of 
improvements in yields, not the marketing lo an and counter-cyclical payment programmes.393  
10.121  Brazil  submits that there is no legitimate basis for the United States to claim that increased 
yields alone accounted for increased US production and increased US exports in MY 2004 and 2005.  
Brazil agrees that for the portion of US upland co tton planted acreage that would have been planted 
even without the effects of the US subsidies, th e increased yields alone accounted for an increase in 
resulting production and exports.  However, for the portion of US upland cotton planted acreage that 
would not have been planted but for the marketi ng loan and counter-cyclical payment revenue, the 
increased yields secured on such acreage – and hen ce also the resulting production and exports – are 
linked to the effects of the US subsidies.394   
(b) Evaluation by the Panel  
10.122  The Panel notes that in support of its argument that there exists a strong link between high 
levels of US subsidy payments and high levels of US planted acr eage, production and exports, Brazil 
argues that US cotton producers are insulated from market price signals.395  In Brazil's view, the price-
contingent marketing loan and counter-cyclical payments act to ensure that US upland cotton 
producers' total revenue per unit remains largely unaffect ed by price movements.  Brazil refers in this 
respect to the findings of the panel and the A ppellate Body in the original proceeding.   
10.123  Brazil has also sought to provide factual suppor t for its argument that US producers do not 
react to market price signals by comparing US pl anted acreage and futures prices of cotton.  Brazil 
argues that, as during the time period assessed by the original panel, US planted acreage continues to show no obvious relationship to market price signals.
 396  By contrast, the United States asserts that the 
futures price of cotton is not the sole basis for a farmer's planting decision as many growers, in the 
United States and elsewhere have several alterna tive crops to consider.  In this respect, the 
United States submits that a comparison between, on the one hand, US cotton planted acreage and, on 
the other hand, the ratio of cotton futures prices to soybeans futures prices rebuts Brazil's argument 
that US cotton producers are insulated from market price signals.397  Brazil contests that this 
comparison supports the argument of the United States.398    
                                                      
 393 US First Written Submission, Section VI.C.3, page 87. See also US Rebuttal Submission, 
Section IV.C.2, page 108.  
394 Brazil's Rebuttal Submission, paras. 229-231.  
395 Brazil's First Written Submission, para. 137. 
396 Figure 9 in Brazil's First Written Submission co mpares the average price of the December cotton 
futures contract in February (a proxy for farmers' pre-planting expectations of market prices during the 
beginning of the marketing year) with US upland cotton planted acreage.  Brazil argues that this figure shows 
that US planted acreage does not move with futures prices  in at least three of the last four planting seasons. 
Brazil argues that the graph demonstrates  that, in 2003, US planted acreage declined even though futures prices 
indicated much higher prices for th e December 2003 harvest.  Similarly, in February 2004, planted acreage only 
increased slightly (108,000 acres) despite the highest Fe bruary futures prices for th e December contract in the 
previous five years.  And with futures prices falling significantly in February 2005, US upland cotton farmers 
planted 566,000 more acres than the previous y ear.  Brazil's First Written Submission, para. 143.  
397 Thus, during January, February and March, US growers would be looking at the levels of the 
upcoming December futures contract on cotton, September futures contract for corn, and November futures 
contract for soybeans.  To demonstrate this, the United States presents another figure providing a comparison of 
US planted acreage to the ratio of cotton futures and soyb ean futures prices.  The United States claims that the 
figure shows that, when the expected cotton futures price is high relative to the expected soybean futures price, 
planted acreage tends to increase.  Wh en the opposite is true – and the ratio is small – cotton planted acreage 
tends to decrease.  US First Written Submission, paras. 257-259. 
398 Brazil's Rebuttal Submission, para. 215.  Brazil a sserts that a close examination of the figure 
presented by the United States demonstrates that US acr eage and the cotton to soybean futures price ratio move WT/DS267/RW  
Page 96  
 
  10.124  The Panel finds that the data presented by Brazil supports the argument of Brazil that the 
cotton futures prices does not seem to explain US co tton planted acreage.  The Panel also agrees with 
Brazil that the evidence provided by the United Stat es regarding the relationship between, on the one 
hand, the ratio of cotton futures prices to soybeans future prices and, on the other hand, US planted 
acreage does not provide an adequate explanation for the observed changes, particularly for the period 
MY 2003 to 2006.  The Panel notes, in this regard, th at the ratio of cotton futures prices to soybean 
futures prices and US cotton planted acreage only move d in the same direction in MY 2006.  In MY 
2003, the ratio of cotton futures prices to soybean s futures prices increased  sharply while cotton 
planted acreage declined.  The ratio decreased in both MY 2004 and MY 2005, while planted acreage 
increased in both years.  Thus, even if we agree w ith the argument of the United States that futures 
prices of alternative crops to cotton need to be  taken into account, the data does not support an 
important role for this ratio of cotton fu tures prices to soybeans futures prices.   
10.125  The major argument raised by the United Stat es to rebut Brazil's argument that US upland 
cotton producers do not react to market price signals concerns the relative stability of the US share of 
world production and exports over the entire period of the FSRI Act of 2002.  In the view of the 
United States, the stable US share of world production reflects the fact that US production has 
increased and decreased in much the same way as production elsewhere in the world, undermining 
Brazil's claims that the marketing loan and count er-cyclical payment programmes have "insulated" 
US producers from world market price signals.
399  As the United States puts it, whatever signal the 
"world market" is sending, US producers are receiving it clearly and responding to it in much the same way as their foreign counterparts.
 400  Similarly, increases in the volume of US exports during 
MY 2002-2005 were not disproportionately greater th an the increase in the volume of exports from 
foreign suppliers.  In the view of the United States,  this indicates that, contrary to Brazil's allegations, 
US exports were affected by the changes in th e marketplace in much the same way as exports of 
foreign producers.401      
10.126  Brazil has responded to this by arguing that the relevant economic decision of cotton 
producers to consider is not production nor exports but planted acreage.  However, neither Brazil nor 
the United States appear to have access to recent da ta on foreign planted acreage.  Brazil presents a 
figure which compares US planted acreage and fore ign harvested acreage to movements in futures 
prices of cotton.402  Referring to this figure, Brazil contends  that changes in foreign harvested acreage 
and futures prices moved in the same direction in sev en out of eight years.  By contrast, changes in 
US planted acreage and futures prices move in the same direction in only three out of eight years.  In 
the remaining five years, they move in different directions.403  The United States objects to the 
comparison because Brazil compares foreign harvested  acreage (instead of foreign planted acreage) 
with US planted acreage.   
10.127  The fact that the US share of world cotton production and exports has remained relatively 
constant in MY 2002-2005 suggests to us that US  producers have increased production and exports in 
proportionately the same way as foreign cotton producers.   In our view, Brazil's claim of insulation of 
US producers from market price signals applies in particular when expected prices are below their 
intervention levels (the market loan rate or the target price under the count er-cyclical programme).  
                                                                                                                                                                     
in parallel in only 3 of the 8 years identified.  In the ot her five years, the development is either in the opposite 
direction (3 years) or in the same direction, but to very  different degrees (2 years).  In Brazil's view, this is 
hardly evidence of US upland cotton acreage being "genera lly" responsive to the cotton to soybean futures price 
ratio. 
399 US First Written Submission, para. 244. 
400 US Rebuttal Submission, para. 285. 
401 US First Written Submission, para. 248. 
402 Brazil's Rebuttal Submission, Figure 9. 
403 Brazil's Rebuttal Submission, para. 224.  WT/DS267/RW 
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  However, the degree of insulation is less when e xpected cotton prices are above their intervention 
levels.  In such a situation, US cotton producers should respond to higher expected cotton prices much 
in the same way as foreign cotton producers.  Thus, the Panel is of the view that the stable US share of 
world production and exports does not mean an ab sence of insulation of US producers from market 
price signals.  What it means is that the degree of pr ice insulation that the original panel found is now 
weaker possibly because prices are not as depressed as during the period examined by the original 
panel.     
8. Alleged "discernible temporal coincidence"  of suppressed world market prices and 
large marketing loans and counter-cyclical payments 
(a) Main arguments of the parties 
10.128  Brazil argues that the existence of a "discernible temporal coincidence" of suppressed world 
market prices and large marketing loan payments  and counter-cyclical payments is one of many 
factors that cumulatively support a finding of a causal relationship between marketing loan and counter-cyclical payments and significant price su ppression in the world market for upland cotton.  
Brazil refers to the finding of the original panel of a "discernible temporal coincidence of suppressed 
world market prices and the price-contingent United States subsidies" and submits that developments 
in MY 2001-2005 regarding the same factors relie d upon by the original panel show that there 
remains such a discernible temporal coincidence between suppressed world market prices and large 
marketing loan and counter-cyclical payments.  Brazil refers, in this respect, to the increase in US 
production of upland cotton; the high US share in world production for upland cotton; the historically low level of upland cotton prices; the increase in US exports and the record US share in world exports 
of upland cotton.  Brazil also asserts that dur ing MY 2002-2005, lower world and US prices for 
upland cotton are matched with higher levels of ma rketing loan and counter-cyclical payments and 
that the original panel's finding regarding the influe nce of the New York futures price and the A-Index 
price continues to be valid.
404  
10.129  The United States  submits that Brazil fails to show any discernable temporal coincidence 
between the marketing loan and counter-cyclical payment programmes and any alleged significant 
price suppression.  None of the factors considered by the original panel in reaching its conclusion 
regarding the discernible temporal coinciden ce between US subsidies and significant price 
suppression supports such a finding with respect to the marketing loan and counter-cyclical 
programmes now.  First , US planted acreage has been stable fo r the entire period that the FSRI Act 
has been in effect and is now substantially lowe r than during the period examined by the original 
panel.  The fact that production in MY 2005 was larger than in MY 1999 and MY 2001, even though 
producers actually planted fewer acres in MY 2005, re flects the dramatic improvements in yields.  
Second , over the period of the FSRI Act the US shar e of world production has remained stable.  Third , 
prices received by US upland cotton producers have  not decreased since the FSRI Act came into 
effect.  Fourth , the fact that the A-Index in MY 2002-MY 2005 was an average of 16 per cent lower 
than the 1980-2001 average says nothing about whether the marketing loan and counter-cyclical 
payments programmes are causing present significan t price suppression as a decline in prices does not 
establish price suppression.  Moreover, the fact the A-Index has trended downward for more than 25 
years and has gone up from the levels prevailing befo re the entry into effect of the FSRI Act suggests 
that if there is price suppression, it is not the effect of the marketing loan and counter-cyclical 
payment programmes.  Fifth , the share of the United States in world exports has not increased over 
the period of the FSRI Act and has even declined in  MY 2002.  Finally, the low level of imports of 
upland cotton has little to do with the marketing loan  and counter-cyclical payments as US imports of 
                                                      
404 Brazil's First Written Submission, paras. 153-15 4; Brazil's Rebuttal Submission, para. 233.  WT/DS267/RW  
Page 98  
 
  upland cotton have been at low levels for many decades and as US demand for cotton generally has 
declined as the textile industry shrunk.
405  
(b) Evaluation by the Panel  
10.130  In support of its finding of a causal link between  certain of the challenged US subsidies and 
the significant price suppression in the world market for upland cotton, the original panel relied upon 
the existence of "a discernible temporal coinciden ce" of suppressed world market prices and the price-
contingent US subsidies.   
10.131  The original panel explained its  finding as to the existence of this discernible temporal 
coincidence as follows:  
"Third, there is a discernable temporal coinci dence of suppressed world market prices and the 
price-contingent United States subsidies.  Looking at the period, we see the following: 
• United States production of upland cotton increased from MY 1998 to MY 2001 and, 
while production dropped in MY 2002, ther e was still an overall increase in MY 2002 
compared to MY 1998; 
 
• the United States' share of world upland co tton production increased to and remained 
at a level of approximately 20 per cent; 
 
• United States prices received by United States upland cotton producers decreased by 
34 per cent between MY 1998 and MY 2001; 
 
• the A-Index in MY 1999 – MY 2002 was, on average, 29.5 per cent below its 1980-
1998 average;  
 
• United States exports increased by approximately 160 per cent from MY 1998 to 
MY 2001 and by an even greater percentage from MY 1998-MY 2002;   
 
• United States share of world exports of upland cotton increased; and 
 
• United States imports of upland cotton remained at comparatively low levels. 
 
These data reveal that, over the same period that the subsidies in question were being granted, 
the United States market generated large suppli es of upland cotton.  Over this same time 
period, market revenue of United States upla nd cotton producers decreased.  So did world 
market prices.  There was also a marked incr ease in United States exports, both absolute and 
in terms of relative share of world exports.  Ev en taking into account that in 1998, production 
may have been driven downward by drought and high levels of crop abandonment and that, in 
2001, production may have been driven upward by high yields, we see a strong temporal 
coincidence between the United States subsidies and the drop in United States prices, the drop 
in – and suppression of – world market prices, the increase in United States exports."406  
(footnotes omitted)   
10.132  The Appellate Body addressed this fi nding of the original panel as follows: 
                                                      
405 US First Written Submission, paras. 288-290;  US Rebuttal  Submission, para. 316.   
406 Panel Report, US – Upland Cotton , paras. 7.1351-7.1352.   WT/DS267/RW 
 Page 99 
 
 
  "The third reason the Panel provided for findi ng a 'causal link' was that 'there is a 
discern[i]ble temporal coincidence of suppr essed world market prices' and the price-
contingent subsidies.  The United States describes this as 'an exercise in spurious correlation'.  However, in our view, one  would normally expect a discernible 
correlation between significantly suppressed pr ices and the challenged subsidies if the 
effect of these subsidies is significant pr ice suppression.  Accordingly, this is an 
important factor in any analysis 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."
407   
10.133  In light of these comments of the Appellate Body , the Panel considers that the existence of a 
correlation between a subsidy and a particular level of prices is not in and of itself sufficient to 
establish that the subsidy causes significant price suppression.408  Moreover, the data before the Panel 
indicates that with respect to several key factors relied upon by the original panel in finding "a 
discernible temporal coincidence" of suppressed wo rld market prices and the price-contingent US 
subsidies, the current situation is significantly diffe rent from the situation considered by the original 
panel.   
10.134  Regarding the evolution of prices of upland co tton, the original panel found that there had 
been a 34 per cent decrease in prices received by  US upland cotton producers between MY 1998 and 
MY 2001.  With respect to exports, the original pane l found that there had been "a marked increase in 
United States exports, both absolute and in terms of  relative share of world exports".  From MY 1998 
to MY 2002, US exports had increased by more than  160 per cent and the share of the United States in 
world exports had increased from 23.5 per cent in MY 1999 to 39.9 per cent in MY 2002.   
10.135  For the period MY 2002 to MY 2005, we are unable to detect a similar "strong discernable 
coincidence" between the US subsidies, the incr ease in US cotton exports and the drop in world 
market prices.  Instead, what could be discerned is the continuing and sharp rise in volumes of US 
production and exports.  However, these increases in volumes did not translate into a higher share of 
US cotton in world production or world exports.  Nor have the absolute  increases in US cotton 
production and exports been associated with a "broad decline" in cotton prices.   
10.136  We shall first examine the pattern of US subs idy payments using data from Tables 1 and 2A 
above409, relating them to the behaviour of the world market price of cotton.  Except for MY 2003, 
when cotton prices saw a sharp increase, the sum of  marketing loan and counter-cyclical payments 
averaged more than US$2 billion dollars annually.  Over this four-year period, marketing loan 
payments made up more than 60 per cent of total payments to cotton producers.  The amount of subsidy payments varied inversely with cotton pri ces.  When cotton prices were low, as in MY 2002, 
2004 and 2005, significant marketing loan and count er-cyclical payments were triggered.  When 
cotton prices were high, as in MY 2003, both mark eting loan and counter-cyclical payments were 
substantially reduced.  This patte rn of subsidy payments results in a stabilization of US cotton 
producers' revenues.  Figure 1 below illustrates this inverse relationship of subsidy payments and the 
A-index for MY 2002-2005. 
                                                     
 
407 Appellate Body Report, US – Upland Cotton , para. 451.  
408 We also recall our observations ( supra , paras. 10.45-10.49) on the concept of price suppression and 
on the need for a counterfactual analysis in determining wh ether price suppression is the effect of a subsidy.   
409 Supra , paras. 10.24 and 10.32. WT/DS267/RW  
Page 100  
 
  Figure 1: Subsidy (Marketing Loan a nd Counter-Cyclical) Payments and  
World Cotton Prices, MY 2002-2005 
02004006008001,0001,2001,4001,6001,8002,000
2002 2003 2004 2005
Marketing YearMillions of dollars
01020304050607080
Cents per pound
Marketing Loan CCP A-Index 
Sources: The A-Index is from Exhibit US-25.  To tal marketing loan payments are taken from rows 2 
and 3 of Table 1 above.  Counter-cyclical payments are taken  from row 3 of Table 2A above. 
10.137  During the period MY 2002-2005, when these la rge marketing loan and counter-cyclical 
payments continued to be made by the United St ates, the absolute level of US cotton production 
increased by 38.8 per cent with a much bigger increase in the absolute level of US cotton exports of 
51.6 per cent.  Cotton production and exports in MY 2005 were at the highest levels ever achieved by 
the United States.  However, these increases in US production and exports did not translate into an 
increase in the US share of the world cotton market .  As can be observed in Table 3 above, the US 
shares of world exports and world production have  stayed at about 40 per cent and 20 per cent, 
respectively, during the period analyzed.  This means that cotton producers and exporters in the rest of 
the world were increasing their levels of production and exports at the same time.  The increases were 
to such an extent that, collectively, the foreign producers and exporters maintained their share of the 
world market.   
10.138  Also, unlike the situation found by the original pa nel, these increases in th e absolute levels of 
US production and exports did not take place during a period when the market price of US upland 
cotton producers was declining.  The original pa nel noted that prices received by US upland cotton 
producers decreased by 34 per cent between MY 1 998 and MY 2001.  The implication was that US 
subsidy payments could explain why US cotton production was increasing despite declining market 
revenues.  Our examination of the prices received  by US cotton producers in the more recent period 
does not show an equally dramatic decline.  Inst ead, the average US farm price during the period MY 
2002-2005 was 14.3 per cent higher than the average US farm price during the period MY 1999-2002.
410  In the case of upland cotton spot market pr ices, the average for MY 2002-2005 was 9.6 per 
cent higher than the average for MY 1999-2002.  No  doubt this higher average price of cotton in MY 
2002-2005 has been driven by the spike in MY 2003.  
                                                      
410 This is based on the unweighted marketing year averages of US farm and spot market prices 
compiled by Brazil in Exhibit Bra-452.      WT/DS267/RW 
 Page 101 
 
 
  10.139  Nevertheless, these two factors – first, that other major cotton producers were increasing their 
production and exports at the same time as US pr oducers and second, that prices received by US 
cotton producers were not declining dramatically duri ng this period – make it more difficult to discern 
a pronounced temporal coincidence between the US subsidies, the increase in US cotton exports and 
the drop in world market prices.     
10.140  With respect to the trend in world cotton prices,  the original panel found "a broad decline in 
the overall level of these price trends from 1996 through the beginning of calendar year 2002, with 
intermittent peaks and valleys".411  The original panel qualified this observation of price trends by 
noting that this is not, in and of itself, conclusive for a determination of price suppression.  However, 
in the panel's causality analysis, th e decline in world cotton prices was one of the elements it relied on 
in finding a temporal coincidence of suppressed world market prices and the price-contingent US 
subsidies. 
10.141  An examination of recent world price trends do es not show a similar broad decline.  Instead, 
over the period MY 2002-2005, there have been inte rmittent peaks and troughs.  Prices rose strongly 
from MY 2002 onwards with the A-index reaching a peak of 76.7 cents per lb in November 2003.412  
Prices started a sharp decline thereafter with the A-index falling to a low of 48.6 cents per lb. in 
December 2004.  Prices have since climbed with th e A-index reaching about 60 cents per lb. at the 
start of MY 2006.  The absence of a broad decline in  prices persists even if one takes a slightly longer 
period of analysis – from MY 1999-2005 – as Br azil does in its Submission (see Figure 2).  
Figure 2:  Monthly US and World Upland Cotton Prices 
0102030405060708090
Aug-99
Dec-99 Apr-00
Aug-00Dec-00 Apr-01
Aug-01Dec-01
Apr-02Aug-02
Dec-02 Apr-03Aug-03
Dec-03 Apr-04
Aug-04Dec-04 Apr-05
Aug-05Dec-05
Apr-06Aug-06cents per pound
Adjusted World Price A (NE) Index NY Nearby Futures
Brazil ESALQ U.S. Upland Spot Market Farm Price
 
Source: Brazil's First Written Submission, Figure 4. 
                                                      
411 Panel Report, US – Upland Cotton , para. 7.1288. 
412 The price data is from Exhibit Bra-452. WT/DS267/RW  
Page 102  
 
  10.142  In its analysis of price trends, the original panel noted that the world price (the A-Index) 
during MY 1999-2002 was, on average, 29.5 per cent below its 1980-1998 average.  In the current dispute, Brazil extends the price comparison to the MY 2002-2005 period and notes that the A-index 
remains well below historic price levels.  The average A-Index price during MY 1980-1998 was 73.36 
cents per pound, while the average during MY 2002-2005 was 58.92 cents per pound.
413   However, 
this historical comparison is subject to an importa nt objection.  The United States has argued that the 
A-Index has trended downwards for more than a qua rter of a century, well before the FSRI Act came 
into effect.414  The long-term decline in non-oil commodity prices is in fact one of the recurring 
themes of development and international economics. Thus, it is not clear to us that the comparison 
between the average price during the 1980-1998 pe riod and the average price afterwards is as 
important as Brazil makes it out to be.   
10.143  Therefore, while the original panel appears to have attached particular significance to the 
coincidence of a substantial increas e in the US share of world exports  and the decline in world market 
price of upland cotton415, such a coincidence is not clearly discer nible from the data for the years since 
the period considered by the panel.   
10.144  Brazil attempts to discount some of these facts by  arguing that the very fact that the level of 
planted acreage is stable and that the United Stat es has a consistently high share of world production 
and of world exports is evidence of a coincidence of subsidies and price suppression because, but for 
those subsidies, these shares of world production and e xports would be significant ly lower.  Similarly, 
Brazil argues that the increase in absolute volume  of production and exports is evidence of a 
coincidence between subsidies and price suppressi on because, absent the subsidies, this increase 
would not have occurred.416   
10.145  The question before the Panel is whether, as argued by Brazil, "a discernible temporal 
coincidence" of subsidies and significantly suppressed  prices exists that supports a finding of a causal 
relationship between subsidies and significant price suppression.  To posit that where prices and US 
shares of production and exports have not increased but remained relatively stable this is the result of 
the effect of subsidies is to assume the very conc lusion that must be demonstrated.  The fact that 
stable shares of world production and exports coinci de with the payment of subsidies cannot in and of 
itself establish the existence of a causal relations hip between the subsidies and significant price 
suppression.   
10.146  The Panel concludes from its analysis of developments during the period MY 2002-2006 
concerning the factors relied upon by the original panel in reaching its conclusion regarding the 
existence of a temporal coincidence between s ubsidies and significantly suppressed world market 
prices for upland cotton, that it is more difficult to find support in these factors for a finding that the effect of the subsidies is significant price suppressi on under current conditions than at the time of the 
                                                     
 
413 Brazil's First Written Submission, para. 101.   
414 US First Written Submission, para. 287. 
415 Panel Report, US – Upland Cotton , para. 7.1352:  
 
"Even taking into account that in 1998, production may have been driven downward by drought 
and high levels of crop abandonment and that, in 2001, production may have been driven upward by high yields, we see a strong temporal coincidence between the United States subsidies and the 
drop in United States prices, the drop in – and suppression of – world market prices, the increase 
in United States exports ." (emphasis added)   
 
We also note the panel's statement in paragraph 7.1303 of its report that "[t]he effects of these three price-
contingent subsidies are, in our view manifest in th e movements in upland cotton prices in the same world 
market during the reference period."   
416 Brazil's Rebuttal Submission, paras. 202-203.   WT/DS267/RW 
 Page 103 
 
 
  original panel's analysis.  At the same time, the Panel recalls that the purpose of its inquiry under 
Article 6.3(c) of the SCM Agreement  is to determine whether, but for the subsidies at issue, the world 
market price for upland cotton "would have increas ed [significantly], or would have increased by 
[significantly] more than was in fact the case".417  The fact that recent years have not witnessed the 
sharp decline in the world market price for upla nd cotton that occurred during the period considered 
by the original panel does not necessarily mean that  there is currently no price suppression within the 
meaning of Article 6.3(c) of the SCM Agreement .   
9. Alleged gap between long-term costs of pro duction and market revenues of US upland 
cotton producers  
(a) Main arguments of the parties 
10.147  Brazil  submits that the widening gap between the total long-term costs of production and the 
market revenue of US upland cotton producers de monstrates that much of US upland cotton 
production would not be economically viable wit hout the marketing loan and counter-cyclical 
payments.  During the period MY 2000-2005 US upl and cotton producers would have lost US$663 
per planted acre, or US$9.84 billion in aggregate, without the marketing loan and counter-cyclical 
payments.418  Brazil also argues that a survey conduc ted by the International Cotton Advisory 
Committee (ICAC) shows that the United States is a high-cost producer relative to other countries 
producing upland cotton.  Brazil considers that the data on costs of production of US upland cotton 
producers shows that, in the absence of the marke ting loan and counter-cyclical payments, many US 
upland cotton producers would have had to disc ontinue growing upland cotton and switch to 
alternative crops.  US supply would have been, on average, 15-16 per cent lower in the absence of 
marketing loan and counter-cyclical payments over the period MY 2000-2005.419  
10.148  Brazil submits that the United States cannot si destep the gap between upland cotton revenue 
and total costs of production by re ference to whole-farm or off-farm revenues.  Brazil recalls that the 
United States made a similar argument in the orig inal proceeding and submits that, like the original 
panel, this Panel should reject the argument of th e United States that whole-farm costs and income, 
including off-farm income, are relevant to an ass essment of the effects of the marketing loan and 
counter-cyclical payments.420  The United States has not answered the question why a farmer would 
cross-subsidize the production of upland cotton.  The fact that US upland cotton producers supplement their income with off-farm work is irrele vant to an examination of costs and returns in 
respect of upland cotton.
421   
10.149  Brazil also submits that while variable costs of  production may play a role in the short-term, 
US upland cotton producers must meet both short-te rm variable costs of production and long-term 
                                                      
417 Supra , para. 10.49.  The Panel also r ecalls the observation of the original panel that "[t]he fact that 
prices dropped from 1996 through the beginning of 2002 is relevant.  However, it is not, in and of itself, conclusive for a determination of price suppression .  Nor is the increase from 2002 conclusive that a 
determination that any price suppre ssion necessarily ceased at that point .  We must examine whether these 
prices were suppressed, that is, lower than they would have been without the United States subsidies in respect 
of upland cotton".  Panel Report, US – Upland Cotton , para.  7.1288.  
418 The data and calculations provided by Brazil in support of this assertion are contained in Exhibit 
Bra-477.  Brazil illustrates this widening gap in a grap h in Figure 13 of its First Written Submission.  Brazil 
argues that without the Step 2 progra mme, the effect of which was to raise the domestic price of upland cotton, 
this gap between costs and revenues would have been ev en larger.  Brazil's First Written Submission, para. 161. 
419 Brazil's First Written Submission, paras. 156-164.  
420 Brazil's Rebuttal Submission, paras. 249- 253; Brazil's Oral Statement, para. 83.  
421 Brazil's Comments on US Response to Panel Question 59, para. 141. WT/DS267/RW  
Page 104  
 
  total costs of production to be economically viable and continue upland cotton farming.
422  Therefore 
the evidence provided by Brazil, which shows that US upland cotton producers do not cover their long-term costs of production, is sufficient to estab lish a causal relationship between the subsidies at 
issue in this proceeding and significant price suppressi on.  Brazil also submits that the United States 
mischaracterizes certain co st items – land, labour and capital recovery costs – as fixed costs when 
these costs, which vary with the amount of production in  any given year, are in fact variable costs.  If 
these items are correctly treated as  variable costs, a significant number of US upland cotton producers 
are not able to cover their variable costs of produc tion, nor do they expect to be able to cover their 
variable costs of production.
423  424   
10.150  Based on a comparison of expected returns and total costs of growing cotton, corn or 
soybeans on a base acre of cotton in MY 2005, Br azil submits that without marketing loan and 
counter-cyclical payments US upland cotton produc ers would have had every incentive to switch to 
production of the other two crops.  Similarly, a co mparison of expected returns and total costs of 
growing cotton, corn or soybeans on a base acre of cotton in MY 2007 shows that the effect of the marketing loan and counter-cyclical payments is  to mute significantly the incentives that would 
otherwise exist for upland cotton producers to switch to production of soybeans and corn.  A 
comparison of average returns and total costs associated with planti ng cotton, corn or  soybeans on a 
cotton base acre in MY 2002-2006 indicates that onl y US subsidies made growing cotton during MY 
2002-2006 economically rational and very profitable and that in the absence of cotton marketing loan 
and counter-cyclical payments, cotton farmers w ould have sustained significant losses whereas 
growing corn or soybeans would have been profitable.
425  Brazil argues that the conclusion that in the 
absence of the marketing loan and counter-cyclical payments it would be far more profitable for US 
upland cotton farmers to switch to production of corn and soybeans holds even if one makes a 
comparison of expected and actual returns with cash costs or with variable costs.426  
10.151  Brazil submits that the cost data relied upon by the United States in support of the proposition 
that most US cotton producers are able to cover bot h variable and total costs of production is based on 
MY 2003 when prices were at their highest level in th e past ten years.  The fa ct that even with these 
high prices eight per cent of US production did no t cover variable and total costs of production 
suggests that in MY 2004 and MY 2005, when pri ces were much lower, a far greater percentage of 
US producers were unable to cover variable and total costs of production.  Brazil refers in this regard 
to data on losses made by US upland cotton producer s in MY 2004-2005 and to  projections of lower 
yields and increased costs for MY 2006.  In any event, instead of breaking cotton farms into arbitrary 
                                                      
422 Brazil considers that long-term total costs are highly relevant to an assessment of the effects of the 
marketing loan and counter-cyclical payments even if the Panel uses only MY 2005 as a reference period.  
Brazil's Response to Panel Question 71.  
423 Brazil's Rebuttal Submission, paras. 257-277 and Figu re 10.  Brazil submits in this respect that US 
variable costs of production are expected to be significantly higher in MY 2006-2008 than in MY 2003-2005 and that expected variable costs are projected to exceed expected market revenue in MY 2006-2008.  Brazil's 
Rebuttal Submission, paras. 276-277.  See also Brazil's Oral Statement, paras. 87-89.  
424 In addition, Brazil considers that the United Stat es has provided a misleading presentation of costs 
of production data insofar as certain data offered by the United States excludes the costs of ginning and the 
revenues associated with cottonseed.  USDA costs of pr oduction shows that the costs associated with ginning 
are far higher than the market value of cottonseed.  The USDA data also does not make a distinction between costs associated with produci ng upland cotton lint and costs associated with cottonseed.
  Nor did the original 
panel make such a distinction.  Brazil's Rebuttal Submission, paras. 279-281.  
425 Brazil's Oral Statement, paras. 63-78, Figures 1-6 and Exhibits Bra-634 and Bra-648.  
426 Brazil's Comments on US Oral Statement, paras 15-17, Figures 7-12, Exhibit Bra-667 and Exhibit 
Bra-668.   WT/DS267/RW 
 Page 105 
 
 
  cost groups, the Panel should adopt the same appro ach as the original panel and rely upon national 
average cost of production data.427   
10.152  Brazil considers that in criticizing the use made  by Brazil of the total cost of production data 
published by USDA the United States makes an argumen t that was already rejected by the original 
panel.  The argument that total cost data is not an  appropriate indicator of the financial viability of 
upland cotton farmers because of the inclusion of  non-cash costs is in contradiction with basic 
economic and accounting principles.  As explained by USDA, non-cash costs are real economic costs 
and are part of the total costs that are taken into account by farmers when making their production 
decisions.  The criticism by the United States also ignores the fact that the USDA total cost data 
reflects valuation methodologies that were con ceived by the American Agricultural Economics 
Association and implemented by USDA.428   
10.153  Brazil also submits that the evidence does not  support the US argument that low-cost 
producers would expand production and thus offset the decline of production caused by the exit of high-cost producers.
429  
10.154  The United States  argues that Brazil does not demonstrate that US producers would switch to 
alternative crops in the absence of  payments under the marketing lo an and counter-cyclical payment 
programmes.  The gap between total costs and revenues of growing cotton does not support the 
argument that cotton plantings and production would have been lower but for the marketing loan and 
counter-cyclical payments.  First , total costs and returns of growi ng cotton do not explain short-term 
planting decisions and do not alone explain long-term  farming decisions.  Short-term decisions on 
whether to plant cotton or an alternative crop ar e not made by reference to long-term costs of 
production but by reference to variable costs of prod uction.  While in the long run total costs may be 
relevant to decisions on whether to continue cott on farming, such decisions are made taking into 
consideration whole-farm costs and revenues, in cluding off-farm revenues, and are not based only on 
the costs of producing cotton.430  Second , US cotton producers have not only covered their variable 
costs of production but also a substantial portion of their total costs from cotton revenues in MY 
2002-2005.431  The evidence also shows that over the period of the FSRI Act of 2002, costs per pound 
of cotton have declined steadily.432  
10.155  The United States submits that Brazil has not shown that US upland cotton producers are 
unable to meet their variable costs of productio n without marketing loan and counter-cyclical 
                                                      
427 Brazil's Oral Statement, para. 84; Brazil's Comments on US Response to Panel Question 59, paras. 
142-149.  
428 Brazil's Comments on US Response to Panel Question 59, paras. 150-160.  
429 Brazil's Oral Statement, para. 85.  
430 The United States asserts that Brazil also fails to take into account the diversity of US cotton 
producers and the possibility that any exit of high-cost producers would be offset by the expansion of more 
efficient low-cost producers.   US First Written Submission, para. 298. 
431 US First Written Submission and Exhibit US-47.  The United States explains that the graph in 
paragraph 300 of its First Written Submission presents costs of production in two ways: 
 
"For both variable and total costs, the upper line is the cost for both cotton and cottonseed (i.e. 
for 'raw ' or seedcotton).  The farm price sh own above, however, is the price for cotton lint, 
which is the product at issue here.  To calcula te costs for cotton lint only that can properly be 
compared to the upland cotton farm price, the Un ited States has subtracted ginning costs from 
variable costs of production.  This is consis tent with the practice in the United States of 
ginning costs being paid for out of the proceeds gained by the gin from sale of the cottonseed 
that is separated out in the ginning process.  The bottom line for both variable and total costs shows costs net of ginning."  US First Written Submission, para. 301  (original emphasis)  
432 US First Written Submission, paras. 302. WT/DS267/RW  
Page 106  
 
  payments programmes.  First , the economic literature does not s upport Brazil's argument that the 
opportunity costs of unpaid labour, land costs and capita l recovery costs should be treated as variable 
cash costs.
433  Second , prices were sufficiently high to cover vari able costs of production and, in many 
cases, total costs of production both on a national and a regional basis.  A comparison of upland 
cotton lint costs and returns shows that even classi fying paid labour as a variable cost, US upland 
cotton producers have been able to more than cove r their operating costs and much of their overhead 
costs over the period 1999-2005.434  In addition, US producers are forecast to more than cover 
operating costs as well as a large share of total costs.435  Contrary to Brazil's argument, the fact that 
the cost of production data represents averages understates the cost effectiveness of US producers 
because, as shown by data for 2003, the overwhelm ing majority of US production took place on farms 
that not only met their variable costs but also  their total costs and only high-cost producers, 
accounting for approximately 8 per cent of US production, did not cover their operating costs.436  
Third , ginning costs are appropriately excluded from the calculation of costs of production for US 
upland cotton lint in light of the common practice in the United States of ginning costs being paid out of the proceeds gained by the gin from the sale of the cotton seed separated out in the ginning 
process.
437   
10.156  The United States argues that Brazil has no basi s to contest the economic literature showing 
that long-term decisions about upland cotton prod uction take total costs of producing upland cotton 
into account as one of many other factors including  off-farm income and income from other sources.  
Brazil's argument that income from other sources is not legally or factually releva nt to an analysis of 
US upland cotton production costs and returns misses  the point because the question before the Panel 
is not one regarding the balance of upland cotton cost s of production and returns.  The question before 
the Panel is whether the marketing loan and count er-cyclical payments are causing significant price 
suppression of the world market price for upland cotton.  An analysis, such as Brazil's, that purports to 
show that US producers would make different long -term production decisions affecting price in the 
absence of marketing and counter-cyclical payments is not valid if it disregards how US producers 
actually make these decisions.438   
10.157  The United States also submits that Brazil has ye t to provide evidence that even if some US 
upland cotton producers were to decide to exit co tton farming in the absence of marketing loan and 
counter-cyclical payments, this would necessarily result in any significant decline in US cotton 
plantings.439   
10.158  With respect to the comparisons offered by Braz il of expected market revenue and total costs 
of production of growing cotton, corn or soyb eans in MY 2005 and MY 2007 and of the average 
market revenue and total costs of producti on in MY 2002-2006, the United States submits, first, that 
variable costs, not total costs of production, are the relevant measure in assessing year-to-year 
                                                      
433 US Rebuttal Submission, paras. 326-332. 
434 US Rebuttal Submission, paras. 334-335 and Exhibits US-89 and US-90.  
435 US Rebuttal Submission para. 336 and Exhibits Bra-575 and Bra-479.   
436 US Rebuttal Submission, para. 337.  As part of its Opening Statement, the United States submitted a 
table that contains figures slightly revised from the original table in paragraph 337 of the US Rebuttal 
Submission due to a calculation error.  US Opening Statement para. 72 and Exhibit US-119.  The United States submits in this respect that with respect to 92 per cent of US production of upland cotton Brazil's theory of a gap 
between costs and revenues fails as a matter of fact.  
437 US Rebuttal Submission, paras. 338-343. 
438 US Rebuttal Submission, paras. 344-347.  See also US Response to Panel Question 59, para. 136:  
"The fact that US upland cotton farmers actually make  their decisions about whet her or not to close their 
operations based on the total costs and revenues for the farm  as a whole – including revenue from all crops as 
well as from off-farm sources – is necessarily a relevant and important consideration." (emphasis original)  
439 US Rebuttal Submission, para. 348.  WT/DS267/RW 
 Page 107 
 
 
  planting decisions.440  Second , for the entire period MY 2002-2007 US cotton farmers expected to 
meet or exceed their variable costs of planting cott on, corn or soybeans, and in terms of the expected 
market revenues above variable costs, cotton was the most attractive option in at least three of these 
years.441  Third , while total costs may be a relevant c onsideration in long-run decisions, Brazil's 
analysis of total costs is flawed in that Braz il regards total costs of growing cotton as the only 
consideration for a farmer in deciding whether to c ontinue or to exit farming altogether and in that 
Brazil includes imputed opportunity costs in its assessme nt of total costs.  In most years under the 
FSRI Act of 2002 US farmers actually met and exceeded  variable costs and even total cash costs.  
Examining the cost data properly, the cumulativ e returns over the period  2000-2005 were a positive 
return of US$161 per acre instead of the cumulative US$663 deficit alleged by Brazil.  For the period 
MY 2000-2006, the cumulative returns were a positiv e US$131 per acre instead of the US$837 deficit 
per acre alleged by Brazil.442   
10.159  The United States considers that the use of to tal cost data published by USDA is not an 
appropriate means of assessing the financial viabilit y of farms, let alone of an entire agricultural 
sector.  First  the total cost data is an average that obscu res the fact that the vast majority of US 
production occurs on farms that are highly profitable.443  Second , even with respect to the small 
fraction of US production that is not profitable Braz il's argument is not conceptually sound.  Crop-
specific data published by USDA cannot be used to reach conclusions on the financial viability of 
cotton farmers who rely on many sources of income and incur various kinds of costs.444  Moreover, 
USDA data includes imputed opportunity costs, wh ich are not necessarily costs which farmers must 
pay off in order to avoid having to close down their businesses.445   
(b) Evaluation by the Panel 
10.160  The question before the Panel is whether a comp arison of costs of production of upland cotton 
and market revenues of US cotton producers supports a finding that marketing loan and counter-cyclical payments are causing significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement.  Brazil argues, in this regard, that because of the widening gap between the costs of 
production and the market revenues of US upland cotton producers much of US upland cotton 
production would not be economically viable withou t marketing loan and counter-cyclical payments. 
The United States considers that Brazil's cost of prod uction analysis is fundamentally flawed and that 
a proper examination of the data supports the argume nt of the United States that marketing loan and 
counter-cyclical payments are not having  any significant price suppressing effect.
446   
10.161  The Panel  considers that the principal issues on which the parties disagree include the 
following.  First , whether variable costs or total costs shoul d be used to measure the gap between the 
                                                      
440 US Comments on Brazil's Oral  Statement, paras. 60-65.  
441 US Comments on Brazil's Oral Statement, paras. 66-72, Annex I and Exhibit US-139.  
442 US Comments on Brazil's Oral Statement, paras. 73-77 and Exhibit US-124. 
443 US Response to Panel Question 59, paras. 140-141.  The United States refers in this respect to the 
USDA survey data for MY 2003 which shows that 92 per cent of US production was on farms on which total revenue exceeded total costs, including the items of economic opportunity cost published by USDA.  The 
United States asserts that, in view of the substantial spre ad between the total cost fi gures and the market revenue 
figures for low- and mid-cost producers, the fact that pr ices were lower in MY 2004 and 2005 than in MY 2003 
does not undermine the conclusion that 92 per cent of US upland cotton production occurs on farms that are 
profitable.   
444 US Response to Panel Question 59, paras. 143-146. 
445 US Response to Panel Question 59, paras. 148-149. 
446As noted above, Brazil submits that in the period MY2000-2005 US upland cotton producers would 
have lost US$663 per acre without marketing loan and counter-cyclical payments.  The United States argues that the cumulative returns were a positive US$161 per acre instead of the cumulative US$663 deficit alleged by 
Brazil.  WT/DS267/RW  
Page 108  
 
  market revenues of US cotton producers and their costs of production.  Second , whether the 
examination of total costs relevant to long term decisions, such as whether to exit cotton farming, 
should be limited to cotton-specific costs or whethe r account should also be taken of whole-farm costs 
and revenues.  There are, in addition, disagreem ents between the parties about the composition of 
variable costs, i.e. whether certain items (land, unpaid labour and capital recovery costs) should be 
included as variable costs and whether total costs should include imputed values for opportunity costs 
or whether they should be limited to cash costs.   The United States also claims that US cotton 
producers have not only covered their variable costs but also a substantial portion of their total costs 
from cotton revenues in MY 2002-2005.   
(i) Description of the data on commodity cost and returns 
10.162  We begin our analysis with a description of the da ta that has been provided to the Panel.  Data 
on cotton production cost and returns on a per acr e basis covering MY 2002-2005 has been provided 
by both Brazil and the United States.  The data is  from the Commodity Costs and Returns estimates of 
the Economic Research Service (ERS) of USDA .  The ERS describes these costs and returns 
estimates as:
 447 
"These cost and return accounts are 'his torical' accounts based on the actual costs 
incurred by producers. The costs and re turns estimation program uses surveys 
conducted about every 4-8 years for each commodity as part of the annual Agricultural Resource Management Survey (ARMS), and methods that conform to standards recommended by the American  Agricultural Economics Association 
(AAEA)."   
These standards or recommendations are contained in  the  Commodity Costs and Returns Estimation 
Handbook authored by the AAEA Task Force on Commodity Costs and Returns.
448  
10.163  One difficulty with this data is that it decomposes costs of production into "allocated 
overhead" and "operating" costs rather than into the economic concepts of fixed and variable costs.  
This stems from the difficulty, which the AAEA Task  Force recognizes, in labelling costs as fixed or 
variable.  Instead, the AAEA Task  Force recommends that costs should be categorized according to 
whether they are associated with expendable factor s or the services of capital assets.  The AAEA Task 
Force also recommends that all the costs of expendabl es be allocated to "operating costs" and that all 
other costs be included in "allocated overhead".449  These recommendations appear to have been 
followed in the ERS methodology for estimating commodity costs and returns.450   
10.164  In their analysis of these Commodity Costs and Returns estimates of the ERS, both Brazil and 
the United States use "operating" and "variable" cost s interchangeably.  They also use "overhead" and 
"fixed" costs interchangeably.  While much of the de bate between the parties is about the relevance of 
variable and total costs (the sum of variable and fi xed costs) to the planting decision by farmers, the 
cost data that is relied upon by both parties is act ually classified as "operating" and "overhead".     
                                                      
447 Description from the USDA's Economic Research Service website: 
http://www.ers.usda.gov/Data/CostsAndReturns/. 
448 Exhibit US-88. 
449 Commodity Costs and Returns Estimation Handbook, pages 1-4 and 1-5. 
450 US Response to Panel Question 58, para. 126.   The United States explains that the US 
categorization of "operating" (or "variable") costs differs in some ways from that used by ERS.  First , the 
United States, to be more conservative, incl udes hired labour as an operating cost.  Second , the United States 
adjusts both ginning costs and cottonseed revenue to isolate the costs and revenues for the "subsidized" product.  
See US Response to Panel Question 58, para. 129.   WT/DS267/RW 
 Page 109 
 
 
  (ii) Whether certain items (land, unpaid labour and c apital recovery costs) should be included as 
variable costs 
10.165  Brazil disputes the inclusion of land, labour a nd capital recovery costs in fixed costs and 
argues that these costs are variable costs.451  The United States argues that it is the long-standing 
practice of USDA and agricultural economists to trea t land, labour, and capital recovery costs as fixed 
costs.452  The United States considers that there is no basis in the economics literature for Brazil's 
assertion that an imputed value for the opportunity cost of unpaid labour should be treated as a 
variable cash outlay.453  Following the AAEA Task Force guide lines, the United States maintains that 
a determinative factor as to whether an input cost can be classified as a fixed or a variable cost is 
whether the input is an expendable or a capital input.  Since land is clearly a capital input, it should be 
classified under fixed costs.454  The United States adopts a similar a pproach to the treatment of capital 
recovery costs.455  
10.166  The Panel notes the difficulty highlighted by th e AAEA Task Force in classifying the many 
elements of commodity production costs into variable and fixed costs.  While variable and fixed costs 
are the economically relevant cost concepts in th is dispute, there appears to be no unambiguous way 
of arriving at such a classification.  The AAEA Ta sk Force has chosen to take a less difficult tack, 
which is to classify costs according to whether they  are associated with expendable factors or the 
services of capital assets.  While this classification of costs is unlikely to fully coincide with the 
economic concepts of variable and fixed costs, it is the classification that the agricultural economics 
profession has recommended.  Accordingly, it is the method that has been used by the ERS in its 
collection of commodity costs and returns data.  We  therefore consider the inclusion of land, labour 
and capital recovery costs in fixed (overhead) co sts as appropriate, being in accordance with the 
methodology recommended by the AAEA Task Force.   
(iii) Cash or opportunity costs 
10.167  The United States raises the issue of cash costs and their role in dete rmining whether farmers 
have to "close down their businesses".  Specifically, th e United States argues that in the long run, the 
relevant comparison to make is between market return or revenue and total cash costs.  The 
opportunity cost of factors of production for which no cash payments are made, such as land that the farmer owns, his own labour or his family's labour, ar e not like cash costs, which must be paid off in 
                                                     
 
451 Brazil submits that hired and unpaid labour vary with the amount of upland cotton planted and 
produced.  If an upland cotton farmer grows nothing at all,  he or she will not hire labour.  If the farmer decides 
to plant upland cotton, he or she will hire labour.   If he plants crops, he may well have less time to dedicate to 
off-farm employment the more acreage he chooses to plant.   Thus, both the cost of hired labour and the imputed cost of unpaid labour vary with the amount of production.  So does the cost of land, whether rented or owned by 
a farm operator, vary with the amount of upland cotton produced.  Finally, the rate of depreciation depends on 
the intensity of use.  Machinery and equipment that is used intensively will depreciate much more rapidly than machinery and equipment that is used less intensively.  Furthermore, certain equipment used in upland cotton 
production, especially harvesting and ginning equipment, can be rented to other producers.  Thus, the cost of 
capital recovery of machinery and equipment is also not en tirely fixed; it can vary as a function of the farmer's 
production decisions.  A farmer will, th erefore, consider the variable cost s associated with capital recovery 
when deciding whether or not to produce upland cotton.  Brazil's Rebuttal Submission, paras. 262-266. 
452 US Rebuttal Submission, para. 326. 
453 US Rebuttal Submission, para. 327.  
454 US Rebuttal Submission, para. 328. 
455 Quoting directly from the Commodity Cost and Returns Handbook, the United States  notes that 
capital assets are factors of production that are not used up during a single production period, provide services 
over time, and retain a unique identity.  The term durable asset is often used  to describe physical capital because 
the word durable denotes not temporary or long-lived.  It is common in preparing cost of production estimates to assume that durables such as machinery and buildings provide a constant quality of service over their lifetime 
with regular maintenance.  US Rebuttal Submission, para. 331. WT/DS267/RW  
Page 110  
 
  order for farmers to avoid having to "close dow n their businesses".  It would appear that the 
United States is arguing that only when total cash co st exceeds market returns would farmers "close 
down their businesses".
456  In addition, the United States points to the inherent difficulties involved in 
valuing items (such as land that the farmer owns, his own labour or his family's labour) for which 
there is no market transaction or cash outlay.   
10.168  Brazil has clarified that the clai m that it is making is that, in the long-term, if total costs 
incurred in producing cotton exceed market revenues fro m the sales of cotton, then the cotton farmer 
would exit cotton farming, not necessarily farming altogether.457  Brazil considers that the argument 
of the United States with respect to non-cash co sts squarely contradicts basic economic and 
accounting principles.  Brazil asserts that the opportunity cost of factors of production for which no 
cash payments are made are nevertheless real costs.458 
10.169  The Panel agrees with the United States that imputing values to resources for which there are 
no market transactions is not as reliable as direct market  valuation.  It is also true, however, that the 
methodology used by the USDA conforms to standards recommended by the AAEA, and the application of that methodology probably produces the b est estimates that can be achieved.  Thus, it is 
our view that such difficulties in imputation do not pose a problem in using the cost data from USDA 
to determine whether US farmers were generati ng enough returns from the market to make it 
economically worthwhile to continue planting cotton. 
10.170  The Panel concurs with Brazil that the argument of the United States about total cash costs 
guiding cotton production decisions is not consistent  with basic economic principles.  The principle 
that resource allocation is guided by opportunity co st is a fundamental principle of economics.  All 
resources that a farmer uses to produce cotton have a cost – which is the value that they can obtain 
when employed in the next best alternative.  It do es not matter whether the factor must be paid for in 
cash or not.  Unless those resources used in cotton farming fetch a market return that matches their next best use, the farmer is foregoing opportun ities to make better returns and would do better by 
moving to the next best alternative ("exiting cotton fa rming").  If the next best alternative is another 
agricultural crop like soybean or corn, exiting cott on farming will not involve moving away from 
farming altogether.  The Panel therefore considers that opportunity costs should be included in the 
calculation of total costs of production.     
                                                     
 
456  See, e.g. US Comments on Br azil's Oral Statement, para. 75.   
457  Brazil's Comments on US Response to Panel Question 59, para. 139. 
458 Brazil quotes the following explanation from the Commodity Costs and Returns Estimation 
Handbook:   
 "[c]ommodity costs and returns include estimates of both cash expenditures and noncash 
costs.  Cash expenditures are incurred when factors of production are purchased or rented. 
Noncash costs occur when factor s are owned.  For example, if a farmer fully owns the land 
used to produce corn, he/she would have no expenditure for land rental or for loans to pay for 
the purchase of land.  Yet, an economic cost arises.  By owning the land and using it to grow 
corn, the farmer foregoes income from other uses of the land, such as renting it to another producer.  These costs come about because production resources are limited and have 
alternative uses.  If a farmer uses savings to pay for operating inputs, such as seed, fertilizer, 
chemicals, and fuel, and thus pays no interest  on operating loans, the farmer still incurs an 
economic cost because the savings could have ear ned a return in another use.  Likewise, the 
farmer has an opportunity cost of his/her labour used in the production of the commodity 
because it could have been used on anot her farm or in off-farm employment."  
 
Brazil's Comments on US Response to Panel Question 59, para. 152.  WT/DS267/RW 
 Page 111 
 
 
  (iv) Total or variable costs of production 
10.171  Brazil submits that the widening gap between United States upland cotton producers' total 
long-term costs of production and market reve nue over the period MY 2002-2005 demonstrates that 
much of US production would not be economically viable without the marketing loan and counter-
cyclical payments.459  The United States argues that total co sts do not explain short-term planting 
decisions.  Short-term decisions on whether to pl ant cotton or an alternative crop are not made by 
reference to long-term costs of production but by reference to variable costs of production.460   
10.172  We note that both parties agree that in the shor t-term variable costs play a role in cotton 
producers' decision whether to plant cotton or not.461  Both parties also agree that in the long-term, 
market revenues should be able to cover total costs of production if farmers ar e to continue to plant 
cotton.462   It should be noted that the relevance of vari able costs to production decisions in the short-
term and of total costs to production decisions in  the long-run is consistent with the economic 
literature.  Given these points of agreement, the dis pute between the parties is whether the question of 
a causal relationship between US subsidies and significant price suppression is best answered on the basis of long-run production decisions by cotton farmers or on the basis of short-run (year-to-year) 
planting decisions.      
10.173  On this question, we recall that the original panel considered that "a medium- to longer- 
term examination of developments in the Unite d States upland cotton industry" was appropriate.
463  It 
therefore relied upon "the divergence between Unite d States producers' total costs of production and 
revenue from sales of upland cotton since 1997" as one factor supporting a finding of a causal relationship between certain price-contingent  subsidies and significant price suppression:  
"Fourth, we find credible evidence on the record concerning the divergence between 
United States producers' total costs of production and revenue from sales of upland 
cotton since 1997.  This supports the pr oposition 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 Unite d 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 b een necessary to cover their total costs. 
If market revenue alone is compared to United States upland cotton producers' total 
costs of production, the information before us reveals that United States upland cotton 
producers would on average have lost mone y for each planted acre in every year 
since MY 1998, and made a small profit in  MY 1997.  We do not believe the utility 
of the record data is fundamentally undermined by any of the criticisms levied by the 
United States for the purposes of this dispute, particularly as the data are calculated in 
accordance with a methodology which the USDA itself has deemed to be a sufficiently reliable reflection of United States upland cotton producers' costs and revenues.  That the figures before us are cu mulated to show a result over the six-year 
period from 1997-2002 also lends itself to an assessment of the medium- to longer- 
term examination of developments in th e United States upland cotton industry.  We 
believe that the existence of this ga p between upland cotton producers' total 
production costs and market revenue, on the one hand, and the effect of the subsidies, 
                                                     
 
459 Brazil's First Written Submission, paras. 156-161. 
460 US First Written Submission, paras. 293-294. 
461 US First Written Submission, paras 293-294, and Brazil's Rebuttal Submission, para. 255. 
462 US First Written Submission, para. 295, and Brazil's Rebuttal Submission, para. 255. 
463 Panel Report, US – Upland Cotton , para. 7.1354.  WT/DS267/RW  
Page 112  
 
  on the other hand, was to sustain a higher level of output than would have occurred in 
the absence of the United St ates subsidies at issue."
464 (footnotes omitted) 
10.174  The original panel relied on total costs of pr oduction, notwithstanding that the United States 
had argued that the use of an average total co st of production figure was not appropriate for 
constructing an annual revenue gap.465  The panel explained its approach as follows:  
"We believe that not only covera ge of variable costs, but al so of fixed costs, would be 
necessary, at least over the medium to longer term, in order for United States upland cotton producers rationally to opt to remain United States upland cotton producers.  We find support for this propositio n in Appellate Body Report, Canada – Dairy 
(Article 21.5 – New Zealand and US) , paras. 87, 88.  Only an analysis of the total cost 
of production takes account of the economic  resources the producer invests in the 
product.  Fixed and variable costs are the total amount which the producer incurs in order to produce the product and the total am ount it must recoup, in the long-term, to 
avoid making losses.  To the extent that the producer charges prices that do not recoup the total cost of production, over time, it sustains a loss which must be 
financed from some other source, or else the producer simply has to close down his 
business."
466   
10.175  The United States appealed the panel's decision to  use total costs rather  than variable costs 
of production.467  The Appellate Body discussed the panel's approach to the consideration of total 
costs of production as follows:   
"We agree with the general proposition of th e United States that variable costs may 
play a role in farmers' decision-making as to whether to plant 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 perspective, 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'.  The Panel 
found 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'.  In the circumstances of this dispute, we do not consider that the 
Panel's reliance on total rather than variable costs of production amounts to an error 
vitiating the Panel's analysis under Article 6.3(c)."
468  (footnotes omitted) 
10.176  In comparing cotton costs and returns, the origin al panel considered it essential that this be 
done on the basis of the medium- to longer- term deve lopments in the US upland cotton industry.  We 
concur with this approach.  Under the FSRI Act of 2002, the price-contingent marketing loan and 
counter-cyclical payments will be available over the lifetime of the legislation, which only lapses in 
MY 2007.  Thus, it appears to us that the effect of  the marketing loan and counter-cyclical payments 
on cotton farmers' production decisions could be b est assessed on the basis of data covering the 
lifetime of the Act.  Where this is not possibl e because a claim of "present" serious prejudice was 
brought before the end of the Act, the assessment of cost and return will have to be made on the basis 
of data covering as much of the lifetime of the FSRI Act as possible, in this instance MY 2002-2005 
                                                      
464 Panel Report, US – Upland Cotton , paras. 7.1353-7.1354.  
465 See e.g. Further Rebuttal Submission of the United States, (18 November 2003), paras. 116-135. 
466 Panel Report, US – Upland Cotton , footnote 1465.  
467 Appellate Body Report, US – Upland Cotton , paras. 40 and 452.  
468 Appellate Body Report, US  – Upland Cotton , para. 453.   WT/DS267/RW 
 Page 113 
 
 
  including projections for MY 2006.  This period of tim e is of sufficient length to require a medium to 
long-term analysis.  Thus, a comparison of market re turns with total costs, rather than only with 
variable costs, is the appropriate benchmar k for assessing the effects of the subsidies. 
(v) The role of off-farm income 
10.177  While the United States accepts th at total costs may be relevant to the long-term decision as 
to whether to continue or to exit cotton farming, it argues that this decision is not made on the basis of 
a cotton-only analysis of costs and returns.  Rath er, whole-farm decisions will be made taking into 
consideration whole-farm costs and returns, including off-farm revenues.469  The United States 
considers that the question of "off-farm income" is  important because it bears on Brazil's ability to 
prove that without marketing loan and counter-c yclical payments, US producers would exit the 
business of upland cotton farming altogether.   
10.178  The United States points to two studies that  note the increased prevalence of off-farm 
employment and off-farm income for farm households in the United States.470  Brazil does not dispute 
these studies or this trend for US agriculture as a w hole.  However, Brazil points out that the studies 
submitted by the United States suggest that off-farm income is of particular importance for small 
farms.  Moreover, according to some studies, la rger farms account for most US agricultural 
production.471  Finally, Brazil refers to the original pane l's conclusion that off-farm income or income 
from growing other crops is not relevant to the dispute.     
10.179  In addressing the argument of the United States concerning the relevance of what it termed 
"off farm income", the original panel stated:  
"We disagree with the United States that an examination of United States upland 
cotton producers' 'off farm income' may be a legally relevant consideration in the 
examination before us.  We are considering costs and market revenues in respect of upland cotton.  Our examination is one of  the upland cotton industry.  We find 
support for this proposition in the references to 'subsidized product' and 'like product' 
in Article 6.3(c) of the SCM Agreement , and contextual support in such references in 
Article 15 of the SCM Agreement .  We are inquiring into whether, in respect of 
upland cotton production, United States producers' revenues in respect of upland cotton were insufficient to sustain their total costs incurred.  We are not looking into the possibility of cross-subsidization or cross-financing of insufficient market 
revenues for upland cotton that may have come  from other United States industries.  
Indeed, the very fact that the United Stat es relies on such cross-subsidization as a 
possible source of revenue would tend to support the proposition that upland cotton 
producers would have lost money over the longer term if they were involved in 
upland cotton production alone.  If the infrastructure of United States upland cotton production supports the 'off farm income' th en the subsidies are supportive of that 
income as well.  If the infrastructure of United States upland cotton production does 
not support 'off farm income', the producer need not produce upland cotton.  
However, we have seen, as a factual matter,  that United States producers continue to 
produce upland cotton, and still receive s ubsidies in relation to production."
472  
                                                      
469 US First Written Submission, para. 295. 
470 Dimitri, Carolyn et. al., "The 20th Century Transformation of US Agriculture" and Hoppe, Robert 
A. and Korb, Penni, "Understanding US Farm Exits. Economic Research Report 21" June 2006, p. 20 (Exhibit 
US-46). 
471 Brazil's Comments on US Response to Panel Question 59, para. 141.    
472 Panel Report, US – Upland Cotton , footnote 1470.  WT/DS267/RW  
Page 114  
 
  10.180  For our part, we have turned to the two studies cited by the United States.  The 
United States describes one of the studies (Dimitri, et al.) as an analysis of changes in US farm 
structure over the 20th century, and quotes a specific section of it:
473 
"[A]bout a third of farm operators worked o ff the farm for at least 100 days in 1930. 
... By 1970, more than half of farms had off-farm income, and by 2000, 93 per cent of 
farms earned off-farm income. Off-farm work has played a key role in increased farm 
household income; while farm household income was once below the national average, in 2002 it exceeded the natio nal average by nearly US$8,000." 
The United States uses this quotation to substantia te its argument about the growing importance of 
off-farm income in US farm operators' income. 
10.181  The second study cited by the United States (H oppe and Korb) looks at the link between 
off-farm income and the decision to exit from farming.  The United States quotes the following passage from the study (to be found on page 20) and underscores the last sentence:
474 
"Off-farm work has become important to fa rm operators. About one-third of farmers 
have worked off the farm at least 200 da ys per year—essentially fulltime— since 
1978. Off-farm work could hypothetically aff ect exits in two ways. First, off-farm 
work may be the first step in an exit from farming, which would be  reflected in higher 
exits for farms the operators of which wo rk off-farm. Second, off-farm work might 
lower the probability of exit by providing farm operator households with another 
source of income." 
10.182  In the Panel's assessment, the study cited by th e United States appears ambivalent about the 
role of off-farm income in farm exit.  On the one  hand, having a source of off-farm income could be a 
factor that reduces the likelihood of exit from farming.  Alternatively, finding off-farm work may be the first step to exit from farming.  In other word s, the increasing importance of off-farm income in 
the US agricultural sector may just be reflecting th e long-term exit of workers from that sector.  
10.183  The Panel finds stronger evidence of this ambi valence in the very next paragraph of the 
study in which the authors explain that the econometric model they used to estimate the impact of off-
farm income on the likelihood of fa rm exit supports both hypotheses.
475   
"The days-of-work model supports both hypotheses (table 8). On the one hand, 
working full-time off-farm is associated w ith a slightly higher exit probability than 
either of the alternatives (hypothesis 1). On the other hand, combining some off-farm 
work (1-199 days) with farm work leads to lower exits than working full-time on or 
off the farm (hypothesis 2).  Note, however , that the range in exit probabilities is 
fairly narrow, about 2 percentage points, for any sales-age category." (footnote omitted) 
10.184  Thus, while the Panel is convinced that off-fa rm income has grown in importance in farm 
operators' income, there is ample room for debate as  to the implications of this for the likelihood to 
exit from farming.  The United States emphasizes one possible implication – off-farm work might 
lower the probability of exit by providing farm ope rator households with another source of income – 
for which the study finds some empirical support.  But to our mind, a fair reading of the study also requires us not to neglect the alternative interpreta tion – off-farm work may be the first step in exiting 
                                                     
 
473 US First Written Submission, para. 295. 
474 US First Written Submission, para. 296. 
475 Exhibit US-46, p. 21.  WT/DS267/RW 
 Page 115 
 
 
  from farming – for which the study finds equally  convincing empirical support.  Taking this 
ambivalence of the results into account, the Panel does not think that the issue of off-farm income 
bears as negatively as the United States believes ag ainst Brazil's ability to prove that without 
marketing loan and counter-cyclical payments, US  producers would exit the business of upland cotton 
farming.  
(vi) US upland cotton producers' long-term co sts of production and market revenues 
10.185  The Panel has relied on USDA cost of production surveys which combine total costs and total 
returns from upland cotton lint and cottonseed.  This  was the type of cost data relied upon by the 
original panel in making its findings about the US co st of production, "as the data are calculated in 
accordance with a methodology which the USDA itsel f has deemed to be a sufficiently reliable 
reflection of United States upland cotton producers' costs and revenues."476  In this cost of production 
data, ginning costs were included as part of operating costs.477 
10.186  In the present dispute, the United States asser ts that market revenues should only include 
revenues from cotton lint and exclude returns from the sale of cottonseed.  The reason for this, 
according to the United States, is that cotton lint is the product at issue in this dispute.478  A s  a  
consequence of this focus on cotton lint, the United States argues that ginning costs should be 
excluded from the calculation of the costs of production.   It claims that "this is consistent with the 
practice in the United States of ginning costs being pa id for out of the proceeds gained by the gin from 
sale of the cottonseed that is separ ated out in the ginning process."479   
10.187  Brazil disputes this statement, arguing that the United States has not presented any basis for 
this assertion that ginning costs are paid for out of  the proceeds gained by the gin from sale of the 
cottonseed.480  In response to Brazil's criticism, the United States submits an exhibit containing an 
annual survey of eight gins in the mid-south re gion conducted by a certified accounting firm which 
includes data on revenue from cottonseed sales, wa rehouse rebates, gain/loss on the sale of assets, 
mote sales, interest and other income but no category for producer fees.481  In the view of the United 
States, this shows that ginning costs ar e not paid separately by cotton producers.482   
10.188  While the Panel is of the view that the cost  data relied upon by the original panel is a 
sufficiently reliable reflection of US upland cotton  producers' costs and revenues, the Panel has 
chosen to consider the cost and revenue data in both forms.  Firstly, in the form proposed by Brazil 
and considered sufficiently reliable by the origin al panel, where revenue from cottonseed and costs 
from ginning are both included (see Table 6A).  Secondly, in the form which the United States proposes, where only revenues from cotton lint are included and the costs of ginning are excluded (see 
Table 6B). 
10.189  Table 6A shows market revenue and total costs in  the form analyzed by the original panel.  
Over the MY 2002-2006 period, US cotton produ cers' market revenue exceeded total costs of 
production only once, in MY 2003, when cotton prices were at their highest since MY 1997.  In all 
other marketing years, total costs of production exceeded market revenue, sometimes by very 
significant margins.  In MY 2002, for example, tota l costs exceeded market re venue by 72 per cent.  
Data provided by Brazil for MY 2006 suggests that  total costs will continue to exceed market 
                                                     
 
476 Panel Report, US – Upland Cotton , para. 7.1354. 
477 Panel Report, US – Upland Cotton , footnote 1468. 
478 US First Written Submission, para. 301. 
479 US First Written Submission, para. 301. 
480 Brazil's Rebuttal Submission, para. 279. 
481 Exhibit US-94. 
482 US Rebuttal Submission, para. 340.  WT/DS267/RW  
Page 116  
 
  revenue.  The gap is expected to be about 115.76 dol lar per acre, which would be equivalent to more 
than a quarter of US cotton producers' market revenue.    
Table 6A:  Cotton Production Costs and Returns, MY2002-2006 
 
(US$ per acre) 
Item  MY 2002  MY 2003  MY 2004  MY 2005  MY 2006 
1. Market 
Revenue 307.83 561.72 483.49 456.69  
450.29 
2. Total Costs 529.02 496.74 501.51 544.23 566.05 
a. Operating 
Costs 278.00 304.29 315.35 349.26 362.18 
b. Overhead 
Costs 251.02 192.45 186.16 194.97 203.87 
3. Revenue 
less Total 
Costs -221.19 64.98 -18.02 -87.54 -115.76 
Gap between 
revenue and total costs as 
share of 
market revenue -71.9% 11.6% -3.7% -19.2% -25.7% 
Source: Exhibits Bra-648 and US-47. 
 
10.190  Table 6B shows market revenue from cotton lint, total costs ( less ginning costs) and the 
difference between market revenue and total costs on a per acre basis in MY 2002-2006.  Over the 
period examined, US cotton producers' market reve nue exceeded total costs of production twice, in 
MY 2003, when cotton prices were at their highest since MY 1997, and also in the year immediately following that.  In other marketing years, total co sts of production exceeded market revenue, at times 
by very huge margins.  In MY 2002, for example, to tal costs exceeded market revenue by 84 per cent.  
Data provided by Brazil for MY 2006 suggests that  total costs will continue to exceed market 
revenue.  The gap is expected to be about 56.25 dol lar per acre, which would be equivalent to about 
14.7 percent of US cotton producers' market revenue in  that marketing year.   Cumulated over the five 
marketing years 2002-2006, US cotton farmers' co sts of production have exceeded market revenues 
by an average of  227.49 dollars per acre.  WT/DS267/RW 
 Page 117 
 
 
  Table 6B:  Cotton Production Costs And Returns 
(US$  per acre) 
Item MY 2002 MY 2003 MY 2004 MY 2005 MY 2006 
1. Market 
Revenue 
(Cotton Lint) 257.88 489.72 414.12 392.16  
 
381.65 
2. Total Costs 473.41 408.41 403.08 440.22 437.90 
a. Operating 
Costs  
(W/out 
ginning costs) 222.39 215.96 216.92 245.25 234.03483 
b. Overhead 
Costs 251.02 192.45 186.16 194.97 203.87 
3. Revenue 
less Total 
Costs -215.53 81.31 11.04 -48.06  
 
-56.25 
Gap between revenue and 
total costs as 
share of market 
revenue -83.6% 16.6% 2.7% -12.3% -14.7% 
Source: Exhibits Bra-648 and US-47. 
10.191  Thus, in both tables a significant gap exists between market revenues and total costs of 
production.  The Panel believes that the existence of  this gap between upland cotton producers' total 
production costs and market revenue is  telling.  The Panel concurs with Brazil that this data provides 
further evidence of the essential ro le played by marketing loan and counter-cyclical payments in 
covering US upland cotton producers' long-term total costs of production and that this data provides 
support for Brazil's argument that, but for these subsidies, many upland cotton producers would not 
have been able to continue gr owing upland cotton and would have  had to switch to alternative 
crops.484   
(vii) Other arguments 
10.192  The United States makes several other arguments w ith respect to costs and revenue in cotton.  
First , the United States argues that US cotton produ cers have covered their variable costs in MY 
2002-2005.  Second , the United States submits that in almost all years they have covered most if not 
all of their total costs of growing cotton.485  Third , the United States contends that the overwhelming 
majority of US production took place on farms that not only met their variable (operating) costs but also their total costs.
486 
                                                      
483 Exhibit Bra-648 does not provid e an estimate of ginning costs.  Two alternative estimates were 
calculated for this purpose: (i) the average ginning costs during MY 2002-2005 and (ii) the result of applying the compound growth rate of ginning costs over the MY 2002-2005 period.  The second method yielded a 
higher estimate of ginning costs for MY 2006 ($128.15 per acre) compared to the first approach ($86.60 per 
acre).  But whichever estimate is used still yields the same result that total costs (without ginning costs) exceed 
market revenues (cotton lint only) in MY 2006.  The operating costs of $234.03 per acre shown in Table 6B are 
the result of removing the higher estimate of ginning costs from variable costs.  
484 Brazil's First Written Submission, para. 163. 
485 US First Written Submission, para. 300. 
486 US Rebuttal Submission, para. 337. WT/DS267/RW  
Page 118  
 
  10.193  The first argument of the United States is certainly  borne out by the data in Tables 6A and 6B.  
Market revenue exceeded variable costs in all fi ve marketing years.  The second argument of the 
United States is somewhat imprecise because the United States offers no benchmark for judging what 
it means by "most".  What must be clear from the outset is that, on average, cotton farming operated at a loss in four of the five marketing years shown in  Table 6A and three of the five marketing years 
shown in Table 6B.  Thus, we interpret the second argument of the United States as an attempt to 
describe how large these losses were in  those years.  Table 7 attempts to be more precise about the 
import of this second argument of the United States .  It is based on the information in Table 6A 
above.
487  The second row gives market revenue less operati ng costs, i.e. whatever is left over after 
paying variable costs.  The third row is overhead co sts.  The last row gives the percentage of overhead 
costs that could be covered by ma rket revenue after deducting variable  costs.  The second argument of 
the United States accurately describes what oc curred in MY 2003 and MY 2004 but not what 
transpired in MY 2002.  In MY 2005, market revenu e net of operating costs is able to cover a little 
over half of overhead costs.  
Table 7:  US Overhead Costs Covered By Market Revenue, MY 2002-2006 
 
(US$ per acre) 
Item MY 2002 MY 2003 MY 2004 MY 2005 MY 2006 
Market 
Revenue (less 
operating 
costs)  29.83 257.43 168.14 107.43  
 
 
88.11 
Overhead Costs  251.02 192.45 186.16 194.97 203.87 
Part of 
overhead 
costs covered  11.9% 133.8% 90.3% 55.1% 43.2% 
Source: Exhibits Bra-648 and US-47. 
 
10.194  To support its third argument, the United States points to data on the costs of cotton 
production, by cost group, which shows that only high-cost producers, accounting for approximately 
8 per cent of US production, did not cover their total costs in MY 2003.  Unfortunately, the 
United States does not have a similar breakdown by cost group for other marketing years.  MY 2003 
was the last year in which the USDA conducted a co mplete cost survey for upland cotton production.  
It is not clear how representative the results obtained for MY 2003 are since cotton prices were at their highest that year since MY 1997.  To provide some perspective on how high cotton prices were in MY 2003, Figure 3 shows average farm and spot prices (taken from Exhibit US-83) from MY 2002 
to MY 2005.  The farm price in MY 2003 was 39 pe r cent, 49 per cent and 32 per cent higher than in 
MY 2002, MY 2004 and MY 2005 respectively.  The spot price in MY 2003 was 27 per cent, 32 per 
cent and 28 per cent higher than in MY 2002, MY 2004 and MY 2005 respectively.  Thus, it is reasonable to expect that the proportion of farm ers who did not cover their total costs would be 
significantly higher in those years.      
                                                     
 
487 If we use Table 6B, the portion of overhead costs covered by market revenues (less operating costs) 
are 14.1%, 142.2%, 105.9%, 75.4% and 72.4% for MY 2002, 2003, 2004, 2005 and 2006 respectively. The 
second argument of the United States accurately describe s what occurred in all mark eting years except in MY 
2002 where only 14.1% of overhead costs were covered.  In other marketing years, overhead costs were either fully covered (as in MY 2003 and MY 2004) or about three-fourths were covered (as in MY 2005 and MY 
2006).  WT/DS267/RW 
 Page 119 
 
 
  Figure 3:  Average Farm and Spot Prices, MY 2002-2005 
010203040506070
2002 2003 2004 2005
Marketing YearCents per LbFarm price
Spot price
Source: Exhibit US-83. 
10.195  The Panel considers, however, that these additi onal arguments skirt around the main issue.  
The Panel is making an assessment involving the me dium to long-term developments in the upland 
cotton industry.  This requires the Panel to compare market revenue not only with variable costs but 
with total costs.  And the picture that emerges fro m this medium- to long-term analysis is of total 
costs exceeding market revenue in three of the four  marketing years for which we have final data if 
we use Table 6A and in two of the four marketing years for which we have final data if we use Table 
6B.  In the Panel's view, it is likely that the tota l costs of production will co ntinue to exceed market 
revenue in MY 2006, irrespective of whether ginning costs are excluded or not.   
10.196  In conclusion, the Panel finds that there exists  a significant gap between the total costs of 
production of US upland cotton producers and their mark et revenue.  The Panel considers that this gap 
between costs and revenue, when analyzed in conj unction with the magnitude of the marketing loan 
and counter-cyclical subsidies and their importa nce as a share of the revenue of US cotton 
producers488, supports the proposition that the marketing lo an and counter-cyclical payments are an 
important factor affecting the economic viability of  US upland cotton farming.  The Panel therefore 
also considers that without these subsidies th e level of US upland cotton acreage and production 
would be considerably lower.489    
                                                      
488 Supra , para. 10.111.   
489 Thus, based on the evidence before us, we arrive at the same conclusion as the original panel, which 
found 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 subsidies at issue sustained a higher level of output than would have occurred in the absence of the subsidies.  US – Upland 
Cotton , paras.  7.1353 and 7.1355. WT/DS267/RW  
Page 120  
 
  10. The economic simulation model submitted by Brazil in this proceeding 
(a) Introduction 
10.197  Brazil submits an economic model to simulate  the effects of US subsidies on the world 
market for upland cotton.  Brazil includes the mode l as part of a set of economic studies which it 
claims support a finding that marketing loan an d counter-cyclical payments continue to cause 
significant price suppression.  The Panel understands that the model is intended to quantify the price 
suppression that Brazil claims is caused by US subsidy payments.  In the original dispute, an economic model was also presented by Brazil.  With respect to that model, the original panel stated that:  
"we have taken [Professor Sumner's] analys is … into account where relevant to our 
analysis of the existence and nature of th e subsidies in question, and their effects, 
under the relevant provision of the SCM Agreement , and have attributed to them the 
evidentiary weight we deemed appropriate."
490 
10.198  In this case, we have taken the analysis of th e model one step further by considering in some 
detail the arguments made by the parties a bout the model, its assumptions and results.491  T o  t h e  
extent possible, we have provided our assessment of these arguments, and based on that arrived at an 
overall conclusion about the simulation results.        
10.199  Brazil's model is a demand and supply model in l og (natural logarithm) difference form which 
calculates changes from an initial eq uilibrium where US subsidy payments are in place.  The model 
has just two regions, the US and the rest of the worl d.  The model simulates a counterfactual scenario:  
how much would be the changes to the world price, cotton production in the US and rest of the world, 
and cotton exports/imports of the US and the rest of  the world if US subsidy payments – principally 
the marketing loan and counter-cyclical payments – were eliminated?      
10.200  The model is simulated over the period MY 1 999-2008.  In order to run this simulation, 
assumptions have to be made about a number of pa rameters: the US and foreign elasticities of supply 
and demand and the coupling factor for marketing loan  and counter-cyclical paym ents.  Further, given 
that expectations about prices drive production deci sions, the expected prices have to be determined 
as well.  Three alternative assumptions are made ab out how farmers form price expectations: (i) the 
expected price is a one-year lag of actual prices and subsidy amounts, (ii) the expected price is the harvest period futures prices at the time of planting,  and (iii) the expected price is equal to the FAPRI 
commodity outlook that is developed at the same time  that growers are forming their expectations and 
projections.   
(b) Main arguments of the parties 
10.201  Using the results of the simulation model, Brazil  asserts that were it not for the marketing 
loan and counter-cyclical payments, the world pri ce of cotton would have been higher and US upland 
cotton production and exports would have been subs tantially lower.  For the period MY 2002-2005,  
the world price would have been higher on average by 8.2 to 8.9 per cent and US cotton production 
and exports would have been lower on average by 15 to 16.2 per cent and 20.8 to 22.5 per cent 
                                                     
 
490 Panel Report, US – Upland Cotton , para. 7.1209 (footnote omitted).  
491 The Panel notes the transparency of the model.  The full set of equations is explicitly written out and 
an electronic version of the simulation model, in the form of an Excel spreadsheet, has been provided to the 
United States and to the Panel.  This gives all parties to the dispute and the Panel full access to the model, its 
assumptions and the results.  In fact, the United States has used the Excel spreadsheet provided by Brazil to 
conduct alternative simulations using a different set of parameter assumptions.          WT/DS267/RW 
 Page 121 
 
 
  respectively, depending on the assump tion made about price expectations.492 For marketing year 2005 
alone, Brazil estimates that the removal of marketi ng loan and counter-cyclical payments increases 
the world price of cotton by 9.3 to 10.7 per cent, decreases US cotton production by 16.9 to 19.4 per cent and decreases US exports by 23.5 to 26.9 pe r cent, depending on the proxy used for deriving 
revenue expectations.
493  For MY 2006-2008, Brazil projects a price increase of between 4.44 per cent 
and 6.05 per cent if both marketing loan and count er-cyclical payments were to be eliminated.494 
10.202  The United States strongly contests these results.  Utilizing the same model provided by 
Brazil, the United States has carried out its own simu lations using a different set of parameter values 
derived from the US and world cotton models de veloped by the FAPRI as well as another set of 
parameter values taken from the UNCTAD-FAO Agricultural Trade Policy Simulation Model 
(ATPSM).  Using parameter values from the FAPRI cotton model, and assuming that the expected 
price is a one-year lag of actual prices, the rem oval of marketing loan and counter-cyclical payment 
programmes is projected to increase the world price by only 1.41 per cent over the period MY 2002-2005 and 0.96 per cent over the period MY 2006-2 008.  Using the supply and demand elasticities 
from the ATPSM model, and assuming that the expect ed price is a one-year lag of actual prices, 
removal of marketing loan and counter-cyclical pa yment programmes is projected to lead to an 
increase in the world price of 2.26 per cent over the period MY 2002-2005 and 1.52 per cent over the 
period MY2006-2008.
495  The United States argues that the r esults for the other price expectation 
models are similar to that obtaine d from the lagged price model.   
10.203  A comparison of the impact on world prices of the simulations performed by Brazil and the 
United States, using the one-year price lag assumption, is shown in Figure 4 below.  Brazil's 
simulation results are shown by the top curve.  The results of two US simulations are shown: the 
bottom curve is the outcome from using FAPRI elasticities while the middle curve shows the 
projected increase in the world price using the ATPSM elasticities.    
                                                      
492 Brazil's First Written Submission, Annex I, para. 82.  
493 Brazil's First Written Submission, Annex I, para. 81.  
494 These are the simple averages derived from Tables 2.A.1 and 2.A.3 of Brazil's First Written 
Submission, Annex I. 
495 US First Written Submission, Annex 1, paras. 3-4. WT/DS267/RW  
Page 122  
 
   
Figure 4:  Simulation Results Using Different Parameter Assumptions 
0%2%4%6%8%10%12%14%16%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Marketing YearChange in World Price
Brazil US FAPRI US ATPSM 
10.204  The disagreement between the parties relates to two issues.  The first issue has to do with 
adequacy of the model itself.  The second issue has to do with the appropriate choice of parameter 
values – primarily demand and supply elasticities.  Although we have tried to treat each issue 
separately, it is important to note that the two issues are closely related.   
(i) Structure of the model  
10.205  There appear to be several criticisms by th e United States against the model submitted by 
Brazil.  First ,  the model is based on a simpler and more  reduced formulation than the FAPRI model 
and abandons critical FAPRI parameters.496  The United States notes, in this respect, that in the 
original proceeding, in which Brazil also submitted a model, Brazil emphasized the similarity of its model with the FAPRI model.  Second , as a consequence of this more simple and reduced 
formulation, the model is unable to take cross-commodity impacts and cross-price elasticities into account, potentially leading to biased price effects.
497  Third , Brazil's model does not allow for 
changes in cotton stock levels and has no stock eq uation, which is another problem with the model 
that will tend to accentuate price changes.498  Fourth , the United States also objects to the way in 
                                                      
496 US Rebuttal Submission, Annex I, para. 4. 
497 US Rebuttal Submission, Annex I, para. 4.  See also Statement of Dr. Joseph W. Glauber, paras. 3-
4. 
498 US Rebuttal Submission, Annex I, para. 4.  WT/DS267/RW 
 Page 123 
 
 
  which different types of government payments are modelled differently, although they operate in the 
same way, or are directly incorporated in the revenues of the producers.499   
10.206  Brazil's defence is that the far more straightfo rward model it has used can be readily focused 
specifically on effects in cotton markets and the removal of cotton subsidies alone.500  Brazil explains 
that this approach would make the analysis more accessible to other parties and to the Panel.  This 
single purpose use of the model – to address the question of significant price suppression of US 
subsidies – also explains its use of parameters th at were more applicable to the case at hand rather 
than "all-purpose—one size fits all" parameters that are imbedded in the FAPRI system.501   
(ii) Parameters of the model 
10.207  The United States argues that many of the parameter values chosen by Brazil are 
"inappropriate" and "bias" the effects of the remova l of US cotton subsidies on world market prices.502  
The United States contends that the parameter valu es chosen by Brazil differ substantially from the 
parameter values used in the model ("Sumner I") submitted in the original dispute and with the 
parameters used in the FAPRI cotton models.  Further, it criticizes Brazil for not providing any 
statistical evidence or validation for its choice of elasticities.503 
10.208  Brazil argues that the parameters it has chosen ar e more applicable to the case at hand rather 
than the "all-purpose—one size fits all" parameters th at are imbedded in the FAPRI system.  It claims 
that the "cumbersome nature" of the FAPRI modeling system means that it is difficult to recognize in 
the parameterization that different degrees of r esponse would be expected under different policy 
circumstances.504   
US Supply Elasticity  
10.209  The parties disagree about the size of the US supply elasticity with Brazil claiming a larger 
value (0.8) than the United States (0.21).    
10.210  Brazil explains that the use of a higher supply elas ticity is justified by the nature of the policy 
experiment being contemplated, a large and permanent reduction in per unit revenue, entailed by the 
elimination of the marketing loan and counter-cyclical programmes.505  Brazil cites empirical studies 
which suggest that by eliminating the constrai nts which exist under US subsidy programmes, US 
farmers' supply response will b ecome substantially larger.506 Brazil claims that what it uses is a 
general equilibrium supply elasticity reflecting the endogenous changes in the prices of other crops.507  
Brazil also expresses doubts about the accuracy and a pplicability of the estimates of regional supply 
elasticities that the United States uses to come  up with a national estimate of the US supply 
elasticity.508   
10.211  The United States has used the FAPRI regional acreage equations to calculate a weighted 
average cotton supply elasticity for the country as a whole.  This produced a considerably lower 
                                                      
499 US Rebuttal Submission, Annex I, para. 4. 
500 Brazil's Rebuttal Submission, Annex I, para. 4. 
501 Brazil's Rebuttal Submission, Annex I, para. 6. 
502 US First Written Submission, Annex 1, para. 1. 
503 US Rebuttal Submission, Annex I, para. 12. 
504 Brazil's Rebuttal Submission, Annex I, para. 6.  
505 Brazil's Rebuttal Submission, Annex I, para. 8. 
506 Brazil's Rebuttal Submission, Annex I, para. 10.  
507 Brazil's Rebuttal Submission, Annex I, para. 14. 
508 Brazil's Rebuttal Submission, Annex I, para. 18.  WT/DS267/RW  
Page 124  
 
  estimate than that obtained by Brazil.
509  The United States counters Brazil's explanation about the 
high US supply elasticity by pointing to equally am bitious policy scenarios that have been simulated 
by the FAPRI cotton model which were conducte d without modifying the size of the supply 
elasticity.510  The United States questions the relevance of the empirical literature cited by Brazil since 
this literature analyzed the acreage response of  producers during the early 1990s when cotton 
producers were allowed only limited planting flexibility under the 1990 farm bill.511  T h e  
United States also alleges that  the magnitude of the elasticity chosen by Brazil suggests a neglect of 
cross-commodity price impacts.512   
Foreign Supply Elasticity  
10.212  Brazil's model assumes a foreign supply elasticity of 0.2.  The United States criticizes this 
choice as being too low and gives an alternative value of 0.33.   
10.213  Brazil gives several reasons for why the forei gn supply elasticity should be small.  The 
incentive to change production faced by foreign produ cers is indirect, relatively small compared to the 
revenue loss faced by US producers, and in the oppo site direction from that faced by US producers.513  
Further, the transmission of world price changes to  local prices occurs with a lag and, for some 
countries, only partially, due to trade barriers, institu tional constraints, transportation costs, and costly 
information, among others factors.514   
10.214  The United States obtains its value of the foreign supply elasticity from the FAPRI 
international cotton model.515  It objects to Brazil's explanation about the incentive to change 
production faced by foreign producers being indirect  and relatively small since the foreign supply 
elasticity measures the responsiveness of foreign suppl y to changes in foreign producer revenue (not 
US producer revenue).516  While the United States agrees that the factors mentioned by Brazil, such as 
trade barriers, institutional constraints, transportation costs, and costly information can have an impact 
on local cash prices, it believes that these impacts are captured in the FAPRI's international cotton 
model's estimation of detailed supply-response e quations for the major cotton-producing countries.517  
US and Foreign Demand Elasticities  
10.215  Brazil assumes identical US and foreign demand elasticities of -0.2.  The United States 
assumes a US demand elasticity of -0.822 and a foreign demand elasticity of -0.39.   
10.216  The United States criticizes the absence of a stock or inventory adjustment in Brazil's model.  
Shocks to supply and demand have to be absorbed  only through price changes as there is no scope for 
absorption through stockholding behaviour.518  To account for stocks in their analysis, the 
United States considers a total demand elasticity  for mill use and ending stocks based on MY 2003-
2005 mill use and ending stock leve ls and the estimated mill use a nd stock demand equations from the 
FAPRI model.519    
                                                      
509 US First Written Submission, Annex I, para. 19.  
510 US First Written Submission, Annex I, para. 13.  
511 US Rebuttal Submission, Annex I, para. 14. 
512 US First Written Submission, Annex I, para. 15.  
513 Brazil's Rebuttal Submission, Annex I, para. 21. 
514 Brazil's Rebuttal Submission, Annex I, para. 23. 
515 US First Written Submission, Annex I, para. 23.  
516 US Rebuttal Submission, Annex I, para. 20. 
517 US Rebuttal Submission, Annex I, para. 21.  
518 US First Writtten Submission, Annex 1, para. 25. 
519 US First Written Submission, Annex 1, para. 27.  WT/DS267/RW 
 Page 125 
 
 
  10.217  Brazil explains that the lack of stock adjust ment in its model is a consequence of the 
counterfactual scenario that is being simulated.   The counterfactual involves an expected and 
permanent change in the overall market price leve l of cotton.  In Brazil's view, such temporary 
increases or decreases in stocks in  response to fluctuations in mark et prices are irrelevant to the 
demand response to the anticipated and perman ent policy changes being examined in this 
proceeding.520   
CCP Coupling Factor  
10.218  Finally, Brazil and the United States disagree on the appropriate value to assign to the 
"coupling factor" linking counter-cyclical payments to  market price.  This coupling factor provides 
some measure of the production-enhancing effect of s ubsidies.  Brazil uses a coupling factor of 0.4 for 
counter-cyclical payments while the United States ar gues that the correct coupling factor is 0.25, 
which is that assumed in the FAPRI model.   
(c) Evaluation by the Panel 
10.219  The Panel notes the advantage of the modeling a pproach that Brazil has chosen to adopt.  A 
simpler and more accessible model can be readily focused on the specific issue at hand.  It should 
include only the relevant economic features that ar e crucial to a determina tion whether certain US 
Government payments led to significant price suppression.   
10.220  However, the Panel is also mindful of the cr iticism by the United States that Brazil's model 
"has no foundation within economic circles".521  The model has been submitted for the first time to 
this dispute.  This means that the model needs to earn the confidence of this Panel. 
10.221  Furthermore, the magnitude of the impact of US subsidies on the world price depends on the 
parameter values assumed for Brazil's model.  Each party has presented us with arguments why the 
parameter values it has chosen in the simulation are better than those used by the other party.  The 
Panel does not take a position on whether the FAPRI or ATPSM parameters are better than those 
chosen by Brazil.  Thus, the Panel is not in a position to judge the claims of the parties about the exact 
magnitude by which the world price would rise were marketing loan and counter-cyclical payments to 
cease entirely. 
10.222  While the Panel has refrained from making a dete rmination about the magnitude of the impact 
of the US subsidies on the world price, the Panel ne vertheless finds that all the simulations conducted 
by the parties support the view that US marketing lo an and counter-cyclical payments have led to an 
increase in US production and exports of cotton that  have then suppressed world prices.  The Panel 
takes note of the fact that price suppression has been the outcome of all the simulation results whether 
one uses the parameter values proposed by Braz il or the FAPRI and ATPSM parameter values 
proposed by the United States.   
11. Impact of the elimination of Step 2 payments 
(a) Introduction 
10.223  The United States eliminated the Step 2 progr amme effective as of 1 August 2006.  The 
Step 2 programme was a special marketing loan prov ision for upland cotton that had been authorized 
since 1990 under successive legislation, including th e FAIR Act of 1996 and the FSRI Act of 2002.  It 
provided for the issuance of marketing certificates or cash payments to eligible domestic users and 
                                                      
520 Brazil's Rebuttal Submission, Annex I, para. 29. 
521 US Rebuttal Submission, Annex I, para. 7. WT/DS267/RW  
Page 126  
 
  exporters of eligible upland cott on when certain market conditions ex isted such that US cotton pricing 
benchmarks were exceeded.
522  As such, the programme combined elements of export subsidization, 
when payments were made to US exporters of eligible cotton, and import substitution, when payments 
were made to eligible domestic users of US upland cotton.    
10.224  The parties disagree on the effect of the elimination of the Step 2 programme on US 
production and exports of cotton.   
(b) Main arguments of the parties 
10.225  Brazil submits that the Step 2 programme caused price suppression independent from and in 
addition to the significant price suppression caused by the marketing loan and counter-cyclical payments programmes.
523  Although modest in comparison with the much larger effects of marketing 
loan and counter-cyclical payments, the world market price effects of Step 2 payments, in isolation, 
are clearly recognizable.  Brazil submits, in this conn ection, that the removal of Step 2 payments will 
enhance the adverse effects of the counter-cyclical  payments because it will result in lower US 
domestic prices and thereby lead to higher counter-cyclical payments.524  Brazil refers to studies by 
the US Congressional Budget Office and by researchers of the University of Missouri that predict that 
the repeal of the Step 2 programme will only have  a modest downward impact on the revenues of US 
upland cotton producers because of the increase in counter-cyclical pa yments caused by the decline in 
domestic prices.525  Brazil also cites to studies that predict that repeal of the Step 2 programme will 
have no significant impact on US production a nd exports of upland cotton and on world market 
prices.526  The relatively modest effects of the rem oval of Step 2 payments on US production and 
exports mean that marketing loan payments and c ounter-cyclical payments continue to be the main 
drivers of price suppression in the world market for upland cotton.  That the Step 2 programme did 
not affect the causal link between the marketing loan and counter-cyclical payment programmes and 
significant price suppression is evidenced by th e fact that the planted acreage for MY 2006 is 
                                                      
522 Panel Report, US – Upland Cotton , para. 7.209. 
523 Brazil's First Written Submission, paras. 191-208. 
524 Brazil argues that the degree to which counter-cy clical payments will offset the loss of Step 2 
payments depends on the level of the average farm pr ice in a particular marketing year.  Counter-cyclical 
payments are made if the average farm price is below a "trigger price" of 65.73 cents per pound.  In the rare 
instances when the average farm price is above the counter-cyclical trigger price, the loss of Step 2 payments 
will negatively impact upland cotton pr oducers' revenue.  This is becau se any downward movement in the 
average farm price that is caused by the elimination of Step 2 payments, and yet does not lower prices below 
65.73 cents per pound, will not be compensated by increa sed counter-cyclical payments.  However, Brazil notes 
that in each of the last nine marketing year s, the average US farm price has been below  the counter-cyclical 
payment trigger price.  It is theref ore unlikely that domestic prices will rise to the level where counter-cyclical 
payments will not compensate US producers for a fall in do mestic prices following the withdrawal of the Step 2 
programme.  Brazil notes that if the average farm pri ce is below 52 cents per pound, a further decline in the 
price level will also not be compensated by counter-cyclical paym ents because the maximum counter-cyclical 
payment will have already been made.  Thus, counter-cyclical payments will offset the loss of Step 2 payments 
where the average farm price is between the marketing loan rate of 52 cents per pound and the trigger price of 
65.73 cents per pound for counter-cyclical payments.  Brazil's First Written Submission, paras. 198-200.  
525 Brazil's First Written Submission, paras. 201-203.  
526 According to Brazil, the study co nducted by the University of Mi ssouri researchers found that the 
removal of the Step 2 payments would reduce US production by about 1 per cent, US exports by 2 per cent and increase world market prices by 0.39 cents per pound, or less than 1 per cent.  Brazil also refers to an ICAC 
study that concluded that elimination of the Step 2 programme would have no significant effect on US exports 
of upland cotton.  As support for its argument concerning the limited impact of the removal of Step 2 payments, Brazil also relies on the simulation model in Annex I to its First Written Submission and the expert testimony in 
Annex II to its First Written Submission.  Brazi l's First Written Submission, paras. 203-204.  WT/DS267/RW 
 Page 127 
 
 
  estimated to be 7 per cent higher than in MY 2005, notwithstanding that US cotton producers knew 
that the Step 2 payments would be eliminated as of August 2006.527   
10.226  Brazil asserts that, contrary to what the United States appears to argue, the Step 2 programme 
and the mandatory payments made thereunder were no t the sole cause of the serious prejudice found 
by the original panel, and that the arguments of the United States in this regard are inconsistent with 
the findings of the original panel and the Appe llate Body concerning the nature, magnitude and 
effects of the price contingent basket of measures found to cause serious prejudice.528  Brazil 
emphasizes that its argument that the relative effects of the Step 2 subsidy are modest compared to the 
combined effects of the marketing loan and counter-cyc lical payments is consistent with the reality of 
the operation of the three subsidies.  The remova l of the Step 2 programme will have a relatively 
insignificant impact on the amount of marketing lo an payments.  The incr ease in counter-cyclical 
payments following the repeal of the Step 2 progra mme far outweighs the decrease in marketing loan 
payments. 529  Brazil further submits that US upland cott on producers' revenue is critically dependent 
upon marketing loan and counter-cyclical payments but not on Step 2 payments.  Thus, the repeal of the Step 2 programme has a very limited impact on US upland cotton producers' expected or actual 
revenues.
530  Finally, partial MY 2006 data  regarding US exports does not  support the argument of the 
United States that there are no significant producti on, export and world market price effects from the 
marketing loan and counter-cyclical subsidies.  The primary cause of the decline in US exports is the 
world demand and supply situation.  Moreover, the drop in exports in MY 2006 is not remarkable in 
light of the surge in exports that occurred immediately prior to the repeal of the Step 2 programme.  
USDA projections for MY 2006 indicate that the decline in exports will be temporary.  
10.227  The United States  submits that Brazil's arguments about the "relatively modest" impact of 
removal of the Step 2 programme are without merit.  First , eliminating the Step 2 programme likely 
does not result in an increase in the counter-cyclical  payment rate but does result in lower marketing 
loan payments.  At the season average farm price th at is projected for MY 2006, there cannot be any 
appreciable increase in the counter-cyclical pa yment rate in this current marketing year.531  A t  t h e  
same time, the evidence suggests that elimination of  the Step 2 programme will likely lead to lower 
marketing loan payments as a result of the increase in world market prices.532  Rather than enhancing 
the adverse effects of counter-cyclical payments, as alleged by Brazil, the elimination of the Step 2 
programme is likely to minimize the ef fect of marketing loan payments.  Second , Brazil's efforts to 
                                                      
527 In the section of Brazil's First Written Submission on  the magnitude of the subsidies at issue, Brazil 
argues that elimination of the Step 2 subsidy from the analysis does not significantly reduce the overall 
magnitude of the price-contingent subsidies.  According to Brazil, during MY 1999-2002 Step 2 payments 
represented only 13.7 per cent of the magnitude of the three price-contingent subsidies that the original panel 
found to stimulate production and exports and to result in lower world market prices than would prevail in their absence.  Brazil's First Wr itten Submission, para. 112. 
528 Brazil's Rebuttal Submission, para. 48. 
529 Brazil points out that a FAPRI study referred to by the United States estimates that without the Step 
2 payments the AWP would increase by an average of 0.4 cents per pound in MY 2006-2012 and that a study by 
the US Congressional Budget Office (CBO ) estimated the reduction in marketing loan payments as a result of 
the elimination of the Step 2 subsidy to be US$17 million over a period of ten years.  According to the CBO, counter-cyclical payments will increase over the same peri od by US$484 million.  Brazil's Rebuttal Submission, 
paras. 59-61. 
530 Brazil's Rebuttal Submission, paras. 66-75. 
531 US First Written Submission, paras. 159-170.  Th e United States submits th at the projected average 
farm price for MY 2006 is only a fraction of a cent higher than the marketing loan rate .  When the farm price is 
at or below the marketing loan rate the counter-cyclical payment rate remains fixed at its maximum level.  The 
United States notes that none of studies cited by Br azil as support for its argument that counter-cyclical 
payments are likely to increase predict such an increase for th e current marketing year.   
532 US First Written Submission, paras. 171-178.  The United States submits that the US Congressional 
Budget Office, FAPRI and ICAC have also found that elimination of the Step 2 programme will likely have the 
effect of reducing the amount of marketing loan payments.  WT/DS267/RW  
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  demonstrate the "modest" effects on the market of eliminating the Step 2 programme are undermined 
by its own arguments in the original panel proceeding.
533  Third , data from August-October 2006 do 
not support Brazil's claim that elimination of the Step  2 programme has had "modest" effects.  In this 
respect, the United States submits, in particular, that  the current level of US exports of upland cotton 
is far below recent levels.534   
(c) Evaluation by the Panel 
(i) Assessing the effects on US cotton exports 
10.228  Brazil argues that the elimination of Step 2 paym ents has not diminished the significant price-
suppression from marketing loan and counter-cycli cal payments.  While Step 2 payments by 
themselves have an independent price suppression effect, Brazil believes that these effects are 
relatively "modest" and that other US subsidies, principally counter-cyclical and marketing loan 
payments, will be sufficient to ensure that US cott on producers continue to produce and export cotton.  
The United States disputes that the effect of e liminating Step 2 payments will be "modest".   
10.229  In this connection, the United States refers to  certain trends which it argues do not support 
Brazil's argument regarding the modest effects of the elimination of Step 2 payments, particularly the 
decline in US exports and the US share of world exports in MY 2006.535  Brazil argues that the 
"temporal coincidence" between the removal of Step  2 payments and a decline in US exports is not 
remarkable.  
10.230  The Panel concurs with the United States that the available evidence as of February 2007 
suggests significant reductions in the volume of production and exports of US upland cotton in 
MY 2006.  The absolute volumes of US cotton production and exports in MY 2006 are projected to 
fall by 9 per cent and 19.6 per cent, respectively, from MY 2005 levels.  More importantly, the US 
share of world production is projected to fall to 18.6 per cent in MY 2006 from 20.9 per cent in MY 2005; the US share of world exports is projected to decline to 36.3 in MY 2006 per cent from 40.1 per 
cent in MY 2005.  This means that decreases in the absolute levels of US production and exports are 
far sharper than for the rest of the world.  Th e Panel also notes a document submitted by the United 
States that contains the results of the annual survey  of planting intentions conducted by the National 
Cotton Council, which indicates that US upland cott on plantings are likely to be down an average of 
14 per cent in MY 2007 from 2006 levels.
536   
                                                      
533The United States submits that Brazil's argument on  the relative size of the Step 2 payments as 
compared to the size of marketing loan and counter-cycli cal payments is inconsistent with the position taken by 
Brazil in the original proceeding that the focus of a serious prejudice analysis should be on the effects and not on the magnitude, value or amount of the subsidy.  Similarly, Brazil's argument that Step 2 payments have no 
impact on the level of production and exports of US upland cotton cannot be reconciled with the argument of 
Brazil in the original proceeding that the Step 2 programme had a significant effect on the level of US exports of upland cotton.  The statement by Brazil's expert that elimination of the Step 2 programme will have little impact 
on the world price for cotton in the long-term is inconsistent with the statement by the same expert in the 
original proceeding that Step 2 was on e of three factors that enabled the Un ited States to act as the driver of 
world prices.  US First Written Submission, paras. 181-189. 
534 US First Written Submission, para. 193.  
535 According to the United States, among these trends for MY 2006 are: (i) US exports in MY 2006 
are projected to be lower than in the previous marketing year; (ii) the US share of wo rld exports is projected to 
fall to 36 per cent in MY 2006, (iii) world market prices  are higher now (early in cal endar year 2007) than year-
ago levels, while US prices – as reflected by the Ne w York futures market – are running well below those 
levels.  
536 Exhibit US-115.  WT/DS267/RW 
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  10.231  The Panel considers that the data before it is cer tainly consistent with the argument that the 
elimination of Step 2 payments is having an eff ect on US export performance.  The Panel believes 
that some part of the decline in the US share of th e export market reflects the effect of the elimination 
of Step 2 payments.  This is only consistent w ith the idea that the removal of payments which 
subsidize exports and which subs idize domestic users to substitute  domestic production for imports 
will eliminate incentives to increase sales in the export market and to add to domestic production.  
Our view is also consistent with the results of  the economic simulation model submitted by Brazil, 
which predicts a reduction in US production and e xports.  However, given that we are not yet one 
calendar year removed from the elimination of St ep 2 payments, and that the amount of Step 2 
payments was much smaller than the amounts of pa yments made under either the marketing loan or 
counter-cyclical programmes537, it is not possible for the Panel to determine with any great deal of 
precision or confidence just how much of the project ed decline in US exports of upland cotton is due 
to the elimination of the Step 2 payments.       
(ii) Indirect effect on marketing loan and counter-cyclical payments 
10.232  The parties have also advanced arguments to su ggest that the elimination of Step 2 payments 
has indirect effects, through consequential changes in the amount of counter-cyclical or marketing 
loan payments, which either negate or accentuate the direct impact of the elimination of the Step 2 
payments.   
10.233  In the Panel's view, all things being equal, an export subsidy will increase the domestic price 
in the exporting country because a larger part of dome stic production is diverted to the export market.  
Assuming that the exporting country is a large country, i.e. that it can affect world prices, the 
increased exports will also tend to depress the world price.538  The export subsidy creates a wedge 
between the domestic price in the exporting country and the world price.  A measure that subsidizes 
substitution of domestic production for imports will have a similar effect as export subsidies on 
domestic and world prices.  The additional de mand for domestic production puts upward pressure on 
the domestic price; if the country is a large c ountry, the reduction in its imports puts downward 
pressure on the world price. Thus, eliminating a programme which has both elements of export 
subsidization and import substitution will reverse th e process, lowering the domestic price even as the 
world price is increased.  
10.234  Brazil argues that the decline in the domestic  price of cotton in the United States, which 
comes about from the elimination of Step 2 pa yments, will trigger additional counter-cyclical 
payments.539  The United States disagrees with Brazil that the elimination of Step 2 payments will 
                                                      
537 In MY 2005, payments under the marketing loan and counter-cyclical programmes were about 
US$1.257 billion and US$838 million respectively.   Table 8 below gives the amounts of payments under the 
Step 2 programme from MY 1999 until MY 2005.  During its last marketing year, total payments under the 
programme amounted to US$350 million. 
Table 8:  Step 2 Payments, MY 1999-2005 
                  (million US$) 
 ITEM MY1999 MY2000 MY2001 MY2002 MY2003 MY2004 MY2005
Step 2 payments $422 $236 $196 $429 $350 $544 $350 
Source: Brazil's First Written Submission, Table 6 . 
538 We find support for this view from the analysis  of export subsidies in standard international 
economics textbooks such as that from Paul  R. Krugman and Maurice Obstfeld (2003) International Economics: 
Theory and Policy  (6th edition)  Boston, San Francisco: Addison-Wesley, 2003.       
539 Supra , para. 10.225.  WT/DS267/RW  
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  lead to a decline in domestic cotton prices th at will result in compensating increases in counter-
cyclical payments.
540   
10.235  Further, the United States argues that the elim ination of the Step 2 programme is likely to 
result in lower marketing loan payments.541  Thus, for the United States, the elimination of Step 2 
payments will have spill-over effects on marketi ng loan payments, which accentuate rather than 
negate the direct impact of  eliminating the export subsidy programme.  Brazil does not seem to 
dispute this claim although it argues that the decr ease in marketing loan payments is likely to be 
small.542  
10.236  Brazil and the United States emphasize different aspects of the likely adjustment in domestic 
(US) and world prices resulting from the elimination of the Step 2 programme.  Brazil emphasizes the 
reduction in the domestic price, which it argues, would tend to trigger additional counter-cyclical 
payments.  The United States emphasizes the increase in the world price, which it argues, would tend 
to reduce marketing loan payments.  Both parties are correct in their assessment of how domestic 
(US) and world cotton prices are likely to evolve, al l things being the same, with the elimination of 
Step 2 payments.  In our view the scenarios clai med by the parties – increases in counter-cyclical 
payments and decreases in marketing loan paym ents – will be played out simultaneously.   
10.237  There are two questions remaining.  First, wh at are the likely magnit udes of the changes in 
counter-cyclical payments and marketing loan paymen ts that will be caused by the elimination of the 
Step 2 programme?  The second and more important  question is what are the likely impacts on US 
cotton production and exports?   
10.238  On the first question, we find credible the US CBO projections, which both parties have 
referred to, of the likely changes in marketing loan  and counter-cyclical payments that will result from 
the elimination of the Step 2 programme.  Over  the US fiscal year period 2006-2015, the CBO 
projects that the elimination of the Step 2 pr ogramme will reduce marketing loan payments by 
US$17 million and increase counter-cyclical payments  by US$484 million.  In this respect, one 
should take note of the clarification made by th e United States that the projected reductions in 
marketing loan payments will apply only to MY 2006-2007, since no payments are expected beyond 
that.543    
10.239  In answering the second question, the Panel obser ves that it will not suffice to just compare 
the magnitude of these payments.  This is because a dollar of mark eting loan payments provides a 
greater incentive to increase production than does a dollar of counter-cyclical payments.  These 
projected changes are also rather modest, if one takes into account the scale of the annual payments 
made under the marketing loan and counter-cyclical programmes, and the ten-year horizon involved.  
The Panel is led to conclude that the indirect im pacts on US production and exports are likely to be 
small, given the relatively modest changes project ed in the amounts of marketing loan and counter-
cyclical payments, and the fact that these changes run counter to one another.      
                                                      
540 Supra , para. 10.227. 
541 Supra , para. 10.227. 
542 Brazil refers to the CBO report which projects a reduction of US$17 million in marketing loan 
payments arising from the elimination of the Step 2 programme.  Brazil's Rebuttal Submission, paras. 58-60. 
543 US Rebuttal Submission, para. 184.  WT/DS267/RW 
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  12. Other factors impacting the world market price for upland cotton  
(a) Main arguments of the parties 
10.240  The United States  submits that by failing to undertake any meaningful analysis of world 
market prices and the factors that influence them Braz il fails to ensure that the effects of other factors 
on prices are not improperly attributed to the marketing loan and counter-cyclical subsidies at issue in 
this proceeding.  In this regard, the United Stat es emphasizes that Brazil does not take into account the 
role of China's trade in cotton.  Brazil ignores th e fact that there exists a high correlation between 
China's net trade in cotton and the A-Index, that the A-Index itself has been changed to reflect the 
impact of China on the world cotton market, and th at, as indicated by market reports submitted by 
Brazil, the uncertainty regarding China's trade in cotton results in downward pressures on prices.544  
10.241  Brazil  argues that any impact of China's purchases of upland cotton on the world market price 
does not diminish the significant price-suppressing e ffects of the US subsidies at issue.  Brazil 
emphasizes that its claim is a claim of price suppression and not of price depression and that this claim does not depend upon the actual level of world prices for upland cotton, which is influenced by 
numerous factors, including the purchasing behaviou r of China.  While China's supply and demand 
may explain certain price movements in the world market for upland cotton, this does not alter the 
fact that removal of US subsidies would result in  a significant increase in the US supply to the world 
market, which in turn would lead to significantl y higher prices.  In any case, while Brazil does not 
disagree that China exerts a strong influence on the world market price for upland cotton, China's role 
is not as dominant as argued by the United States.  Thus, Brazil contests that there is a significant 
correlation between China's exports and the A-Index  and asserts that the change in the A-Index is of 
little importance for the overall determination of worl d market prices.  Finally, Brazil considers that 
uncertainty about China's demand and supply can lead to  short-term price fluctuations, but that in the 
long-term prices are determined by market fundamentals of demand and supply.
545  
(b) Evaluation by the Panel 
10.242  As observed by the Appellate Body and the pane l in the original proceeding, in order to 
determine that the effect of a subsidy is significant price suppression within the meaning of 
Article 6.3(b) it is necessary "to ensure that the effects of other factors on prices are not improperly attributed to the challenged subsidies".
546  However, the SCM Agreement  prescribes no precise 
methodology for such an analysis of the role of other factors in the context of Article 6.3.   
10.243  As discussed above, the Panel has adopted a "but for" approach to the question of whether the 
effect of US marketing loan and counter-cyclical  subsidies to upland cotton producers is significant 
price suppression within the meaning of Article 6.3(c) of the SCM Agreement.  The Panel considers 
that it is not necessary in this respect to undertake a comprehensive evaluation of factors affecting the 
world market price for upland cotton.  Rather the question is whether the evidence before the Panel 
supports the conclusion that in the absence of the US marketing loan and c ounter-cyclical subsidies 
the world market price would increase significantly .  The Panel considers, based on the evidence 
before it, that while China may play a significant ro le in the market for upland cotton, this does not 
diminish the significance of the impact of US subsidies on the world price for upland cotton as a result of their effect on US supply to the world mark et.  Developments concerning the role of China's 
                                                     
 
544 US First Written Submission, paras. 308-318; US Rebuttal Submission, paras. 387-396.  
545 Brazil's Rebuttal Submission, paras. 324-345.  
546 Appellate Body Report, US – Upland Cotton , para. 437; Panel Report, US – Upland Cotton , 
para. 7.1344.  WT/DS267/RW  
Page 132  
 
  demand and supply do not change the fact that, w ith a share of world exports of around 40 per cent, 
the United States is capable of exerting a substa ntial proportionate influence on the world market.
547  
13. Summary and conclusion of the Panel's analysis of Brazil's claim of serious prejudice 
within the meaning of Articles 5(c) and 6.3(c) of the SCM Agreement   
10.244  The Panel recalls that the original panel found that the effect of certain price-contingent 
subsidies provided by the Unite d States in respect of upland cotton – marketing loan programme 
payments, user marketing (Step 2) payments, mark et loss assistance payments and counter-cyclical 
payments – was significant price suppression in the same world market for upland cotton in the period MY 1999-2002 within the meaning of Article 6.3(c) of the SCM Agreement  constituting serious 
prejudice within the meaning of Article 5(c) of the SCM Agreement .
548  In respect of this finding, the 
original panel recalled that under Article 7.8 of the SCM Agreement  the adoption of a panel or 
Appellate Body Report in which it is determined th at a Member has caused adverse effects within the 
meaning of Article 5 of the SCM Agreement  requires the Member granting or maintaining the subsidy 
to take appropriate steps to remove the a dverse effects or to withdraw the subsidy .549  550 
10.245  In this proceeding under Article 21.5 of the DS U, Brazil claims that the United States has 
failed to comply with its obligations under Article 7.8 of the SCM Agreement because  two of the 
subsidies  to US upland cotton producers that were the subject of the original panel's finding of 
"present" serious prejudice  – marketing loan and counter-cyclical payments – cause "present" serious 
prejudice to the interests of Brazil within the meaning of Articles 5(c) and 6.3(c) of the SCM 
Agreement.  
10.246  The Panel has considered the arguments and ev idence presented by the parties in support of 
their positions on the issues raised by Brazil.  Th e Panel's evaluation can be summarized as follows.  
10.247  First , in view of the magnitude of the US shares of world production and exports, the Panel 
considers that the United States exerts a substantia l proportionate influence on the world market for 
upland cotton, even if account is taken of the pr ojected declines in these shares in MY 2006.  This 
substantial proportionate influence of the United States, analyzed in light of the totality of the 
evidence before us, is an element that supports a fi nding that the marketing loan and counter-cyclical 
payments to US upland cotton producers cause sign ificant price suppression in the world market for 
upland cotton.  
10.248  Second , the Panel has found that marketing loan and counter-cyclical payments affect the 
level of US upland cotton acreage and production as a result of their mandatory and price-contingent 
nature and their revenue-stabilizing effect.  In this respect, the Pane l has concurred with the view of 
the original panel that these subsidies protect or  "insulate" revenues of US upland cotton producers 
when prices are low.  We have emphasized, however , that in determining whether the structure, 
design and operation of these subsidies support a finding of significant price suppression under 
current factual conditions , we need to consider this factor in conjunction with other factors.   
                                                      
547 The Panel notes that Brazil has not ignored the role of China in the world market for upland cotton.  
The analysis of the world cotton market prepared by Brazil' s experts specifically refers to the fact that China is 
the largest producer and consumer of cotton and is now al so the largest importer of cotton.  Brazil's First Written 
Submission, Annex II (Declaration by Andrew Macdonald).  
548 Panel Report, US – Upland Cotton , paras. 7.1416 and 8.1(g)(i). 
549 Panel Report, US – Upland Cotton , para. 8.3(d).   
550 Brazil emphasizes that in explaining its decision not to address certain claims of Brazil, the original 
panel observed that as a result of the panel's finding of present serious prejudice "the United States is obliged to 
take action concerning its present statutory and regulatory framework."  Panel Report, US – Upland Cotton , 
para. 7.1501. The United States argues  that this statement is not a "reco mmendation" and that in any event the 
United States has amended its statutory and regulatory framework by repealing the Step 2 programme.   WT/DS267/RW 
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  10.249  Third , the Panel considers that the order of ma gnitude of the marketing loan and counter-
cyclical subsidies is such that in conjunction with  other factors, this element supports a finding that 
significant price suppression is the effect of the subs idy, even when account is taken of the projected 
decline of marketing loan payments in MY 2006.   
10.250  Fourth , the Panel has found that there exists a significant gap between the total costs of 
production of US upland cotton producers and their ma rket revenue, suggesting that the subsidies at 
issue are a key factor affecting the economi c viability of US cotton farming.     
10.251  Fifth , the Panel considers that certain arguments  of Brazil are less persuasive.  Thus, in 
arguing that there exists a temporal coincidence of  subsidies and suppressed prices, Brazil in our view 
fails to take sufficient account of the fact that the recent trends in world market prices and US world 
export shares differ considerably from the trends in world market prices and US world export share in 
the period considered by the original panel.  The Pa nel is also not convinced that Brazil has been able 
to substantiate adequately its assertion that US  upland cotton acreage, production and exports do not 
respond to market price signals.  The Panel recalls, however, its conclusion that the fact that recent 
years have not witnessed the sharp decline in the world market pri ce for upland cotton that occurred 
during the period considered by the original panel do es not necessarily mean that there is currently no 
price suppression within the meaning of Article 6.3(c) of the SCM Agreement .  The Panel also recalls 
its observation that the stable US share of wo rld production and exports does not mean that US 
producers are not insulated from market price signals, but that the degree of price insulation found by the original panel is now weaker, possibly because prices are not depressed as during the period examined by the original panel.  Finally, the Pane l recalls that all the simulations conducted by the 
parties support the view that US marketing loan a nd counter-cyclical payments have led to an increase 
in US production and exports of cotton th at have then suppressed world prices.   
10.252  Sixth , the Panel has examined the role of other f actors that may have an effect on the world 
market price for upland cotton, notably the role of China's trade in cotton.  The Panel concludes that 
this other factor does not attenuate the link betw een significant price suppression and the subsidies at 
issue in this proceeding.  
10.253  Finally, with respect to the elimination by the United States of Step 2 subsidies – one of the 
subsidies that was the subject of the original pane l's finding of "present" serious prejudice – the Panel 
considers that the evidence  before it on the effect of the elimina tion of this subsidy on US exports and 
on the amounts of marketing loan payments and counter-cyclical payments suggests that the 
elimination of this subsidy does not affect th e price suppressing effects of the marketing loan 
payments and counter-cyclical payments in the world market for upland cotton.    
10.254  The Panel finds, on the basis of the above summa rized evaluations, that without the marketing 
loan and counter-cyclical payments to US upla nd cotton producers the level of US upland cotton 
acreage and production would be significantly lower and that, as a consequence, the world market 
price for upland cotton would be hi gher.  The Panel recalls that to determine whether there is 
significant price suppression within the meaning of Article 6.3(c) as the effect of the subsidies at 
issue, the Panel must ascertain whether, but for th e subsidies at issue, the world market price for 
upland cotton would have increased significantly, or would have increased by significantly more than 
was in fact the case.  The Panel concludes that the effect of the subsidies at issue is significant price 
suppression in this sense.551  
10.255  Article 6.3(c) of the SCM Agreement  provides 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".  
(emphasis added).  The Panel considers that this  phrase must be interpreted to mean that "the 
                                                      
551 See supra , paras. 10.50 for the Panel's view on the interpretation of the term "significant".  WT/DS267/RW  
Page 134  
 
  situations listed in Article 6.3(a)-(d) in  themselves constitute serious prejudice".
552  As a consequence, 
a finding of significant price suppression under Article 6.3(c) of the SCM Agreement  is a sufficient 
basis for a finding of serious prejudice within the meaning of Article 5(c) of the SCM Agreement .553  
10.256  In light of the foregoing considerations, the Panel finds  that the United States acts 
inconsistently with its obligations under Articles 5(c) and 6.3(c) of the SCM Agreement  in that the 
effect of marketing loan payments and counte r-cyclical payments provided to US upland cotton 
producers pursuant to the FSRI Act of 2002 is si gnificant price suppression within the meaning of 
Article 6.3(c) of the SCM Agreement  in the world market for upland cotton constituting "present" 
serious prejudice to the interests of Brazil w ithin the meaning of Article 5(c) of the SCM Agreement .   
10.257  The Panel also finds , as a consequence, that by acting in consistently with Articles 5(c) and 
6.3(c) of the SCM Agreement  the United States has failed to comply with the DSB recommendations 
and rulings.  Specifically, the United States has faile d to comply with its obligation under Article 7.8 
of the SCM Agreement  "to take appropriate steps to remove the adverse effects or ... withdraw the 
subsidy". 
C. CLAIM OF BRAZIL OF "PRESENT " SERIOUS PREJUDICE WITHIN THE MEANING OF ARTICLES 5(C) 
AND 6.3( D) OF THE SCM AGREEMENT  
1. Main arguments of the parties 
10.258  Brazil submits that the effects of the marketing loan and counter-cyclical payment subsidies 
in MY 2005 cause the United States to hold an increased  share of the world market for upland cotton.  
In this respect, Brazil argues that the US share of the world market for upland cotton in MY 2005 was 
greater than the average US world market share during MY 2002-2004, that this increase reflects a 
consistent trend over the period MY 1998-2005, wh ich Brazil considers the most representative 
period for purposes of Article 6.3(d), and that the evidence presented by Brazil in the context of its 
price suppression argument regarding the effects of  the nature and magnitude of the subsidies, 
coupled with the commanding US production and export market share, on production, export and world market price also supports a causal link betw een these subsidies and the increase in the world 
market share of the United States.    
10.259  The United States argues that Brazil fails to make a prima facie  case of WTO-inconsistency 
under Articles 5(c) and 6.3(d) of the SCM Agreement .  Brazil fails to demonstrate that all of the 
elements of Articles 5(c) and 6.3(d) of the SCM Agreement  are satisfied.
554  Brazil has not 
demonstrated that the slight increase in MY 2005 of the US share of world production (1.53 per cent) 
and of the US share of world prod uction plus beginning stocks (0.46 per cent) was not caused by the 
Step 2 programme.  Brazil has also failed to demonstr ate that this increase "follows a consistent trend 
over a period when subsidies have been granted".  In  the later regard, the United States points out that 
US share of world production or production plus beginni ng stocks is stable if one looks back to MY 
1980 and has actually declined significantly if one looks back to 1960.  
                                                      
552 Panel Report, Korea – Commercial Vessels , para. 7.587.  
553 Panel Report, US – Upland Cotton , para. 7.1390.  
554 The United States also submits that not only are Brazil's claims against the marketing loan and 
counter-cyclical payment programmes  not within the scope of this proceeding, but Brazil also fails to provide a 
legal basis for a finding against these programmes b ecause it fails to demonstrate that these programmes 
mandate a breach of Articles 5(c) and 6.3(d).  Since the legal provisions or "programmes" pursuant to which 
marketing loan and counter-cyclical pa yments are made by the US Government to US upland cotton farmers are 
not, as such, the subject of Brazil's clai ms of serious prejudice, we do not n eed to address these arguments of the 
United States.   WT/DS267/RW 
 Page 135 
 
 
  2. Evaluation by the Panel  
10.260  Articles 5(c) and 6.3(d) of the SCM Agreement  provide: 
"Serious prejudice in the sense of paragraph (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 in crease in the world market share of the 
subsidizing Member in a particular s ubsidized 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." 
___________ 
17Unless other multilaterally agreed specific ru les apply to the trade in the product or 
commodity in question. 
10.261  Thus, Article 6.3(d) requires, first, a showing that there has been an increase in the world 
market share of the subsidizing Member in a partic ular primary product or commodity as compared to 
the average market share of that Member in  the previous period of three years.  Second , it must be 
shown that this increase follows a consistent trend over a period when subsidies have been granted.   
10.262  With respect to the first element that must be satisfied for a finding under Article 6.3(d), we 
note that the original panel interpreted the term "wor ld market share" in Article 6.3(d) to mean the 
"share of the world market s upplied by the subsidizing Member".555  Brazil has used this definition 
and has noted that this definition suggests two poten tial measures of "supply".  First, supply can be 
limited to the annual level of a Member's ne w production of a primary product or commodity.  
Alternatively, supply can additionally include resi dual produce from previous years, which, in the 
context of upland cotton, is known as "beginning stoc ks".  In this present dispute, Brazil has presented 
data on the US world market share using both measures of supply.   
10.263  Brazil argues that the world market share of th e United States has increased in MY 2005, as 
compared to the average US share of world s upply in MY 2002-2004.  Brazil provides data showing 
that the US share of world production plus be ginning stocks increased by  0.46 per cent over the 
average for MY 2002-2004 and the US share of wo rld production increased by 1.53 per cent over the 
average for MY 2002-2004.556  The Panel notes that while the United States does not dispute these 
figures, the United States considers these "slight" increases to be part of ordinary fluctuations in US market share, not the effect of the marketing loan and counter-cyclical payment programmes.
557   
10.264  The Panel agrees with the United States that Brazi l has not been able to demonstrate that the 
small increase in the US world market share is the effect of marketing loan and counter-cyclical 
payments.  It is not unreasonable to interpret su ch a small increase to be part of the ordinary 
fluctuations in the US market share.  The sensitiv ity of the result, an increase in US market share 
compared to the average of the p ast three years, also becomes apparent if we change the terminal 
marketing year from MY 2005 to MY 2006.  Brazil has been willing to admit the inclusion of 
MY 2006 projections provided that they are reliable.  We have judged MY 2006 projections provided 
                                                      
555 Panel Report, US – Upland Cotton , para. 7.1454.  While Brazil raised this issue in its appeal, the 
Appellate Body found that an interpretation of the phra se "world market share" in Article 6.3(d) was not 
necessary to resolve the disput e.  Appellate Body Report, US – Upland Cotton , para. 511.  
556 Brazil's First Written Submission, paras. 222-226. 
557 US Rebuttal Submission, para. 402. WT/DS267/RW  
Page 136  
 
  by the United States to this panel to be reliable.  If one uses these projections for US and world cotton 
production in MY 2006, the US world market share will actually be lower in MY 2006 compared to 
the average of the three previous marketing years: 
Table 9:  US World Market Share, MY 2002-2006 
 
Marketing Year US Share of World 
Production US Share of World 
Production plus Stocks 
2002 19.5% 17.4% 
2003 19.2% 17.0% 
2004 19.3% 16.3% 
2005 20.9% 17.5% 
2006 18.6% 16.3% 
Source: Exhibits US-27 and US-114. 
10.265  We note in this connection that Brazil argues th at the Panel should not take into account this 
data for MY 2006 because Brazil's claim is a clai m of "present" serious prejudice, based upon data 
from MY 2005, the last year for which complete data is available.558  The Panel disagrees with this 
argument of Brazil.  The Panel must determine whethe r the effect of the subsidy "is" an increase in 
the world market share of the United States.  As di scussed above, the Panel considers that the use of 
the present tense in Article 6.3 suggests that the rele vant period to consider is the present period and 
that where reliable data is available for MY 2006, that data must be taken into account.  The Panel 
recalls that an important additional consideration for not limiting its analysis to MY 2005 is that the 
elimination of the Step 2 programme became effective on 1 August 2006.   
10.266  The Panel therefore finds that the evidence does not support Brazil's argument that there is an 
increase in the world market share of the United States in upland cotton as compared to the average 
US world market share during the previous period of three years.  Thus, the Panel cannot find that the effect of the subsidies at issue in this proceedi ng is an increase in the world market share of the 
United States within the meaning of Article 6.3(d).
559   
10.267  In light of this finding, the question of whethe r the second condition of Article 6.3(d) of the 
SCM Agreement  has been met in this case, i.e. whether th e increase in world market share follows a 
consistent trend over a period when subsidies have been granted, does not arise.  The Panel notes that 
the parties disagree on how to interpret and apply the requirement of Article 6.3(d) that the increase in 
the subsidizing Member's world market share, as comp ared to the average shar e of the Member in the 
previous period of three years, be shown to follo w a consistent trend over a period when subsidies 
have been granted.560  The Panel does not consider it necessar y to address the arguments made by the 
parties in this regard.   
10.268  In light of the foregoing considerations, the Panel finds  that Brazil has not made a prima facie  
case that the effect of marketing loan and count er-cyclical payments provided to US upland cotton 
producers pursuant to the FSRI Act of 2002 is an in crease in the US world market share in upland 
cotton as compared to the average US world market  share during the previous period of three years 
                                                      
558 Brazil's Rebuttal Submission, para. 356.  
559 Brazil argues that, the model submitted by its economic consultant shows that, but for the marketing 
loan and counter-cyclical payments, th e US world market share would have  been significantly lower in MY 
2005.  The Panel considers that the terms of Article 6.3(d)  require that it be demonstrated that there is an actual 
increase in market share of the subsidizing Member.   
560 Thus, for example, the United States argues that it must be shown under Article 6.3(d) that a 
Member's market share is consistently  increasing over the previous three- year average.  Brazil rejects this 
interpretation.  US Rebuttal Submission, paras. 403-404; Brazil's Response to Panel Question 76.   WT/DS267/RW 
 Page 137 
 
 
  and that this increase follows a consistent trend ov er a period when subsidies have been granted.  
Therefore, it has not been established that the Unite d States acts inconsistently with Articles 5(c) and 
6.3(d) of the SCM Agreement . 
XI. BRAZIL'S CLAIM OF THREAT OF SERIOUS PREJUDICE UNDER 
ARTICLES 5(C) AND 6.3 OF THE SCM AGREEMENT   
11.1 Brazil  requests the Panel to find that the United States has failed to comply with the DSB 
recommendations and rulings in the original proceed ing in that marketing loan and counter-cyclical 
payments to US upland cotton producers threaten to  cause serious prejudice in the form of significant 
price suppression in the world market for upland cotton.   
11.2 The United States  submits that Brazil has failed to make a prima facie  case of threat of 
serious prejudice caused by the marketing loan and counter-cyclical payments. 
11.3 The Panel has found that marketing loan and counter-cyclical payments under the FSRI Act 
of 2002 to US upland cotton producers cause "prese nt" serious prejudice to the interests of Brazil 
within the meaning of Articles 5(c) and 6.3(c) of the SCM Agreement  and that in this regard the 
United States has failed to comply with the DSB recommendations and rulings in the original 
proceeding.  In light of these findings of "presen t" serious prejudice and of non-compliance by the 
United States with the DSB recommendations and ru lings, the Panel does not consider it necessary or 
appropriate to make an additional finding as to whet her marketing loan and counter-cyclical payments 
to US upland cotton producers threaten to cause serious  prejudice to the interests of Brazil in the form 
of significant price suppression in the world market for upland cotton.561  The Panel also notes that 
Brazil has made clear that its claim of threat of serious prejudice is conditional.  Specifically, Brazil 
has stated that the Panel "need only decide this claim if it is unable to find that there is present serious 
prejudice from marketing loan and counter-cyclical payments programmes of the FSRI Act of 2002".
562  
11.4 The Panel therefore decides not to make a finding on Brazil's claim of threat of serious 
prejudice under Articles 5(c) and 6.3(c) of the SCM Agreement .   
XII. BRAZIL'S CLAIM OF "PRESENT" SERIOUS PREJUDICE UNDER 
ARTICLES 5(C), 6.3(C) AND 6.3(D) OF THE SCM AGREEMENT  AS A RESULT OF 
THE FAILURE OF THE UNITED STATES TO TAKE ANY ACTION BETWEEN 22 SEPTEMBER 2005 AND 31 JULY 2006  
12.1 Brazil requests the Panel to find that the failure  of the United States to take any measure to 
remove the adverse effects or to withdraw th e three price-contingent upland cotton subsidy 
programmes between 22 September 2005 and 31 Ju ly 2006 cause present serious prejudice to the 
interests of Brazil in the form of significant pri ce suppression in the world market for upland cotton 
and an increase in the US world market share, in vi olation of Articles 5(c), 6.3(c) and 6.3(d) of the 
SCM Agreement .    
                                                     
 
561 The original panel also did not consider it necessa ry or appropriate to ad dress Brazil's claims of 
threat of serious prejudice under Articles 5(c) and 6.3(c) of the SCM Agreement in light of its findings of present 
serious prejudice and of the existence of prohibited subsidies.  Panel Report, US – Upland Cotton , para. 7.1503.   
562 Brazil's First Written Submission, para. 461; see al so Brazil's Response to Panel Question 84.  The 
Panel concurs with the argument in paragraph 240 of Br azil's First Written Submission that "a finding by the 
compliance Panel of either present serious prejudice or a threat thereof will suffice for the compliance Panel to 
find that the U.S. measures taken to comply are inconsistent with the cove red agreements, within the meaning of 
Article 21.5 of the DSU".  WT/DS267/RW  
Page 138  
 
  12.2 In light of the Panel's ruling in paragra ph 9.68 on the preliminary objection of the 
United States and in light of its findings above of  "present" serious prejudice and of non-compliance 
by the United States with the DSB recommendations  and rulings, the Panel does not consider it 
necessary or appropriate to make a finding on this claim of Brazil of "present" serious prejudice resulting from the failure of the United Stat es to take certain action during the period 
22 September 2005-31 July 2006.  The Panel also notes that Brazil has presented this claim on a 
contingent basis.
563  The Panel therefore decides not to make a finding on this claim of Brazil of 
"present" serious prejudice under Articles 5(c), 6.3(c) and 6.3(d) of the SCM Agreement .   
XIII.  ATTACHMENT 1:  OVERVIEW OF NEW ECONOMIC LITERATURE ON 
COUNTER-CYCLICAL PAYMENTS 
A. IMPACT  OF COUNTER-CYCLICAL  PAYMENTS 
1. Studies cited by the United States 
13.1 The United States submits a study "Risk Consider ations in Supply Response: Implications for 
Counter-Cyclical Payments' Production Imp act" by William Lin and Robert Dismukes.564  This study 
attempts to simulate the acreage effects of counte r-cyclical payments for three crops – corn, soybeans 
and wheat.  The simulation is based on an acreage mo del, which was estimated using state-level data 
during 1991-2001, drawn from farms in the Northcentral region565 of the United States.  The study 
acknowledges the many ways in which programmes li ke the counter-cyclical payment programme can 
affect the acreage decision of farmers – through a re duction in risk, wealth effects, the increase in 
farm revenue, etc.  Its primary focus, however, is  how counter-cyclical payments reduce the price risk 
faced by farmers and how much this translates into  increases in planting area.  Essentially, counter-
cyclical payments improve the probability distri bution of prices faced by farmers by guaranteeing 
them the target price less the direct payment for th at crop.  The study finds that of the three crops 
examined (corn, soybeans and wheat), price risk redu ction from counter-cyclical payments is likely to 
be important only in the case of soybeans.  The si mulation predicts that counter-cyclical payments 
will lead to a 3 per cent increase in soybean acreage.    
13.2 A second study cited by the United States, "C ounter-Cyclical Payments Under the 2002 Farm 
Act: Production Effects Likely to be Limited" by Paul Westcott566, analyses the likely production 
effects of counter-cyclical payments.  The author cons iders the case of a hypothetical corn farmer who 
plants all of his hundred acres of corn base with co rn.  He then examines how the farmer's revenues 
are affected by counter-cyclical payments (among other subsidies) depending on realizations of the 
market price.  He comes to the conclusion that the impact of counter-cyclical payments differs 
depending upon the level of the market price.  If fa rmers expect prices to be below loan rates, then 
counter-cyclical payments are at their maximum leve ls and become more like "fixed" payments.  If 
farmers expect the market price to  lie between the loan rate and the "effective target price", counter-
cyclical payments will vary with market price and th eir effects may vary as well.  It is in this price 
range that Westcott believes that, assuming the base acreage crop is planted, counter-cyclical 
payments have potential avenues to affect producti on.  They do so by stabilizing farm revenues, 
offsetting changes in market prices with counter-c yclical payments.  At the same time, Westcott 
points to several mitigating factors which may redu ce these effects.  Since commodity prices tend to 
move together, counter-cyclical payments on base acreage provide revenue stabilization for alternative crops.  Thus this implies that the prod uction effect need not be on cotton even though the 
                                                     
 
563 Brazil's First Written Submission, para. 461.  
564 Exhibit US-34.  
565 The region includes the states of Ohio, Indiana, Illinois, Missouri, Iowa, Minnesota, Wisconsin, and 
Michigan. 
566 Exhibit US-35.  WT/DS267/RW 
 Page 139 
 
 
  counter-cyclical payments are made on cotton base.  Further, there are other farm programmes which 
mitigate the revenue risk faced by farmers so that  counter-cyclical payments may not have much to 
contribute.  Finally, a large portion of output in US agriculture is produced by large producers, and to the extent that risk aversion decr eases as income rises, the revenu e stabilization benefits of counter-
cyclical payments may be lower.  Taking these mitigating factors into account, Westcott concludes 
that the overall production effects of counter-cycli cal payments through revenue risk reduction are 
likely to be limited, although the study is unabl e to provide an estimate of this magnitude.  
13.3 The United States also submits a study "US Agricultural Policy: Overview and Recent 
Analyses" by Edwin Young, Anne Effl and, Paul Westcott and Demcey Johnson.
567  This paper 
presents an overview of recent US agricultural po licies as embodied in the 1996 and 2002 Farm Acts.  
It also provides a survey of recent analyses regardi ng the effects of those policies.  With respect to 
counter-cyclical payments under the 2002 Farm Act,  it suggests that recent studies have concluded 
that these payments "create small but positive production incentives". 
13.4 Finally, the United States submits a paper en titled "Another Look at Decoupling: Additional 
Evidence on the Production Effects of Direct Payments" by B. Goodwin and A. Mishra in the 
American Journal of Agricultural Economics.568  The Goodwin and Mishra study, published in 2005, 
examines the extent to which production flexibility contract or Agricultural Market Transition Act 
(AMTA) payments under the FAIR Act affected the acreage decisions of a set of farms in the US 
Corn Belt who grew corn, wheat, and soybeans.  In pa rticular, the authors use farm-level data for the 
years 2002 and 2003 to examine the acreage decisions  of Corn Belt producers.  They also examine 
responses to a number of survey questions regarding factors affecting acreage decisions and the 
disposition of funds received in the form of direct payments.  Farmers' responses to the survey 
questions suggest that direct payments, counter-c yclical payments, and the potential for base acreage 
updates were all relatively minor factors.  Finall y, their empirical results find no statistically 
significant relationship between direct payments a nd acreage decisions for corn, wheat, and soybeans. 
2. Studies cited by Brazil 
13.5 Brazil submits a paper "Farm-Level Production E ffect From Participation in Government 
Commodity Programs: Did the 1996 Federal Agri cultural Improvement a nd Reform Act Make a 
Difference" by Nigel Key, Ruben Lubowski and Michael Roberts.569  The paper, published in the 
American Journal of Agricultural Economics, look s at the production impact of participation in 
government commodity programmes.  As such, it does not single out the influence of counter-cyclical 
payments from other elements of these commodity progr ammes.  The results indicate that participants 
increased plantings of programme crops considerably (38-59 percentage points) more than non-
participants.  Estimated effects of participation on  farm-size growth and total sales growth were also 
consistent across time, increasing 14-16 percentage points and 22-24 percentage points, respectively.  
Although the estimated effects do not isolate the imp act of countercyclical payments, the study goes 
on to conjecture "that the results suggest decoupled  payments affect production at the farm level". 
13.6 Another study submitted by Brazil, "How distorting are direct payments?" by 
Erik J. O'Donoghue and James Whitaker570, investigates the effects of direct payments on total 
harvested acres for farms growing programme crops  (including upland cotton), non-programme crops 
and livestock.  The study's main innovation is to  control for the possible endogeneity of direct 
payments.  Endogeneity can occur because, while dir ect payments could alter acreage changes (if the 
payments had wealth effects, caused expectations to change, etc.), acreage changes could also alter 
                                                      
567 Exhibit US-40. 
568 Exhibit US-41. 
569 Exhibit BRA-566. 
570 Exhibit BRA-568.       WT/DS267/RW  
Page 140  
 
  the receipt of direct payments (if base was bought or  sold).  The authors use the updating of base acres 
allowed under the 2002 Farm Act to impute causation.   
13.7 The authors divide farms into four categories by size of revenues.  Their econometric 
estimates suggest that direct payments (which are "p roxied" by average base acre changes for farms) 
affect farms differently.  The smallest farms appear  not to have changed their harvested acres.  The 
next set of farms in terms of revenues increased their total cropland harvested by almost 25 per cent 
on average, while the third set of farms increased thei r total cropland harvested by nearly ten per cent.  
However, the largest farms decreased their total cropland harvested by approximately 20 per cent.  
The authors judge that altogether these magnitudes represent "substantial changes".  They do not seem 
to have explicitly tested how direct payments a ffect harvested acreage for farms growing programme 
crops, non-programme crops or livestock.  But in in terpreting their econometric results, they offer the 
explanation that farms might be redistributin g the acres from non-programme crop and livestock 
specialties to programme crop farms (which include upland cotton).    
13.8 Another paper submitted by Brazil is entitled "Are decoupled paym ents really decoupled?" by 
B. K. Goodwin and A. Mishra
571; published in the American Jour nal of Agricultural Economics in 
2006.572  This study examines the production effect of Agricultural Market Transition Act (AMTA) 
and market loss assistance payments.  It finds mo dest evidence that AMTA payments may lead to 
increased production of corn, soybeans, and wheat.  However, the acreage effects are very small.  
Acreage elasticities for the major crops, corn and s oybeans, are about 0.025 to 0.035.  These estimates 
suggest that even a very large increase in thes e decoupled payments would not be expected to 
significantly increase acreage.  However, market loss assistance payments appeared to have a more 
significant effect on acreage.  The estimated elasticity  of corn acreage with re spect to the payments 
was 0.10, suggesting that such payments ma y indeed lead to more corn production. 
13.9 Brazil also submits a study, "Supply Response to Counter-Cyclical Payments and Base Acre 
Updating under Uncertainty: An Experimental Study"  by Christopher R. McIntosh, Jason F. Shogren 
and Erik Dohlman.573  The study, which is to be published in the American Journal of Agricultural 
Economics, reports on a laboratory experiment which attempts to mimic the price risks faced by 
farmers and the incentives provided by direct a nd counter-cyclical payments under the 2002 Farm 
Act.  Four scenarios are considered.  The base line scenario is where only direct payments are 
provided.  The second scenario includes both dir ect and counter-cyclical payments.  The third 
scenario allows for some uncertainty about the polic y regime.  The fourth scenario requires mandatory 
updating of base acreage.  Eighty-five students recruited from Economics and Finance undergraduate 
classes at the University of Wyoming were the s ubjects of the laboratory experiment.  Based on the 
results of the experiments, the authors conclude  that counter-cyclical payments influence crop 
allocation decisions in the laboratory — the average subject allocated more acres toward the base crop 
in the presence of counter-cyclical payments.  Th ey estimate that the presence of counter-cyclical 
payments will increase base crop acreage by 5.43 pe r cent.  Larger estimates (7.92 per cent increase) 
are obtained if apart from price risk, the subjects face uncertainty about the policy regime.   
                                                      
571 Exhibit BRA-618. 
572 This article appears to be based on the same st udy cited by the United States in Exhibit US-41.  
Both studies cover the same crops (corn, soybeans, wheat) and the same geographical region (Corn Belt) of the 
United States.  However, there appears to be some di fference in the programmes covered.  Exhibit US-41 
includes AMTA payments only while BRA-618 covers both AMTA and MLA payments.  
573 Exhibit BRA-565.  WT/DS267/RW 
 Page 141 
 
 
  B. ARE  COUNTER-CYCLICAL  PAYMENTS  CAPITALIZED  INTO  HIGHER  LAND  
VALUES? 
1. Studies cited by the United States 
13.10  The studies by Hoppe and Banker574 and Young, Effland, Westcott and Johnson575 examine 
the extent of land rental in US agriculture.  The third study by Abler and Blandford576 provides a 
survey of empirical studies on direct paymen ts under the United States 1996 FAIR Act and 
subsequent Marketing Loss Assistance (MLA) payments. 
13.11  The USDA study by Hoppe and Banker shows that an estimated 44 per cent of all farmland 
operated in 2003 was rented.577 The study by Young, Effland, Westcott and Johnson gives even higher 
estimates for larger farms. They state that crop farms in which total sales exceeded US$250,000, also 
known as commercial crop farms, rented close to  60 per cent of their total acres operated.578   
Unfortunately, neither study refers specifically to upland cotton, so it is not possible to know to what 
extent upland cotton farmers conformed or differed with  respect to these nationwide statistics.        
13.12  The Abler and Blandford study was written for th e OECD.  The paper is a literature review of 
empirical studies on land allocation and produc tion response to direct payments under the 
United States 1996 FAIR Act and subsequent MLA paym ents.  Thus, it is again important to note that 
the study does not examine the experience with count er-cyclical payments.  The main conclusion of 
this study on the link between such payments a nd land values is that PFC and MLA payments had a 
significant effect on land values and rental rates.  Gi ven the importance of the rental market for land 
in the United States, it appears that  there was a relatively high "pass- through" of the additional income 
generated by the payments to landowners, many of whom are not the actual operators of the land. It 
appears that the payments primarily had the effect of increasing the value of the principal fixed asset 
in agriculture – land.579   
13.13  However, the authors also point out that the empirical studies reviewed lend support to the 
view that PFC and MLA payments had some impact  on production relative to the counterfactual case 
with no PFC or MLA payments.  Empirical studies i ndicate that the payments may have influenced 
planted area and possibly the use of variable inputs,  particularly farm house hold labour. In general, 
the estimated impacts are modest. In the econometric studies reviewed, PFC and MLA payment variables are sometimes statistically insignificant, and when they are statistically significant they 
imply in most cases that each type of payment incr eased planted area and on-farm work hours by less 
than 5 per cent.  In no instance do the econometri c results imply an increase in planted area or on-
farm work hours due to PFC or MLA payments of more than 15 per cent. Some of the synthetic 
studies suggest larger impacts on production, but thei r results are sensitive to assumptions about the 
degree and nature of farmers' aversion to risk . The synthetic studies also do not consider the 
possibility that assets owned by farmers who would exit the industry in the absence of PFC or MLA 
payments, could be sold or rented to other farmers,  which would diminish the impact of the payments 
on production.
580    
                                                      
574 Exhibit US-67. 
575 Exhibit US-40. 
576 Exhibit US-32. 
577 US First Written Submission, para. 215. 
578 See Exhibit US-40, p. 7. 
579 Exibit US-32, para. 71. 
580 Exhibit US-32, para. 69. WT/DS267/RW  
Page 142  
 
  XIV.  FINDINGS ON BRAZIL'S CLAIMS UNDER ARTICLES 10.1 AND 8 OF THE 
AGREEMENT ON AGRICULTURE AND ARTICLES 3.1(A), 3.2 AND 4.7 OF THE 
SCM AGREEMENT  WITH RESPECT TO EXPORT CREDIT GUARANTEES 
A. I
NTRODUCTION  
14.1 In this section of our Report, we address Brazil's claims concerning US export credit 
guarantees.  Brazil requests the Panel to find th at US measures "taken to comply" with the 
recommendations and rulings of the DSB with respect  to export credit guarantees either do not exist, 
or to the extent they exist, are not c onsistent with Articles 10.1 and 8 of the Agreement on Agriculture 
and Articles 3.1(a) and 3.2 of the SCM Agreement .  
14.2 Specifically, Brazil makes the following claims:  
(i) First , Brazil claims that the United States has taken no action to "withdraw the 
subsidy" with respect to GSM 102, GSM 103, and SCGP guarantees581 outstanding 
on 1 July 2005.  
(ii) Second , Brazil claims that the measures taken by the United States to comply with the 
DSB recommendations and rulings are incons istent with Articles 10.1 and 8 of the 
Agreement on Agriculture  and, to the extent of that in consistency, with Articles 3.1(a) 
and 3.2 of the SCM Agreement .  More specifically, Brazil claims that the 
United States continues to provide prohibited export subsidies in the form of GSM 102 export credit guarantees, and has applied those export subsidies subsequent to 
1 July 2005 in a manner that results in circumvention of the US export subsidy 
commitments under the Agreement on Agriculture .
582 583 
14.3 Brazil requests the Panel to find that the Unite d States has failed to comply fully with its 
obligation, under Article 4.7 of the SCM Agreement , to "withdraw the subsidy" and that the original 
Article 4.7 recommendation adopted by the DSB therefor e remains in effect.  Br azil also requests that 
the Panel find that the United States has failed to br ing itself into conformity with its obligations 
under the Agreement on Agriculture , and that the original recommendation adopted by the DSB in this 
respect therefore also remains in effect. 
1. Description of the export credit guarantees at issue in this dispute 
14.4 We recall the main characteristics of the th ree CCC export credit guarantee programmes at 
issue in this dispute.584   
14.5 The GSM 102 programme guarantees credit extended by a US private bank (or, less 
commonly, a US exporter) to approved foreign bank s using dollar-denominated, irrevocable letters of 
credit for purchases of US agricultural exports by foreign buyers.  In practice, the foreign bank 
extends credit to the foreign importer and the US exporter – or more freque ntly, its bank (the US 
bank) – extends credit to the foreign bank.  Of all the parties involved, only the foreign importer need 
                                                      
581 See above paras. 3.13 ff.  
582 The Panel notes that Brazil's clai ms are "as applied" claims.  See infra . para. 14.41. 
583 The Panel also notes that Brazil claims that GS M 102 export credit guarantees provided to exports 
of three products not falling within the scope of the Agreement on Agriculture , lysine, lyocell and wood 
products, are inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement . 
584 While Brazil's claim with respect to outstanding guarantees concerns guarantees issued under the 
three export credit guarantee programmes that were the s ubject of the original panel's findings (GSM 102, GSM 
103 and SCGP), Brazil's claims with respect to guarantees issued after 1 July 2005 concern guarantees issued 
under the GSM 102 programme, as amended.  WT/DS267/RW 
 Page 143 
 
 
  not be CCC-approved.  The guarantee, which the US exporter obtains from the CCC, is triggered by a 
default on the part of the foreign bank.  The US ex porter then submits a noti ce of default to the CCC 
and the CCC pays the claim consistent with th e terms of the guarantee.  GSM 102 guarantees 
generally cover 98 per cent of the principal and a portion of the interest.  The GSM 103 programme, 
which has now been discontinued, was similar to the GSM 102 programme.  The main difference 
between guarantees issued under the two programmes relates to the terms of the underlying credit.  
GSM 102 guarantees cover credit terms between 90 days and three years, GSM 103 guarantees 
covered credit terms between 3 years and 10 years. 
14.6 The SCGP programme guarantees the repayment of credit secured by promissory notes for 
periods not exceeding 180 days by a United States e xporter to a foreign purchaser.  SCGP guarantees 
typically cover a portion (65 per cent) of the value of principal only, the guarantee does not cover 
interest.  The US exporter may negotiate an arrangement  to be paid, in full or in part, by assigning the 
right to proceeds that may become payable under the CCC's guarantee to a US financial institution.585 
2. Summary of the original panel and Appellate  Body's findings concerning export credit 
guarantees 
14.7 We first recall, as an introduction to this secti on of our Report, the main findings of the panel 
and Appellate Body concerning export cred it guarantees in the original proceeding. 
14.8 As in this compliance proceeding, Brazil had, before the original panel, made claims under 
both the Agreement on Agriculture  and, to the extent of the inconsistency with the Agreement on 
Agriculture , the SCM Agreement .  The original panel relied on item (j) of the Illustrative List of 
Export Subsidies in Annex I to the SCM Agreement  (hereafter "Illustrative List") as "contextual 
guidance" in determining that the export cred it programmes at issue (GSM 102, GSM 103, SCGP) 
constituted export subsidies unde r Articles 10.1 and 8 of the Agreement on Agriculture .586  The panel 
declined to make additional factual findings on what  it considered to be an alternative argument of 
Brazil that the same programmes constituted export subsidies under the general definition of "export 
subsidies" contained in Articles 1 and 3.1(a) of the SCM  Agreement  (also as context under 
Articles 10.1 and 8 of the Agreement on Agriculture ).  In the Interim Review section of its Report, the 
panel indicated that "Brazil's allegation invoking the elements of Articles 1 and 3.1(a) of the SCM 
Agreement  [was] not a separate claim, but merely anothe r argument, on a different factual basis, as to 
how the United States export credit guarantee progr ammes would meet the definition of an export 
subsidy in Article 3.1(a) of the SCM Agreement".587  
14.9 Having determined that the export credit gua rantees at issue constituted export subsidies 
within the meaning of Article 10.1 of the Agreement on Agriculture588, the panel found that the 
United States had applied such subsidies in a manne r which resulted in circumvention of its export 
subsidy reduction commitments in respect of cott on and other unscheduled products supported under 
the export credit guarantee programmes, as well as in respect of one scheduled product589, rice.590  To 
                                                      
585 See Panel Report, US – Upland Cotton,  paras. 7.242-7.244 (quoted, supra , para. 3.14), Brazil's First 
Written Submission, paras. 351-355, Exhibit Bra-519. 
586 Panel Report, US – Upland Cotton,  paras. 7.763, 7.804-7.869. 
587 Panel Report, US – Upland Cotton , para. 6.31.  
588  The panel rejected US argume nts that Article 10.2 of the Agreement on Agriculture  reflects the fact 
that export credit guarantee programmes are not s ubject to the export subsidy disciplines of the SCM Agreement .  
See Panel Report, US – Upland Cotton , paras. 7.897-7.944.  The Appellate Body upheld the panel's findings in 
this respect, with one member of the Appellate Body Division hearing the dispute dissenting.  See Appellate 
Body Report, US – Upland Cotton , paras. 585-627 and 631-641.  
589 I.e. a product for which the United States has unde rtaken export subsidy reduction commitments 
under the Agreement on Agriculture . 
590 Panel Report, US – Upland Cotton , paras. 7.875, 7.881 and 8.1(d)(i). WT/DS267/RW  
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  the extent that the programmes did not fully conform to the Agreement on Agriculture , the panel 
considered that they did not benefit from the exemption in Article 13 of the Agreement on Agriculture  
and found that they were prohibited expor t subsidies under Article 3.1(a) of the SCM Agreement  and 
were also inconsistent with Ar ticle 3.2 of the same Agreement .
591  The panel considered that Brazil 
had failed to prove its claims with respect to e xports of scheduled agricultural products other than 
rice, including pig meat and poultry meat, and with respect to exports of unscheduled agricultural 
products not supported under the programmes.592  
14.10  The Appellate Body upheld the pa nel's findings with respect to unscheduled products and rice 
but reversed the original panel's finding that Brazil had failed to establish a violation of Article 10.1 of 
the Agreement on Agriculture  with respect to exports of pig meat and poultry meat.593  It did not, 
however, "complete the analysis" in this respect.  Further, the Appellate Body rejected claims by 
Brazil that the panel had improperly exercised judi cial economy with respect to Brazil's arguments 
under Articles 1.1 and 3.1(a) of the SCM Agreement .594 
B. BRAZIL 'S CLAIMS WITH RESPECT TO EX PORT CREDIT GUARANTEES OUTSTANDING ON 
1 JULY 2005   
1. Introduction 
14.11  The original panel recommended that the United States bring its export credit guarantees 
under the GSM 102, GSM 103 and SCGP programmes in respect of upland cotton and other "supported" unscheduled agricultural pr oducts into conformity with the Agreement on Agriculture ; it 
also recommended, pursuant to Article 4.7 of the SCM Agreement , that the United States "withdraw" 
the prohibited subsidies without delay, at the latest within six months of the date of adoption of the 
panel report by the DSB or 1 July 2005 (whichever was earlier).
595   
14.12  The panel's recommendations, which were upheld  by the Appellate Body, were adopted by 
the DSB at its 21 March 2005 meeting.596  As a consequence, the Un ited States had until 1 July 2005 
to "withdraw" the prohibited export subsidies identified by the original panel.  
14.13  Brazil claims that the United States has taken no measures to comply with the DSB's 
recommendations to "withdraw the s ubsidy" under Article 4.7 of the SCM Agreement  and otherwise  
bring itself into conformity with its ob ligations under Articles 10.1 and 8 of the Agreement on 
Agriculture  with respect to "outstanding" guarant ees, i.e. GSM 102, GSM 103 and SCGP export 
credit guarantees for unscheduled prod ucts and for rice issued prior to 1 July 2005 that were still 
outstanding on that date.597   
                                                      
591 Panel Report, US – Upland Cotton , paras. 7.946-7.948 and 8.1(d)(i). 
592 Panel Report, US – Upland Cotton , paras. 7.882-7.896 and 8.1(d)(ii). 
593 Appellate Body Report, US – Upland Cotton , paras. 763(e) and 763(f). 
594 Appellate Body Report, US – Upland Cotton , paras. 763(e)(v). 
595 Panel Report, US – Upland Cotton , para. 8(3)(b).  Article 4.7 of the SCM Agreement  provides that: 
"If the measure in question is found to be a pr ohibited subsidy, the panel shall recommend that 
the subsidizing Member withdraw the subsidy  without delay. In this regard, the panel shall 
specify in its recommendation the time-period w ithin which the measure must be withdrawn." 
(underline added) 
596 WT/DSB/M/186. 
597 Brazil's First Written Submission, para. 341. Br azil's claims cover any guarantees that were 
outstanding on 1 July 2005, whether or not they subsequently expired. See paras. 390-393 of Brazil's Rebuttal 
Submission.  WT/DS267/RW 
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  2. Main arguments of the parties 
14.14  Brazil  argues that the United States has done nothing to bring outstanding GSM 102, 
GSM 103 and SCGP export credit guarantees into conformity with Articles 10.1 and 8 of the 
Agreement on Agriculture , or to withdraw them under Article 4.7 of the SCM Agreement .  Brazil 
considers that the obligation to "withdraw the subs idy" applies not only to the three programmes at 
issue in the original dispute, but  also to outstanding guarantees.598  Brazil relies on the panel and 
Appellate Body reports in Brazil – Aircraft (Article 21.5 – Canada) , in support of its argument that 
the United States may not, after the "implementation deadline" of 1 July 2005 (i.e. the date by which 
the United States had to comply with the recomme ndations and rulings of the DSB), continue to 
perform on guarantees issued before  that date and still outstanding599, either by making "payments" on 
claims following defaults or by rescheduling or r estructuring debt covered by outstanding guarantees. 
14.15  Brazil also argues that the obligation to abstain from performing on financial commitments 
outstanding under a programme as of the deadline for implementation follows from the text of the 
SCM Agreement : the obligation to withdraw the subsidy under Article 4.7 of the SCM Agreement 
applies to both the "granting" of new subsidi es and the "maintenance" of existing subsidies under 
Article 3.2 of the SCM Agreement .600  The United States has left the entirety of the outstanding 
prohibited export credit guarantees in place after th e implementation date and, by continuing to 
perform on its commitments under the prohibited subs idies, "maintains" them unchanged.  Further, 
continuing to perform on outsta nding export credit guarantees does not satisfy the definition of 
"withdraw" offered by the Appellate Body in Brazil – Aircraft (Article 21.5 – Canada) , in which the 
Appellate Body defined the term "withdraw" as to "remove" or "take away" the subsidy".601 
14.16  The United States  considers that it has "withdrawn the subsidy" with respect to outstanding 
guarantees by lowering the long-term operating costs and losses of the programmes.602  To comply, 
the United States was required to "withdraw" the prohi bited subsidies identified in paragraph 8.1(d)(i) 
of the original panel report, which concerned th e provision of guarantees at a net cost to the 
government; this is what the United States had to "withdraw".603  The United States considers that the 
issue of rescheduling is irrelevant to Brazil's clai ms: any already rescheduled debt is a receivable, 
pursuant to which the CCC would receive money, not pa y any.  In response to Brazil's argument that 
rescheduling is a means for the United States to avoi d default and the need to make a "payment" on 
the CCC obligation, the United States notes that the CCC does not reschedule debt prior to default, 
and that no obligation is owed to the CCC until it pa ys a claim and is subrogated to the original 
obligee.604   
14.17  Moreover, nothing in the SCM Agreement  provides that withdrawing a subsidy taking the 
form of a programme includes an obligation to abstain from performing on commitments outstanding 
                                                      
598 Brazil's Rebuttal Submission, paras. 394-395 and 399; Brazil's Closing Statement, para. 30. 
599Brazil's Rebuttal Submission, paras. 396-398, citing Appellate Body Report, Brazil – Aircraft 
(Article 21.5 – Canada) , para. 45 and Panel Report, Brazil – Aircraft (Article 21.5 – Canada) , para. 6.17.  See 
also Brazil's Response to Panel Question 37.  Brazil also notes that the Appellate Body, in US – FSC 
(Article 21.5 – EC) , paras. 2 and 223-231, held that a recommendation to withdraw a subsidy in the form of an 
overarching measure, the FSC, included the obligation to stop making pre-committed payments to existing FSCs 
("foreign sales corporations").  Braz il's Closing Statement, footnote 38.  
600 Brazil's Response to Panel Question 92. 
601 Brazil's Response to Panel Question 37, para. 46. 
602 US First Written Submission, paras. 143-145.  In  the case of GSM 103 and SCGP, the United States 
indicates that it has completely ceased providing guarantees.  Further, the Un ited States considers that there are 
no "outstanding" SCGP guarantees as it is exposed to  no further liability under the programme.  See US 
Rebuttal Submission, para. 129 and US Opening Statement, para. 48. 
603 US Opening Statement, para. 43. 
604 US Rebuttal Submission, paras. 131-133 and US Response to Panel Question 109. WT/DS267/RW  
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  under that programme as of the deadline for implementation.
605  That argument improperly equates 
"performing on commitments under the program" with  the subsidy itself.  Such an equation was 
appropriate in Brazil – Aircraft (21.5) , where Brazil continued to issue new WTO-inconsistent bonds 
even after the period of implementation on the basis that it had pre-existing contractual obligations to 
do so.  However, it is not accurate here, where th e guarantees are not themselves prohibited subsidies. 
3. Main arguments of third parties 
14.18  Argentina  submits that the obligation of the Unite d States to withdraw the subsidy implies 
the termination of the export credit guarantee progra mmes at issue in the first proceeding, and not 
merely the suspension of payments or the refusal  of new applications for export credit guarantees.606 
4. Evaluation by the Panel 
(a) Introduction 
14.19  Brazil's arguments in support of its claims that the United States has failed to "withdraw" 
outstanding export credit guarantees rely primarily on the reasoning of the panel and Appellate Body 
in the Brazil – Aircraft (Article 21.5 – Canada)  dispute.  According to Brazil, the panel and Appellate 
Body reports in that case stand for the propositio n that a Member's obligation to "withdraw the 
subsidy" pursuant to recommendations from the DSB adopted in accordance with Article 4.7 of the 
SCM Agreement  includes an obligation to abstain fro m performing on financial commitments 
outstanding under a programme as of the implementati on deadline (i.e. the date by which the Member 
in question had to comply with the DSB's reco mmendations).  Brazil draws an analogy between 
Brazil – Aircraft (Article 21.5 – Canada)  and the present dispute:  it considers that the panel and 
Appellate Body's findings in that dispute (accordi ng to which Brazil was precluded from issuing, after 
the implementation deadline, PROEX bonds pursuant to  letters of commitments issued before the 
implementation deadline) can be transposed to the factual circumstances of this case, and that as a 
result, the Panel should find that the United States is precluded from making "payments" in the form of the payment of claims or of debt restructuring or rescheduling.
607 
14.20  Brazil also finds support for its position in the definition of "withdraw the subsidy" provided 
by the Appellate Body in Brazil – Aircraft (Article 21.5 – Canada) , in which the Appellate Body 
defined the term "withdraw" as to "remove" or "take away" the subsidy.    
14.21  Given the emphasis that Brazil has put on the reasoning and the findings of the panel and 
Appellate Body in Brazil – Aircraft (Article 21.5 – Canada) , we first proceed to examine whether, as 
alleged by Brazil, the Appellate B ody (and panel) held in that case that the obligation to "withdraw a 
subsidy" under Article 4.7 of the SCM Agreement  means that a Member is in all cases precluded from 
performing on commitments outstanding under a progra mme as of the deadline for implementation.  
In doing so, we also examine whether the analogy th at Brazil seeks to draw between the two disputes 
is justified.  We then proceed to examine whether,  as Brazil argues, the Appellate Body's statement as 
to the meaning of "withdraw the subsidy" in that case should lead us to a finding that the United States has failed to implement the recommendation of the DSB.  
                                                     
 
605 US Opening Statement, para. 46. 
606 Argentina's Third Party Submission, paras. 9-19. 
607 In other words, from "perform[ing] on ECG's issued before adoption of the DSB's 
recommendation".  Brazil's Response to Panel Question 37, para. 45.  WT/DS267/RW 
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  (b) Panel and Appellate Body reports in Brazil – Aircraft (Article 21.5 – Canada)  
14.22  The Brazil – Aircraft (Article 21.5 – Canada) dispute concerned the PROEX programme, 
under which the Brazilian Government granted inter est rate equalization payments, notably on the 
export of regional aircraft.  The original panel had concluded that the PROEX payments constituted 
prohibited export subsidies under the SCM Agreement . 
14.23  One of the issues before the compliance panel was whether Brazil had failed to "withdraw the 
subsidy" because it continued to issue bonds under the PROEX programme ("NTN-I" bonds) after the 
implementation deadline, pursuant to letters of commitment issued before that date.608  The Brazil – 
Aircraft (Article 21.5 – Canada)  panel considered that it was sufficien t, in order to resolve that issue, 
to conclude that "a Member cannot be deemed to  have withdrawn prohibited subsidies if it has not 
ceased to act in a manner inconsistent with the WTO Agreement  in respect of those subsidies".609  The 
panel noted that Article 3.2 of the SCM  Agreement  provides that a Member shall "neither grant nor 
maintain" export subsidies and theref ore concluded that to continue to  grant or to maintain prohibited 
export subsidies after the implemen tation date would be inconsiste nt with Brazil's obligation to 
withdraw these subsidies.610  The panel therefore considered that it had to determine whether the 
continued issuance of bonds by Brazil pursuant to  letters of commitments issued under the PROEX 
programme before it was amended c onstituted the "grant" of export subs idies under Article 3.2 of the 
SCM Agreement .  Before the panel, Brazil argued that PR OEX subsidies existed under Article 1 of the 
SCM Agreement , (and therefore, were "granted") at the time the Brazilian Government issued a letter 
of commitment, not at the time the bonds were issued.611  The panel rejected Brazil's argument, 
recalling that in the original dispute it had found, and the Appellate Body had agreed, that for the 
purposes of Article 27.4 of the SCM Agreement , the export subsidies at issue were "granted" at the 
time of the issuance of the bonds612, and considered that a simila r reasoning was appropriate under 
Article 3.2.  The panel therefore concluded that by continuing to issue NTN-I bonds pursuant to 
commitments made prior to 18 November 1999, Braz il had failed to withdraw the export subsidies for 
regional aircraft under the PROEX programme.613    
                                                      
608 Commitments under the programme at issue, PR OEX, were made in the form of letters of 
commitment issued to Brazilian manufacturers, by wh ich the Brazilian Government undertook to provide 
support as specified for the transaction provided that th e contract was entered into in accordance with the terms 
and conditions specified in the request for approval with in a specified period of time (usually 90 days), and 
provided the aircraft was exported.   Panel Report, Brazil – Aircraft (Article 21.5 –  Canada) , para. 2.5. 
609 Panel Report, Brazil – Aircraft (Article 21.5 –  Canada) , para. 6.8. 
610 Panel Report, Brazil – Aircraft (Article 21.5 –  Canada) , para. 6.9.  
611 See Panel Report, Brazil – Aircraft (Article 21.5 – Canada) , para. 6.12.   
612 Panel Report, Brazil – Aircraft (Article 21.5 – Canada) , paras. 6.10-6.11.  In the original dispute, 
the Appellate Body had affirmed the panel's finding on this issue, though on a different reasoning.  The panel 
and Appellate Body both found that the export subsidies at issue were not yet "granted" when the letter of commitment was issued, because at that point, the export sales contract had not yet been concluded and the 
export shipments had not yet occurred: "For the purposes of Article 27.4, we conclude that export subsidies 
...are 'granted' when all the legal conditions have be en fulfilled to entitle the beneficiary to receive the 
subsidies."  Appellate Body Report, Brazil – Aircraft , para. 158, quoted by the 21.5 panel at para. 6.10.  The 
Appellate Body however rejected the original panel's approach of focusing on the language of Article 1 of the 
SCM Agreement  in order to determine when payments should be considered to have been granted for the 
purposes of Article 27.4 of the SCM Agreement .  The panel had, notably, sought to determine whether PROEX 
payments constituted "direct transfers of  funds" or "potential direct transfer  of funds" under Article 1.  The 
Appellate Body noted that the issue was not when or wh ether subsidies "existed" (Brazil had already conceded 
that subsidies did exist) but when the subsidies should be  considered to have been "granted" for the purposes of 
Article 27.4.  Appellate Body Report,  Brazil – Aircraft , paras. 156 ff., cited in Panel Report, Brazil – Aircraft 
(Article 21.5 – Canada) , para. 6.13.  
613 Panel Report, Brazil – Aircraft (Article 21.5 – Canada), para. 6.17.  Brazil had also argued that it had 
a contractual obligation to issue PROEX bonds pursuant to commitments already entered into and would be WT/DS267/RW  
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  14.24  The Appellate Body affirmed the panel's findi ngs, but considered that Brazil's arguments 
about when a subsidy is deemed to  "exist" under Article 1.1 of the SCM Agreement , and when it is 
"granted" under Article 3.2 of that Agreement were not relevant to th e analysis of Canada's allegation 
that Brazil has failed to "withdraw the subsidy".
614  
14.25  The Appellate Body noted that Brazil did not c ontest that the measures in question conferred 
a prohibited export subsidy.615  It considered that in its ordinary meaning, the "withdrawal" of a 
subsidy under Article 4.7 of the SCM Agreement  refers to the "removal" or "taking away" of that 
subsidy: 
Turning to the ordinary meaning of "withdraw ", we observe first that this word has 
been defined as "remove" or "take away"  , and as "to take away what has been 
enjoyed; to take from."    This definition suggests that "withdrawal" of a subsidy, 
under Article 4.7 of the  SCM Agreement , refers to the "removal" or "taking away" of 
that subsidy. 616 (footnotes omitted) 
14.26  The Appellate Body then observed that Brazil conceded that it con tinued to issue bonds 
pursuant to letters of commitments issued prior to  the implementation deadline, meaning that such 
bonds continued to be issued on "precisely the sa me terms and conditions as they were before".617  
The Appellate Body considered that the issuance of the bonds essentially represented "disbursements" 
made under PROEX, given that the financing institu tion could choose to either sell the bonds in the 
market or receive payments when they became due  and that Brazil was thus continuing, after the 
implementation deadline, to make payments under a subsidy programme found to involve prohibited 
export subsidies.  It concluded that: 
… to continue to make payments under an export subsidy measure found to be 
prohibited is not consistent with the obligation to "withdraw" prohibited export 
subsidies, in the sense of "removing" or "taking away".618 
(c) Whether the obligation to "withdraw the subsid y" includes an obligation to abstain from 
performing on outstanding financial commitments 
14.27  As is clear from the brief summary above, the issue of "prior commitments" arose, in Brazil – 
Aircraft (Article 21.5 – Canada ), because of Brazil's arguments regarding the timing of the granting 
of the subsidy.  The fact that the bonds were i ssued "pursuant to" letters of commitments that pre-
dated the implementation deadline was not, in our view , an important consideration in this respect and 
there is no indication that either the panel or th e Appellate Body would have reached a different 
conclusion had the bonds been issued independently of any prior commitment.  In fact, it seems safe 
to assume that the issue of prior or outstanding "c ommitments" would not have been discussed at all 
had it not been for Brazil's arguments regarding the timing of the granting of the subsidy.   
                                                                                                                                                                     
liable for breach of damages if it failed to do so.  The panel rejected Brazil's arguments that such considerations 
should affect its conclusion: "[a]ssuming that Brazil is correct in this regard, the implication of this view would 
be that Members could contract to grant prohibited subsidies for years into the future and be insulated from any 
meaningful remedy under the WTO dispute settlement syst em."  The panel also noted that under Article 21 of 
the Vienna Convention , a party to a treaty may not invoke the provisions of its internal law as  justification for 
its failure to perform a treaty.  Panel Report, Brazil – Aircraft (Article 21.5 – Canada) , para. 6.16 and note 23.  
The Appellate Body endorsed the latter part of the panel's reasoning.  Appellate Body Report, Brazil – Aircraft 
(Article 21.5 – Canada) , para. 46.  
614 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada) , para. 44. 
615 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada) , para. 44.  
616 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada),  para. 45 . 
617 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada),  para. 45 . 
618 Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada),  para. 45 .  WT/DS267/RW 
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  14.28  This reading of the reports of the panel and the Appellate Body is confirmed by the absence 
of any reference to prior "commitments" in the Appellate Body statement quoted above, and on which 
Brazil puts so much emphasis.619  The Appellate Body, unsurprisingly, found that by continuing to 
issue PROEX bonds as it had before – and which had been  found, in the original dispute, to amount to 
the granting of an export subsidy – Brazil was cont inuing to grant the subsidies in question and had 
therefore not "withdrawn" them. 
14.29  Further, in our view, Brazil ascribes a broader meaning to the Appellate Body's use of the 
term "payment" than is warranted: Brazil reads that term as encompassing any disbursements made under a measure found to be a prohibited subsidy.  In our view, the Appellate Body's reference to 
"mak[ing] payments" was clearly meant as a reference to the granting of a PROEX subsidy  as the 
Appellate Body was not discussing the issue of "payment s" in an abstract or general sense, but rather 
was referring to PROEX "payments" (in the form of NTN-I bonds) made on the export of regional 
aircraft.
620  In any case, the term "payment" appears in neither of Article 4.7 or Article 3.2 of the SCM 
Agreement .  Both provisions concern subsidies . 
14.30  We thus find no support, in either of the pane l or the Appellate Body report in that dispute, 
for Brazil's contention that a Member is necessarily precluded, under Article 4.7 of the SCM 
Agreement , from making "payments" or otherwise performing on "commitments" pursuant to 
measures pre-dating the implementation deadline.  Rather, as can be deducted from our analysis 
above, the panel and the Appellate Body's findings in that case rest on the simpler proposition that a 
Member has not "withdraw[n] the subsidy" where it  continues to provide pr ohibited export subsidies 
after the deadline set by the DSB for implemen ting its recommendation.  Making "payments" is 
inconsistent with the Member's obligation to "with draw a subsidy" when the "payments" themselves 
amount to the granting of a subsidy.  The fact th at a subsidy is granted pursuant to a prior or 
outstanding commitment is, in our view, simply of no relevance.621 
14.31  Brazil also relies on the Appellate Body Report in US – FSC (Article 21.5 – EC) .  Brazil 
submits that the Appellate Body held in that case that a recommendation to withdraw a subsidy in the 
form of an overarching measure, the FSC, include d the obligation to stop making "pre-committed" 
payments to existing FSCs (Foreign Sales Corporations).622  Again, Brazil ascribes a broader meaning 
to certain statements or findings of the Appellate Body than is warranted.  The US – FSC (Article 21.5 
– EC)  dispute concerned transitional provisions whic h allowed legislative measures that had been 
found, in the original dispute, to confer prohibited export subsidies, to continue to apply with respect 
to certain transactions.  The "payments" in ques tion were therefore not "pre-committed", as Brazil 
alleges.  Rather, the legislative measure that allowe d for subsidies to be provided simply continued to 
apply, albeit to a limited number of transactions.623  Again, we read the Appellate Body's findings in 
                                                      
619 That "… to continue to make payments under an export subsidy measure found to be prohibited is 
not consistent with the obligation to 'withdraw' prohibited export subsidies, in the sense of 'removing' or 'taking 
away'", Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada),  para. 45. 
620 See Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada), paras. 42 and 45. 
621 We also note that the panel and Appellate Body did not have to address, in Brazil – Aircraft 
(Article 21.5 – Canada) , the question of whether Brazil had failed to "withdraw the subsidy" because Brazil was 
continuing to honour its obligations under bonds issued prior to the implementation deadline.  That aspect of the 
dispute only concerned the issuance, by Brazil, of new bonds pursuant to letters of commitment entered into before the date of implementation.  The United States not es that, in that case, Braz il presumably continued to 
make payments under outstanding bonds for more than a decade after the implementation date.  See US 
Opening Statement, para. 47. 
622 Brazil refers to the Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 223-231.  See 
Brazil's Response to Panel Question 37, footnote 28 to para. 46, and Brazil's Closing Statement, footnote 38. 
623 Appellate Body Report, US – FSC (Article 21.5 – EC) , para. 224.  For the sake of completeness, we 
note that in the Brazil – Aircraft (Article 21.5 – Canada)  case, the panel and the Appellate Body rejected 
arguments by Brazil that it should be allowed to continue to grant prohibited export subsidies after the end of the WT/DS267/RW  
Page 150  
 
  that dispute as a reaffirmation of the principle that a Member has not "withdraw[n] the subsidy" where 
it continues to grant it after the end of the implementation period or where it "maintains" in place the legislative measure under which the subsidies are granted.   
14.32  Thus in our view, the relevant question is not whether the United States, after the end of the 
implementation period, makes any "payment" in a general sense under programmes that were found, 
in the original proceeding, to constitute prohibited export subsidies, pursuant to prior commitments.  
The relevant question is whether the United States  continues or continued, after the end of the 
implementation period, to provide export subsidies.
624   
14.33  The equivalent, in the present dispute, of the issuance of bonds in Brazil – Aircraft 
(Article 21.5 – Canada)  is, we believe, the issuance of CCC export credit guarantees, not the payment, 
by the US Government, of claims under such guarant ees, or the rescheduling or restructuring of debt 
following the payment of claims.  We recall that th e subsidies at issue in this dispute are not the 
payment of claims by the US Government (or resche duling or restructuring of debt) but the issuance 
of export credit guarantees  through the CCC.  Brazil did not claim in the original proceeding that the United States provided export subsidies in the form of payments pursuant to existing export credit 
guarantees.  On the contrary, Brazil challenged the very issuance of guarantees as part of programmes 
meeting the conditions of item (j) of the Illustra tive List.  The panel's recommendation to "withdraw 
the subsidy" concerned subsidies in the form of gua rantees, not in the form of payments (of claims) 
under guarantees.  Even before this Panel, in seeking to demonstrate that the United States 
circumvented its export subsidy commitments, Brazi l does not refer the Panel to the volume of US 
agricultural exports for which claims were paid, but  rather to the volume of US agricultural products 
covered by guarantees, whether or not claims were  ultimately paid under such guarantees.  Further, 
Brazil has not, in our view, sought to establish that  the payment of a claim under a guarantee or the 
rescheduling/restructuring of debt are, in themsel ves, prohibited export subs idies, independently of 
the subsidy that is conferred in the form of an export credit guarantee.   
14.34  In sum, Brazil has not convinced us that the obligation to "withdraw the subsidy" pursuant to 
a recommendation adopted in accordance Article 4.7 of the SCM Agreement  includes a general 
obligation to cease making payments or otherw ise performing under outstanding or prior 
                                                                                                                                                                    
 
implementation period because it had assumed contractual obligations to do so under municipal law (see supra , 
note 613) and that the Appellate Body rejected si milar arguments made by the United States in US – FSC 
(Article 21.5 – EC) .  In the latter case, the United States had argued that it should be allowed to continue 
granting prohibited export subsidies to protect the contractual interests of private parties and to ensure an 
orderly transition to the new legislative regime.  Appellate Body Report, US – FSC (Article 21 .5 – EC) , paras. 
223-239.  The rejection of the arguments made, respect ively, by Brazil and the United States in these two 
disputes does not assist Brazil's argument in the present dispute.  The panel and Appellate Body, in these 
disputes, rejected arguments by a responding Member that it should be allowed to continue granting prohibited 
export subsidies because it had committed to do so or b ecause of other municipal law considerations (e.g. 
because of private parties' expectations ).  The rejection of these arguments is  not equivalent to a finding that a 
Member is, in all cases, precluded from granting subsidies because they were pre-committed.  
624 While the Appellate Body indicated in Brazil – Aircraft (Article 21.5 – Canada) that Brazil's 
arguments regarding the timing of the existence of the granting of subsidies was not relevant to its analysis, we 
recall that in the original Brazil – Aircraft proceeding, both the panel and the Appellate Body reached the 
conclusion that PROEX subsidies were "granted" at the time of the issuance of the bonds.  Were we, like the Brazil – Aircraft (Article 21.5 – Canada)  panel, to consider that the "timing"  of the granting of the subsidy is of 
relevance, we would conclude that export subsidies in the form of export credit guarantees are not "granted" at 
the time when the issuing agency ma kes a payment pursuant to a claim of default or when it reschedules or 
restructures debt covered by a guarantee.  In our view, the recipient's "unconditional legal right" to receive the 
subsidy in question (i.e. export credit guarantee) arises at an earlier point in time, at the time of the issuance of 
the guarantee.  A conclusion that the subsidies in question are granted at the time the United States makes a payment (on default) or upon the rescheduling or restructur ing of debt would lead to the logically flawed result 
that many, if not most, of export subsidies in the form of export credit guarantees would never be granted.    WT/DS267/RW 
 Page 151 
 
 
  commitments under a measure found to constitute a pr ohibited export subsidy.  As a consequence, 
Brazil has not established, on that basis, that the Un ited States has failed to "withdraw the subsidy" 
because it continues to pay claims pursuant to out standing guarantees or because it reschedules or 
restructures debt covered by such guarantees.    
(d) Meaning of the term "withdraw" 
14.35  Brazil also relies on the definition of the term "withdraw" provided by the Appellate Body in 
Brazil – Aircraft (Article 21.5 – Canada) .  As mentioned above, in that case, the Appellate Body 
interpreted that term in Article 4.7 of the SCM Agreement  as requiring that a Member "remove" or 
"take away" the subsidy.  For Brazil, "[p]aying a claim on default of a GSM 102 credit subject to the 
DSB's recommendation to 'withdraw the subsidy' do es not 'remove' or 'take away' that subsidy".625 
14.36  Further, Brazil argues that the obligation to "withdraw" the subsidy in Article 4.7 of the 
Agreement , interpreted in the sense of "removing" or "t aking away", extends to both elements of 
Article 3.2, the "granting" and the "maintenance" of a subsidy.626  Brazil argues that the Appellate 
Body, in US – FSC (Article 21.5 – EC II)  held that "the obligation to 'fully' withdraw a prohibited 
subsidy is not achieved if the Member ' leaves  the entirety or part of the original prohibited subsidy in 
place'" .627  Thus, Brazil submits that "[b]y continui ng to perform on its commitments under the 
prohibited subsidies, the United States 'maintains' them unchanged".628 
14.37  Neither of the two Appellate Body Reports cited by Brazil support its argument that the 
obligation to "withdraw the subsidy" includes an obligation to remove or take away individual 
subsidies that were granted in the past .  Again, the Brazil – Aircraft (Article 21.5 – Canada)  dispute 
concerned a situation where a Member continued to grant, after  the end of the implementation period, 
new (individual) subsidies.  The second Appellate Body Report cited by Brazil, US – FSC 
(Article 21.5 – EC II) , addressed a situation where a Member maintained the legislative provisions  
that allowed the (future) granting of subsidies.  In  neither case did the Appellate Body indicate that 
the Member concerned was required to "withdraw" (in the sense of "removing" or "taking away") 
individual subsidies that had already been granted.  T hus, Brazil has pointed to no precedent for the 
proposition that the obligation to "withdraw" in th e sense of "removing" or "taking away", whether 
viewed in terms of the granting of a subsidy or in  terms of its maintenance, extends to individual 
subsidies that were granted under a programme found to confer prohibited export subsidies, prior to 
the end of the implementation period.   
14.38  We need not, in this dispute, develop a compre hensive analysis of the extent of a Member's 
obligation to "withdraw the subsidy" pursuant to a recommendation adopted under Article 4.7 of the 
SCM Agreement .  In particular, we need not decide whet her the obligation to "withdraw the subsidy" 
pursuant to a panel recommendation adopted under Article 4.7 of the SCM Agreement  imposes an 
obligation on a Member to "remove" or "take away", retrospectively , individual subsidies that were 
provided in the past.  Brazil has emphasized that th e remedy it is seeking is not a retroactive remedy 
and that its claims are entirely prospective in nature.629  It is therefore the Panel's understanding  that 
Brazil considers that the WTO Agreements (in particular, the SCM Agreement ) do not provide for 
retroactive remedies.  Brazil has not explained how its interpretation of the obligation set out under 
Article 4.7 would not amount to a retroactive remedy,  even though it would re quire the United States 
                                                      
625 Brazil's Response to Panel Question 37, para. 46. 
626 Article 3.2 of the SCM Agreement  provides that "A Member shall neither grant nor maintain" 
prohibited subsidies. 
627 Brazil's Response to Panel Question 92, para. 199, referring to Appellate Body Report, US – FSC 
(Article 21 .5 – EC II), para. 84 (emphasis added by Brazil). 
628 Brazil's Response to Panel Question 92, para. 200. 
629 Brazil's Response to Panel Question 92, para. 201. WT/DS267/RW  
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  to, in effect, eliminate subsidies previously grante d and therefore take action with respect to acts 
which took place before the end of the time-peri od within which the United States had to "withdraw 
the subsidy".  A finding on our part that the Un ited States is precluded from making payments (or 
rescheduling or restructuring debt) pursuant to gu arantees issued before 1 July 2005 would, in our 
view, amount to a retroactive remedy, similar to a finding that a Member must demand repayment, 
from the recipient, of a subsidy in the fo rm of a direct transfer of funds.   
14.39  In light of the foregoing considerations, the Panel finds  that Brazil has not established that the 
United States has failed to comply with the panel recommendations, adopted by the DSB, to 
"withdraw the subsidy" with respect to export credit guarantees issued prior to the end of the 
implementation period on 1 July 2005
630, and to bring its measures into conformity with the 
Agreement on Agriculture .  
C. BRAZIL 'S CLAIMS CONCERNING GSM  102 EXPORT CREDIT GUARANTEES ISSUED AFTER 
1 JULY 2005 
1. Introduction 
14.40  Brazil claims that the US measures taken to  comply with the DSB recommendations and 
rulings are inconsistent with Articles 10.1 and 8 of the Agreement on Agriculture  and, to the extent of 
that inconsistency, with Articles 3.1(a) and 3.2 of the SCM Agreement .  This claim concerns GSM 
102 export credit guarantees provided to exports of  unscheduled products and exports of three 
scheduled products – rice, pig meat and poultry meat631  – since the end of the implementation period, 
i.e. 1 July 2005.  In addition, Brazil claims that GSM 102 export credit guarantees provided to exports of three products not falling within the scope of the Agreement on Agriculture , lysine, lyocell and 
wood products, are inconsistent with  Articles 3.1(a) and 3.2 of the SCM Agreement . 
14.41  Brazil indicates that its claims of inconsistency under the Agreement on Agriculture  and the 
SCM Agreement  are "product-specific": Brazil claims that the United States has applied the GSM 102 
programme in a manner that circumvents its export subsidy commitments with respect to unscheduled 
products and three scheduled products.  Thus, we understand Brazil to be challenging GSM 102 
export credit guarantees "as applied".   
 
14.42  We examine each of these claims in turn, star ting with Brazil's claims under Articles 10.1 and 
8 of the Agreement on Agriculture . 
2. Brazil's claims under Articles 8 and 10.1 of the Agreement on Agriculture  
14.43  Article 8 and 10.1 of the Agreement on Agriculture  read as follows: 
Article 8:  Export Competition Commitments 
Each Member undertakes not to provide export subsidies otherwise than in 
conformity with this Agreement and with  the commitments as specified in that 
Member's Schedule. 
[...] 
                                                     
 
630 Given this conclusion, we need not determine whether the fact that the original panel's findings were 
reached on the basis of item (j) means, as the United States submits, that on ly the export credit programmes, and 
not individual export credit guarantees, needed to be withdrawn. 
631 The Panel has rejected the US request for a pre liminary ruling concerning Brazil's claims relating to 
exports of pig meat and poultry meat.  See supra , para. 9.27.  WT/DS267/RW 
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  Article 10: Prevention of Circumvention of Export Subsidy Commitments  
1. Export subsidies not listed in paragraph 1 of Article 9 shall not be applied in a 
manner which results in, or which threaten s to lead to, circumvention of export 
subsidy commitments; nor shall noncommercia l transactions be used to circumvent 
such commitments. 
14.44  A violation of Article 10.1 requires a demonstr ation of two elements: first, that "export 
subsidies not listed" in Article 9.1 are "applie d", and second, "in a manner which results in ... 
circumvention of export subsidy commitments."  Brazil argues that GSM 102 are export subsidies 
under the terms of Article 10.1.  It was not in di spute before the original panel that export credit 
guarantees are not included in the list of export subsidies contained in Article 9.1 of the Agreement on 
Agriculture , and that Article 10.1 was therefore the applicable provision.632  Neither of the parties in 
this compliance proceeding suggests otherwise. 
14.45  The Agreement on Agriculture  does not generally define the meaning of the term "export 
subsidies".  Article 1(e) of the Agreement provid es that export subsidies are "subsidies contingent 
upon export performance, including the export subsidi es listed in Article 9 of this Agreement".   
Panels and the Appellate Body have , in interpreting the meaning of "export subsidies" in Article 10.1, 
relied, inter alia , on the relevant provisions of the SCM Agreement  (including Articles 1 and 3 and 
items of the Illustrative List) as "context".633  These provisions define what measures constitute, 
respectively, "subsidies", and "expor t subsidies", for the purposes of the SCM Agreement .   
14.46  Regarding the "circumvention of export subsidy commitments" in Article 10.1 of the 
Agreement on Agriculture , the disciplines to which Members are subject differ as between products 
for which a Member has entered "export subsidy reduction commitments" in its Schedule of 
commitments (so called "scheduled" products) and t hose for which it has made no such commitments 
("unscheduled" products).  For the latter, Memb ers are subject to a general prohibition on the 
provision of export subsidies.  This results from the language of the ending clau se of Article 3.3 of the 
Agreement on Agriculture  ("... shall not provide such subsidi es [i.e. export subsidies under Article 
9.1] in respect of any agricultural product not specified  in [Section II of Part IV ] of its Schedule") and 
Article 10.1, which precludes a Member from "applyi ng" subsidies not listed in Article 9.1 in a 
manner that results (or threatens to result) in circumvention of its export subsidy commitments.634  
With respect to scheduled products, a Member is a llowed to grant export subsidies up to the level of 
its reduction commitments in its Schedule.  Re duction commitments are expressed on a budgetary 
outlay (total amount of subsidy provided) basis as well as on a quantity (volume) basis for each 
agricultural product concerned.  Any export su bsidy provided beyond the specific reduction 
commitments applicable to the agricultural product in question is prohibited.  
14.47  Given that only some of Brazil's claims of circumvention under Article 10.1 of the Agreement 
on Agriculture  are subject to the special burden of proof rules of Article 10.3 of the Agreement 635 – 
                                                      
632 Panel Report, US – Upland Cotton,  para. 7.788. 
633 See Appellate Body Report, US – FSC , paras. 136-141; Panel Report, US – FSC (Article 21.5 - EC) , 
para. 8.116; Appellate Body Report, US – FSC (Article 21.5 – EC) , paras. 187-196; Panel Report, US – Upland 
Cotton , paras. 7.797-7.803; Panel Report, Canada – Dairy (Article 21.5 – New Zealand and US) , paras. 5.152-
5.162, Panel Report, Canada – Dairy , paras. 7.125 ff.  This last panel considered that Article 9.1 of the 
Agreement on Agriculture  can also serve as "context" to interpret the meaning of "export subsidy" under 
Article 10.1 of the Agreement . 
634 The term "export subsidy commitments" includes both reduction  commitments undertaken with 
respect to scheduled products, and the commitment not to provide any subsidy on exports of unscheduled 
products.  See Appellate Body Report, US – FSC , paras. 145-147. 
635 Under the usual rules on the burden of proof, the complaining Member would bear the burden of 
proving both aspects of its claim: that (1) export subsidies are provided; (2) the total amount of subsidies WT/DS267/RW  
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  the partial reversal of the burden of proof operated by Article 10.3 applies only to claims under the 
Agreement on Agriculture , and only with respect to scheduled products
636 – we first conduct our 
analysis as if Brazil bore the burden of proof with respect to both the quantitative and the subsidization elements of its claims, i.e. as if Article 10.3 did not apply.   Thus, we first proceed to 
determine whether GSM 102 export credit guarantees are "export subsidies" for the purpose of 
Article 10.1 of the Agreement on Agriculture .  We conduct that analysis by relying on the provisions 
of the SCM Agreement  as contextual guidance.  Only if Br azil fails to demonstrate that GSM 102 
export credit guarantees are export subsidies will we proceed – for those claims of Brazil that are subject to Article 10.3 of the Agreement on Agriculture (scheduled products) – with the analysis 
mandated under Article 10.3, first determining wh ether Brazil establishes that the United States 
exported the products concerned in quantities exceed ing its commitments and then shifting the burden 
on the United States to prove that no subsidies were  provided with respect to the quantities exported 
in excess of its commitments.  
3. Are GSM 102 export credit guarantees "export subsidies" – legal bases for Brazil's 
arguments 
14.48  We proceed to the first step of our analysis, whether GSM 102 export credit guarantees 
constitute "export subsidies" under Article 10.1 of the Agreement on Agriculture .  As suggested 
above, given that the Agreement on Agriculture  does not contain a comprehensive definition of the 
term and that the Agreement  does not provide other guidance as to whether and under what conditions 
export credit guarantees may constitute export subsidies, we consider that it is appropriate to refer to 
the SCM Agreement  as contextual guidance to determine whether GSM 102 guarantees are "export 
subsidies" under Article 10.1 of the Agreement on Agriculture .  The parties have not suggested that 
we proceed otherwise. 
 
14.49  Brazil relies on two legal bases to demonstr ate that GSM 102 export credit guarantees are 
"export subsidies" in the sense of Article 3.1(a) of the SCM Agreement .  First, Brazil asks the Panel to 
find that GSM 102 export credit guarantees meet the de finition of an export subsidy under the terms 
of Articles 1.1 and 3.1(a) of the SCM Agreement , i.e. that they are "financial contributions", that 
confer a "benefit" and that are contingent upon export performance.  Alternatively, Brazil asks the 
Panel to conclude that GSM 102 export credit guar antees fall within the scope of item (j) of the 
                                                                                                                                                                     
provided exceeds the Member 's commitments (expressed in terms of budgetary outlays) for the product in 
question or the total quantity of e xports supported by the subsidy(ies) in questio n exceeds the Member's 
commitments (expressed in volume of exports) for the product in question.  Article 10.3 of the Agreement on 
Agriculture  operates a partial reversal of the burden of proof in certain disputes under Articles 3, 8, 9 and 10 of 
the Agreement on Agriculture  where the complaining Member alleges that volume commitments were exceeded.  
See, for a discussion of the effects of Article 10.3, Appellate Body Report, US – Upland Cotton , paras. 642 ff., 
Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , paras. 67 ff.  Article 10.3 
"'cleaves the complaining Member's claim' into two part s: a quantitative aspect, and an export subsididization 
aspect, 'allocating to different parties the burden of proof with respect to the two parts."  Appellate Body Report, 
US – Upland Cotton , para. 644, quoting from Appellate Body Report, Canada – Dairy (Article 21.5 – 
New Zealand and US II) , para. 69.  For those claims subject to Article 10.3, consistent with the usual rules of 
burden of proof, it is for the complaining Member (in this  dispute, Brazil) to prove that the responding Member 
(here the United States) has exported an agricultural product in quantities exceeding its commitment level.  If 
the complaining Member succeed s in establishing this quan titative part of the claim, then under Article 10.3, the 
burden of proof shifts to the responding Member to  prove that the quantities exported in excess of its 
commitments are not subsidi zed. Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and 
US II) , para. 74, quoted in part in Appellate Body Report, US – Upland Cotton , para. 645. The reversal of the 
burden of proof is total and complete – the complaining Member does not have to make a prima facie  case that 
subsidisation exists.  See Appellate Body Report, Canada – Dairy (Article 21.5 – New Zealand and US II) , 
para. 75. 
636 Appellate Body Report, US – Upland Cotton , paras. 649, 652.  WT/DS267/RW 
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  Illustrative List of Export Subsidies.  Item (j) (in conjunction with Article 3.1(a)) indicates that the 
following are prohibited export subsidies:637 
(j) The provision by governments (or special institutions controlled by 
governments) of export credit guarantee or insurance programmes, of insurance or 
guarantee programmes against increases in th e 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. 
14.50  Brazil regards these two alternative "bases" as separate claims , rather than arguments in 
support of a single claim.638  As we have already mentioned, Braz il first asks the Panel to consider its 
"claim" that GSM 102 guarantees meet the defin itional elements of an  "export subsidy" under 
Articles 1 and 3 of the SCM Agreement .  Only if the Panel rejects Brazil's "claim" in this respect does 
Brazil ask the Panel to also consider its "claim" under item (j) of the Illustrative List of Export 
Subsidies.639 
14.51  In our view, the two legal bases on which Brazil relies in support of its argument that 
GSM 102 export credit guarantees are expor t subsidies under the terms of the SCM Agreement  and the 
Agreement on Agriculture  are not separate claims, but are rather  alternative arguments as to why these 
guarantees are export subsidies under Articles 3.1(a) and 3.2 of the SCM Agreement .640  A Panel 
finding under either of the legal bases relied upon by Brazil would, in both cases, be that the United States is providing export subsidies under the terms of Article 3.1(a) of the SCM Agreement  
and under Article 10.1 of the Agreement on Agriculture .  Item (j) of the Illustrative List does not, in 
itself, provide that certain measures are prohibited, it merely indicates that certain measures are export 
subsidies under Article 3.1(a).  In any case, we r ecall that we are, at this point, only relying on 
Article 3.1(a) of the SCM Agreement  as contextual guidance to determine whether GSM 102 export 
credit guarantees are export subsidies under Article 10.1 of the Agreement on Agriculture .   There can 
be no doubt that, in this context,  the two legal bases relied upon by Brazil are indeed mere alternative 
arguments, and not separate claims.  
14.52  We first proceed to examine Brazil's arguments that GSM 102 export credit guarantees are 
export subsidies because they fall under the scope of item (j) of the Illustrative List.
641  Our decision 
first to proceed with Brazil's arguments under item (j) is motivated by the fact that there is no dispute 
between the parties that measures that  fall within the scope of item (j) are, under Article 3.1(a) of the 
SCM Agreement , per se  export subsidies.642   
                                                      
637 This is by virtue of Article 3.1(a) of the SCM Agreement , which provides that: 
"Except as provided in the Agreement on Agriculture, the following subsidies, within the 
meaning of Article 1, shall be prohibited: (a) subsidies contingent, in law or in fact , whether solely or as one of several other 
conditions, upon export performance, including  those illustrated in Annex I;" (footnotes 
omitted, emphasis added). 
638 Brazil's Comments on US Response to Panel Question 38, para. 112. 
639 Brazil indicates that its request for review of its ite m (j) claim solely in the alternative stands even if 
the Panel considers item (j) to be the source of an altern ative argument, rather than an alternative claim.  See 
Brazil's First Written Submission, footnote 593. 
640 The original panel reached the same conclusion.  See Panel Report, US – Upland Cotton , para. 6.31. 
641 This is similar to the approach followed by the original panel. See Panel Report, US – Cotton , para. 
7.803. 
642 The United States considers that item (j) of the I llustrative List provides the only test to determine 
whether export credit guarantees are export subsidies.  See, inter alia , US First Written Submission, paras. 62-
70.  Brazil considers that export cred it guarantees may be found to constitute export subsidies within the 
meaning of Article 3.1(a) of the SCM Agreement  either because they meet the te rms of item (j) or because they WT/DS267/RW  
Page 156  
 
  14.53  As a result of our conclusion that the two legal bases invoked by Brazil are alternative 
"arguments", not "claims", were we to concl ude that GSM 102 export credit guarantees are export 
subsidies by virtue of the fact that they fall within the scope of item (j), we do not consider that we 
would necessarily need to determine whether they al so, independently, meet the definitional elements 
of an export subsidy under Articles 1 and 3 of the SCM Agreement . 
4. Brazil's arguments under item (j) of the Illustrative List of Export Subsidies 
(a) Original panel's analysis under item (j) of  the Illustrative List of Export Subsidies 
14.54  Before proceeding with our analysis, we recall th e main findings of the original panel in its 
analysis under item (j) of the Illustrative List, as context to determine wh ether the programmes at 
issue conferred export subsidies under Article 10.1 of the Agreement on Agriculture . 
14.55   The original panel considered that item (j ) does not require the us e of any particular 
methodological approach or accounting philosophy to determine whether a programme is run at a net 
cost to the government.
643  The panel considered that it was reasonable, on the basis of the evidence 
and arguments submitted to it, to take into account the period since 1992.644  But it also considered 
that the analysis under item (j) needed not be purely retrospective and could take into account 
elements of the structure, design and operation of the measure which may affect the long-term 
operating costs and losses of the GSM 102, GSM 103 and SCGP programmes.645 
(i) Past performance of the programmes 
14.56   The panel reviewed data submitted by the parties concerning the profitability of the 
programmes.  Data under different methodologies w as presented by the parties and relied upon by the 
panel.  The first approach concerned the "net present value " approach to budget accounting used by 
the US Government with respect to export credit gu arantees.  The US Government projects, in each 
year's budget, the "net present value" of the costs associated with its export credit guarantees issued in 
that year.646  The United States budget data for 1992 to 2002 (and estimates for 2003 and 2004) 
showed a positive "guaranteed loan subsidy" (i.e. a loss).  Although the panel recognized that these 
amounts were only initial estimates of the long-term costs of the programme, representing neither 
"random guesses nor historically verifiable real am ounts", it considered that the consistently positive 
subsidy numbers indicated that the US Government  "believes, based upon its own assessment, that it 
may not, even over the long term, be able to ope rate the export credit guarantee programmes without 
                                                                                                                                                                     
meet the definitional elements of an expo rt subsidy under Article 3.1(a) of the SCM Agreement  (and, by 
reference, Article 1 of the SCM Agreement ), i.e. that they are "f inancial contributions", that confer a "benefit" 
(thereby constituting a "subsidy" under Article 1), which is contingent upon export contingency under Article 3.1(a).  See Brazil's Rebuttal, paras. 454-481.  A number of third parties (Australia, Canada, Chad, and 
China) consider, like Brazil, that ex port credit guarantees can be prohib ited export subsidies under either 
Articles 1.1 and 3.1(a) of the SCM Agreement  or item (j) of the Illustrative List.   The Panel understands the 
European Communities to agree with the United States ' position.  See Australia's Third Party Submission, 
para. 24, Canada's Oral Statement Submission, paras. 8-13, Chad's Third Party Submission, paras. 50-56, 
China's Third Party Submission, paras. 4-8 and China's Oral Statement, EC Oral Statement, para. 33.  
643 Panel Report, US – Upland Cotton, para. 7.804. 
644 Panel Report, US – Upland Cotton , para. 7.831. 
645 Panel Report, US – Upland Cotton, para. 7.835. 
646 A positive net present value means the US Government is granting a "subsidy" to borrowers and 
therefore expecting a loss, a negative present value mean s that the programme is generating a "profit." This 
value does not include administra tive costs.  See Panel Report, US – Upland Cotton , para. 7.842.  
Administrative costs are usually relatively modest in comparison to the value itself (US$5 million in the most 
recent years).   WT/DS267/RW 
 Page 157 
 
 
  some net cost to government".647  The panel also took into account the fact that "actual historical 
experience was a primary factor" on which the estimates are based.648  
14.57  These initial estimates are subject to annual re-estimations over the lifetime of the guarantees 
involved.  The United States argued in this respect that the re-estimates, over time, erased the initial 
positive "estimate" figure, in other words, that taking the re-estimates into account, the programmes 
would not give rise to a net cost to the US Government.  The United States provided the panel with 
cumulative re-estimates on a cohort-specific basis (a cohort is comprised of all guarantees issued in a 
given year).  These figures showed a positive subsid y of US$230 million.  The United States noted an 
overall downward re-estimate of US$1.9 billion (i.e. overall, re-estimates br ought the subsidy down), 
that, with the exception of 2002 (for which only very  recent data was available), the trend for all 
cohorts was favourable as compared to the origin al subsidy amount, and that the data for the 1992-
1996 and 1999 cohorts indicated profitability.  Accord ing to the United States, when data for the – as 
yet uncompleted – 2001 and 2002 cohorts were remove d, the US$230 million was almost entirely 
eliminated.  While the panel took into account the fact  that the process of estimates and re-estimates 
by cohort is necessarily a fluid one that cannot be  definitively analyzed until a cohort is "closed", it 
disagreed with the United States that data for certain of the more recent cohorts should be 
disregarded; the panel was also not persuaded th at cohort re-estimates over time, would necessarily 
not give rise to a net cost to the US Governme nt. It therefore rejected the arguments of the 
United States in this respect.649 
14.58  The second "methodology" under which the origin al panel examined the US programmes was 
a constructed cost formula  submitted by Brazil, based on data from the US budget.650  Brazil 
submitted a table which showed a net cost to government of US$1.08 billion from FY 1993 to 
FY 2002 (using data taken in the "prior year" column in the US budget).651 The panel considered it an 
"an additional informed appraisal, based on informa tion generated by the US Government itself, of 
the performance of export credit guarantee programm es" which, the panel noted, takes into account 
the actual level of guarantees issued by the CCC in a given year, as opposed to an estimate of this 
level.652  The panel compared the result of this form ula with evidence submitted by the United States, 
which it asserted, reflected a profit of US$630 million to the US Government. The difference between 
the results of Brazil's and the United States' calcu lations corresponded to the amount of rescheduled 
claims (US$1.6 billion), which the United States did not treat as "outstanding claims": rather, the standard accounting treatment of reschedulings by the CCC was to treat them as new direct loans; 
this, in the panel's view, represented an instant re duction of the amount in outstanding claims in the 
year in which the rescheduling was finalized. The panel thus shared Brazil's concerns that the 
United States' treatment of rescheduled debt unde rstated the net cost to the US Government.
653  
14.59  The panel also took into account the fact that the CCC financial statements  for the years 2002 
and 2003 indicated a "credit guarantee liability" of  US$411 million and US$22 million, respectively.  
The panel observed that these "credit guarantee liab ility" amounts "are not actual losses.  They are but 
another indicator, used and relied upon by the US  government, to assess the estimated long-term cost 
                                                      
647 Panel Report, US – Upland Cotton, para. 7.843. 
648 Panel Report, US – Upland Cotton, para. 7.843. 
649 Panel Report, US – Upland Cotton,  paras. 7.852-7.854. 
650 The formula calculated the fo llowing: (Premiums collected +  Recovered principal and interest (line 
88.40 of the US budget) + Interest revenue (line 88.25) ) –  (Administrative expenses (line 00.09) + Default 
claims (line 00.01) + Interest expens e (line 00.02)).  See Panel Report, US – Upland Cotton, para. 7.844. 
651 See the table at para. 7.845 of the Panel Report, US – Upland Cotton . 
652 Panel Report, US – Upland Cotton,  para. 7.846. 
653 Panel Report, US – Upland Cotton, para. 7.851. WT/DS267/RW  
Page 158  
 
  to the United States government of export credit guarantees", and that these amounts were 
consistently positive.
654  
14.60  Overall, the panel found that these considerati ons relating to the past performance of the 
programmes supported a view that the programmes were run at a net cost to the government.655   
(ii) Structure, design and operation of the programme 
14.61  The panel also took into consideration the structure, design and operation of the export credit 
guarantee programmes.  Several elements in this r espect led the panel to be lieve that the programmes 
were "not designed to avoid a net cost to government".656 The panel took into consideration the fact 
that the CCC borrows from the US Treasury and th at access to Treasury borrowings facilitates the 
functioning of the programmes and that, for a cred itor, the guarantees provide the backing of the full 
faith and credit of the US Government. Further, the panel was of the view that the premiums were not 
geared toward ensuring adequacy to cover long- term operating costs and losses for the purposes of 
item (j) of the Illustrative List.  First , it noted in this respect the 1 per cent fee cap imposed by US 
legislation on the fees.657  Second , it considered that the premiums were not risk-based, either with 
respect to country risk or the creditworthiness of the borrower in an individual transaction.  Country 
risk and foreign obligor risk only impacted the US Government subsidy estimates and re-estimates, 
and not the fees charged. 658 Moreover, the statute imposed no limitation on the amount of guarantees 
that could be provided annually to  a high-risk country or to high  risks transactions.  The CCC was, 
therefore, able to provide large amounts of guarant ees to high-risk countries with a resulting high rate 
of default. The panel also noted the lack of substa ntial or regular review of the premiums by the US 
Government to ensure that they were adequate to  cover long-term operating costs and losses.  Finally, 
the panel noted evidence (an annual review of fees by the USDA) that indicated that the US 
Government did not consider that the fees were ri sk-based and that they did not cover the "subsidy 
cost of the programme"; the document also stated  that the 1 per cent fee cap likely prevented the 
adoption of risk-based fees.659 Thus, for the panel, the evidence i ndicated that the premiums were not 
proportionate to, reflective of, nor geared towards, covering  long-term operating costs and losses.660  
(iii) Overall conclusion by the original panel 
14.62  Thus, on the basis of the totality of the evid ence, the panel found that Brazil had established 
that the three export credit guarantee programme s were provided "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.  This view was "based on a careful consideration of the evidence, 
taken as a whole, and no one element, in isolation, is determinative".661  The panel therefore found 
that the GSM 102, GSM 103 and SCGP expor t credit guarantee programmes constituted a per se  
export subsidy within the meaning of item (j) of the Illustrative List and were therefore export 
subsidies under Article 10.1 of the Agreement on Agriculture .  
                                                      
654 Panel Report,  US – Upland Cotton,  para. 7.855. 
655 Panel Report,  US – Upland Cotton,  para. 7.856. 
656 Panel Report, US – Upland Cotton,  para. 7.857. 
657 Panel Report,  US – Upland Cotton,  para. 7.860. 
658 Country risk is the risk – represented by a cr edit rating – associated with a given country, and 
usually relates to the risk of political or economic crises , etc; foreign obligor risk is the risk specific to an 
individual foreign obligor. 
659 Panel Report, US – Upland Cotton,  para. 7.865. 
660 Panel Report, US – Upland Cotton,  para. 7.867. 
661 Panel Report, US – Upland Cotton,  para. 7.867 .  WT/DS267/RW 
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  (iv) Appellate Body 
14.63  The Appellate Body agreed with the panel's approach to assessing whether the programmes at 
issue met the conditions set forth in item (j) of the Illustrative List662 and that "[t]he text of item (j) 
does not suggest that this provision requires a Panel to choose one particular basis for the calculation 
and then to make a precise quantification of the difference between pr emiums and long-term 
operating costs and losses on that basis".663 
14.64  Like the original panel, we conduct a two-step analysis.  First , we review the evidence of a 
quantitative nature submitted by the parties to  determine whether th e GSM 102 programme is 
provided at premium rates that are inadequate to  cover its long term operating costs and losses; 
second , we examine the evidence pertaining to elements of the "structure, design and operation" of the 
GSM 102 programme submitted by Brazil. 
(b) "Quantitative" analysis under item (j) 
(i) Main arguments of the parties 
14.65  Brazil  submits that the US Government continues to predict that GSM 102 export credit 
guarantees will be provided at a loss, even under the new fee schedule.  Brazil relies on the "subsidy" 
estimates for FY 2006, 2007 and 2008, which continue to be positive.  Brazil refers to the findings of 
the original panel, which  took similar projections as an indication that the US Government considers 
that the programmes would be provided at a net cost.664 
14.66  The United States  submits that current budget financial data shows that the fee structure in 
place during the original panel proceeding provided prem ia more than adequate to cover the long term 
costs and losses of the programmes at issue in that proceeding. The data – wh ich concerns subsequent 
reestimates of initial subsidy estimates – became ava ilable as more cohorts of export credit guarantees 
closed.  The data demonstrates that the programmes were profitable even before the suspension of the 
GSM 103 and SCGP programmes and the significant modi fications of the fee st ructure and eligibility 
under the programmes. Further, the United States ar gues that the initial subsidy estimates in the US 
budget are not derived from the actual experience of  the CCC. The original estimates are calculated 
before any use is made of the export credit guarant ee programme in the year for which the estimate is 
made and are based on an historically overly-optimis tic projection of the actual use of the programme.  
In addition, the CCC is, in establishing these estim ates, required to use government-wide estimation 
rules, without regard to the actual experi ence specific to the CCC export credit guarantee 
programmes.665  
14.67  Brazil  counters that the result of the US Governme nt "re-estimates" is elsewhere tracked in  
the CCC's Financial Statements.  The Financial Statements report a positive "credit guarantee 
liability" of US$220 million for guarantees outstanding as of 30 September 2006.  Brazil also submits "cash basis" calculations which, in its view, conf irm that the programmes have not been profitable 
since 1992.
666  
14.68  The United States  rejects Brazil's reading of the "credit guarantee liability" figure in the 
CCC's Financial Statements. In addition, the Unite d States questions the significance of Brazil's cash 
                                                      
662 Appellate Body Report, US – Upland Cotton , paras. 665 ff. 
663 Appellate Body Report, US – Upland Cotton , para. 665. 
664 Brazil's First Written Submission, paras. 433-437;  Brazil's Opening Statement, paras. 252-253. 
665 US First Written Submission, paras. 100-104; US Rebuttal Submission, paras. 108-126 
666 Brazil's Rebuttal Submission, paras. 482 ff. WT/DS267/RW  
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  basis accounting methodology and submits that Brazil omits to include recoveries in respect of 
guarantees issued before 1992 in its calculation.
667   
(ii) Evaluation by the Panel 
14.69  Before this Panel, Brazil again relies on the initia l or original "subsidy estimates" reported in 
the US Budget.  The 2007 US budget projected a "positive subsidy" (or loss) of US$125 million for 
the 2006 cohort and US$114 million for the 2007 cohort.668  The 2008 budget revised these numbers 
to, respectively, US$71 and US$60 million, and in addition, projected a US$53 million subsidy estimate for the guarantees issued in the 2008 year.
669  None of these figures  include administrative 
costs (which amount to US$5 million a year).670 
14.70  We recall that the original panel found that the initial estimates were one of the 
"considerations relating to the past performance of the programmes" that supported its conclusion that 
the programmes were provided "at premium rates which are inade quate to cover the long-term 
operating costs and losses of the programmes" within the meaning of item (j) of the Illustrative List.671  
The original panel found as follows with  respect to these initial estimates:   
"We realize that these amounts are initial estimates  of the long-term costs to the 
United States government.  They are not , however, mere random guesses as to the 
amount of possible, but highly unlikely, costs to the government.  Nor, at the other extreme, are they historically verifiable real amounts that have been, or actually will 
be, disbursed by the United States government.  Rather, this is a methodology used and relied upon by the United States govern ment to assess the estimated long-term 
net cost to the United States government of export credit guarantees.
 Actual historical 
experience is a "primary factor" on which estimates are based.672  The consistently 
positive numbers in the United States budget guaranteed loan subsidy line indicate to 
us that the United States government belie ves, based upon its own assessment, that it 
may not, even over the long term, be able  to operate the export credit guarantee 
programmes without some net cost to government." 673 (emphasis original) 
14.71  We agree with the original panel that consis tently positive initial subsidy estimates provide an 
indication by the US Government that it expect s the export credit guarantee programmes in question 
to be run at a net cost.  It is in our view highly significant that the US Government continues to 
                                                      
667 US Rebuttal Submission, paras. 84 ff. 
668 The CCC is required to make annual subsidy estimates as a result of the Federal Credit Reform Act 
of 1990 (the "FCRA").  The purpose of the reform im plemented by the FCRA is to "measure more accurately 
the costs of Federal credit programs". See 2 U.S.C. § 661(a), Exhibit Bra-545.  The net present value analysis 
attempts to calculate the value today of a future stream of income or co st; under its budget accounting, the US 
Government identifies an annual "cost" in terms of the "net present value" associat ed with its export credit 
guarantee programmes.  See Panel Report, US – Upland Cotton , para. 7.842. 
669 See line 233001 of the 2007 (for years 2006 and 2007) and 2008 budgets (respectively, Exhibits 
Bra-544 and US-71).  The revision occurs because the subsid y estimate that first appears is based on an estimate 
of the use of the programme.  Budgets for the two subsequent years following that budget progressively take 
into account the actual use of the programme. See discussion, infra , para. 14.76.  
670 See line 00.09 for each of the 2006, 2007, and 2008 budgets (respectively, Exhibits Bra-544 and 
US-71).  
671 Panel Report, US – Upland Cotton , paras. 7.856, 7.867.   
672[original footnote] Federal Accounting Standards Advisory Board, 'Statement of Federal Financial 
Accounting Standards, No. 19, Technical Amendments to accounting Standards for Direct Loans and Loan 
Guarantees' in Statement of Federal Financial Accounting Standards No. 2" (March 2001),  p. 16, para. 36, 
reproduced in Exhibit BRA-118 states:  "Actual historical experience of the performance of a risk category is a 
primary factor upon which an estimation of default cost is based".    
673 Panel Report, US – Upland Cotton , para. 7.843.  WT/DS267/RW 
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  project, at the time of their issuance, that ne w GSM 102 guarantees issued under the revised 
programme will be provided at a net cost.    
14.72  We now address the arguments the United States makes against the use of the initial estimates 
to assess the long term net cost of the GSM 102 prog ramme to the US Government. The United States 
raises two arguments in this respect.674 First , the United States argues that the initial subsidy estimates 
are inflated because they are issu ed before any use is made of the programme and therefore do not 
reflect the actual use of the programme.  Second , the United States argues that the initial subsidy 
estimate is unreliable because the CCC is required,  in preparing the estimates, to use government-
wide estimation rules, including mandated risk assessment country grades, without regard to CCC's 
actual default experience.  The United States su bmits in support of this second argument a Report 
from the General Accounting Office which explains th at the principal factors used in the calculation 
of the original subsidy rate are provided by  the Office of Management and Budget (OMB).675  For the 
United States, this "one-size-fits-all approach ... largely explains the continuing presence of an 
original subsidy estimate for CCC export credit gu arantee programmes in fiscal years 2006 and 
2007".676    
14.73  In both cases, however, the United States is reasserting arguments that it made in the original 
proceeding and that were, at least implicitly, rejected by the original panel.677   
                                                      
674 We address below, in paras. 14.78 ff. the evidence submitted by the United States with respect to 
subsequent reestimates of the initial subsidy estimates. 
675 US Rebuttal, paras. 108 ff. and  Exhibit US-73.  The document indicates that the OMB provides 
such agencies with "expected loss rates", a key compon ent of their subsidy costs.   OMB also provides the 
discount rates that are used to calculate subsidy estimate s. The United States also e xplains that, starting with 
fiscal year 2003, OMB changed its method for determining expected loss rates because emerging finance 
literature indicated its former approach might overstate losses to the Government. OMB's methodology, however, continues to make certain assumptions that are not consistent with CCC's experience nor with its 
programme.  More specifically , the United States indicates that the OMB uses "the market price of credits with 
the lowest ICRAS rating (category 11) [as] the predominan t basis for recovery rates." OMB's use of the market 
price of the "lowest-rated credits is based on the a ssumption that this value represents the most the US 
government would recover in the event of default." Each sovereign borrower or guarantor is rated on an 11-
category scale, ranging from A through F– (or their numerical counterparts, categories 1-11).  For CCC, 
however, no country below a certain ICRAS rating is e ligible for the programme at all. Consequently, OMB's 
imposed assumption about recovery rates as part of the calculation of expected loss rates is much more 
conservative than would be warranted w ith respect to the CCC". The United Stat es also argues that, to date, the 
OMB has not incorporated any data specific to CCC experience in its calculations of expected loss rates that it 
requires CCC to employ in the pr eparation of its budget at the be ginning  of each fiscal year. 
676 US Rebuttal, para 116. 
677 For instance, the United States made the foll owing statements in the original proceeding: 
 "The original subsidy estimate, in contrast [to the "actual" estimate figure two years 
thereafter] begins with what is an historically overly optimistic projection of actual use of the 
program and then is required to use the government-wide estimation rules, including mandated risk-assessment country grades without regard to the actual experience specific to 
the CCC export credit guarantee programs.  Thes e two factors are the answer to Brazil's 
question, 'why does [CCC] continue to offer orig inal estimates that are so high?' (footnotes 
omitted). 
(US Further Submission, 30 September 2003, para. 147.) 
... "The United States has previously noted that the original subsidy estimate in the US budget 
begins with an historically overly optimistic projection of the actual use of the programme and 
then the use of government-wide estimation rules is required, including mandated risk assessment country grades without regard to the actual experience specific to the CCC export 
credit guarantee programmes.  The original subsidy estimate for these cohorts, like the WT/DS267/RW  
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  14.74  Notwithstanding these arguments of the United Stat es, the original panel concluded that the 
original subsidy estimate could be relied upon as an  indicator of the long term net cost of the 
programmes to the US Government – or at least of an indicator of the US Government's assessment of such costs.
678 
14.75  As Brazil points out "[t]he process by which th e CCC arrives at initial estimates of long-term 
programme performance has not changed since the orig inal proceedings; nor have the criteria used by 
the CCC to make this assessment".679  There are, in sum, no chang es in the underlying circumstances 
that would justify us revisiting the orig inal panel's reasoning in this respect. 680 
14.76  In any case, we would note that while the United States is factually correct that the initial 
estimates are established before any use is made of  the programme and that the initial estimates are 
based on the projected use  of the programme, these initial estimates are subsequently re-adjusted in 
the US Budget two years after the budget year in which the initial estimate appears.681  In no case has 
                                                                                                                                                                     
original subsidy estimate for all cohorts, n ecessarily reflects no actual operating experience 
with respect to that coho rt." (footnotes omitted). 
(US Response to original panel's Question 221(g), Panel Report, US – Upland Cotton , 
Annex I, page I-371) ... 
"The United States has noted that such [original] estimates are compelled by government-wide 
accounting rules for credit programs..."
 (US Further Rebuttal Submission, 18 November 2003, 
para. 196) 
... 
"Brazil also mysteriously alleges that 'accord ing to CCC's 2002 financial statements, CCC has 
been relieved of what the United States argues  are onerous government-wide accounting rules 
that 'compel' projection of enormous losses.'  CCC,  however, has never been so 'relieved.'  It 
remains compelled to adhere to the requirements of the federal Credit Reform Act of 1990, and relevant provisions of the Office of Management and Budget Circular A-11, 
implementing that legislation.  CCC remains subject to government-wide requirements for 
subsidy estimates and the risk categories mandated by OMB with respect to exposure to debt from different countries.  The government-wide rules continue to dictate the methodology for 
calculation of estimates, and reestimates..." (US Closing Statement at the Second Panel 
Meeting, 3 December 2003, para. 10). 
678 Panel Report, US – Upland Cotton , para. 7.843 (cited above, para. 14.70): 
 
"We realize that these amounts are initial estimates  of the long-term costs to the United States 
government .  They are not, however, mere random gues ses as to the amount of possible, but 
highly unlikely, costs to the government.  Nor, at the other extreme, are they historically verifiable real amounts that have been, or actually will be, disbursed by the United States 
government.  Rather, this is a methodology  used and relied upon by the United States 
government to assess the estimated long-term ne t cost to the United States government of 
export credit guarantees.
 Actual historical experience is a 'primary factor' on which estimates 
are based.   The 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 
guarantee programmes without some net cost to government." (footnotes omitted, emphasis 
added). 
679 Brazil's Response to Panel Question 105, para. 300. 
680 See Appellate Body Report, US – Softwood  Lumber  VI (Article 21 .5 – Canada) , para. 103, citing 
Appellate Body Report, Mexico  – Corn  Syrup  (Article 21 .5 – US) , para. 121. 
681 Each annual budget provides long-term subsid y estimates for three cohorts of export credit 
guarantees: the cohort of guarantees to be issued in the fiscal year that has not yet begun (for instance, in the 
2008 budget, the 2008 cohort), the cohort of guarantees i ssued in the fiscal year that  has partly elapsed at the 
time the budget is released (in the 2008 budget, the 2007 cohort), and the cohort of guarantees issued in the 
fiscal year that has most recently ended (in the 2008 budget, the 2006 cohort).  In subsequent years, re-estimates  WT/DS267/RW 
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  such an adjustment turned a positive subsidy estimate into a negative one.682 We recall that, in this 
case, we are only interested in the presence of a ne t cost to the US Government resulting from the 
provision of GSM 102 export credit guarantees.  We need not quantify such a cost.  Therefore, the fact that the initial subsidy estimate may be overst ated does not, in our view, mean that it is not a 
reliable predictor of a net cost to the US Government. 
14.77  Nor do we see a reason to depart from the or iginal panel's conclusion that the subsidy 
estimates are, at least in part, based on historical  experience and can be read as the US Government's 
own assessment of the long term costs of the progra mme(s).  Brazil also directs us to the USDA's 
"Agriculture Financial Standard s Manual", which states that "[i]n estimating default costs, the 
following risk factors are considered: (1) loan performance experience...".
683 and to a "self-
assessment" of the programmes by the USDA Foreign Agricultural Service (FAS) in 2004.684  The 
self-assessment states that the credit models used to  calculate the subsidy estimate were revised in 
FY2001 and 2003 and "currently provide reliable estimates".685  While we take note of the 
United States' arguments that the OMB continues to  impose expected loss rates or estimated default 
costs, in our view, this does not bring into questio n the fact that this is the method which is relied 
upon by the US Government itself to assess the long-term net cost of its export credit guarantee 
programmes at the time of issuance of the guarantees.  
14.78  The United States also submits that new US bud get data that became available after the 
original panel conducted its analysis demonstrates that  the programmes were in fact not provided at a 
net cost to the US Government even before  it took measures to comply with the DSB 
recommendations.  The data submitted by the United States concerns cumulative subsequent "re-
estimates" of the initial subsidy estimates on a cohort- specific basis:  initial "subsidy" estimates in the 
US budget are subject to re-estimates over the lifetime of the guarantees involved.686  As mentioned 
above, the United States had made similar arguments be fore the original panel, but the panel was not 
convinced that the evidence presen ted by the United States showed that the cohort estimates (which 
showed an overall positive subsidy estimate, i.e. a "los s") would eventually turn into a negative figure.  
We understand the United States to argue that the Pa nel should take into consideration the reestimates 
data in addition to the initial subsidy estimates.  The United States is therefore also challenging the 
fact that initial estimates may (by themselves, wit hout taking the re-estimates into account) be relied 
                                                                                                                                                                     
are tracked in Table 8 of the Federal Credit Suppleme nt accompanying the budget.   Thus, for each cohort, 
subsequent budgets will provide three estimates: the estimate reported in the budget for the first fiscal year takes 
no account of the actual use of the programme, the estimat e reported in the budget for the second fiscal year 
partly takes into account the actual use of the programme,  and the estimate reported in  the budget for the third 
fiscal year (and which is released after the cohort has cl osed) is  based on the actual use of the programme.  The 
amounts reflecting the actual use of the programme usually decline in absolute amounts.  See Brazil's Rebuttal 
Submission, para. 508 and accompanying footnote.  We do not believe there was any misunderstanding between 
the parties and the Panel on this issue in the original dispute.  See for instance, US Further Submission (30 September 2003), para. 149: 
  
"Actual guarantee issuance can first be reflecte d only in the budget two fiscal years after the 
original subsidy estimate.  Once the actual use of the program is determined all subsequent 
reestimates are based on that figure, not on the original subsidy estimate.  Other than with 
respect to interest (because of independent market forces), a downward reestimate never 
occurs based on the original subsidy estimate."  
682 See Exhibits Bra-617 and US-8. 
683 Exhibit Bra-616, US Department of Agriculture , Office of the Chief Financial Officer, Credit, 
Travel, and Accounting Division, Agriculture  Financial  Standards  Manual  (May 2004), pages 120-121. 
684 See Brazil's Opening Statement, para. 253. 
685 Exhibit Bra-588 (Agricultural Export Credit Guarantee Program s Assessment, ExpectMore.gov, 
Section 3.CR2).  
686  US First Written Submission, para. 83, also referring to the original panel report, para. 7.843. WT/DS267/RW  
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  upon as a reliable indicator of the long-term net co st of the programmes or, at least, as representing 
the US Government's assessment of the project ed long-term net cost of the programme.  
14.79  We note that the new data submitted by the United States concerns the three programmes 
examined by the original panel (GSM 102, GSM 103 and SCGP).  The issue before us is whether the 
GSM 102 programme, as revised, is provided at prem ium rates inadequate to cover its long term 
operating costs and losses.  The original pane l found that the United States provided the three 
programmes at a net cost to its government.  That issue has been definitivel y disposed of in the 
original proceeding and is not before us.  Howeve r, we must consider the arguments and evidence 
submitted by the United States to the extent that they  are relevant to determine whether the revised 
GSM 102 programme is run at a net cost to the US Government or, as we understand the 
United States' argument, that we should rely on the reestimates rather than the initial subsidy 
estimates as an indicator of the long-term cost of  the programme.  The United States submits to the 
Panel a table
687 that includes reestimates for the 1992 to 2006 cohorts.  The table shows, for all three 
programmes, an aggregate overall negative "subsidy estimate net of reestimates" (i.e. anticipated 
"profit") of US$926 million for the 1992-2002 cohorts (i.e. the cohorts examined by the original 
panel) and of US$403 million fo r the 1992-2006 cohorts.   
14.80  The original panel was not persuaded that cohort reestimates, over time, would necessarily 
not give rise to a net cost to the United States Government.688  Similarly, we are not convinced that 
the re-estimates data submitted by the United States  establishes that all positive subsidy estimates – 
and in particular, those for cohorts   2006-2008 – will eventually turn into negative ones.  We note in 
this respect that the US Government continues to  project, for the new cohorts of GSM 102 guarantees 
issued after 1 July 2005 (i.e. after the CCC revised the programme's fee structure and discontinued its 
use of the GSM 103 and SCGP programmes), that the guarantees will be provi ded at a long-term net 
cost. 
14.81  Nor are we convinced that the subsidy reestim ates data demonstrates that the GSM 102, GSM 
103 and SCGP programmes were provi ded at no net cost to the US Government in the concerned 
periods.  The reestimates data provided by the United States (except those related to the 1994 and 
1995 cohorts, which have closed) are revised estimat es.  They indicate that the US Government now 
projects the cohorts of guarantees at issue to be  profitable.  But, because they are revised estimates , 
they do not establish that the programmes were provided at no net cost to the US Government.689  We 
further recall that the  original panel's conclusion that the three programmes at issue fell within the 
scope of item (j) was based on a number of indicator s of the past performance of the programmes, in 
addition to the subsidy estimates.690  The original panel took into consideration "cash accounting" 
evidence submitted by Brazil and the "credit gua rantee liability" figure reported in the CCC's 
Financial Statements.691  The evidence considered by the Panel under both of these methodologies  
pointed to the programmes being provided at a net co st to the US Government.  The CCC continues to 
report, in its Financial statements, a "credit guarantee liability": the CCC's 2005-2006's Financial 
                                                      
687 The table was submitted by the United States as part of its Response to Panel Question 111.  It 
includes data contained in the 2008 budget.  The United States had initially submitted a table containing re-estimates data contained in up to the 2007 budget.  See paras. 87-89 of the US First Written Submission. 
688 Panel Report, US – Upland Cotton , para. 7.853. 
689 The Panel notes that, according to the re-estim ates data submitted by the United States, certain 
cohorts (the 1997, 1998 and 2002-2006 cohorts) continue to present a positive "subsidy estimate net of re-
estimates". 
690 The United States recognizes this.  See US Respon se to Panel Question 105: "... in the original 
panel's conclusions, the original subsidy estimates were not dispositive on the question of whether the three 
export credit guarantee programs met the test of item (j).  It was but one factor in the original panel's analysis." 
691 The panel's conclusion also rested on its findings that a number of elements of the structure, design 
and operation of the programme indicated that the programme was not designed to cover its long term operating 
costs and losses.  See supra , para. 14.61.   WT/DS267/RW 
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  Statement692 report a "credit guarantee liability" of US$220 million.693  The original Panel noted the 
following with respect to the "credit guarantee liability" figure reported in the CCC's Financial 
Statements: 
"The CCC defines the term "credit guarant ee liability" as the estimated cash outflows 
of the guarantees on a net present value basis.  "Liability" is defined as "...a probable 
future outflow or other sacrifice of resources as a result of past transactions or 
events."  We observe that these amounts are not actual losses.  They are but another indicator, used and relied upon by the United States government, to assess the estimated long-term cost to the United States government of export credit guarantees.  They are consistently positive, indicating to us that the CCC believes, based upon its 
own assessment, that it may not, even over the long term, be able to operate the 
export credit guarantee programmes without some net cost to government."
 694 
(footnotes omitted) 
14.82  Notwithstanding that the original panel relied in  part on the "credit guarantee liability" figure 
reported in the CCC's Financial Statements, the pa rties disagree as to the meaning of this figure.695  
The United States argues that the credit guarant ee liability is merely a balance sheet entry 
(corresponding to a future disbursement under the programme) of a liability for which an offsetting 
entry of an asset exists and that the CCC has an exp ectation of a recovery associated with the payment 
for default on the guaranteed loan , such that such receivables ma y not properly be considered 
"losses".696  Brazil rejects the United States' reading as be ing inconsistent with the definition of the 
term "credit guarantee liability" provided in th e Financial Statements themselves. Brazil draws 
attention to the use of the word "net": this, in Brazil's view, belies the US assertion that the credit 
guarantee liability figure in the CCC financial stat ements includes only a liability for which an 
offsetting entry of an asset exists:697 
"Credit guarantee liabilities represent the estimated net cash outflows (loss) of the 
guarantees on a net present value basis.  To this effect, CCC records a liability and an 
expense to the extent, in management's estimate, CCC will be unable to recover claim 
payments under the Credit Reform Export Credit Guarantee programs." (emphasis by Brazil).
 698 
14.83  We see no reason to depart from the line of reas oning adopted by the original panel.  It is 
clear, in our view, that the "estimated net cash outflow" of outstanding guarantees means that with 
respect to guarantees that were outstanding as of  30 September 2006, the US Government estimates 
                                                      
692 Brazil's Rebuttal Submission, paras. 484-486. 
693 See Exhibit Bra-585 (Audit Report, Commodity Credit Corporation's Financial Statements for 
Fiscal Years 2006 and 2005, November 2006, p. 11 of Notes to the Financial Statements).  The financial 
statements define the term "credit guarantee liability" in the following terms: 
"Credit guarantee liabilities represent the estimate d net cash outflows (loss) of the guarantees 
on a net present value basis. To this effect, CCC records a liability and an expense to the 
extent, in management's estimate, CCC will be unable to recover claim payments under the Credit Reform Export Credit Guarantee programs." 
694 Panel Report, US – Upland Cotton , para. 7.855. 
695 The parties have, in their Responses to Panel Questions 107-108 and Comments thereon, provided 
an extensive discussion of their arguments on this point. 
696 US Responses to Panel Questions 107 and 108.  See also the US Rebuttal Submission, paras. 87-88. 
697 Brazil's Comments on US Response to Panel Questions 107 and 108, para. 298. 
698 See Brazil's Comments on US Response to Panel Questions 107 and 108, paras. 297-298 and 
Exhibit Bra-585, p. 11. WT/DS267/RW  
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  future disbursements of US$220 million.
699  Thus, in our view, the "credit guarantee liability" reported 
in the CCC's financial statements provides another indication of the US Government's view that 
further costs will be incurred with respect to guarantees outstanding as of 30 September 2006.   
14.84  As mentioned above, Brazil also submits ev idence concerning the cumulative receipts and 
disbursements for the three progr ammes pursuant to a "cash basi s accounting" methodology.  The 
chart submitted by Brazil in this respect is similar to the results of the constructed "cost" formula it 
submitted to the original panel700, but covers the period from FY 1993 to FY2005 (the table submitted 
to the original panel covered the period up to 2002).  The table (Exhibit Bra-613) is as follows: 
 US$  
FY Premiums 
collected 
(88.40) Recovered 
principle and 
interest 
(88.40) Interest 
revenue 
(88.25) Sub Total Administrative 
expenses 
(00.09) Default 
claims 
(Line 00.01) Interest 
expense 
(Line 00.02) Sub-Total 
1993 27,608,000 12,793,000 15,672,000 56,073,000 3,320,000 570,000,000 0 573,320,000 
1994 20,893,000 458,954,000 0 479,847,000 3,381,000 422,363,000 0 425,744,000 
1995 18,000,000 62,000,000 0 80,000,000 3,000,000 551,000,000 10,000,000 564,000,000 
1996 20,000,000 68,000,000 26,000,000 114,000,000 3,000,000 202,000,000 61,000,000 266,000,000 
1997 14,000,000 104,000,000 26,000,000 144,000,000 4,000,000 11,000,000 62,000,000 77,000,000 
1998 17,000,000 81,000,000 54,000,000 152,000,000 4,000,000 72,000,000 62,000,000 138,000,000 
1999 14,000,000 58,000,000 0 72,000,000 4,000,000 244,000,000 62,000,000 310,000,000 
2000 16,000,000 100,000,000 99,000,000 215,000,000 4,000,000 208,000,000 62,000,000 274,000,000 
2001 18,000,000 149,000,000 125,000,000 292,000,000 4,000,000 52,000,000 104,000,000 160,000,000 
2002 21,000,000 155,000,000 61,000,000 237,000,000 4,000,000 40,000,000 93,000,000 137,000,000 
2003 20,000,000 187,000,000 56,000,000 263,000,000 4,000,000 102,000,000 84,000,000 190,000,000 
2004 22,000,000 219,000,000 61,000,000 302,000,000 4,000,000 130,000,000 81,000,000 215,000,000 
2005 508,000,000 0 0 508,000,000 4,000,000 190,000,000 80,000,000 274,000,000 
  2,914,920,000   3,604,064,000  
 
14.85  Over the period FY 1993-2005, the table show s programme receipts of US$2.9 billion, 
against programme disbursements of US$3.6 billion, for a net loss of over US$689 million.701   
                                                      
699  We do not understand the United States to fundamentally disagree with the original panel's 
interpretation of the meaning of the "credit guarantee lia bility" reported in the CCC's Financial Statements.  See 
US Response to Panel Questions 107 and 108, para. 271:  
 
"Turning to the Panel’s question as to whether the liability figure may be considered a loss, 
the United States notes the original panel’s explanation that a 'liability' is defined as "... a probable future outflow or other sacrifice of resources as a result of past transactions or 
events."  The United States considers that this is an accurate and proper  definition of liability.  
The original panel specifically noted that such a 'probable future outflow' does not equate with 
'loss.'  Citing the Federal Accounting Standards Advisory Board Statements of Federal 
Financial Accounting Concepts and Standards, the panel noted that the definition of 'loss,' in 
contrast, is 'any expense or irrecoverable cost, often referred to as a nonrecurring charge, an expenditure from which no present or future benefit may be expected.'  CCC clearly has an 
expectation of recovery on the receivable it ha s obtained in exchange for its payment for a 
default on a guaranteed loan.  Therefore, the r eceivables are not properly considered to be 
'losses.'" (footnotes omitted) 
700 Exhibit Bra-613. See Panel Report, US – Upland Cotton , paras. 7.844-7.845 for a discussion of the 
data presented to the original panel. 
701 Exhibit Bra-613 (CCC Cost Formula). See also Exhibit Bra-614 (Budgets of the United States 
Government, Fiscal Year 1993-2006).  The United States notes two minor omissions with respect to the 2005  WT/DS267/RW 
 Page 167 
 
 
  14.86  The United States considers that Brazil's table is deficient because it does not include amounts 
recovered under guarantees issued prior to 1992 (the  United States indicates that such recoveries, in 
1993-2005, total over US$5.6 billion).702  We disagree.  The Panel does not believe that it would be 
appropriate to include recoveries for pre-1992 gu arantees unless all costs and all other revenues 
associated with the same guarantees  are also included.  In addition, the Panel considers that including 
these amounts would not allow a comparison with the re-estimates data submitted by the 
United States, which only covers guarantees issued after 1992. 
14.87  This "cash basis accounting" data leads to r esults which stand in sharp contrast to the 
"reestimates" data submitted by the United States.  This is not surprising.  The difference between the 
two methods primarily has to do with the fact that the data submitted by the United States includes not 
only amounts for a past period, but also projected  disbursements and receipts.  Brazil's cash basis 
formula however only captures receipts and disburseme nts to date.  It does not, therefore, record 
projected  receipts and disbursements, including (as th e United States indicates) projected recoveries 
under rescheduled amounts.703  
14.88  The "credit guarantee liability" figure reported in  the CCC's Financial Statements and the cash 
accounting basis data submitted by Brazil at the very  least raise questions as to whether subsequent 
subsidy reestimates indeed establish that the progra mmes at issue in the original proceeding were not 
provided at a net cost to the US Government.   
14.89  In conclusion, notwithstanding the reestimates da ta submitted by the United States, we find it 
highly significant that the US Government continues, at the time of their issuance, to project that new 
GSM 102 export credit guarantees will, in the long-term, be provided at a net cost to the Government.  
In light of this, we consider that the initial subs idy estimates provide a strong indication that GSM 102 
export credit guarantees are provided against premia  which are inadequate to cover the long-term 
operating costs and losses of the GSM 102 programme.  
14.90  Brazil also adduces other evidence which furt her convinces us that the GSM 102 programmes 
fall within the scope of item (j) of the Illust rative List.  We analyze this evidence below.  
(c) Comparison with MPRs under the OECD Arrangement  
(i) Main arguments of the parties  
14.91  Brazil  asks us to take into consideration the minimum premium rates ("MPRs") provided in 
the OECD Arrangement on Officially Supported Export Credits (hereafter "the Arrangement").704  
                                                                                                                                                                     
fiscal year: First, Brazil overlooked US$60 million in additional revenue in line 88.25 ("interest on univested 
funds"), second, Brazil (understandably) reproduced a printing error in the US budget: premiums collected in that year amounted to just above US$21 million; the balance of US$487 million for FY 2005 should have been 
printed in the recovery line 88.40 for the financing account.  This does not affect the sub-total of revenues for 
the 2005 year.  US Rebuttal Submission, footnote. 145. 
702 The United States refers to Exhibit US-68, budget line 88.40 of the "liquidating account" (relative to 
pre-1992 guarantees); Brazil only uses line 88.40, which pertains to the "financing account" (relative to post-
1991 guarantees).  See US Rebuttal Submission, para. 95: the US otherwise agrees , that with the two small 
exceptions noted in the preceding footno te, Brazil reports the correct figures. 
703 US Response to Panel Question 102. 
704 See Brazil's First Written Submission, paras. 43 8-443, Exhibits Bra-546 (OECD Arrangement – 
2005 revision) and Bra-547 OECD document TD/PG(2004)10/FINAL, 6 July 2004, Premium and Related 
Conditions: Explanation of the Premium Rules of the Arrangement on Officially Supported Export Credits (the 
Knaepen Package).  The Panel notes that Brazil, in its Rebuttal Submission, includes its arguments with respect 
to the OECD MPRs in its discussion of the design, structure and operation of the GSM 102 programme.  See 
Brazil's Rebuttal Submission, paras. 499-500. WT/DS267/RW  
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  Brazil argues that the MPRs represent the assessment by  the Participants in the OECD Arrangement – 
including the United States – of the fees that prudent ly should be charged in order to meet long-term 
costs and losses.  Brazil recognizes that the Arrangeme nt – and therefore, the MPRs – does not apply 
to export credits in the ag ricultural field.  Yet, Brazil asks us to  take into consideration its comparison 
of GSM 102 fees with the MPRs as a "qualitative" demonstration that GSM 102 fees are well below 
the level at which they should be to be cons istent with item (j) of the Illustrative List.
705   
14.92  The United States  rejects the relevance of Brazil's arguments based on the OECD MPRs.706 
The United States submits that item (j) of the Illust rative List provides that the proper comparison is 
between the premium rates charged under the progra mme at issue and the long-term operating costs 
and losses of that programme. Item (j) of the Illustrative List does not refer to the Arrangement as the 
standard under which to assess whether a programme  covers its long term operating costs and losses 
under item (j) of the Illustrative List.  
(ii) Main arguments of  third parties 
14.93  Japan707 argues that Brazil's reliance on the OECD Arrangement in this proceeding is 
inappropriate.  Japan notes that the Arrangement does not cover agricultural products and that the 
risks of financing arrangements for bulk agricultura l commodity products, such as cotton, are not only 
substantial, but also unique.  Moreover, the scope of the Arrangement is limited to export credits with 
terms of two years or more.  
(iii) Evaluation by the Panel 
14.94  It is clear to the Panel that the MPRs do not directly apply in determining whether an export 
credit guarantee programme falls within the sc ope of item (j) of the Illustrative List.   While the MPRs 
were developed at least in part to ensure that Pa rticipants would comply with item (j), item (j) itself 
does not refer to the OECD Arrangement or to an y other international agre ement or benchmark in 
determining whether the premia are inadequate to  cover the long term operating costs and losses of 
export credit guarantee programmes and other programmes covered by item (j) of the Illustrative List.  
As the United States points out, this contrasts with the second paragraph of item (k) of the Illustrative 
List, where such a reference is made.  In consequenc e, there is in our view no basis to treat the OECD 
MPRs as providing a legally binding benchmark to  determine whether an export credit guarantee 
programme falls within the scope of item (j) of the Illustrative List.  In any event, GSM 102 fees are 
not subject to the Arrangement – and therefore to the MPRs – because the Arrangement does not apply to exports of agricultural commodities.  Moreover, the Arrange ment only applies to official 
support for terms of two years or more, while GSM 102 guarantees, which are provided for tenors up 
to three years, are also provided for tenors of less than two years.
708 
14.95  That being said, in our view, while the MPRs have no legal status in the context of an analysis 
under item (j) of the Illustrative List, they may, from an evidentiary point of view, provide an indication as to whether GSM 102 fees are sufficient to cover the long-term operating costs and losses of the programme.  Indeed, recognizing that the MPRs do not directly apply to the GSM 102 
programme, Brazil asks us to take into considera tion its comparison of GSM 102 fees with the MPRs 
as a "qualitative" demonstration that GSM 102 fees ar e well below the level at which they should be 
to be consistent with item (j) of the Illustrative List.
709  We note that the OECD explains that the 
Arrangement's benchmark rates, including MPRs, are set "to ensure that Participants to the 
                                                      
705 Brazil's Response to Panel Question 43, para. 69. 
706 US Response to Panel Question 42. 
707 Japan's Third Party Submission, paras. 24-26. 
708 Arrangement, para. 5(c). 
709 Brazil's Response to Panel Question 43, para. 69.  WT/DS267/RW 
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  Arrangement charge premium rates in  addition to interest charges that ... are not inadequate to cover 
long-term operating costs and losses associated with th e provision of export credits".  Thus, the MPRs 
were developed, within the context of the OECD, with a view to ensure that Participants would 
respect the disciplines of item (j):  
"The objectives of the Knaepen Package,  as reflected in Article 22 of the 
Arrangement on Officially Supported Expor t Credits (the "Arrangement"), are to 
ensure that Participants to the Arrangem ent charge premium rates in addition to 
interest charges that: i. cover the risk of non-repayment of export credits (i.e. credit risk); and ii. are not inadequate to cover long-term operating costs and losses
2 associated with 
the provision of export credits." 
_______________ 
 2 This obligation is in relation to the list of prohibited subsidies, i.e. Item (j) of 
Annex I of the WTO Agreement on Subsidies and Countervailing Measures (ASCM), which 
prohibits the provision by governments (or special institutions controlled by governments) of 
export credit guarantee or insurance programmes, of insurance or guarantee programmes 
against increases in the cost of exported products or of exchan ge risk programmes, at premium 
rates which are inadequate to cover the long-term operating costs and losses of the programmes.
 710 
 
14.96  The MPRs may thus be regarded as representi ng an assessment, developed by and agreed 
upon by the export credit experts of the Participants to  the Arrangement, of the premia levels that are 
necessary to ensure that export credit guarantee pr ogrammes cover their long-term operating costs and 
losses.  We note, in this respect, that the Unite d States itself, as a Member of the OECD and a 
Participant to the Arrangement, participat ed in the elaboration of the MPRs.  
14.97  We consider that, in this particular case,  because of the magnitude of the difference  between 
the MPRs and GSM 102 fees, the MPRs may provide an indication, on an informed basis, of the fact that GSM 102 fees are set at a level which is insuff icient to cover the long term operating costs and 
losses of the programme.  We emphasise that we take into account Brazil's comparison of GSM 102 
fees with the MPRs because of the importance of th e difference between them; we do not suggest that 
any difference in this respect could be relied upon as  an indication that an export credit guarantee 
programme meets the criteria of item (j) of the Illustrative List. 
14.98  Using the formula for the calculation of MPRs contained in Annex VI to the Arrangement, 
Brazil finds that, for 1063 of 1064 comparison point s, GSM 102 fees fall below the Arrangement's 
MPRs.
711  On average, the MPRs are 106 per cent above GSM 102 fees.712 
                                                      
710 Exhibit Bra-547, Introduction, para. 1. 
711 Exhibit Bra-548 compares GSM 102 fees for transactions involving annual repayment of principal 
to MPRs, Exhibit Bra-549 performs the same comparison for GSM 102 fees involving semi-annual repayment 
of principal. The charts submitted by Brazil include  both country and tenor-specific comparisons for any 
country (i) for which GSM 102 provides a risk rating of 1-6;  and, (ii) for which any GSM 102 allocation has 
been made available in any year during the period FY 2001 through FY 2006 (even if those allocations were not 
used).  Brazil uses the list of countries assigned a GSM 102 risk rating published on 28 July 2006.   Confirmation of GSM 102 allocations is drawn from the fiscal year-end editions of "Monthly Summaries of 
Export Credit Guarantee Program Activity"  See Brazil's First Written Submission, paras. 439-440.  The sole 
"comparison point" for which GSM 102 fees are below th e MPRs relates to China.  Brazil notes that the CCC 
ranks China in category 6, while the OECD ranks China in category 2.  Brazil also notes  that Standard & Poor's 
ranks China as A/Stable/A1, making China's sovereign ri sk comparable to that of Botswana, Chile, Estonia, 
Lithuania and South Korea, all countries that are ranked by both the OECD and the CCC in risk category 2. See Brazil's First Written Submission, para. 441, footnote 615. 
712 Brazil's First Written Submission, para. 440 and Exhibits Bra-548 and Bra-549. WT/DS267/RW  
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  14.99  In addition, Brazil highlights the fact that, for longer tenors and higher country risk, GSM 102 
fees are well below the OECD MPRs and that the difference between the two increases significantly 
as country risk increases and tenors lengthen.
713  
14.100  The fact that GSM 102 fees are not subject to the Arrangement does not, in our view, 
fundamentally undermine the value of Brazil's comparison of GSM 102 fees with the MPRs as a 
qualitative indication that the fees are inadequate to  cover the long term operating costs and losses of 
the programme.  
14.101  With respect to product coverage, Brazil submits  that, if anything, the MPRs would increase 
if agricultural products were made subject to it.  Th at is because, in Brazil's view, in an agricultural 
transaction, the value of the product sold holds little value to the guarantor (agricultural products are 
normally consumed shortly after sale or may not preser ve).  In contrast, industrial products are more 
durable and offer a better security to the guarantor, should he wish to obtain one.714  We agree.  The 
fact that agricultural products are perishable in our view suggests that agricultural transactions, if 
anything, contain an added element of risk to th e guarantor, as the products sold would hold little 
value on which security may be taken.  As a cons equence, there is in our view no reason why the 
MPRs should be lowered were agricultural  products to fall under its product coverage.  
14.102  With respect to the fact that the Arrangemen t only applies to transactions of two years or 
more, we note Brazil's indication that the MPR formula allows the determination of fees for a shorter period of time, which has allowed Brazil to calculate the MPRs for tenors of less than two years.  But 
in any case, we note that Brazil has included in its comparison the fees for tenors that would be covered by the Arrangement (tenors of 24, 30 and 36 months).  Our conclusion above that GSM 102 
fees are well below the MPRs holds true even wi th respect to only these three tenors, as does our 
conclusion that the difference between the two incr eases significantly as risk in the form of higher 
country risk and longer tenors increases.  
14.103  Thus, in our view, the factual differences between  the product coverage and the coverage in 
term of tenors of GSM 102 guarantees and the OE CD MPRs do not fundamentally undermine the 
value of the comparison performed by Brazil.  We recall that we consider that the MPRs provide an 
indication – on an informed basis – that GSM 102 fees  are insufficient to cover the long term costs 
and losses of the programme because of the signi ficant difference between the GSM 102 fees and the 
MPRs.  Any adjustment to take into considerati on the differences pointed out by the United States 
would not, in our view, lead to a markedly different result.  
                                                     
 
713 See the following table submitted by Brazil in Exhibit Bra-547, p. 15 (the table concerns guarantees 
with annual repayment of principal, Brazil submits a simi lar table with respect to guarantees with semi-annual 
repayment of principal in Exhibit Bra-548):  
 
Average Percentage by which MPR Fees Exceed GSM-102 Rates (Annual Repayment of Principal ) 
USDA Risk 
Level      9 
Months    12 
Months     15 
Months   18 
Months  24 
Months 30 
Months 36  
Months All 
Tenors 
0 19% 23% 22% 23% 27% 27% 30% 24% 
1 20% 26% 25% 27% 33% 35% 40% 29% 
2 24% 32% 31% 34% 43% 46% 54% 38% 
3 65% 68% 69% 76% 99% 110% 130% 88% 
4 79% 93% 95% 104% 135% 150% 177% 119% 
5 101% 122% 124% 136% 173% 192% 225% 153% 
6 138% 175% 179% 194% 240% 264% 306% 216% 
All risk levels 81% 98% 100% 109% 138% 152% 178% 122% 
 
714 Brazil's First Written Submission, paras. 442-443.  WT/DS267/RW 
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  (d) Structure, design and operation of the GSM 102 programme  
(i) Main arguments of the parties  
14.104  Brazil  recalls that the original panel took into c onsideration elements of the structure, design 
and operation of the three programmes at issue in th e original proceeding to conclude that they fell 
within the scope of item (j) of the Illustrative Li st.  For Brazil, a programme that breaks even by 
chance would still not be structured or designed to do  so in the long-term.  Brazil considers that the 
GSM 102 programme is not designed to cover its long-term operating costs and losses.  Brazil 
identifies five elements in this respect.  First , the original panel found it relevant that the CCC 
borrows from the US Treasury and th at access to US Treasury borrowings facilitate the functioning of 
the CCC programmes.  This still holds true.  Second , Brazil considers that the United States has not 
adopted a truly risk-based fee schedule.  It recalls that the original panel relied on a USDA statement 
acknowledging that moving to a truly risk-based syst em would require raising fees to a level that 
"would most likely exceed" the one per cent fee cap imposed by US law on GSM 102 fees.  The United States has not removed the cap.  Third , although the CCC establishes individual risk ratings 
for each approved foreign obli gor, those risk ratings do not affect the GSM 102 fee that is charged.  
Brazil considers that prudent fiscal management co mpels commercial banks to take varying borrower 
risk into account not only via exposure limits, but also through fees.  Fourth , Brazil recalls that GSM 
102 fees are well below the OECD MPRs.  Fifth , the US Government continues to predict, year after 
year, that the programmes will be loss making – that , on one view of the data, the programmes have 
beaten the odds and met their costs and losses does not mean that they are structured and designed to 
do so.
715 
14.105  The United States  submits that the GSM 102 programme is  structured and designed to cover 
its long term operating costs and losses.716 The United States notes that higher premia are now 
assessed in respect of obligors in higher-risk countri es.  Fees increase with e ach of the 6 eligible 
country risk categories, and all countries outside those 6 categories are wholly ineligible.  The United States reclassified into an ineligible risk category a number of countries previously eligible 
under the programmes. Fees also  increase with te nor. Also, the United States increased fees, on 
average, by 46 per cent across all programmes and 23 per cent, on a trade-weighted basis, for the 
GSM 102 programme alone over fiscal year 2004, the last year in which the prior fee schedule exclusively applied. In addition, the CCC ce ased issuing guarantees under the GSM 103 and SCGP 
programmes.
717 Of the three programmes originally exam ined, the GSM 102 programme exhibited the 
lowest risk profile. These changes made to impl ement the DSB recommendations and ruling bolster 
other disciplines already in place.  The United Stat es notes among those the need for foreign banks to 
be approved before a guarantee can be issued in respect of a transaction (this means in effect, that some countries that are listed as potentially elig ible for GSM 102 export credit guarantees are de facto  
ineligible because no banking institution in the c ountry is CCC-approved).  Also, the CCC establishes 
internal bank limits to govern exposure to poten tial defaults by obligor banks in individual 
transactions.
718  In any case, the budget data reflects the profitability of the programme over the last 
14 years, even before the adoption of the recent ch anges in 2005.  The profitability of the programmes 
is neither "against the odds", nor "avoiding losses by good fortune", as Brazil argues.719 
                                                      
715 For Brazil's arguments, see Brazil's First Writte n Submission, paras. 444-446; Brazil's Rebuttal 
Submission, paras. 487-512; Brazil's Opening Statement, paras. 240-255. 
716 See US First Written Submission, paras. 73-80;  US Rebuttal Submission, paras 101-107, US 
Opening Statement, paras. 9. 
717 US First Written Submission, paras. 73-80. 
718 US First Written Submission, paras. 77-78. 
719 US Rebuttal Submission, paras. 101 ff.  WT/DS267/RW  
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  14.106  The United States considers that Brazil's ar gument that the CCC is part of the US 
Government and can borrow from the US Treasury woul d lead to the result that a government agency 
could never satisfy the item (j) test.
720 With respect to the one per cent statutory fee cap, the 
United States submits that the operating assumption of the USDA statement on which Brazil relies was that all of the then-eligible countries would remain  eligible.  Instead, in light of the fact that the 
fee cap has not been repealed, th e CCC eliminated from eligibility 22 countries with respect to which 
participation in the programme might require fees in excess of the statutory maximum.
721 As to 
foreign obligor risk, the United States submits that no WTO rule governs how a government 
programme shall ensure that its premia are adequate  to cover its long-term operating costs and losses.   
(ii) Evaluation by the Panel 
14.107  This dispute concerns a new fee structure for wh ich, by definition, no past performance data 
exists and therefore for which only projections of th e long term net cost of the programme to the US 
Government are available.  Given this, evidence concerning the "structure, operation and design" of 
the programme would seem to be part icularly relevant.  This is cons istent with the approach of the 
original panel, which also took into consideration such prospective elements to determine that the 
programmes at issue in the original dispute were  not designed to meet their long term costs and 
losses.722 
14.108  The original panel considered that:   
"In this dispute, in order objectively to  assess premiums in relation to long-term 
operating costs and losses, we believe it is also  appropriate for us to take into account 
aspects of the structure, design and operation of the measure before us.  We are 
entitled to inquire whether the programme, including in terms of the premiums 
charged, was set up in such a way that the total of all premiums would be likely to 
cover the total of all operating costs a nd losses under the programme.  For example, 
where a programme does not provide for premium rates that are fully reflective of the risks of a particular transaction, this might be one indicator that the programme was 
set up in such a way that its long-term operating costs and losses have to be borne, in 
total or in part, by the government."
723 (footnote omitted) 
14.109   We therefore proceed to examine whether, as Brazil argues, there are elements of the 
structure, design and operation of the GSM 102 progr amme that indicate that it is not designed to 
cover its long term costs and losses. 
14.110  First , we recall that the original panel noted that the CCC has access to funds from the US 
Treasury and benefits from the full faith  and credit of the US Government.724  This is still the case, 
and were the GSM 102 programme to incur massive  losses, it would have access to additional funds 
from the US Treasury.  
14.111  Second , the original panel found that the fees ch arged by the CCC were not "risk based".  
This was one of the elements that led to the pane l's conclusion that the programmes were not designed 
                                                      
720 US Rebuttal Submission, para. 104. 
721 US Rebuttal Submission, para. 106. 
722 The panel considered that "[i]n terms of the structure, design and operation of the export credit 
guarantee programmes before us, there are several elements  which lead us to believe that the programmes are 
not designed to avoid a net cost to government."  Panel Report, US – Upland Cotton , para. 7.857.  
723 Panel Report, US – Upland Cotton , para. 7.805. 
724 Panel Report, US – Upland Cotton , para. 7.858.  WT/DS267/RW 
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  to cover their long term costs and losses.725 The original panel noted the following with respect to the 
fees not being affected by either country risk or foreign obligor risk: 
"... the premiums are not risk-based726, either with respect to country risk or the 
creditworthiness of the borrower in an individual transaction.727  All countries eligible 
for any of the CCC export credit guarantee pr ogrammes are categorized according to 
risk.  CCC categorization of countries is based on a United States government 
internal risk classification system, wh ich, according to the United States, 'is 
administratively controlled and may not be released outside of the US Government'.
728  However, the United States has c onfirmed that "a country's risk 
classification has no impact on the premiums payable under the United States export 
credit guarantee programmes".729  Rather than the premiums, it is the United States 
government subsidy estimates and re-est imates for the export credit guarantee 
programmes that are determined in large part by the obligor's sovereign or non-
sovereign country risk grade."730 731   
14.112  The panel also took into consideration the fact that the statute governing the CCC export 
credit guarantee programmes did not impose any limitati on on the amount of guarantees that could be 
provided annually to any high risk country (in the aggregate or individually) or to high risks transactions.  It concluded that the "CCC is, theref ore, able to provide large amounts of guarantees to 
high-risk countries with a resulting high rate of default".
732 
14.113  Brazil notes that GSM 102 fees still do not take in to consideration foreign obligor risk at 
all.733  Although the CCC establishes individual risk ratings for each foreign obligor approved for 
participation in the GSM 102 programme, those risk  ratings do not affect the GSM 102 fees.  Brazil 
notes that none of the CCC-approved foreign obligors ba nks enjoy a credit rating superior to that of its 
sovereign.734  In addition, Brazil argues that prudent fi scal management compels commercial banks to 
take varying borrower risk into account not only via  exposure limits, but also through fees, and that 
                                                      
725 See Panel Report, US – Upland Cotton , paras 7.861-7.866. 
726 [Original footnote:]  The US Government acknowledges this.  See Exhibit US-150 and 
United States' Response to Panel Question No. 86.  
727 [Original footnote:]  e.g. United States' response to Panel Question No. 85.  The United States has 
confirmed to us that under the SCGP "CCC does no t determine the creditworth iness of participating 
importers[...]".  Rather, according to the United States, the risk sharing between the CCC and the exporter is 
intended to ensure that due diligence is performed. 
728 [Original footnote:]  United States' response to Panel Question No. 86. According to 7 USC 5622, 
the CCC shall not make credit guarantees available in connection with sales of agricultural commodities to any country that the Secretary determines  cannot adequately service the debt  associated with such sale.   
729 [Original footnote:]  See e.g. Exhibit US-150 and United States ' response to Panel Question No. 86.  
See also, "US General Accounting Of fice, Report to the Ranking Minor ity Member, Committee on Agriculture, 
Nutrition and Forestry, US Senate, Former Soviet Union, Creditworthiness of Successor States and US Export 
Credit Guarantees , GAO/GGD-95-60", February 1995, pp. 135-136, reproduced in Exhibit BRA-181:  
"Although GSM 102 recipient countries vary significantly fr om one another in terms of their risk of defaulting 
on GSM 102 loans, CCC does not adjust the fee that it ch arges for credit guarantees to take account of country 
risk. [...] CCC fees that included a risk-based component might not cover all of the country risk, but they could 
help to offset the cost of loan defaults."   In Exhibit BRA-153 , Audit Report of CCC for FY 2000 , June 2001, 
USDA's Office of the Inspector Gene ral stated that fees for the GSM 102 and GSM 103 programmes had not 
been changed in 7 years, and as a result "may not be reflecting current costs."  Without accounting for country 
risk in the fees charged, the CCC foregoes an opportunity to cover the cost of loan defaults.   
730 [Original footnote:]  e.g. Exhibit US-150.   
731 Panel Report, US – Upland Cotton , para. 7.861. 
732 Panel Report, US – Upland Cotton , paras. 7.862-7.863. 
733 Brazil's Rebuttal Submission, paras. 496-498. 
734 Brazil's First Written Submission, para. 416. WT/DS267/RW  
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  the GSM 102 programme's failure to adjust its guara ntee fees to take account of material risks is not 
cured by diversifying its portfo lio of inaccurately-priced guarantees.
735  
14.114  The United States argues that the new fee struct ure is risk-based. With respect to foreign 
obligor risk, the United States considers that th e changes made to the GSM 102 programme bolster 
other disciplines already in place.  The CCC conducts an independent analysis of each foreign bank in 
order to establish the risk rating of each foreign ba nk obligor.  The United States argues that Brazil's 
assertion that because GSM 102 fees do not vary accordi ng to the particular foreign bank obligor, the 
CCC "ignores" foreign obligor risk is inaccurate and th at it is similarly inaccurate to assert that the 
CCC assumes that foreign banks have a credit rating that is identical to that of the sovereign: to the 
contrary, the CCC establishes an exposure limit with r espect to each bank. Once such limit is attained, 
no further guarantees of obligatio ns of that bank are issued.736 The United States submits that a 
Member may choose to control exposure to defaults by  foreign banks (and therefore, costs) by either 
establishing fees that vary with foreign obligor risk  or, as the CCC does, by establishing internal bank 
limits. 
14.115  We see no reason to depart from the reasoning a dopted by the original panel, and find that 
GSM 102 fees are not risk-based insofar as they do not take into account one of the main elements of 
risk associated with the guarantees, the risk of defau lt that is specific to an individual foreign obligor.  
The impact of this is not insignificant – Brazil poi nts out that over 90 per cent of GSM 102 guarantees 
are issued with respect to non-sovereign foreign obligors.737  The fact that the United States sets bank 
limits with respect to each foreign bank obligor do es not, in our view, alter the fact that foreign 
obligor risk is not reflected in GSM 102 fees.  
14.116   Third , Brazil notes that the one per cent fee cap has not been repealed.  Brazil refers the 
Panel to a statement of the USDA, in which th e latter acknowledged that moving to a risk-based 
system would raise fees to a level that  "would most likely exceed 1 per cent...".738  The statement was 
taken into consideration by the original panel.   The one per cent fee cap applied to GSM 102 and 
SCGP fees. 
14.117  The United States refutes Brazil's argument by noting that the USDA statement in question 
was made before measures were taken to implem ent the DSB recommendations and rulings.  Under 
the new fee structure, fees increas e with country risk and with tenor (length of the loan), and all 
countries outside the eligible risk categories are w holly ineligible under the programme, a step aimed 
at reducing the risk exposure of the programmes.739 740 The United States also brings to our attention 
                                                      
735 Brazil's Rebuttal Submission, para. 498. 
736 US First Written Submission, para. 79. 
737 Brazil's First Written Submission, para. 416, Exhibits Bra-541 and Bra-542. 
738 Brazil's First Written Submission, para. 418, quoting Panel Report, US – Upland Cotton , para. 7.865 
and Exhibit Bra-543 (Annual Review of Fees for USDA Credit Programs, 25 March 2003, p. 4 (Exhibit US-150 
in the original proceeding)). 
739 Fees continue to vary according to the duration of the underlying loan (30 days to 3 years) and the 
frequency of the repayment of principal (annual or semi-annual) as they did under the previous fee structure. 
740 The Panel notes that, in their comments on the interim report of the panel, both parties indicated that 
there are 6, rather than 7 eligible country risk categories under the GSM 102 programme.  The parties have, in 
their submissions, been inconsistent in their designation of the number of eligible country risk categories.  
Compare, for instance, US First Written Submission, para. 74 to US Response to Panel Question 113; see also 
Brazil's First Written Submission, para. 334.  The Panel co nducts its analysis of GSM 102 fees on the basis of 
its understanding, supported by the evidence submitted by the parties, that countries in categories 0-6 are 
eligible under the GSM 102 programme.  WT/DS267/RW 
 Page 175 
 
 
  the fact that a number of high-risk countries have been reclassified into an  ineligible category (in 
addition, some countries are de facto  ineligible as no bank in the country is approved).741  
14.118  Brazil argues in response that the changes th e United States made had no significant impact 
on the profitability of the programme.  First , Brazil argues that discontinuing applications for GSM 
103 and SCGP could not have had a significant im pact on the riskiness of the CCC's guarantees 
portfolio as GSM 102 export credit guarantees ma de up 93 per cent of the CCC guarantees 
portfolio;742 second , the fact that 19 countries are now ine ligible does not significantly impact the 
riskiness of the portfolio. Brazil points out that, as of the implementation deadline, no GSM 102 guarantees were outstanding for 14 of those 19 countries,
743 and that, for 4 of the 5 remaining 
countries, GSM 102 guarantees outstanding on the same date amounted to less than one half of one 
per cent of total outstanding GSM 102 guarantees.  Of the countries that had GSM 102 guarantees 
outstanding, only Algeria accounted for outstanding guarantees of any significance.744 745 
14.119  We note that, of relevance to this issue,  th e United States has indicated that the fees were 
increased, on average, by 46 per cent for all export guarantee programmes, and by 23 per cent for 
GSM 102 export credit guarantees (on a weighted-average  basis) compared to the last year under the 
prior fee schedule.  Further, the United States e xplains that the GSM 102 programme was the most 
profitable of the three programmes ex amined by the original panel.  
14.120  The original panel did not quan tify the margin by which the fees for the programmes at issue 
fell below the level that would have been suffici ent to cover the long term operating costs and losses 
of the programmes.  We are therefore unable to assess whether a 46 per cent average fee increase 
(23 per cent trade-weighted increase) is sufficient to ensure that the GSM 102 programme is not 
provided at a net cost to the US Government.746  We cannot rule out that changes made by the US 
Government to the programmes may affect the USDA 's evaluation of whether the one per cent fee cap 
still remains a constraint on the adoption of risk-b ased fees.  Yet, we consider that the evidence 
submitted by Brazil concerning outst anding guarantees with respect to countries that have now been 
made ineligible suggests that the factual context in which the USDA's statement was made has not 
been altered fundamentally.  In this  context, we regard the non-repeal  of the one per cent fee cap as an 
indication that the fees charged for GSM 102 expo rt credit guarantees are still not "risk-based". 
                                                      
741 US First Written Submission, paras. 75, 77. 
742 Brazil's Rebuttal Submission, para. 15, Exhibit Bra-586 (Commodity Credit Corporation, Guarantee 
Loan Program Summary for FAS as of  30 June 2005). 
743 See Brazil's Opening Statement, para. 171 and Exhibit Bra-586 (Commodity Credit Corporation, 
Guarantee Loan Program Summary for FAS as of  30 June 2005).  See also Brazil's Rebuttal Submission, 
para 17. 
744 See Brazil's Opening Statement, para. 17. Exhibit Bra-586 indicates outstanding guarantees for 
Algeria totalling US$584 million over a total of US$7.9 billion in outstanding guarantees (7.38 per cent of that 
amount).  
745 The Panel notes that, of the countries that were ineligible on 1 July 2005, only Algeria (7.4 per cent) 
and Pakistan (3.9 per cent) had significant shares of GSM 102 guarantees outstanding on 1 July 2005; all others 
had less than 0.3 per cent of the total outstanding GSM 102 guarantees and together amounted to just over 0.8 per cent of total outstanding guarantees.  Exhibit Bra-58 6.  Pakistan was later returned to eligibility. See US 
First Written Submission, footnote 15.   The divergence in the number of countr ies referred to by the parties is 
explained by the fact that some c ountries became ineligible after 1 July  2005 and others were returned to 
eligibility after that date. 
746 We note however that Brazil submits that multiplying the figures in the "premiums collected" 
column in Exhibit Bra-613 by 1.46 per cent to reflect the average fee increase for all programmes would still 
result in a net loss of US$574 million (US$632 million if multiplied by 1.23 per cent to reflect the 23 per cent 
trade-weighted increase in GS M 102 fees calculated by the United States ).  Brazil's exercise of course assumes 
that the Panel would consider that the cash-basis accoun ting provides the relevant assessment of the long-term 
cost of the programme to the US Gove rnment in the 1992-2005 period.  In any case our analysis only concerns 
GSM 102 fees, and not the fees applicable under the th ree programmes at issue in  the original proceeding. WT/DS267/RW  
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  14.121  Our assessment of the effects of the remaining presence of the one per cent fee cap is 
confirmed by the evidence presented by Brazil with respect to the insufficient "scaling" of GSM 102 
fees with the risks that it does take into consideration – country risk and tenor. 
14.122  Brazil argues that the one per cent fee cap h as prevented the United States from implementing 
a fee structure that is truly risk-based:  for Brazil,  "where no fee cap stands in the way of taking 
relevant risks more fully into account, the upward sl ope of the fee curve varies dramatically from the 
insignificant scaling that can be observed with respect to GSM 102 fees".
747  Brazil refers the Panel to 
the rate of increase, with risk, of fees charged by the ExIm Bank (the US export credit agency) for two 
of its products, the Letter of Credit Insurance (LCI) and the Medium-Term Export Credit Insurance 
(MTI).748 
14.123  The United States rejects Brazil's arguments in this respect.749  It considers that the fees are 
sufficiently scaled to take account of country risk, that the SCM Agreement  imposes no standards in 
this respect, and that, in any case, the only issue unde r item (j) of the Illustrative List is whether the 
programme's "structure, design and operation" – including any scaling – when taken as a whole 
indicate that the premia are inadequate to c over the long-term costs and losses of the program".750  
14.124  In addition, the United States objects to Brazil's comparison of GSM 102 fees with those 
charged by the ExIm Bank.  The United States not es that the MTI is not available for agricultural 
                                                      
747 Brazil's First Written Submission, paras. 419 and 446 and Brazil's Rebuttal Submission, para. 495:  
 
"...despite all the pomp attached by the United States to the adoption of 'a risk-based fee 
schedule,' calling something 'risk-based' does not make it truly reflective of the risks involved.  Brazil recalls that the statutor ily-imposed one-per cent fee cap  imposed on GSM 102 does not 
permit the program to set fees that take acco unt of all the risks faced by the CCC in issuing 
GSM 102 ECGs.  USDA has acknowledged that moving to a truly risk-based system would require raising fees to a level that 'would mo st likely exceed 1 per cent ….'   Despite the 
original panel's conclusion that the fee cap was significant in preventing the United States 
from respecting its WTO obligations, the United States has not removed the cap..."  
In the footnotes of this paragraph of its Rebuttal Submission, Brazil refers to its argument that the 
scaling of GSM 102 fees in terms of country risk and tenor  is insufficient when compar ed to the rate of increase 
of ExIm Bank fees under the LCI and MTI.  See also Brazil's Response to Panel Question 43, para. 73, where 
Brazil makes a similar argument in the context of its di scussion of the OECD MPRs.  We therefore examine the 
parties' arguments concerning Brazil's comparison of GSM 102 and ExIm Bank LCI and MTI fees in this 
section of our findings, but note that they were made primarily in the context of addressing Brazil's arguments 
that GSM 102 fees confer a bene fit because they are provided for a below-market fee.    
748 Brazil compares GSM 102 fees to those of the LCI fo r tenors of up to 360 days and to those of the 
MTI for tenors exceeding 360 days.  Unlike GSM 102, ExIm Bank has no single product with tenors from 
30 days to three years.  See Brazil's First Written Subm ission, para. 384 and Exhibits Bra-530, pp. 54 and 59. 
The LCI provides protection against default on irrevocable letters of credit issued by foreign financial 
institutions. For agricultural commodities, cover is normally limited to 180 days but may be extended to 
360 days on a case-by-case basis. 98 per cent of the principal and a portion of the interest are covered by the insurance for exports of agricultural commodities. The MT I covers transactions involving obligations from a 
foreign bank, and protects the insured against nonpayment due to the foreig n bank’s failure to pay because of 
unforeseen commercial or political reasons. The MTI does  not cover transactions for exports of agricultural 
products. It provides cover for 100 per cent of the transaction amount.  Brazil indicates that MTI cover is 
available for repayment terms between 1 and 5 years, exceptionally 7 years.  See Brazil's Comments on US 
Reponses to Panel Question 98 and Exhibit Bra-534. 
749 Again, the United States makes these specific arguments in the context of answering Brazil's 
arguments that GSM 102 export credit gu arantees confer a benefit because th ey are provided for a below-market 
fee; but it is clear from th e US Response to Panel Question 99 that th e United States considers these arguments 
to be relevant to Brazil's item (j) arguments. 
750 US Response to Panel Question 99, para. 234.  WT/DS267/RW 
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  products and that MTI fees are subject to the OE CD Arrangement's MPRs, which cover transactions 
of two years or more, whereas hundreds of GSM 10 2 transactions totalling hundreds of millions of 
dollars are for terms of less than 2 years.751  The United States also identifies a number of other 
differences between GSM 102 guarantees and the ExIm  Bank products, notably in terms of interest 
cover752 and principal coverage.  Pr incipal coverage is 100 per cent under the MTI, compared to 
98 per cent for a GSM 102 guarantee.  Further, th e ExIm Bank allows, under the LCI product, the 
insured to arrange recourse or "pass back" to a third party of all or any part of any uninsured amount.  
The United States submits that this is not permitted under the GSM 102 programme: 
"Upon default the claimant must subrogate to  CCC the claim to the entire amount in 
default, not just the guaranteed portion.  CCC then has the right to recover from the 
obligor all moneys in default.  Unlike the LCI product, the holder of the GSM-102 
guarantee is therefore unable to sell the unguaranteed portion of the obligation to another party to insulate himself from any exposure to principal default.  Under the 
MTI product, the holder is similarly insula ted from any risk because of the full 100 
percent coverage.  Inferior coverage of  principal relative to the Ex-Im products 
renders the GSM-102 guarantee less desirable,  which is reflected in the price parties 
are willing to pay.  Brazil has also not accounted for the difference in 'pass back' 
policies of the programs in its comparisons."
753 
14.125  We agree with Brazil that a significant difference in the rate of increase of fees between ExIm 
Bank's products and the CCC's GSM 102 may indicate that the latter do not sufficiently increase with risk and, as a consequence, are not truly "risk-based".   The fact that ExIm Bank's MTI is not available 
for agricultural products does not, in our view, fundamentally undermine the value of the comparison, 
nor does the fact that the financial products are not  identical, provided that adjustments are made to 
render them comparable.  Taking into account the c oncerns of the United States that the interest 
coverage of the products differs, Brazil estimat es that GSM 102 fees should be adjusted by 
approximately 5 per cent to take  this difference into account.
754  We consider that Brazil's adjustment 
is appropriate.755  With respect to principal coverage, we not e that Brazil was able to use a variable on 
                                                      
751 US Response to Panel Question 98, para. 223. 
752 Under ExIm Bank's MTI product, the obligor is required to use a form of promissory note 
promulgated by the Bank.  The MTI covers "100 per cent of the rate provided in the note".  See Exhibit Bra-535. Under the LCI product, "the insured interest rate is generally prime rate minus 0.5 per cent or the rate 
stated in the credit agreemen t, whichever is less".  The "prime rate" refers to the prime rate published in the 
Wall Street Journal, under the table "Money Rates".  Se e Exhibit Bra-531.  In contrast, GSM 102 guarantees 
cover "eligible interest", which is the lesser of the intere st rate specified between the US bank (or exporter) and 
the foreign bank or 55 per cent of th e average investment rate of the most  recent Treasury 26-we ek bill auction. 
Exhibit US-153.  According to the United States, the inte rest cover of both LCI and MTI greatly exceeds that of 
the GSM 102 guarantee.  The United States provides a comparison of the GSM 102 interest cover (55 per cent 
of the applicable 26-week T-bill rate with the LCI intere st cover (Wall Street prime rate minus 0.5 per cent), and 
concludes that LCI interest cover was, on 1 March 2007, 491 basis points higher than CCC interest coverage 
(7.75 per cent vs. 2.839 per cent) (the difference varied between 374 and 499 basis points since 1 July 2005). 
The United States also notes that interest cover for the LCI is less than under the MTI).  US Response to Panel 
Question 98, paras. 226-231 and Exhibit US-155. 
753 US Response to Panel Question 98, para. 232.  
754 See Brazil's Comments on the US Response to Panel Question 98, paras. 243-267. 
755 Brazil relies on the maximum possible difference in interest coverage between GSM 102 and ExIm 
Bank guarantees – i.e. as alleged by the United States, a difference of 5 per cent (7.8 per cent minus 2.8 per 
cent).  Brazil however submits evidence which satisfies us that proceeding on this basis is conservative and favourable to the United States as the 7.8 per cent – whic h represents the LCI interest coverage cap, and which 
Brazil applies for both LCI and MTI fees – in fact overest imates the actual interest coverage in recent years.  
Brazil assumes that in case of default, the CCC would pa y 100.8 per cent of the remaining principal (98 per cent 
towards principal and 2.8 per cent towards interest) and that the ExIm Bank would, in case of default, pay 
105.8 per cent of the remaining principal (98 per cent towards principal, and 7.8 per cent towards interest).  WT/DS267/RW  
Page 178  
 
  the ExIm Bank's website fee calculator to calculate MTI fees on the basis of a principal coverage of 
98 per cent.  With respect to the possibility to arrange recourse, or "pass-back" under the ExIm Bank 
LCI product, Brazil submits that the United States' contention that the holder of a GSM 102 export credit guarantee is not "permitted" to insure the rema ining 2 per cent of principal not covered by the 
guarantee is misleading and incorrect insofar as "the United States implies that although a GSM 102 
ECG only covers 98% of principal, in the event of  default and payment by CCC to the holder of the 
ECG of 98% of principal, the CCC enjoys a clai m on 100 per cent of any monies recovered from the 
foreign obligor".
756 Brazil submits that, under section 1493.130(c) of the GSM 102 Regulations, the 
guarantee holder's claim to the 2 per cent of  debt not covered by the guarantee ranks pari passu  with 
the CCC's own claim to recover the 98 per cent when the CCC pursues recovery. In light of this fact, 
the Panel does not consider that the difference in  principal coverage between GSM 102 export credit 
guarantees and the LCI would materially aff ect the fee comparison performed by Brazil. 
14.126  In any case, the Panel recalls that it is not comp aring the fees charged, on the one hand, by the 
CCC for the issuance of GSM 102 guarantees and, on the other hand, by the ExIm Bank for the 
issuance of LCIs and MTIs.  Rather, the Panel is cons idering the rate of increase (or scaling) of fees 
with increased risk, as an element to assess whether th e one per cent fee cap constrains the adoption of 
a risk-based fee schedule.  The fa ct that the financial products bei ng compared are not identical (for 
instance, in terms of product coverage) does no t fundamentally undermine the comparison of the 
"scaling" of their fees. 757 
14.127  Brazil has in our view convincingly demonstr ated that GSM 102 fees only minimally respond 
to increased country risk and increased risk in the form of longer tenors, as compared to the fees 
charged by the ExIm Bank for its LCI and MTI products.758  The Panel notes, in particular, that while 
the fees for the lowest country risk categories are relatively si milar between GSM 102 and the LCI 
                                                                                                                                                                     
Brazil notes that this assumes that interest payments  by the borrower on the lo an are due annually – an 
assumption that is favourable to the United States, sinc e if interest is due on a shorter interval, the dollar 
magnitude of the difference in interest coverage will decrease (less interest will be due at the time of default).  
See Brazil's Comments on the US Response to Panel Ques tion 98, in particular footnote 409 thereof.  The 
amended results of Brazil's fee comparison are re ported in Exhibits Bra-693 and Bra-694.    
756 Brazil's Comments on US Response to Panel Question 98, para. 272. 
757 Further, we recall our finding above (see the Pane l's discussion of Brazil's arguments concerning the 
OECD MPRs, supra , para. 14.101) that, if anything, fees should increase where risk in respect of agricultural 
products is covered.  Likewise, the Panel does not regard differences in terms of the tenors of the financial 
products compared as material.  Brazil has established that  the "scaling" of GSM 102 fees is greatly inferior to 
that under either LCI or MTI fees.   
758 Tables in Figure 32, para. 400 of Brazil's First Written Submission.  With respect to the rate of 
increase with country risk, see also the following ta ble submitted by Brazil and which reports the average 
percentage by which ExIm Bank fees exceed GSM 102 fees: 
 
  GSM 102 annual  
repayment of the principal GSM 102 semi-annual  
repayment of the principal 
Risk Level 6 206% 175% 
Risk Level 5 145% 125% 
Risk Level 4 109% 94% 
Risk Level 3 76% 67% 
Risk Level 2 30% 29% 
Risk Level 1 28% 27% 
Risk Level 0 19% 20% 
Table 31 of Brazil's First Written Submission, para. 396.  The table does not adjust GSM 102 fees for 
the difference in interest coverage but, as indicated above, we do not consider that an adjustment of 
approximately 5 per cent would materially affect the comparison of the rates of increase of the fees.  WT/DS267/RW 
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  and MTI, there is a sharp difference between the f ees charged by the ExIm Bank and the CCC for the 
highest risk categories.759 
14.128  The significant difference between the rates of  increase for, on the one hand, GSM 102 fees 
and, on the other hand, the ExIm Bank's LCI and MTI products suggests that the 1 per cent fee cap 
imposed by US law on GSM 102 fees does indeed pr event the adoption of a truly risk-based fee 
structure by the CCC.760 
14.129  Further, we note that, in all cases, GSM 102 fees vary by, at most, 100 per cent between the 
lowest and highest country risk category, fo r identical tenors and repayment frequencies.761  In our 
view, an increase in fees of, at most, 100 per cent s uggests that fees insufficiently take account of this 
factor.  We recall that the countries placed in risk category 0 will by definition present a very low 
(even virtually inexistent) risk of  default and that countries in the highest risk categories present a 
high risk of default.  Finally, we recall our finding above concerning the increasing difference 
between GSM 102 fees and the OECD MPRs as risk increases.762  These additional elements lend 
further support to our c onclusion that the rate of increase of GSM 102 fees is insufficient to 
meaningfully account for increased risks in the form  of higher country risk and longer tenors and that 
the one per cent fee cap prevents the adoption, by the CCC, of risk-based fees  for the GSM 102 
programme. 
                                                      
759 For instance, according to Exhi bit Bra-548, the respective fees for GSM 102 and for ExIm Bank's 
LCI (with annual repayment of principal) for a country falling within each agency's risk category 6 are, for a 
tenor of 12 months: respectively, 0.612 per cent (GSM 102) and 2.410 per cent (ExIm Bank LCI); for a tenor of 
36 months: 1.0 per cent (GSM 102), 4.325 per cent (ExIm Bank MTI).  In contrast, the fees for a country falling 
under each agency's risk category 2 ar e: 12 months tenor: 0.373 per cent (G SM 102), 0.570 per cent (ExIm Bank 
LCI); for 36 months: 0.637 per cent (GSM 102), 1.060 per cent (ExIm Bank MTI).  The Panel notes that the 
ExIm Bank and the CCC's risk categories do not perfectly  correspond.  See Brazil's First Written Submission, 
footnote 508: 
"GSM 102 risk categories correspond with  ExIm Bank risk categories as follows: 
- Countries rated by CCC in GSM 102 risk category 6 have an average ExIm Bank risk category of 5.64; 
- Countries rated by CCC in GSM 102 risk category 5 have an average ExIm Bank risk 
category of 4.78; - Countries rated by CCC in GSM 102 risk category 4 have an average ExIm Bank risk 
category of 4.13; 
- Countries rated by CCC in GSM 102 risk category 3 have an average ExIm Bank risk 
category of 3.33; 
- Countries rated by CCC in GSM 102 risk category 2 have an average ExIm Bank risk category of 2.00; 
- Countries rated by CCC in GSM 102 risk category 1 have an average ExIm Bank risk 
category of 1.83; - Countries rated by CCC in GSM 102 risk category 0 have an average ExIm Bank risk 
category of 1.33.   
Thus, GSM 102 fees for GSM 102 risk categories 2, 3, 4, 5 and 6 are compared, respectively, to ExIm Bank fees for ExIm Bank risk categories 2, 3, 4, 5 and 6.  GSM 102 fees for 
GSM 102 risk categories 0 and 1 are compared, respectively, to ExIm Bank fees for ExIm 
Bank risk categories 1 and 2." 
760 Again, applying an adjustment of approximately 5 per cent to account for the differences between 
the two products would not, in our view, affect meanin gfully the overwhelming diff erence in the manner in 
which the increased riskiness of guarant ees associated with higher country ri sk and longer tenors is taken into 
consideration by LCI/MTI and GSM 102 fees. 
761 US Response to Panel Question 99, para. 235: "under the current fee schedule, the difference in 
premia for the same tenor between the least risky countries  and the most risky countries is in all cases between 
81.5 per cent and 100.6 per cent"; see also the GSM 102 Fee Rate Schedule, Exhibit Bra-505. 
762 See supra , para. 14.99. WT/DS267/RW  
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  14.130  Brazil also relies, in support of its arguments  that the GSM 102 programme is not designed to 
cover its long term operating costs and losses, on the fact that the CCC continues to project that the 
programme will be run at a net cost to the US Gove rnment in the long term and on the fact that GSM 
102 fees are well below the OECD MPRs.  The Panel notes that it has already found these elements to 
provide an indication that GSM 102 export credit guar antees are provided at premium rates which are 
inadequate to cover the long-term operati ng costs and losses of the GSM 102 programme. 
14.131  In light of these considerations – the CCC's access to funds from th e US Treasury, which 
facilitates the functioning of the programme, the fact that GSM 102 fees do not vary with foreign obligor risk, the fact that the one per cent fee cap has not been repealed and in our view prevents the 
adoption of risk-based fees (notably  due to the insufficient "scaling" of GSM 102 fees) – we conclude 
that the GSM 102 programme is not designed to cover its long term operating costs and losses.  
(e) Overall conclusion of the Panel's analysis under item (j) of the Illustrative List 
14.132  We recall that we have conducte d our analysis under the general rules of the burden of proof, 
i.e. we have assumed that it was for Brazil to  establish that GSM 102 export credit guarantees 
constitute export subsidies because they fall within  the terms of item (j) of the Illustrative List.
763 
14.133  We find that Brazil has met its burden of proof in  this respect and that it has established that 
the GSM 102 export credit guarantee programme constitutes an "export subsidy" because it is 
provided against premiums which are inadequate to cover its long term operating costs and losses 
under the terms of item (j) of the Illustrative List.  We  reach this conclusion on the basis of the totality 
of the evidence submitted by Brazil in this respect.  We recall that we have taken into consideration 
the following elements:  
(a) The US Government continues to project that new GSM 102 export 
credit guarantees issued under the new fee schedule will be provided at a net cost to the Government; 
(b) GSM 102 fees are well below the OECD MPRs, which we consider 
to provide an informed appraisal of the level of fees necessary to 
cover the long-term operating costs and losses of an export credit 
guarantee programme;  
(c) Elements of the structure, design and operation of the GSM 102 
programme indicate that the programme is not designed to cover the long term operating costs and losses of that programme.   
14.134  On the basis of this evidence, taken as a whol e, we find that Brazil has established that GSM 
102 export credit guarantees  constitute per se  export subsidies within the m eaning of Article 3.1(a) of 
the SCM Agreement  because they are provided as part of a programme that falls within the scope of 
item (j) of the Illustrative List.  Relying on the defin ition of "export subsidy" in Article 3.1(a) of the 
SCM Agreement as context, we conclude that GSM 102 export credit guarantees are "export 
subsidies" within the meaning of Article 10.1 of the Agreement on Agriculture . 
14.135  We recall that we consider that the two le gal bases relied upon by Brazil in support of its 
argument that GSM 102 export credit guarantees are "export subsidies" under the terms of Article 3.1(a) of the SCM Agreement  are not separate claims, but me re separate arguments in support 
of that contention.  We do not consider it necess ary to examine whether, in addition to constituting 
export subsidies because they fall within the scope of  item (j) of the Illustrative List, these guarantees 
                                                     
 
763 See supra , para. 14.47.  WT/DS267/RW 
 Page 181 
 
 
  also meet the definitional elements of an e xport subsidy under Articles 1.1 and 3.1(a) of the SCM 
Agreement .  In any case, we consider that our findings w ith respect to item (j) of the Illustrative List 
suffice to resolve the matter between the parties.764     
5. Whether the United States has applied GSM 102 guarantees in a manner that results in 
circumvention of its export subsidy commitments under the Agreement on Agriculture  
(a) Introduction 
14.136  Having concluded that GSM 102 export credit guarantees provide export subsidies under the 
terms of Article 10.1 of the Agreement on Agriculture , we must now determine whether the United 
States has, subsequent to 1 July 2005, applied such  export subsidies in a manner which has resulted in 
circumvention of its export subsidy commitments.765  
14.137  The elements necessary to establis h that the export subsidies resulted in the circumvention of 
the United States' export subsidy commitments vary  depending on whether scheduled or unscheduled 
products are at issue. For unscheduled products, "c ircumvention" of the United States' export subsidy 
commitments will occur if any export subsidies (in the form of GSM 102 export credit guarantees) are 
provided in respect of any quantity of exports of the product in question.766  For scheduled products, 
"circumvention" will occur if the United States provides export subsidies  to volumes of exports of the 
product at issue in excess  of its "quantity" reduction commitm ents or of its "budgetary outlay" 
reduction commitments.767 
14.138  Brazil submits evidence concerning the quantity  of exports of certain products that benefited 
from export subsidies in the form of GSM 102 export credit guarantees since 1 July 2005.  We examine whether this evidence suffices  to establish Brazil's claims of circumvention below, first with 
respect to unscheduled products, and in a sec ond time, with respect to scheduled products.  
(b) Unscheduled products 
14.139  Brazil submits evidence to the effect that the CCC has, subsequent to 1 July 2005, provided 
GSM 102 guarantees to support the export of the following unscheduled products:
768  
(i) between 1 July and 30 September 2005:769 cotton, oilseeds (including 
soybeans/soybean meal), protein meals, fr esh vegetables, hides/skins and  tallow.770 
                                                      
764 We note that in the original proceeding the Appellate Body rej ected a claim by Brazil that the 
original panel had improperly exercised judicial economy in  refusing to make additional factual findings under 
Articles 1 and 3 of the SCM Agreement .  See Appellate Body Report, US – Upland Cotton , paras. 726-733. 
765 Given our finding that Brazil has established that GSM 102 export credit guarantees constitute 
export subsidies under Article 10.1 of the Agreement on Agriculture , we need not conduct the analysis that 
would normally follow from the partial reversal of  the burden of proof under Article 10.3 of the Agreement on 
Agriculture .  See supra , para. 14.47.  
766 See Appellate Body Report, US – FSC , para. 150.  See also the ending clause of Article 3.3 of the 
Agreement on Agriculture : "... a Member shall not provide export su bsidies ...  in respect of any agricultural 
product not specified in [Section II of Part IV]  of its Schedule." 
767 This follows from the fact that a Member's export subsidy reduction commitments include both a 
volume ("quantity") and a financial ("budgetary outlay") component. See Appellate Body Report, EC – Export 
Subsidies on Sugar , para. 200 and the text of Article 3.3, which provides that "... a Member shall not provide 
export subsidies ... in respect of the agri cultural products or groups of products  specified in Section II of Part IV 
of its Schedule in excess of the budgetary outlay and quantity commitment levels specified therein." 
768 See Brazil's First Written Submission, paras. 450 ff. WT/DS267/RW  
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  (ii) in FY 2006 (1 October 2005-30 September 2006): cotton, oilseeds, 
soybeans/soybean meal, protein meals, hi des/skins,  tallow and corn products.
771  
14.140  Given that the United has made no specific export subsidy reduction  commitments for these 
products, the United States has committed itself to providing no export subsidies on the export of 
these products (Article 3.3. of the Agreement on Agriculture ).  Thus, we find, on the basis of the 
evidence submitted by Brazil, that the United States h as after 1 July 2005, appl ied export subsidies in 
the form of GSM 102 export credit guarantees in a manner which resulted in circumvention of its export subsidy commitments under the Agreement on Agricultur e.  
(c) Scheduled products  
14.141  With respect to scheduled products, Braz il's claims under Article 10.1 of the Agreement on 
Agriculture  concern exports of three products – rice, pig meat and poultry meat.  The subsidy 
reduction commitments of the United States for these products are as follows: 
Agricultural product Final Commitments 
 Outlays (US$) Quantity (MT) 
Rice 2,368,925 38,544 
Pig meat 497,055 395 
Poultry meat 14,554,827 27,994 
(Source: United States Schedule XX, Part IV, Section II) 
14.142  We recall that we have rejected the US arguments that Brazil's claims in respect of pig meat 
and poultry meat are not properly before us.772 
14.143  Brazil determines the quantity of export of each of these three products as follows: it takes the 
value of GSM 102 exporter applications received  for each product in the period concerned (July-
September 2005 and FY 2006).  It then divides that amount by the average US export price for the commodity in question for FY 2006 (US$/metric ton)
773 and thereby obtains the volume, in metric 
tons, of exports of the product in question in the period concerned.  
                                                                                                                                                                     
769 I.e. the portion of FY 2005 running from 1 July 2 005 –  GSM 102 export cred it guarantee activity is 
tracked on the basis of a fiscal year running from 1 October to 30 September (FY 2005 ran from 1 October 2004 to 30 September 2005; FY 2006 ran from 1 October 2005 to 30 September 2006). 
770 Compare the summaries of export credit activity as of July 2005 (Exhibit Bra-551) and for the 
whole of FY 2005 (Exhibit Bra-511).  We note that Brazil also submitted eviden ce to the effect that the 
United States also provided GSM 102 export credit guarantees to exports of lysine and wood products in the 
same period.  We address Brazil's claim under the SCM Agreement  in respect of these products below in 
Section XIV.D.  
771 Exhibit Bra-513.  Exports of lyocell and wood products (wood pulp) also benefited from GSM 102 
export credit guarantees  in the same period.  We address Brazil's claims under the SCM Agreement  in respect of 
these products below in Section XIV.D. 
772 See supra , section IX.B.2. 
773 Brazil obtains the US export pri ce from the following sources: FY 2006, rice: October to September 
average of monthly prices of US long grain rough rice, bulk, FOB, New Orleans from the 13 October 2006 ERS/USDA "Rice Outlook." See Exhi bit Bra-552.  July-September 200 5, rice: average of July to 
September 2005 monthly prices of US long grain rough rice, bulk, FOB, New Orleans from the  WT/DS267/RW 
 Page 183 
 
 
  Agricultural 
product Quantity 
commitment Exports under 
GSM 102 (July- 
September 2005) 
(MT) Exports under 
GSM 102 (FY 
2006) (MT) 
Rice 38,544 54,430774197,030775 
Pig meat 395 - 22,562776 
Poultry meat 27,994 86,572777381,906778 
 
14.144  The United States does not challenge Brazil's calculations, nor the manner in which Brazil 
estimates the relevant price for each agricultural pro duct.  We would, on the basis of the evidence 
provided by Brazil, be ready to conclude that Brazil has made a prima facie  case that the 
United States has applied export subsidies in the form of GSM 102 in a manner which has resulted in 
the circumvention of the US export subsidy reduction commitments for these three products.  
14.145  Before doing so, however, we address one issue which has not been discussed by the parties 
in this dispute, but which the Panel must nevertheless  resolve.  This issue ar ises from the fact that the 
US Schedule of commitments indicates, with respect to the quantitative aspect of the US 
commitments, that "[a]ll quantity commitments ar e for the period 1 July 2002 through 30 June 2003 
while budgetary outlay commitments are implemented on a fiscal year basis beginning 1 October 2002".
779 
14.146  Thus, while the evidence submitted by Brazil in support of its claims concerns the periods 
from 1 July to 30 September 2005 (the part of FY 2005 subsequent to the end of the implementation 
period) and from 1 October 2005 to 30 Septem ber 2006 (FY2006), the United States' subsidy 
commitments, expressed in quantity terms, run fro m the period 1 July to 30 June of each year.780 
14.147  The evidence presented by Brazil concerning the period from 1 July to 30 September 2005 
does not, in our view, raise any specific difficulty: the totality of the period covered by the evidence 
presented by Brazil falls within only one of the US "quantity commitment year" (Brazil's evidence 
                                                                                                                                                                     
13 October 2006 ERS/USDA "Rice Outlook."  Exhibit Bra-552.  For pig meat, FY 2006: average of 
October 2005 to August 2006 monthly unit values (total value/total quantity) of US pigmeat (HS 0203) from the 
"USITC Interactive Tariff and Trade DataWeb).  Exhibit Bra-553.  For poultry meat, July-September 2005: 
average of October 2004 to September 2005 monthly unit values (total value/total quantity) of US poultry meat 
(HS 0207), FOB, from the "USITC Interactive Tariff and Trade DataWeb". Exhibit Bra-554. FY 2006, poultry 
meat: average of October 2005 to August 2006 monthly unit values (total value/total quantity) of US poultry meat (HS 0207), FOB, from the "U SITC Interactive Tariff and Tr ade DataWeb". Exhibit Bra-554. 
774 Exhibit Bra-552. 
775 Exhibit Bra-552. 
776 Exhibit Bra-553.  
777 Exhibit Bra-554. 
778 Exhibit Bra-554.  
779 United States Schedule XX, note 1. 
780 A somewhat similar issue arose in the original pr oceedings: before the original panel, Brazil made 
claims with respect to the period 30 June-1 July 2002 (the period corresponding to the United States' quantity reduction commitments), whereas US export credit guarantees activity was reported on the basis of the period 
running from 1 October to 30 September. See Panel Report, US – Upland Cotton , para. 7.878.  The Panel did 
not address the issue of the partial overlap of the time periods, but the Appellate Body commented on the issue and indicated that the Panel should have sought to address it. See Appellate Body Report, US – Upland Cotton , 
para. 691. WT/DS267/RW  
Page 184  
 
  covers the first three months of the US "quantity commitment year" running from 1 July 2005 to 
30 June 2006)".  But the evidence presented by Br azil with respect to FY 2006 (i.e. 1 October 2005 to 
30 September 2006) only partially overlaps with th e US "quantity commitment year", which runs 
from 1 July 2005 to 30 June 2006.
781  Explained differently, US exports of scheduled products during 
the period running from 1 July 2006 to 1 October 2006 should be computed as part of a different year 
for the purpose of determining whether the United States has respected its export subsidy reduction 
commitments (expressed in quantity terms).782 
14.148  That being said, in the present case, we are satisfi ed that Brazil has, at the very least, made a 
prima facie  case that the United States has circumvented its quantitative export subsidy commitments.  
This is because, for all three products, the quantit y of exports having benefited from GSM 102 export 
credit guarantees exceeds the US quantity commitment s by a large margin.  The quantity of exports 
exceeds the United States' quantitative commitments by a factor of 5 in the case of rice, 57 in the case 
of pig meat and 14 in the case of poultry meat.783  We could only conclude that Brazil has not proved 
(or at least made a prima facie  case) that the United States has exceeded its quantity commitments if it 
were assumed, in the "best" case (rice), that 80 per cent of the exported qu antity having benefited 
from subsidies was exported in the last three mont hs of the year (from 1 July to 1 October 2006).  
Such an assumption would not be reasonable, nor has the United States presented any arguments that Brazil's demonstration with respect to "actual circumvention" under the Agreement on Agriculture  is 
incorrect.  We therefore conclude that Brazil has – at the very least – made a prima facie  case that the 
United States exceeded its export subsidy reduction commitments for each of rice, poultry meat, and 
pig meat, during FY 2006. 
14.149  As a result, the Panel finds  that the United States has applie d export subsidies in the form of 
GSM 102 export credit guarantees in a manner which has resulted in the circumvention of the US 
export subsidy reduction commitments for rice,  poultry meat and pig meat during FY 2006 
(1 October 2005 to 30 September 2006), and for rice and poultry meat in the period from 1 July to 
30 September 2005.  
14.150  The Panel also finds , as a consequence, that by acting in consistently with Articles 10.1 and 8 
of the Agreement on Agriculture  the United States has failed  to comply with the DSB 
recommendations and rulings.  Specifically, the United States has failed to bring its measures into conformity with the Agreement on Agriculture.  
                                                     
 
781 We note in passing that the two periods for which Brazil submits evidence fall within the same US 
"quantity commitment year". 
782 We also note that the issue doe s not arise with respect to unsche duled products: this is because 
Article 3.3 of the Agreement on Agriculture  prohibits the United States from granting any subsidy whatsoever to 
exports of unscheduled products. Even if the United St ates' compliance with its obligation not to provide any 
export subsidies to these products was computed on the basis of the "period" for which it makes commitments in 
its Schedule, there would be "circumvention." This is  because the period within which the United States' 
"budgetary outlay commitments" are to be assessed matches the period for which Brazil provides evidence (in 
both cases, the "year" runs fro m 1 October to 30 September).  Because any quantity of exports benefiting from 
export subsidies necessarily corresponds to a budgetary outlay, no additional enquiry would be necessary to conclude that the United States has "circumvented" its export subsidy commitments wi th respect to unscheduled 
products. 
783 Expressed differently, the quantities of exports ha ving benefited from expor ts subsidies exceed the 
United States' commitments by, respectively, 511 per ce nt, 5712 per cent, and 1379 per cent (compare the 
second and fourth columns of the table in para. 14.143, supra ).  WT/DS267/RW 
 Page 185 
 
 
  6. Claims that GSM 102 export credit guarantees are inconsistent with Articles 3.1(a) and 
3.2 of the SCM Agreement  
14.151  Brazil claims that to the extent that export subsidies in the form of GSM 102 export credit 
guarantees are provided in a manner inconsistent with the Agreement on Agriculture , they are not 
shielded from challenge under Articles 3.1(a) and 3.2 of the SCM Agreement .784  Brazil notes that the 
opening clause of Article 3.1 of the SCM Agreement  provides that "subsidies contingent... upon export 
performance" are prohibited, "[e]xcept as provided in  the Agreement on Agriculture...," meaning that 
Members are prohibited from granting or maintain ing export subsidies to products covered by the 
Agreement on Agriculture  except where the Agreement on Agriculture  allows such subsidies.  Brazil 
argues that for unscheduled produc ts, the United States is not due the "safe harbor" afforded by the 
opening clause of Article 3.1 of the SCM Agreement  at all, and that as a result, the prohibition on 
export subsidies in Articles 3.1(a) and 3.2 appli es fully to the "GSM 102 export subsidy".  With 
respect to rice, pig meat and poultry meat, Brazil ar gues that the United States' entitlement to the "safe 
harbor" is limited and that Articles 3.1(a) and 3.2 of the SCM Agreement  apply to the extent that the 
quantities of products having benefited from GSM 1 02 export subsidies ex ceed the United States' 
quantitative export subsidy reduction co mmitments for these three products. 
14.152  The United States has not specifically responded to Brazil's arguments in this respect. 
14.153  Article 3.1 of the SCM Agreement  reads as follows: 
"Except as provided in th e Agreement on Agriculture , the following subsidies, within 
the meaning of Article 1, shall be prohibited: 
(a) subsidies contingent, in law or in fact, whether solely or as one of several other 
conditions, upon export performance, incl uding those illustrated in Annex I;" 
(footnotes omitted; emphasis added) 
14.154  There is, in our view, no question that, to the extent that the GSM 102 export credit 
guarantees do not conform fully to the provisions of the Agreement on Agriculture , they are subject to 
the prohibition on export subsidies under Articles 3.1(a) of the SCM Agreement .785  We have already 
concluded that GSM 102 export credit guarantees conf er export subsidies under Article 10.1 of the 
Agreement on Agriculture , relying on item (j) of the Illustrative List as "context" to reach that 
conclusion.  We see no reason to reach a different  conclusion when consid ering whether GSM 102 
export credit guarantees  constitute export subsidies unde r the terms of Article 3.1(a) in itself, and not 
as "context" in an analysis under Article 10.1 of the Agreement on Agriculture . 
14.155  As indicated in our findings in paras. 14.140 and 14.149, above, the United States has, since 
1 July 2005, provided export subsidies with resp ect to unscheduled products (between 1 July and 
30 September 2005, on exports of cotton, oilseeds – including soybeans/soybean meal, protein meals, 
fresh vegetables, hides/skins and tallow and in  FY 2006, to exports of cotton, oilseeds, 
soybeans/soybean meal, protein meals, hides/skin s,  tallow and corn products) and has provided 
export subsidies in excess of its export subsidy reduction commitments to exports of scheduled 
products – rice, poultry meat and pig meat during FY 2006, and rice and poultry meat in the period 
from 1 July to 30 September 2005. 
                                                      
784 Brazil's First Written Submission, paras. 457-460. 
785 We need not, in this case, address the qu estion of whether, now that Article 13 of the Agreement on 
Agriculture  (the Peace Clause) has lapsed, there may be a violation of Articles 3. 1(a) and 3.2 of the SCM 
Agreement  in respect of all exports (i.e. even those that co nform to the disciplines of the Agreement on 
Agriculture ).   Brazil makes no claims to that effect.  WT/DS267/RW  
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  14.156  The Panel therefore finds  that the United States has acted in consistently with Articles 3.1(a) 
and 3.2 of the SCM Agreement  by providing export subsidies to unscheduled products since 
1 July 2005 and by providing export subsidies to scheduled products in excess of its commitments under the Agreement of Agriculture  since 1 July 2005. 
14.157  The Panel also finds , as a consequence, that by acting inc onsistently with Articles 3.1(a) and 
3.2 of the SCM Agreement  the United States has failed to comp ly with the DSB recommendations and 
rulings.  Specifically, the United States has failed to comply with the DSB recommendation, adopted 
pursuant to Article 4.7 of the SCM Agreement ,  to "withdraw the prohibited subsidies" identified in 
paragraph 8.1(d)(i) of the report of the original panel. 
D. C
LAIMS WITH RESPECT TO LYSINE , LYOCELL AND WOOD PRODUCTS  
14.158  As indicated above, Brazil initially included three products – lysine, lyocell and wood 
products – in the list of produc ts concerned by its claims under Article 10.1 and 8 of the Agreement on 
Agriculture , and to the extent of the inconsistency with the Agreement on Agriculture , under 
Articles 3.1(a) and 3.2 of the SCM Agreement .  After the United States pointed out that the products 
are not covered by the scope of the Agreement on Agriculture , Brazil indicated that it is not pursuing 
its claims under the Agreement on Agriculture  with respect to these products.786  We therefore  need 
not decide whether these three products in fact fall outside the scope of the Agreement on Agriculture .   
14.159  The United States contends that Brazil's cl aims under Articles 3.1 and 3.2 of the SCM 
Agreement  are not properly before us.  The United St ates submits that in its request for the 
establishment of a panel, Brazil presented claims under Articles 3.1 and 3.2 of the SCM Agreement  
"as a result and to the extent of the violation of Ar ticle 10.1 (and, as a consequence, Article 8) of the 
Agreement on Agriculture ".787  We therefore need to decide whether Brazil's claims concerning these 
three products under the SCM Agreement  are properly before us. 
                                                      
786 See Panel Question 50 and Brazil's Response thereon: 
 
"Does Brazil maintain its claims with respect to the three unscheduled products (lyocell, 
lysine, wood products) identified  by the United States as falling outside the scope of the Agreement on Agriculture? (see paragraph 83 of the United States' Rebuttal) 
Brazil maintains its claims under Articles 3.1(a) and 3.2 of the SCM Agreement with respect 
to GSM 102 ECGs for lyocell, lysine and wood products.  To the exte nt that these products 
fall outside the scope of the Agreement on Agriculture, the compliance Panel need not, before 
addressing Brazil's prohibited subsidy claims under the SCM Agreement, address whether the 
provision of GSM 102 ECGs for these products circumvents US agricultural export subsidy 
commitments." 
787 US Comments on Brazil's Response to Panel Question 50: 
"In its response, Brazil appears to acknowledge that lyocell, lysine, and wood products fall 
outside the scope of the Agreement on Agriculture.   By definition, therefore, the provision of 
GSM 102 export credit guarantees in respect of lyocell, lysine, and wood products cannot circumvent US agricultural export subsidy commitm ents under that agreement.  In its request 
for establishment of a panel, Brazil presented claims under Articles 3.1 and 3.2 of the SCM 
Agreement "as a result and to the extent of [the alleged] violation of Article 10.1 (and, as a consequence, Article 8) of the Agreement on Agriculture ."  As there can be no "violation of 
Article 10.1 (and, as a consequence, Article 8) of the Agreement on Agriculture ," there can be 
no claim under the SCM Agreement  with respect to the GSM 102 export credit guarantees in 
respect of lyocell, lysine, and wood products under the express terms of Brazil's request for 
panel establishment.  Where a claim is not set out in the request for panel establishment – as 
here – it is not part of the matter referred to the panel and falls outside the scope of a panel proceeding." (footnotes omitted) 
  WT/DS267/RW 
 Page 187 
 
 
  14.160  The relevant parts of Brazil's request for th e establishment of a panel read as follows: 
"(b) Inconsistency of measures taken to  comply with the covered agreements 
25. Brazil believes that the United States provides export subsidies (under 
Articles 1, 3.1(a) and 3.2 of the SCM Agreement , as well as under item (j) to the 
Illustrative List of Export subsidies included as Annex I to the SCM Agreement  (the 
"Illustrative List")) through the GSM 102 and SCGP programs, and ECGs provided 
under these programs, and has applied th ose export subsidies subsequent to 
1 July 2005 in a manner that results in circumvention of the United States' export subsidy commitments.  In this respect, the United States' measures taken to comply 
are not consistent with Articles 10.1 and 8 of the Agreement on Agriculture  and 
Articles 3.1(a) and 3.2 of the SCM Agreement . 
26. Specifically, and notwithstanding the US measures taken to comply cited as 
items (ii) and (iii) in Section B above, the GSM 102 and SCGP programs, and ECGs 
provided thereunder, are export subsidies under the Agreement on Agriculture  and the 
SCM Agreement , based on the following two grounds: 
• The programs and ECGs provided th ereunder provide and constitute 
financial contributions (loan guara ntees) that confer benefits on 
recipients, within the meaning of Article 1 of the SCM Agreement , 
and that are contingent upon export performance, within the meaning of Article 3.1(a) of the SCM Agreement ; and, separately and 
independently, 
• The programs do not levy premium rates adequate to cover the long-
term operating costs and losses of the GSM 102 and SCGP programs, 
within the meaning of item (j) of the Illustrative List. 
27. Further, subsequent to 1 July 2005, ECGs under the GSM 102 and SCGP 
programs have been applied to circumvent  US export subsidy commitments, within 
the meaning of Article 10.1 of the Agreement on Agriculture .  Brazil is concerned 
that ECGs under the GSM 102 and SCGP pr ograms have been pr ovided subsequent 
to 1 July 2005 to support the export of:  upland cotton and other unscheduled 
products; and, rice, pigmeat and poultry meat, in excess of US reduction commitment levels for those products.
788   
28. As a result and to the extent of this violation of Article 10.1 (and, as a 
consequence, Article 8) of the Agreement on Agriculture , the GSM 102 and SCGP 
programs, and ECGs provided thereunder, are subject to the prohibition against 
export subsidies included in Articles 3.1 and 3.2 of the SCM Agreement .  On the 
grounds cited in paragra ph 26 above, Brazil believes th at the GSM 102 and SCGP 
programs, and ECGs provided thereunder, ar e prohibited export subsidies, within the 
meaning of Articles 3.1(a) and 3.2 of the SCM Agreement ."789 
                                                      
788 Exports that benefited from GSM 102 and SCGP ECGs subsequent to 1 July 2005 are currently 
reflected in the July 2005 and Sept ember 2005 (fiscal year end), as we ll as July 2006 "Monthly Summary of 
Export Credit Guarantee Activity," USDA FAS Online, available at http://www.fas.usda.gov/excredits/Monthly/ecg.html. 
789 WT/DS267/30, paras. 25-28. WT/DS267/RW  
Page 188  
 
  14.161  The Panel agrees with the United States that Br azil's claims under Articles 3.1(a) and 3.2 of 
the SCM Agreement  are contingent upon a finding by the Panel that the United States has applied 
export subsidies inconsistently with its obligations under the Agreement on Agriculture , and only to 
the extent of that inconsistency.   
14.162  We note in particular that Brazil's request fo r the establishment of a panel uses the expression 
"in this respect" in the introductory paragraph of the section concerning Brazil's export credit 
guarantees claims.  Read in conjunction with the immediately preceding sentence ("and has applied those export subsidies ... in a manner that results in  circumvention of the Un ited States' export subsidy 
commitments") and taking into consideration th e fact that Brazil uses "circumvention of the 
United States' export subsidy commitments" to refer to a violation, by the United States, of its 
obligation under Article 10.1 of the Agreement on Agriculture
790, it is clear to the Panel that Brazil's 
claims of inconsistency with 3.1(a) and 3.2 of the SCM Agreement  depend on a finding by the Panel 
that the export subsidies in question have resulted in the circumvention of the United States' export 
subsidy commitments.  
14.163  In addition, paragraph 28 of Br azil's panel request, which explai ns in more details Brazil's 
claims, indicates that it is "[a]s a result" and "to the extent" of the violation of Articles 10.1 and 8 of 
the Agreement on Agriculture  that the US export credit guarantee programmes in question are subject 
to the prohibition against export subsidies included in Articles 3.1 and 3.2 of the SCM Agreement .   
14.164  As a result, the Panel considers that Brazil's claims under Articles 3.1(a) and 3.2 of the 
SCM Agreement  with respect to lyocell, lysine and wood products are not covered by Brazil's request 
for the establishment of a panel and are therefore not part of its terms of reference.   
XV. CONCLUSIONS AND RECOMMENDATION  
15.1 In accordance with its mandate under Article 21. 5 of the DSU, the Panel has examined the 
"existence or consistency with a covered agreement of measures taken" by the United States "to 
comply with the recommendations and rulings" adopte d by the DSB in the original proceeding.  The 
Panel concludes that:  
With respect to the measure taken by the United St ates to comply with the DSB recommendations and 
rulings relating to the original panel's finding of inconsistency with Articles 5 and 6 of the SCM Agreement:   
(a) The United States acts inconsistently with its obligations under Articles 5(c) 
and 6.3(c) of the SCM Agreement  in that the  effect of marketing loan and counter-
cyclical payments provided to US upland cotton producers pursuant to the FSRI Act 
of 2002 is significant price suppression within the meaning of Article 6.3(c) of the SCM Agreement  in the world market for upland co tton constituting "present" serious 
prejudice to the interests of Brazil within the meaning of Article 5(c) of the SCM Agreement.  By acting inconsistently with Artic les 5(c) and 6.3(c) of the 
SCM Agreement  the United States has failed to comply with the DSB 
recommendations and rulings.  Specifically, the United States has failed to comply with its obligation under Article 7.8 of the SCM Agreement  "to take appropriate steps 
to remove the adverse effects or. ..withdraw the subsidy".   
                                                     
 
790 See the first sentence of pa ra. 27 of Brazil's request: 
"Further, subsequent to 1 July 2005, ECGs under the GSM 102 and SCGP programs have been applied to circumvent US export subsidy commitments, within the meaning of 
Article 10.1 of the Agreement on Agriculture ."  WT/DS267/RW 
 Page 189 
 
 
  (b) Brazil has not made a prima facie  case that the effect of marketing loan and counter-
cyclical payments provided to US upland cotton producers pursuant to the FSRI Act of 2002 is an increase in the US world mark et share in upland cotton as compared to 
the average US world market share during the previous period of three years and that 
this increase follows a consistent trend over a period when subsidies have been 
granted.  Therefore, it has not been  established that the United States acts 
inconsistently with Article s 5(c) and 6.3(d) of the SCM Agreement .  
With respect to the measure taken by the United St ates to comply with the DSB recommendations and 
rulings relating to the original panel's findings of  inconsistency with Articles 10.1 and 8 of the 
Agreement on Agriculture and Articles 3.1(a) and 3.2 of the SCM Agreement:   
(c) Regarding GSM 102 export credit guarantees issued after 1 July 2005 the 
United States acts inconsistently with Article 10.1 of the Agreement on Agriculture  
by applying export subsidies in a manner which results in the circumvention of US export subsidy commitments with resp ect to certain unscheduled products
791 and 
certain scheduled products792, and as a result acts inconsistently with Article 8 of the 
Agreement on Agriculture .  Regarding GSM 102 export credit guarantees issued after 
1 July 2005 the United States also acts incons istently with Articles 3.1(a) and 3.2 of 
the SCM Agreement  by providing export subsidies to unscheduled products793 and by 
providing export subsidies to scheduled products794 in excess of the commitments of 
the United States under the Agreement on Agriculture .  By acting inconsistently with 
Articles 10.1 and 8 of the Agreement on Agriculture  and Articles 3.1(a) and 3.2 of the 
SCM Agreement  the United States has failed  to comply with the DSB 
recommendations and rulings.  Specifically, the United States has failed to bring its measures into conformity with the Agreement on Agriculture  and has failed "to 
withdraw the subsidy without delay".   
(d) With respect to certain ex port credit guarantees issued pr ior to 1 July 2005, Brazil has 
not established that the United States has failed to "withdraw the subsidy without 
delay".   
15.2 The Panel considers that to the extent that th e measures taken by the United States to comply 
with the recommendations and rulings adopted by the DSB in the original proceeding are inconsistent 
with the obligations of the United States under th e covered agreements, th ese recommendations and 
rulings remain operative.  In this regard, the Pane l recalls that the recommendations and rulings that 
were adopted by the DSB in the orig inal proceeding were as follows:   
"(a) we recommend pursuant to Article 19.1 of the DSU  that the United States bring its 
measures listed in paragraphs 8.1(d)(i) a nd 8.1(e) above into conformity with the 
Agreement on Agriculture ;  
(b) as required by Article 4.7 of the SCM Agreement, we recommend that the 
United States withdraw the prohibited subsid ies in paragraphs 8.1(d)(i) and 8.1(e) 
above without delay.  The time-period we  specify must be consistent with the 
                                                     
 
791 The unscheduled products at issue are  (i) in the period 1 July-30 September 2005: cotton, oilseeds 
(including soybeans/soybean meal), protein meals, fresh vegetables, hides/skins and tallow; and (ii) in the period 
1 October 2005–30 September 2006: cotton, oilseeds, soybeans/soybean meal, protein meals, hides/skins, tallow and corn products.  
792 The scheduled products at issue are: (i) in the period 1 July-30 September 2005: rice and poultry 
meat; and (ii) in the period 1 October 2005-30 September 2006: rice, poultry meat and pig meat. 
793 Supra , footnote 791. 
794 Supra , footnote 792. WT/DS267/RW  
Page 190  
 
  requirement that the subsidy be withdrawn 'w ithout delay'.  In any event, this is at 
the latest within six months of the date of adoption of the Panel report by the Dispute Settlement Body or 1 July 2005 (whichever is earlier);  
(c) pursuant to Article 4.7 of the SCM Agreement, we recommend that the United States 
withdraw the prohibited subsidy in paragra ph 8.1(f) above without delay and, in any 
event, at the latest within six months of the date of adoption of the Panel report by 
the Dispute Settlement Body or 1 July  2005 (whichever is earlier); and  
(d) we recall that, in respect of the s ubsidies subject to our conclusion in 
paragraph 8.1(g)(i) above, pursuant to Article 7.8 of the SCM Agreement : 
 
 '7.8 Where a panel report or an Appellate Body report is 
adopted in which it is determined that any subsidy has resulted in adverse effects to the interests of another Member 
within the meaning of Article 5, the Member granting or 
maintaining such subsidy sha ll take appropriate steps to 
remove the adverse effects or shall withdraw the subsidy'.
 
Accordingly, upon adoption of this report, the United States is under an obligation to 'take appropriate steps to remove the adve rse effects or ... withdraw the subsidy'".
795 
15.3 The Panel has set out above in para. 9.79 its views on the interpretation of the obligation 
under Article 7.8 of the SCM Agreement  to "take appropriate steps to remove the adverse effects or ... 
withdraw the subsidy".    
 
_______________ 
 
 
                                                      
795 Panel Report, US – Upland Cotton , para. 8.3.  As stated by the panel in US – FSC (Article 21.5 – EC 
II), "once the DSB adopts a dispute settlement report, the findings and recommendations in that report become 
collective, operative DSB rulings and recommendations."   US – FSC (Article 21.5 – EC II), para. 7.35.