WORLD TRADE  
ORGANIZATION  TN/RL/W/193 
16 November 2005 
 (05-5393) 
Negotiating Group on Rules Original:   English 
  
 
BENEFIT PASS-THROUGH 
 
Paper from Brazil
 
  
 The following communication, dated 15 November 2005, is being circulated at the request of 
the Delegation of Brazil.  
_______________ 
 
 
I. INTRODUCTION 
 
1. This communication addresses the issue of p ass-through in the context of a countervailing 
duty investigation involving upstream subsidies, focusing on Canada’s communication on benefit 
pass-through (TN/RL/GEN/7) which stems from exis ting GATT/WTO jurisprudence with respect to 
issues of upstream subsidies in countervailing duty i nvestigations.  We reserve the right to submit 
further communications on the issues in this paper. 
 
II. COMMENTS ON CANADA’S PROPOSED AMENDMENTS  A. The Context In Which Pass-Through Is Relevant 
 2. In its communication, Canada proposes that a ne w footnote be added to current Article 1.1(b) 
of the WTO Agreement on Subsidies and Counterva iling Measures (“SCM Agreement”) that codifies 
existing GATT/WTO jurisprudence to the effect that pass-through must be demonstrated.  Brazil notes that, under existing GATT/WTO jurisprudence, th e relevance of pass-through analysis is limited 
to the context of countervailing investigations.  Therefore, Brazil understands that any proposed 
amendment intended to codify existing GATT/WTO ju risprudence should only affect the part of the 
SCM Agreement applicable to  countervailing measures.   
3. We recall that established GATT/WTO jurisprude nce confirms that countervailing duties may 
be imposed on a product to offset subsidies granted with respect to its input, or upstream, product.  
Before imposing such duties, however, an author ity must conduct a “pass-through” analysis to 
determine whether, and to what extent, the subsid ies granted to upstream producers benefit unrelated 
downstream producers who purchase the subsidized  upstream product at arm’s length.  This 
requirement is consistent with Article VI:3 of the GATT 1994 and Article 10 of the SCM Agreement.  
Under these provisions, only the subsidy bestowed, directly or indirectly, upon the manufacture, 
production, or export of a product can be offset by a countervailing duty on that product.  In 
examining these provisions, the Appellate Body noted that 
{t}he phrase “subsid[ies] bestowed …  indirectly ”, as used in 
Article VI:3, implies that financia l contributions by the government 
to the production of  inputs  used in manufacturing products subject to 
an investigation are not, in principle, excluded from the amount of TN/RL/W/193 
Page 2  
 
 subsidies that may be offset th rough the imposition of countervailing 
duties on the  processed  products.
1 
In this regard, a pass-through analysis is required because 
it is necessary to analyze to what extent subsidies on inputs may be 
included in the determination of the total amount of subsidies 
bestowed upon processed products, {and} it is only the subsidies determined to have been granted upon the processed products that may be offset by levying countervailing duties on those products.
2 
4. In contrast, the Appellate Body has held that  a pass-through analysis is not required for a 
serious prejudice claim under Article 6.3(c) of the SCM Agreement with respect to actionable 
subsidies.  The Appellate Body explained: 
As we have already noted, the requirement in Article VI:3 of the 
GATT 1994 and Article 19.4 of the SCM Agreement that 
countervailing duties on a product be limited to the amount of the 
subsidy accruing to that product finds no parallel in the provisions on 
actionable subsidies and pertinent remedies under Part III of the SCM 
Agreement . Therefore, the need for a “pass-through” analysis under 
Part V of the SCM Agreement is not critical for an assessment of 
significant price suppression under Article 6.3(c) in Part III of the 
SCM Agreement .3 
 
5. Given that Canada raised the issue of pass- through in the context of countervailing duty 
investigations, any amendments in this regard shoul d, accordingly, be limited to Part V of the SCM 
Agreement regarding countervailing measures.  In this respect, the introduction of a footnote to 
Article 1 of the SCM Agreement, as suggested by Canada, would make unnecessary changes to the 
well-established definition of a subsidy and would inappropriately expand the burden associated with 
demonstrating pass-through to Part s II and III.  Amendments related to pass-through should not affect 
the definition of a subsidy or the multilateral disci plines regarding prohibited and actionable subsidies 
under Part II and Part III of the SCM Agreement.   Brazil is open to suggestions regarding the 
introduction of a footnote addressing pass-through e ffect in Part V, in line with the existing 
jurisprudence. 
 
B. The Rebuttable Presumption of No Pass-Through 
 
6. Canada’s submission also proposes that an Anne x VIII be added, containing two elements, 
one of them being a concept of “rebuttable pr esumption”, whereby transactions conducted at arm’s 
length “shall be subject to a rebuttable presumption that the benefit […] has not passed through”. It is 
worth noting that such a proposal finds no support in the existing GATT/WTO jurisprudence.  While panels and the Appellate Body ha ve required that investigating authorities not presume pass-through 
of benefits without an analysis to this effect , they have not gone so far as to require that authorities 
presume the opposite is true,  i.e., that there is no pass-through of benefits.  By going beyond 
                                                     
 
1 Report of the Appellate Body, United States - Final Countervailing Duty Determination With Respect 
To Certain Softwood Lumber From Canada (“US - Lumber CVDs Final ”), WT/DS257/AB/R, adopted 
17 February 2004, para. 140 (italics original). 
2 Id. 
3 Report of the Appellate Body, United States - Subsidies on Upland Cotton , WT/DS267/AB/R, 
adopted 21 March 2005, 472 (footnote omitted).  TN/RL/W/193 
 Page 3 
 
 
 existing jurisprudence, Canada’s proposal woul d impose a higher burden than is necessary in cases 
involving subsidies to upstream producers.  C. Relevant Considerations in A Pass-Through Analysis 
 
7. As a second element in the proposed new Annex,  Canada suggests that several factors “shall 
be considered” in determining whether any benefi t has passed through.  In light of the limited 
GATT/WTO jurisprudence in this regard, Brazil believ es that, in principle, it is premature to require 
such specific methodologies.  We observe that, in all instances where pass-through was addressed, 
panels and the Appellate Body focused on the issue of “ whether,” rather than “how,”  the Member 
concerned conducted a pass-through analysis in or der to determine the existence and amount of 
countervailable subsidies.   
 8. For example, while a GATT panel offered examples  of the factors to be considered in a pass-
through analysis, it emphasized that it w as not its task to identify these factors.
4 Similarly, in US - 
Lumber CVDs Final , neither the panel nor the Appellate Body  suggested any factors that must be 
considered in a pass-through analysis.    9. Indeed, whether and how a benefit is passed through is highly fact specific, as indicated by 
existing jurisprudence.  We deem it would be a cons iderable challenge to envisage all possible factual 
scenarios and consequent relevant factors for pass- through determinations in all future cases.  
Moreover, the imposition of a set of precise met hodologies may prove overly restrictive on the ability 
of Members to address counterva ilable subsidies effectively and may give rise to even more 
controversies in future interpre tations of the SCM Agreement. 
 
III. CONCLUSION  
 
10. Brazil welcomes Canada’s suggestion of addressi ng pass-through effects of subsidies within 
the limits of existing GATT/WTO jurisprudence. 
 
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4 See United States - Countervailing Duties on Fresh, Chilled and Frozen Pork From Canada, DS7/R - 
38S/30, adopted on 11 July 1991, at para. 4.9.