WT/DS108/RW2 
 Page C-1 
 
 
  
ANNEX C 
 
 
THIRD PARTY SUBMISSIONS 
 
 
Contents Page 
Annex C-1 Third Party Submission of Australia C-2 
Annex C-2 Third Party Submission of Brazil C-6 
Annex C-3 Third Party Submission of The People's Republic of China C-11 
 
 WT/DS108/RW2 
Page C-2  
 
 
ANNEX C-1 
 
 
THIRD PARTY SUBMISSION OF AUSTRALIA 
 
 
(9 June 2005) 
  
TABLE OF CONTENTS 
 
Page
 
 
1. Introduction................................................................................................................ ........ C-2 
 
2. The Mandate of an Ar ticle 21.5 Proceeding .................................................................... C-2 
 3. Is the United States Under an Obligation to Withdraw the ETI Scheme? ................... C-3  4. The Relevance of Section 5 of the ETI Act....................................................................... C-4 
 
5. Conclusion .................................................................................................................. ........ C-5 
   
1. Introduction  
1. This submission concentrates on three i ssues of relevance to this proceeding. 
 2. First, it considers the mandate of an Article 21.5 proceeding.  Second, it considers whether the 
United States is under any obligation to withdraw th e ETI scheme.  Third, it discusses the relevance of 
section 5 of the ETI Act .
1 
 
2. The Mandate of an Article 21.5 Proceeding 
 
3. The mandate of an Article 21.5 proceeding is to adjudicate on disputes "as to the existence or 
consistency with a covere d agreement of measures taken to co mply with the recommendations and 
rulings" of the DSB.  4. Australia submits that the "recommendations a nd rulings" referred to are those made by the 
original Panel and Appellate Body (if the Panel d ecision was appealed), as adopted by the DSB.  In 
this dispute, the relevant "recommendations and rulings" are those made by the DSB on 
20 March 2000 when it adopted the Pane l and Appellate Body reports in United States – Tax 
Treatment of "Foreign Sales Corporations" .
2  In relevant part, those recommendations and rulings 
were that:  
                                                     
 
1 In this submission, the term “ ETI Act ” is used to refer to the FSC Repeal and Extraterritorial Income 
Exclusion Act of 2000 . 
2 WT/DS108/R and WT/DS108/AB/R, respectively (the  “Panel Report” and “App ellate Body Report”, 
respectively).  WT/DS108/RW2 
 Page C-3 
 
 
 (a) the FSC subsidies be withdrawn at th e latest with effect from 1 October 2000;3 4 and 
  (b) the United States bring the FSC measure into conformity with its obligations under 
the Agreement on Subsidies and Countervailing Measures  (the " SCM Agreement ") 
and the Agreement on Agriculture .
5 
 
5. Hence, the purpose of the current Article 21.5 proceeding is to decide whether certain 
measures that the United States has taken to comp ly with the recommendations and rulings set out 
above are consistent with the covered agreemen ts.  For its part, the EC has argued that the 
grandfathering of the FSC scheme and the transiti on and grandfathering provisions of the ETI scheme 
are inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement , Articles 10.1, 8 and 3.3 of the 
Agreement on Agriculture  and Article III:4 of GATT 1994 .6   
 6. The United States does not contest that the grandfathering of the FSC scheme and the transition and grandfathering provisions of the ETI  scheme are measures taken to comply with the 
DSB’s original recommendations and rulings.  Under those circumstances, the measures at issue come 
within the mandate of an Article 21.5 proceeding.  7. In addition, the United States does not appear to contest that the grandfathering of the FSC 
scheme and the transition and grandfathering provisi ons of the ETI scheme are inconsistent with 
Articles 3.1(a) and 3.2 of the SCM Agreement , Articles 10.1, 8 and 3.3 of the Agreement on 
Agriculture  and Article III:4 of GATT 1994 .  The Panel should therefore uphold the EC’s arguments 
in this respect.  
3. Is the United States Under an Obligation to Withdraw the ETI Scheme? 
 8. The United States submits that in order for it to be under any obligation to withdraw the ETI 
scheme it would have been necessary for the Panel Report (First Article 21.5)
7 to make a finding 
under Article 4.7 of the SCM Agreement .8  It follows that the Article 21.5 Panel would have been 
required to "specify … the time-period within  which the measure must be withdrawn".9  T h e  
United States’ argument would thus require that it be given a period of time to withdraw the ETI 
scheme (e.g. from the adoption of the Article 21.5 re ports until the first practicable date by which the 
United States could have withdrawn the ETI scheme) .  However, such a ruling would be outside the 
Article 21.5 mandate, which is to decide wh ether "measures taken to comply with the 
recommendations and rulings" of the DSB exist or  are consistent with a covered agreement. 
 9. Once a decision has been made, as in this di spute, that a measure "taken to comply" is 
inconsistent with a covered agreement, it necessar ily follows that the Member has failed to take 
"measures … to comply with the recommendations and rulings"
10 of the DSB in the original 
proceeding and that the original, and any replaceme nt, measures must be brought into consistency 
immediately.  
                                                     
 
3 Paragraph 8.8 of the Panel Report. 
4 At its meeting on 12 October 2000, the DSB acced ed to the United States’ request to extend until 
1 November 2000 the time by which the United St ates was required to comply with the DSB’s 
recommendations and rulings (see WT/DSB/M/90). 
5 Paragraph 178 of the Appellate Body Report. 
6 Paragraphs 36, 46, 58, 59 and 69 of the First Wr itten Submission of the European Communities.  See 
also the second dash point on page 2 of the EC’s Request for the Establishment of a Panel. 
7 Panel Report in United States – Tax Treatment for “Foreign Sales Corporations” – Recourse to 
Article 21.5 of the DSU by the European Communities  (WT/DS108/RW). 
8 Paragraph 19 of the First Written Submi ssion of the United States of America. 
9 As required by the second sentence of Article 4.7 of the SCM Agreement . 
10 See Article 21.5 of the DSU . WT/DS108/RW2 
Page C-4  
 
10. Australia thus submits that the obligation to withdraw the ETI scheme arises from the fact that 
the Panel Report (First Article 21.5) and Appellate Body Report (First Article 21.5)
11, as adopted by 
the DSB, found that the ETI scheme violated the covered agreements (including Article 3 of the SCM 
Agreement ). 
 
11. As stated by the Panel in Australia – Measures Affecting Impor tation of Salmon - Recourse to 
Article 21.5 by Canada :12 
 
"The text [of Article 21.5 of the DSU ] refers generally to "c onsistency with a covered 
agreement".  The rationale  behind this is obvious: a complainant, after having 
prevailed in an original dispute, should not  have to go through the entire DSU process 
once again if an implementing Member in seeking to comply with DSB recommendations under a covered agreement is breaching, inadvertently or not, its obligations under other provisions of cove red agreements. In such instances an 
expedited procedure should be available.   This procedure is provided for in 
Article 21.5.  It is in line with the fundamental requirement of "prompt compliance" 
with DSB recommendations and rulings expressed in both Article 3.3 and Article 21.1 of the DSU".
13 
12. A similar point was made by the Panel in European Communities - Anti-Dumping Duties on 
Imports of Cotton-Type Bed Linen From India - Recourse To Article 21.5 of the DSU by India14 when 
it stated that: 
 
"[A] Member found to have violated a provision in an Article 21.5 proceeding pursuant to a claim that could have been pur sued in the original dispute but was not 
would be deprived of the opportunity to seek a mutually acceptabl e solution, of the 
opportunity to bring its measure into conf ormity, and might, depending on the nature 
of the violation, be subjected to suspension of concessions".
15 
13. A recommendation or ruling under Article 4.7 of the SCM Agreement  for the United States to 
withdraw the ETI scheme would have been out side the mandate of a panel constituted under 
Article 21.5 of the DSU .  The requirement for the United Stat es to withdraw the ETI scheme follows 
logically from the fact that it was required to w ithdraw the FSC scheme – a replacement for the FSC 
scheme that is itself a violation of a covered agreem ent should not have been granted or maintained.  
The United States cannot argue that such a measure should not be withdrawn. 
 
4. The Relevance of Section 5 of the ETI Act  
 
14. In defence of the EC’s assertions regardi ng the grandfathering of the FSC scheme, the 
United States asserts that section 5 of the ETI Act  is not within the Panel’s terms of reference.16 
 15. Australia notes that section 5 of the ETI Act  sets up, amongst other things, the grandfathering 
of the FSC scheme.  The Panel Report (First Ar ticle 21.5) and Appellate Body Report (First 
Article 21.5) have already found this grandfatheri ng to be a violation of the covered agreements.
17 
                                                      
11 Appellate Body Report in United States – Tax Treatment for “Foreign Sales Corporations” – 
Recourse to Article 21.5 of the DSU by the European Communities  (WT/DS108/AB/RW). 
12 WT/DS18/RW. 
13 Paragraph 7.10, subparagraph 9. 
14 WT/DS141/RW. 
15 Paragraph 6.45. 
16 Paragraph 20 of the First Written Submi ssion of the United States of America. 
17 Paragraph 9.1(e) of the Panel Report (First Article 21.5) and paragraph 256(f) of the Appellate Body 
Report (First Article 21.5).  WT/DS108/RW2 
 Page C-5 
 
 
 16. Australia also notes that it is section 101 of the Jobs Act
18 that fails to repeal section 5 of the 
ETI Act .  The former section was mentioned in the EC ’s request for the establishment of a panel. 
 
5. Conclusion 
 
17. The mandate of an Article 21.5 proceeding is to adjudicate on disputes "as to the existence or 
consistency with a covere d agreement of measures taken to co mply with the recommendations and 
rulings" of the DSB.  Given the absence of any defence from the United States, the Panel should 
uphold the EC’s arguments that the grandfathering of the FSC scheme and the transition and 
grandfathering provisions of the ETI scheme are in consistent with Articles 3.1(a) and 3.2 of the SCM 
Agreement , Articles 10.1, 8 and 3.3 of the Agreement on Agriculture  and Article III:4 of GATT 1994 . 
 18. A ruling under Article 4.7 of the SCM Agreement  in the Panel Report (First Article 21.5) 
would have been outside of the mandate discussed above.  The requirement for the United States to 
withdraw the ETI scheme follows logically from th e fact that the United States was required to 
withdraw the FSC scheme and that its replaceme nt, the ETI scheme, also violates the covered 
agreements.  19. The Panel Report (First Article 21.5) and A ppellate Body Report (First Article 21.5) have 
already found the grandfathering of the FSC scheme to be a violation of the covered agreements.
19 
 
                                                      
18 The term “ Jobs Act ” is used to refer to the American Jobs Creation Act of 2004 . 
19 Paragraph 9.1(e) of the Panel Report (First Article 21.5) and paragraph 256(f) of the Appellate Body 
Report (First Article 21.5). WT/DS108/RW2 
Page C-6  
 
 
ANNEX C-2 
  
THIRD PARTY SUBMISSION OF BRAZIL 
 
 
 
(9 June 2005) 
   
TABLE OF CONTENTS 
 
Page
 
 
I. INTRODUCTION ............................................................................................................. C-6  
 
II. PROMPT  COMPLIANCE AS A CORE PRINCIPLE AND CENTRAL  
 OBJECTIVE OF THE WTO DISPUTE SETTLEMENT MECHANISM .................. C-7  III. THE TRANSITION AND "GRANDFATHERING" PROVISIONS IN  THE AMERICAN JOBS CREATION ACT OF 2004 ("AJCA") AS AN  
 EXTENSION OF A NON-COMPLIANCE SITUATION ............................................. C-8 
 IV. CONC LUSION ................................................................................................................. .C - 9  
 
 
I. INTRODUCTION  
 
1. Brazil, as a third party, offers its contribution in view of systemic interests in the discussions 
to be held and the interpretations  to be developed by parties and the Panel in this dispute. Brazil 
recalls, however, that in United States – Subsidies on Upland Cotton  (DS 267), the FSC Repeal and 
Extraterritorial Income Act of 2000 ("ETI Act"), which is at the very core of the present case brought 
by the European Communities (EC), constituted one of  the measures Brazil claimed to be inconsistent 
with the Agreement on Agriculture ("AoA") a nd the Agreement on Subsidies and Countervailing 
Measures ("SCM Agreement").
1  
 2. In this submission, Brazil will limit itself to comment on the following issues:  
 (a) Prompt compliance as a core principle and cen tral objective of the WTO dispute 
settlement mechanism; and  
  (b) The transition and "grandfathering" provisions in the American Jobs Creation Act of 
2004 ("AJCA") as an extension of a non-compliance situation.  
 
3. Brazil reserves the right to present, at the thir d parties’ session of the meeting with the Panel, 
more elaborated views or additional points.  
                                                     
 
1 See inter alia US – Subsidies on Upland Cotton,  Report of the Panel (WT/DS267/R, 
8 September 2004), at para. 3.1(iv), and Report of the Appellate Body (WT/DS267/AB/R, 3 March 2005), at 
paras. 189-193.   WT/DS108/RW2 
 Page C-7 
 
 
 
II. PROMPT  COMPLIANCE AS A CORE PRINCIPLE AND CENTRAL OBJECTIVE 
OF THE WTO DISPUTE SETTLEMENT MECHANISM 
 
4. If a person not acquainted with the WTO di spute settlement mechanism  were asked to 
comment on the relevance of the present dispute, it c ould well be that he or she would be tempted to 
classify this second recourse by the EC to Article 21.5 of the DSU on the FSC-related matters as a 
legal action of minor importance. Let us not be easily deceived, however, by the first impression 
caused by the conciseness of the first written submi ssions of the EC and the United States. These less-
than-30-pages (in total) briefs cannot dismiss or dis guise the density of the systemic implications this 
controversy has for all WTO Membership.   
 5. The United States is b asically arguing that " in the absence of any recommendation or ruling 
of withdrawal under Article 4.7  [of the SCM Agreement in the prior proceeding under Article 4 of the 
SCM Agreement and Article 21.5 of the Unders tanding on Rules and Procedures Governing the 
Settlement of Disputes ("DSU")] this Panel cannot find that the United States has failed to comply 
with a DSB recommendation or ruling to  withdraw its prohibited subsidies"
2 as a result of 
maintaining in the AJCA transition provisions that  extend the life of previously found prohibited 
subsidies.   6. Brazil will submit in the next section that, as th e United States itself recognizes, the AJCA is 
nothing more than a new chapter of the same story.  But, first, Brazil wishes to draw the Panel’s 
attention to the central role played  by the principle and objective of prompt compliance within the 
WTO dispute settlement mechanism. It goes without saying that we find the United States to be in 
breach of the prompt compliance requirement under the DSU as regards both the original FSC dispute and its offspring. 
 
7. The DSU drafters made it clear that prompt compliance is, at once, (i) one of the central 
tenets for the optimal functioning of the WTO di spute settlement mechanism and (ii) a fundamental 
objective of this mechanism. Such principle and objective not only permeates the whole system but is also enshrined in the text of several provisions of  the Understanding. Article 3.3 summarizes what has 
just been stated: 
 
The prompt settlement of situations in which a Member considers that any benefits 
accruing to it directly or indirectly und er the covered agreements are being impaired 
by measures taken by another Member is  essential to the effective functioning of the 
WTO and the maintenance of a proper balance between the rights and obligations of 
Members . (emphasis added) 
8. Article 21.1, in turn, develops further such a principle in the context of implementation of the 
DSB’s rulings and recommendations. It reads:  
Prompt compliance with recommendations or rulings of the DSB is  essential  in 
order to ensure effective resolution of disputes to the benefit of all Members . 
(emphasis added) 
9. In addition, Articles 3.7 and 21.3 place the immediate withdrawal of the measure found to be 
WTO-incompatible or the immediate compliance with DSB’s rulings and recommendations at the top 
of the objectives to be pursued in and by the system, in the absence of a mutually satisfactory 
solution. 
 
                                                     
 
2 US First Written Submission, at para. 2.  WT/DS108/RW2 
Page C-8  
 
10. In our view, these abundant references to the principle of prompt compliance are far from 
being a vain exercise of exhortatory style or te xt-embellishment. These textual references must be 
given concrete meaning where disputes take pl ace. At a minimum, these provisions definitively 
demonstrate that long-standing non-compliance situa tions are in complete disconnection with the 
letter and spirit of the DSU. In fact, such situations  operate against the very credibility of the system 
to the detriment of all WTO Members. 
 11. Should any WTO Member still oddly consider that the DSU does not provide a sufficient basis for the conclusion that prompt compliance is a critical feature of the WTO dispute settlement 
mechanism, it is noteworthy that the present disp ute involves previous findings and conclusions 
relating to prohibited subsidies under the SCM Agreem ent. Given the inherently distorting nature of 
the prohibited subsidies, this Agreement is even more stringent than the DSU in respect of the prompt 
compliance requirement. Article 4.7 establishes that   
If the measure in question is found to be a prohibited subsidy, the panel shall 
recommend that the subsidizing Member withdr aw the subsidy without delay. In this 
regard, the panel shall specify in its recommendation the time within which the 
measure must be withdrawn. 
12. In case a defendant Member does not implem ent the DSB’s recommendation in a prohibited 
subsidy dispute within the time-period specified  under Article 4.7, Article 4.10 of the SCM 
Agreement obliges the DSB to gran t authorization to the complaining party to take appropriate 
countermeasures. These countermeasures are not bound  by the more restrictive (to complaining 
parties’ discretion) "equivalency test" under Article 22.4 of the DSU. Therefore, they may be even 
more onerous to the party complained against th at a DSU-only suspension of concessions or other 
obligations.   III. THE TRANSITION AND "GRANDFATHERING" PROVISIONS IN THE 
AMERICAN JOBS CREATION ACT OF 2004 ("AJCA") AS AN EXTENSION OF A 
NON-COMPLIANCE SITUATION 
 
13. Brazil takes the EC’s summary of the relevant sections of the AJCA as a fair and accurate 
description of the US measure under review.
3 The United States does not a ppear to disagree with that 
factual description. 
 14. According to the EC, the FSC scheme is, in pa rt, still effective, since section 101 of the AJCA 
did not repeal section 5 of the ETI Act (entitled "E ffective date"), thereby providing room for the 
continuation of the effects of the scheme of transact ions relating to certain binding contracts entered 
into by FSCs in existence on 30 September 2000.
4 
 15. The EC also points out other aspects of the AJ CA, in particular the "grandfathering" provision 
contained in section 101(f) for the benefit of all tr ansactions pursuant to a binding contract (1) which 
is between the taxpayer and a person who is not a related person, and (2) wh ich is in effect on 
17 September 2003, and at all times thereafter.
5 
 
16. As to the "grandfathering clause", the treatme nt of transactions involving FSCs in existence 
on 30 September 2000, and pursuant to a "binding contract", is sufficient to illustrate that both the FSC and ETI Act subsidies will continue  to be available, at least, for some of the beneficiaries of the 
subsidies found to be WTO-incompatible by the origin al Panel in this dispute. Almost 5 years after 
the expiry of the time-period for the withdrawal of the FSC-prohibited subsidies, part of these 
                                                     
 
3 See Section V of EC’s First Written Submission. 
4 See paras. 36-37 of EC’s First Written Submission. 
5 See para. 40 of EC’s First Written Submission.  WT/DS108/RW2 
 Page C-9 
 
 
subsidies would still remain in place in the situati on Brazil has just outlined. The two US legislations 
adopted purportedly to comply with the previous  recommendations of the DS B in the case may have 
altered the original scenario, but have not withdrawn in totum , as required by the SCM Agreement 
and the DSU, the subsidies held illegal by the DSB.  
17.  The United States submits that it " has not failed to comply with the DSB’s recommendations 
and rulings, and the transition provisions  of the AJCA are not inconsistent with Article 4.7 of the SCM 
Agreement, for the simple reason that [...] there was no DSB recommendation or ruling under 
Article 4.7 to withdraw the subsidy insofa r as the ETI Act tax exclusion is concerned ."
6  T h e  
United States attempts to erroneously split into tw o completely separate cases a situation where the 
facts and circumstances show that the cases are part  of one same continuum (FSC – ETI – AJCA). 
 18. Both the ETI Act and, now, the AJCA are me asures taken to comply with the DSB’s rulings 
and recommendations concerning the original procee dings. This is the premise on which hinges the 
Appellate Body’s conclusion upholdi ng the Panel’s finding that the " United States has not fully 
withdrawn the subsidies found, in the original pr oceedings, to be prohibited export subsidies under 
Article 3.1(a) of the SCM Agreement , and that the United States has, therefore, failed fully to 
implement the recommendations and rulings of th e DSB made pursuant to Article 4.7 of the SCM 
Agreement."
7 On this basis, the Appellate Body recomme nded the DSB to request the United States to 
implement fully the recommendations and ruling of the DSB in US – FSC, made pursuant to 
Article 4.7 of the SCM Agreement.8 
 
19. The United States asserts that " while the Article 21.5 Panel found that the ETI Act tax 
exclusion constituted a prohibited export subsidy,  it did not make a recommendation pursuant to 
Article 4.7 that the subsidy be withdrawn  [...]".9 In doing so, the United States is simply asking that a 
compliance panel - having found that a prohibited subsid y expected to be eliminated in light of the 
original panel’s findings is still in place – shoul d recommend – again! – that the very same (maybe 
under new clothes) prohibited subsidy be withdraw n. Consequently, the de fendant would "deserve" a 
new time-period for removing the prohibited subsidy.  20. Brazil notes that, as recalled in paragraph 18 above, the ETI Act Panel found that the United 
States has not fully withdrawn the subsidies found, in the original proceedings , to be prohibited 
export subsidies, and that the United States has, therefore, failed to fully implement the 
recommendations and rulings of the DSB made pur suant to Article 4.7 of the SCM Agreement. 
 21. This being the case, the US argument in the present proceedings  amounts to claiming that the 
ETI Act proceedings should have resulted in DSB’ s recommendations or rulings adding to US rights 
under the covered agreements, in violation to Article  19.2 of the DSU, through an extension of the 
time-period for the full withdrawal of the prohibited FSC subsidies.
10 
 
IV. CONCLUSION 
 
22. In light of the above, Brazil considers that th is Panel should find that the United States has not 
yet fully withdrawn the subsidies found to be WTO- incompatible in previous proceedings relating to 
the matter being dealt with in the present dispute. Accordingly, the Panel should recommend the 
                                                      
6 See para. 10 of US first written submission. 
7 See Report of the Appellate Body in US – Tax treatment for “Foreign Sales Corporations” – 
Recourse to Article 21.5 of the DSU by the EC (WT/DS108/AB/RW, 14 January 2002), at para. 256(f). 
8 Idem, at para. 257. 
9 See para. 14 of the US first written submission. 
10 See also para. 228 of the Report of the Appellate Body in US – FSC – Recourse to Article 21.5 of the 
DSU by the EC (WT/DS108/AB/RW). WT/DS108/RW2 
Page C-10  
 
United States to promptly abide by its multilate ral commitments in accordance with the relevant 
provisions of the SCM Agreement and the DSU. 
  WT/DS108/RW2 
 Page C-11 
 
 
ANNEX C-3 
  
THIRD PARTY SUBMISSION OF THE 
PEOPLE'S REPUBLIC OF CHINA 
 
 
(9 June 2005) 
  1. China welcomes this opportunity to present its view on the dispute between the European 
Community and the United States concerning the im plementation of the DSB recommendations or 
rulings in the case of United States – Tax Treatment for "Foreign Sales Corporations" .   
 
2. Members agree to develop an integrated, more  viable and durable multilateral trading system, 
since they believe that all members will preserve the principles and rules of such a system so that all 
members will benefit from such a system.  In this regard, members are aware that "the dispute settlement system of the WTO is a central element in providing security and predictability  to the 
multilateral trading system."
1 (emphasis added )  That is the reason why effective functioning of the 
WTO and the maintenance of a proper balance be tween the rights and obligations of members 
essentially relies on the prompt settlement of any dis pute.  However, dispute resolution does not end 
by the adoption of the DSB recommendations or rulings.  "Prompt compliance with recommendations or rulings of the DSB is essential in order to ensure effective resolution of disputes to the benefit of all 
members."
2 
 
3. The SCM Agreement  contain strict disciplines on export-contingent subsidies.  A member 
shall neither grant nor maintain export subsidies, except as provided in the Agreement on Agriculture .    
Article 4 of the SCM Agreement  includes proceedings for enforcement and remedies. Any measure 
founded to be prohibited subsidies must be withdr awn. To continue to make payments under an 
export subsidy measure found to be prohibited is no t consistent with the obligation to "withdraw" 
prohibited subsidies.3   
 4. In regard to the situation in this case, Chin a cannot share the view that "the United States has 
not failed to comply with the DSB’s recommendations and rulings, and the transition provisions of the 
AJCA are not inconsistent with Article 4.7 of the SCM Agreement, for the simple reason that, … 
there was no DSB recommendation or ruling under Artic le 4.7 to withdraw the subsidy insofar as the 
ETI Act tax exclusion is concerned."
4  
 5.  The DSB made recommendations and rulings under article 4.7 when adopting the panel and 
Appellate Body report on 20 March 2000, which re quested the US to withdraw the FSC subsidies 
within certain time-period.  Subsequently, the Un ited States enacted the ETI Act with a view to 
complying with the recommendations and rulings of the DSB in US-FSC .  In the first compliance 
panel proceeding, the ETI scheme was found inconsis tent with article 3.1(a) of the SCM Agreement 
and the US was requested to bring it into conform ity with its obligations under relevant Agreement, 
including the SCM Agreement .
5   
 
                                                      
1 DSU Article 3.2. 
2 DSU Article 21.1. 
3 Brazil-Aircraft 21.5, AB Report para.45. 
4 US First Written Submission para. 10. 
5 US-FSC 21.5 AB Report para. 257. WT/DS108/RW2 
Page C-12  
 
6.  Article 4.7 of the SCM Agreement  requires prohibited subsidies to be withdrawn "without 
delay", and provides that a time-period for such  withdrawal shall be specified by the panel.
6  T h e  
obligation to withdraw prohibited subsidies without delay is not released simply because the first 
compliance panel did not specify a time-period in its conclusion.   The party concerned failed to fully 
implement the DSB recommendations and rulings by introducing transition period and grandfathering 
provisions for FSC scheme, an e xport subsidy measure.  How can tr ansition period and grandfathering 
provisions for another prohibited subsidy measure be justified? 
 7.  The Appellate Body has made it clear wh y a long transition period and grandfathering 
provision are not in conformity with the obligat ion to withdraw the prohibited subsidies without 
delay.  A Member's obligation under Article 4.7 of the SCM Agreement  to withdraw prohibited 
subsidies "without delay" is unaffected by contract ual obligations that the Member itself may have 
assumed under municipal law.  Likewise, a Memb er's obligation to withdraw prohibited export 
subsidies, under Article 4.7 of the SCM Agreement ,  cannot be affected by contractual obligations 
which private parties may have assumed  inter se   in reliance on laws conferring prohibited export 
subsidies.
7   
 8.  China would like to conclude its submissi on by recalling that the primary objective of the 
dispute settlement mechanism is to secure the wit hdrawal of the measures found to be inconsistent 
with the covered agreements. 
                                                     
 
6 US-FSC 21.5 AB Report para. 229. 
7 US-FSC 21.5 AB Report para. 229.