WT/DS267/R/Add.2 
Page I-552  
 
ANNEX I-14 
 
 
COMMENTS OF THE UNITED ST ATES ON THE ANSWERS OF 
BRAZIL TO FURTHER QUESTI ONS FROM THE PANEL TO  
THE PARTIES FOLLOWING TH E SECOND PANEL MEETING 
 
(28 January 2004) 
 
 
A.  Terms of Reference 
 194. Does the United States maintain its position  stated in response to the Panel's Question 
No. 67 that "it would not be appropriate for the Panel to examine payments made after the date 
of panel establishment"?  If so, please explain wh y.  Can Brazil comment on this statement?  
BRA, USA 
 
1. Brazil’s answer conflates two issues: the me asures a Panel is to examine and the evidence a 
Panel may examine.  As stated in the US response, Brazil has challenged certain statutory measures "as such"; Brazil has also challenged certain "payment s" as measures.   With respect to payments, it is 
only those payments made through panel establishmen t that can be "specific measures at issue" 
between the parties.  Payments made after panel establishment necessarily had not been made as of 
the time of establishment; therefore,  those "measures" did not exist and cannot have been within the 
Panel’s terms of reference as set out by the DSB.  2. The situation here is different from that in Chile – Price Bands
1 where the question was 
whether an amendment made to a measure that both parties agreed were within the panel’s terms of 
reference had altered the "essence" of the measure such that it was no longer a measure within the 
panel’s terms of reference.   Here, the question concerns measures (payments) that it is without dispute 
did not exist at the time of panel establishment.  Accordingly, the request for a panel could not have 
"identified" non-existent measures, nor could Br azil have consulted on measures "affecting" (present 
tense) the operation of a covered agreement.  To fi nd these measures to be within the Panel’s terms of 
reference would therefore be in contravention of Ar ticles 4 and 6 of the DSU.  It was Brazil’s choice 
to request establishment of the Panel part way thro ugh marketing year 2002; thus, Brazil’s timing sets 
the parameters for what payments  are properly before the Panel.2  In this connection, we note that 
Brazil has finally conceded the corr ectness of the US view that this Panel’s terms of reference cannot 
expand beyond their scope of the date of panel establishment.  In its answer to the Panel’s 
Question 247 (paragraph 149), Brazil states:  "Thus, the ‘matter’ before the Panel has not changed 
(and cannot ) since the establishment of the Panel" (em phasis added).  Brazil should of course also 
have acknowledged that, despite this statement, it has in fact attempted to change the matter before 
the Panel.  
3. This is not to say that a Panel may not examine evidence that is developed after panel 
establishment.
3  In fact, the United States would largely ag ree with Brazil’s statement that "to the 
extent that ‘payments’ made since 18 March 2003 ar e evidence, the Appellate Body and panels have 
                                                      
1 WT/DS207/AB/R. 
2 Past panels have examined measures subject to a dispute as they exist on the date of panel 
establishment.  See, e.g. , Panel Report, India -- Quantitative Restricti ons on Imports of Agricultural, Textile and 
Industrial Products , WT/DS90/R, adopted 22 September 1999, paras. 5.159-5.163. 
3 See, e.g. , Japan – Measures Affecting the Importation of Apples , WT/DS245/R, para. 4.15 
(15 July 2003) (rejecting Japan’s preliminary ruling request to strike certain affirmative evidence developed and 
submitted after the date of panel establishment bu t no later than during the first panel meeting). WT/DS267/R/Add.2 
Page I-553 
 
 
repeatedly found that evidence generated after the esta blishment of the panel can be used by [panels] 
in their objective assessment of  the facts under DSU Article 11."4  The Panel should carefully 
consider the import of this statement by Brazil, gi ven the existence of three telling pieces of evidence 
that Brazil has sought to minimize or neglected:  
 •  First, Brazil largely ignores the undisputed fact that no marketing loan payments have 
been made since 19 September 2003; thus, given expected prices, US outlays will be dramatically lower in marketing year 2003. 
  •  Second, Brazil seeks to minimize the fact that futures prices indicate that the market 
expects cotton prices to remain high thr ough marketing years 2003 and 2004.   
  •  Third, and perhaps most disconcerting, Braz il has neglected to inform the Panel that, with 
respect to its preferred baseline appro ach, FAPRI has produced a (preliminary) 
November 2003 baseline that revises projected  prices significantly upwards as compared 
to the outdated baseline on which Mr. Sumner’s economic analysis relies. 
 4. The first piece of evidence demonstrates not only that marketing loan payments will be 
sharply lower in marketing year 2003 than in prev ious years, but fatally undercuts Brazil’s economic 
analysis.  The Panel will recall that in Brazil’s economic analysis, the marketing loan programme 
alone accounted for almost 43 per cent of the effect of  removal of all challenged US subsidies.  Given 
that no marketing loan payments are being made  and that futures prices and the November 2003 
FAPRI baseline suggest that no marketing loan pa yments will be made over the remainder of 
marketing year 2003, the evidence does not support Br azil’s argument that US marketing loans for 
upland cotton create a threat of serious prejudice.  
5. The second piece of evidence is that futures pr ices indicate that the market expects cotton 
prices to remain high through marketing years 2003  and 2004.  The table below shows settlement 
prices on 27 January 2004, for contracts through marketing year 2004.   
New York Cotton Exchange, Cotton No. 2, 27 January 2000
5 
Contract Settlement (cents per pound) 
March 2004 73.76 
May 2004 75.06 
July 2004 75.90 
October 2004 68.25 
December 2004 69.05 
March 2005 71.05 
May 2005 71.70 
July 2005 72.40 
 
 
6. The following table of futures prices for December 2004 upland cotton contracts further 
demonstrates that price expectations have risen over time, and market participants expect cotton prices to remain high through December 2004.  
                                                     
 
4 Brazil’s Answer to Question 194, para. 5. 
5 Exhibit US-142. WT/DS267/R/Add.2 
Page I-554  
 
Futures Prices for December 2004 Cotton 
 
 
Month ending Open for the 
Month High for the 
Month Low for the 
Month Close for the 
Month Average Close 
for the Month
12/31/2002 60.63 62.20 60.49 60.50 61.34 
1/31/2003 61.25 62.50 60.50 62.70 61.69 2/28/2003 62.90 63.00 61.30 62.87 62.53 3/31/2003 62.90 63.25 61.70 62.45 62.57 4/30/2003 62.40 64.00 62.00 62.45 62.69 
5/31/2003 62.50 64.00 60.58 60.75 62.60 
6/30/2003 60.50 64.60 59.00 65.25 62.55 7/31/2003 66.90 66.90 63.32 62.85 65.29 8/31/2003 62.90 63.25 60.70 63.68 61.95 9/30/2003 63.95 66.95 62.20 66.25 64.99 
10/31/2003 65.75 71.00 64.80 68.85 67.72 
11/30/2003 68.85 70.00 62.50 65.65 67.54 12/31/2003 67.50 68.45 63.25 68.28 65.60 1/22/2004 68.40 69.70 67.62 69.62 68.78 
 
 Source: New York Board of Trade, NY Cotton Exchange  
 
7. Third, Brazil has not provided the Panel w ith any information relating to the most recent 
FAPRI November 2003 baseline.  This prelimin ary baseline further undermines Brazil’s economic 
analysis, which was predicated on projections of continued low cotton prices.  As noted with respect 
to the cessation of marketing loan payments and hi gh futures prices, that low-cotton-price projection 
on which Mr. Sumner relies has proven to be dr amatically off-base.  The November 2003 baseline 
now recognizes that fact.    
• For example, the FAPRI November 2002 b aseline used by Mr. Sumner projected an 
A-index of 50.7 cents per pound for marketing year 2003.    
 
•   The actual A-index in 2004 (through 22 Ja nuary) has varied between a low of 75.45 cents 
per pound on 2 January to a high of 76.95 cents  per pound on 22 January 2004 – that is, 
roughly 50 per cent higher  than the FAPRI November 2002 projection. 
 
8. The price outlook for cotton has improved considerably since publication of the 
November 2002 FAPRI baseline used by Dr. Sumner to  estimate the effects of subsidies on US cotton 
production.  The table below shows that projecti ons for the Adjusted World Price are as much as 54.1 
per cent higher , or 20 cents per pound, for marketing year  2003 in the November 2003 baseline as 
under the November 2002 baseline.   WT/DS267/R/Add.2 
Page I-555 
 
 
FAPRI’s Upwards Revisions to Adjusted World Price Baseline Projections 
 
Year Adjusted World Price (cents/lb) 
 Nov 2002 
(Sumner) Jan 2003 Nov 2003 1/ Increase from Sumner Nov02 
baseline to Nov03  
2003/04 37.22 44.8 57.36 54.1 % 
2004/05 39.83 45.4 50.96 27.9 % 
2005/06 41.94 46 50.82 21.2 % 
2006/07 43.6 46.7 50.35 15.5 % 
2007/08 45.48 48 49.24 8.3 % 
 Average 41.61 46.18 51.75 24.4 % 
 
 1/ Source: FAPRI Baseline, November 2003 (Exhibit US-132)  
 
 The chart below sets out the same data gra phically, showing how much  FAPRI’s projections 
have been revised upwards since the November 2002 baseline on which Mr. Sumner’s analysis relies. 
 
9. As a result of this large upwards revision in FAPRI’s projected adjusted world price, FAPRI’s 
estimated marketing loan gains have  been reduced considerably.   
 
•   Under the November 2003 baseline, the estimated  marketing loan gain for marketing 
year 2003 is now zero , compared to almost 15 cents per pound under the November 2002 
baseline used by Dr. Sumner.   
 
•   For marketing year 2004, the estimated marketing loan gain under the November 2003 
baseline is 1.04 cents per pound, a reduction of 91.5 per cent  from the 12.17 cents per 
pound estimated marketing loan gain in the N ovember 2002 baseline used by Dr. Sumner.   
 
•   In fact, over the five-year period from marketing year 2003 to marketing year 2007, the 
average marketing loan gain is estimated in  the November 2003 baseline as 1.32 cents per 
pound, 87.3 per cent lower  than the 10.39 cents per pound average using the 
November 2002 baseline on which Dr. Sumner relied. 
 
FAPRI’s Downwards Revisions to Its Mark eting Loan Gain Baseline Projections 
 
Year Estimated marketing loan gain 1/ (cents/lb) 
 Nov 2002 
(Sumner) Jan 2003 Nov 2003 2/ Decrease from Sumner Nov02 
baseline to Nov03  
2003/04 14.78 7.2 0 100.0 % 
2004/05 12.17 6.6 1.04 91.5 % 
2005/06 10.06 6 1.18 88.3 % 
2006/07 8.4 5.3 1.65 80.4 % 
2007/08 6.52 4 2.76 57.7 % 
Average 10.39 5.82 1.32 87.3 % 
 
 1/ The estimated marketing loan gain is the difference, if positive, between the loan rate (52 cents per 
lb) and the Adjusted World Price. 
  2/ Source: FAPRI Baseline, November 2003 (Exhibit US-132)
 
 
10. Recall that the marketing loan programme accounted for more than 42 per cent of the 
estimated effects of removing all US subsidi es over MY 1999-2007 on production under the model WT/DS267/R/Add.2 
Page I-556  
 
developed by Dr. Sumner.
6  Thus, updating the model to the N ovember 2003 baseline would virtually 
eliminate the estimated effect of the marketing loan programme and significantly reducing the overall 
estimated effect on production.  Any remaining effect s would largely be attributed to direct payments 
under Dr. Sumner’s flawed model, with which we strongly disagree.  
11. In addition, the FAPRI baseline from Nove mber 2002 projected 50.7 cents per pound for the 
A-Index for marketing year 2003 and the January 2003 baseline projected 58.4 cents per pound for the 
A-index for marketing year 2003.  The FAPRI N ovember 2003 projection for the MY2003 A-Index is 
70.9 cents per pound, 40 per cent higher  than the FAPRI November 2002 projections used by 
Dr. Sumner.  Even this revision could be low as  the actual A-index for January 2004 (through 
22 January) has varied between a low of 75.45 cents  per pound on January 2 to a high of 76.95 cents 
per pound on 22 January 2004.  We also note th at FAPRI’s November 2002 projections that 
Dr. Sumner employed did not show, through marketing year 2012, the A-Index ever rising as high as 
current prices.  FAPRI Baseline Projections for A-Index  (cents per pound) 
 
A-Index Nov 2002 
(Sumner) Jan 2003 Nov 2003 1/ 
Increase from Sumner 
Nov02 baseline to Nov03  
2003/04 50.7 58.4 70.9 39.8% 
2004/05 53.4 58.8 64.5 18.9% 
2005/06 55.8 59.4 64.3 15.2% 
2006/07 57.6 60.1 63.8 10.8% 
2007/08 59.6 61.5 62.7 5.2% 
 
 1/ Source: FAPRI Baseline, November 2003 (Exhibit US-132)  
 
12. The current high cotton prices and market expectations of continued high prices are crucially 
relevant because, as mentioned, marketing loan pa yments will not be made if cotton prices are above 
the loan rate of 52 cents per pound and, further, co unter-cyclical payments will not be made if the 
season average farm price is above 65.73 cents per pound (the target  price of 72.5 cents minus the 
direct payment rate of 6.67 cents). The weighted  average farm price for August-November was 62.4 
cents per pound, as reported by USDA on 11 January 2004.7   
 
13. Without even referencing the US critique of the modelling used by Brazil with respect to the 
challenged US measures, this evidence relating to pr ices indicates that Brazil’s economic analysis is 
founded on price projections that are almost 40 per cent below actual prices; thus, the economic 
analysis put forward by Brazil does not support a findi ng of threat of serious prejudice.  Furthermore, 
we recall that Brazil has argued that the 2002 Act increased the support provided to upland cotton 
producers, threatening continued high levels of production, exports, and pri ce suppression.  And yet, 
US acreage declined in both MY2002 and MY2003, a nd prices have steadily recovered from their 
MY2001-2002 trough to five-year highs.  Market par ticipants expect those high prices to continue.  
Thus, the evidence does not support the view that  the effects of challenged US subsidies are 
significant price suppression. 
 
                                                      
6 See Brazil’s Further Submission, Annex I, table 1.4. 
7 World Agricultural Supply and Demand Estimates , USDA, WAOB, WASDE-406, 11 January 2004. WT/DS267/R/Add.2 
Page I-557 
 
 
B. ECONOMIC DATA 
 196. Please provide the latest data for th e 2002 marketing year on payments under the 
marketing loan, direct payments, counter-cyclical payments, user marketing certificate (step 2) programmes and export credit guarantee programmes.  BRA, USA 
 14. In its reply, Brazil makes several unfounded accu sations and misrepresentations of fact.  In 
this comment, the United States attempts to disentangle fact from fiction for the Panel. 
 15. Brazil asserts that through its December 18, 2003 letter, "the United States has finally 
confirmed – after asserting the contrary repeatedly  to Brazil and then to the Panel – that it has 
collected complete planted acreage, contract base acr eage, contract yields, and even payment data that 
would allow it to calculate with relative precision th e amount of direct and counter-cyclical payments 
made to current producers of upla nd cotton in MY 2002."  There are several errors in this passage.  
First, the United States recalls that it was the Un ited States itself at the second session of the first 
panel meeting that brought to the Panel’s and Br azil’s attention the planting reporting requirement 
that was introduced by Section 1105 of the 2002 Act (7 USC 7915).  Thus, the United States did not "finally confirm[]" the maintenance of planting data on 18 December.  16. Second, the United States never asserted th at it did not have contract base acreage and 
contract yield information.  The United States expl ained that it did not track decoupled payments by 
recipients’ production and thus did not maintain in formation on the payments made for upland cotton 
base acres to upland cotton producers.  That statem ent remains true today.  In fact, while Brazil’s 
statement asserts that "planted acreage, contract b ase acreage, contract yields, and . . . payment data" 
can be used to calculate the amount of decoupled  payments "made to current producers of upland 
cotton," this information would allow the calculati on of decoupled payments made to farms that 
reported planting  upland cotton.  As stated, the United States does not collect information relating to 
whether a farm produces  upland cotton.  Therefore, the data referenced by Brazil would allow 
calculation of payments made to upland cotton "pla nters," and in fact the United States has provided 
the contract data to perform this calculation on 18 and 19 December 2003.  17. Brazil claims that it "cannot calculate dir ect payment and counter-cyclical payment figures" 
because it was not provided (ignoring that Brazil bears the burden of proof in this dispute) 
"farm-specific identifying numbe rs, thus rendering any matching of farm-level information on 
contract payments with information on farm-speci fic plantings impossible."  This statement was 
indecipherable to the United States until the Pane l insisted that Brazil explain its proposed 
methodology for calculating those payments in Qu estion 258.  The United States comments on this 
proposed methodology, which lacks any basis in the Subsidies Agreement, any WTO agreement, or in 
economic logic, in its comment on Brazil’s answer to Question 258.  18. It is, of course, ironic to read Brazil’ s suggestion that only the "unique farm number (or a 
substitute number protecting the a lleged confidentiality of farmers)  would allow any matching" since 
the United States expressly asked Br azil at the second panel meeting whether it could act to protect 
the privacy interests of US cotton producers , perhaps by obscuring farm numbers.  The Panel 
Chairman also inquired of Brazil whether obscuring the farm numbers would be acceptable, but Brazil 
refused to agree to any such step, insisting that all of the information, including farm numbers, be 
provided as set out in Exhibit BRA-369 .  Thus, it is Brazil that refused to allow "a substitute number 
protecting the . . . confidentiality of farmers" – or any other step to maintain farmer confidentiality – 
to be used.  The United States again notes Brazil’s re ference to "a private US citizen making a simple 
FOIA request," who was in fact a member of Brazil’ s delegation, and reminds Brazil for the third time 
of the US request for assistance in  curing the breach of privacy that resulted from providing that 
planting information.  WT/DS267/R/Add.2 
Page I-558  
 
19. We also note that in Brazil’s response, Brazil references several payments that were not included in the Panel’s question, namely, crop insu rance payments, cottonseed payments, and "other 
payments."  Brazil does not state for what year these payments apply.  20. With regards to crop insurance payments
8, we note that the data provided by Brazil for crop 
insurance net indemnities with respect to upland cotton in 2002 is incorrect.9  However, the only crop 
insurance payments within the scope of Brazil’ s panel request are payments to "upland cotton 
producers, users, and exporters."10  Thus, Brazil is once again attemp ting to broaden the scope of this 
dispute to measures beyond its panel request , and the Panel should reject that effort. 
 
21. With respect to cottonseed payments, the Un ited States recalls the panel’s communication of 
8 December 2003 in which it stated that "[t]he Pane l intends to rule that cottonseed payments made 
under the Agricultural Assistance Act of 2003 are not w ithin its terms of reference."  Thus, Brazil’s 
citation to the amount of cottonseed payments made  under this Act are not only outside the scope of 
the question but also outside the scope of this di spute.  With respect to "other payments," the 
United States recalls its preliminary ruling request that these payments are not with the Panel’s terms 
of reference.11 
 
22. With respect to direct and counter-cycli cal payments, Brazil continues to put forward 
erroneous figures before the Panel.  Brazil fails to  make any adjustment in the amount of payment to 
reflect the proportion of cotton planted acreage that is rented or owned.  However, those "subsidies" to 
cotton producers that are the subject of Brazil’s panel request must "benefit" producers.12  Brazil itself 
has conceded that land rental ra tes as of marketing year 1997 – that is, one year after introduction of 
the decoupled production flexibility contract payments – reflect the capture of more than one-third of 
the subsidy by landowners.  Finally, Brazil has not  allocated these decoupled payments that are not 
tied to the production, use, or sale of any product ac ross the total value of the recipient’s production, 
the only allocation methodology set out in the Subsid ies Agreement and, in fact, applied by Brazil 
itself for countervailing duty purposes.13 
                                                      
8 We also note that Brazil has insi sted that crop insurance premium payments are "specific" subsidies 
within the meaning of Article 2 of  the Subsidies Agreement because th e crop insurance statute precludes 
coverage of livestock.  See, e.g. , Brazil’s Further Rebuttal Submission, para. 163.  At one time there was such an 
exclusion, but as we have previously pointed out, it was removed.  In fact, Brazil simply and repeatedly misquotes its own exhibit, which does not contain the "excluding livestock" language of the old statute.  See 
Exhibit BRA-30, at 1-44 to 1-45 (extending coverage to enumerated products and "any other agricultural 
commodity, excluding stored grain, determined by the Bo ard, or any one or more of  such commodities, as the 
context may indicate"). 
9 Total indemnity payments paid to upland cotton producers in 2002 was $400,686,555.  Total upland 
cotton premiums were $317,610,012 of which the government provided premium subsidies of $194,111,641 and $123,498,371 was paid by producers.  Thus, net indemnities (that is, indemnities minus producer-paid 
premiums) paid to upland cotton producers in 2002 was $277,188,184 ($400,686,555 minus $123,498,371), not 
$298.3 million as reported by Brazil. 
10 See WT/DS267/7, at 1 ("The measures that are th e subject of this request are prohibited and 
actionable subsidies provided to US producers, users and/or exporters of upland cotton."). 
11 US Further Written Submi ssion, Section II.  The United States al so recalls its point above, namely 
Brazil has conceded the correctness of the US view that this Panel’s terms of reference cannot expand beyond 
their scope of the date of panel establishment.  In its  answer to the Panel’s Ques tion 247, Brazil states:  "Thus, 
the ‘matter’ before the Panel has not changed ( and cannot ) since the establishment of the Panel."  Brazil should 
also have acknowledged that, despite this assurance, it has in fact attempted to change the matter before the 
Panel. 
12 See Panel Report, United States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead 
and Bismuth Carbon Steel Products Originating in the United Kingdom , WT/DS138/R, adopted 7 June 2000, 
paras. 6.65 and 6.66 (quoting and agreeing with Canada – Aircraft  panel: "’A "benefit" does not exist in the 
abstract, but must be received and enjo yed by a beneficiary or a recipient.  Logically, a "benefit" can be said to 
arise only if a person . . . has in fact received something.’"). 
13 See US Comment on Brazil’s Answer to Question 258 from the Panel. WT/DS267/R/Add.2 
Page I-559 
 
 
 
23. With respect to the export credit guarantee programmes, Brazil "estimates the amount of 
payments using the ‘guaranteed loan subsidy’ estimate FY 2003."14  This figure is of course not a 
payment at all, but merely a prospective budgetary estimate  calculated under the Federal Credit 
Reform Act of 1990.  As the United States noted in its answer, for all cotton for fiscal year 2003 
(October 2002 - September 2003), outstanding clai ms are $280,898, less than one-tenth of one per 
cent of the value of registrations – further evid ence, specific to cotton export credit guarantees in 
particular, that premiums are more than sufficient to cover operating costs and losses. 
 199. What is the composition of the A-Index?  We do note footnote 19 and, for example, 
Exhibit BRA-11, but please explain more in detail how this index is calculated. BRA  
24. With respect to the explanations of  Brazil of  the A-Index, we note that the A-Index is not a 
price for a "world market" for purposes of Article 6.3(c).  As Brazil’s answer puts it, the A-Index is an 
"average price," a "composite of  quotations from the major producing regions around the world, much 
like a poll" (para. 11).  The A-Index is also not a "price" in a "world market"; it is a Northern 
Europe-delivered price quote.  We note the statemen t in paragraph 16 of Brazil’s answer that "the 
average A-index price" in the week of export "would only be an estimate and would not necessarily reflect the price received by the US producers, or the prices received by the exporters."  Finally, we 
note that there are 16 different quotes, and the A-Index consists of the average of the lowest 5.  The 
fact that the prices differ also indicates that there is not one "world market" price.  There is also a 
B-Index composed of upland cotton price quotes of lower quality growths, again suggesting that the 
A-Index is not a "world market price."   
200. Concerning the chart on page 37 of Brazil's further rebuttal submission, why did Brazil 
use a futures price at planting time?  Is this a relevant measure for assessing acreage response?  
BRA  
25. Brazil asserts that US producers are largel y unresponsive to market price movements and 
cites a chart provided in their oral statement of December 2 that showed cotton future prices and 
planted cotton acreage.  However, using a simple cotton price is inappropriate to measure price 
responsiveness.  Prices for cottons alternatives al so fell from 1999 to 2002.  A farmer cannot just 
consider cotton prices but must instead consider the opportunity cost at the time of planting.  
Operating costs being covered (as the United States has already shown the farmer expected to do in 
each year), he must decide which crop to plant, an d this requires looking at the cotton price relative to 
alternatives.  In fact, this is the approach taken by FAPRI and Dr. Sumner in considering net returns 
of cotton versus other crops.
15 
 
26. When one considers movements of cotton fu tures versus the price of a substitute like 
soybeans, a far different picture emerges than the one promoted by Brazil in its response to question 
200.  The graph below uses the same planted area numbers and time period as Brazil.  It shows 
planted area is price responsive when judged against the more appropriate ratio of cotton to soybeans 
harvest season futures prices at the time of planting.16 
 27. In the US Comments Concerning Brazil’s Econometric Model , we point out that the 
correlation between planted acreage and the ratio of cotton futures to soybean futures is 0.69 over the 
1996 to 2002 period.  This compares to a correlati on of 0.40 for lagged prices to planted acreage, and 
a negative correlation  using Dr. Sumner’s expected net return  calculation and planted acreage.  Thus, 
                                                     
 
14 Brazil’s Answer to Question 196 from the Panel, para. 9. 
15 Indeed, our objections to their appr oach focuses on the use of lagged prices rather than futures prices 
as a proxy for producer price expectations. 
16 The cotton-soybeans futures price ratio is drawn fr om the US answer to question 175 from the Panel, 
paragraph 118. WT/DS267/R/Add.2 
Page I-560  
 
in contrast to statements by Brazil that futur es prices are poor predictors of planted acreage, the 
correlation data suggest that the futures price ratio s are better predictors of planted acreage than the 
arbitrary net return calculations as constructed by Dr. Sumner.  28. In conclusion, the United States has dem onstrated that because the harvest season cotton 
futures price at planting was above the marketing loan rate (in MY99-01), farmers were planting for 
the market, not the loan rate.  But it is simplistic for Brazil to put compare cotton plantings to futures 
and judge US farmers not to be price responsive.  The United States has never claimed (nor would it) 
that cotton futures are the only variable that matters for purposes of planting decisions.  The 
correlation data on cotton planted acres to the cott on / soybeans futures ratio shows that competing 
crops must be factored into any planted acreage analysis.  Thus, if Brazil had been interested in 
presenting an accurate analysis to the Panel, it coul d have presented such data, or even incorporated 
alternative crops besides soy from each relevant gr owing region.  Brazil preferred to put forward an 
analysis that could only ser ve to obscure the issue. 
 201. Is data available to show the proportion of US upland cotton production sold under futures contracts, and the prices under those cont racts, at different times during the marketing 
year?  If so, please provide summarized versions to the Panel.  How does a futures sale impact 
the producer's entitlement to marketin g loan programme payments?  BRA, USA 
 
29. As was pointed out in the US response to qu estion 201, cotton producers’ use of futures and 
option markets is high relative to other crops. B ased on survey data from the 1996 USDA Agricultural 
Resource Management Study, it is estimated that  between 35 and 57 per cent of cotton farmers used a 
hedging instrument in 1996.  (The ranges reflect a 95 per cent confidence interval.)  In addition, an 
estimated 63 to 89 per cent of cotton farms used cash forward contracts in 1996.
17  These survey 
results suggest that even seven years ago a larg e proportion of cotton farmers either directly or 
indirectly priced their cotton off of organized futures and options markets.  
 30. Moreover, futures markets provide producers information regarding the future price outlook 
even if they do not hedge directly on the exchange .  For example, the 16 January 2004 newsletter by 
cotton market analyst O.A.. Cleveland states:  
With December [futures contract price] exhibiting signals of breaking away from old 
crop prices, hedging of new crop has increased .  Now above 69 cents, December will 
need to move higher to prevent acreage  loss to both soybeans and corn.  A 
soybean/cotton ratio of  9.5 to 1 is enough to begin moving some land from cotton to soybeans (November soybeans to December cotton).  A 10 to 1 ratio accelerates the 
switch.    A September corn ratio of 4 to 1 over December cotton takes more cotton 
acreage. With both management and capital risk greatly reduced for both of these crops, relative to cotton, significant cotton acreage can be loss if cotton becomes less favourable. With world cotton carryover at a decade low, the new crop December must maintain its tie to the grain/oilseed complex instead of the old crop cotton contracts.
18 
Note that Dr. Cleveland refers not just to cotton fu tures but to the cotton to soybean ratio and the ratio 
between cotton futures and corn futures.  He confir ms not just the importance of cotton futures prices 
in guiding cotton planted acreage decisions but, more  significantly, the relationship of cotton futures 
prices to the futures prices of comp eting crops like soybeans and corn. 
                                                      
17 A forward contract is defined as a cash market tran saction in which two parties agree to buy or sell a 
commodity or asset under agreed-upon conditions.  For example, a farmer agrees sell, and a ginner or 
warehouse agrees to buy, cotton at a specific future time for an agreed-upon price or on the basis of an agreed 
on pricing mechanism (such as a futures or options market).  See Exhibit US-121, page 22. 
18 O.A. Cleveland Newsletter, January 16, 2004.  Exhibit US-133. WT/DS267/R/Add.2 
Page I-561 
 
 
 
31. Brazil has presented no evidence that any farmer ever planted based on "lagged prices" (or its 
"estimated adjusted world price").  Despite Brazil’ s criticisms of looking at December futures prices 
to gauge producer price expectations, farm publica tions are full of references (like that by O.A. 
Cleveland, above) to the use of December futur es for upland cotton planting and hedging purposes.  
Consider USDA’s "Weekly Cotton Market Review" of 9 January 2004.19  It reported:  
 
•  "Most producers [in southeastern markets] have turned their focus to marketing the 
remainder of their 2003 crop and to making initial preparations for planting the 2004 
crop.  Some producers inquired about fo rward contracts on 2004-crop cotton .  These 
inquiries were preliminary and no cotton was booked.  Merchants offered contracts in 
Georgia at 350 to 400 points off NY December futures " (emphasis added). 
 Two weeks later, the most recent "Weekly Cotton Market Review" reported:
20 
 
•  "Producers in Georgia booked a very light volume of 2004-crop cotton at 275 to 300 basis 
points off NY December futures." 
 •  "Merchants continued to offer contracts in Georgia at 300 to 375 points off NY December 
futures." 
 
•  "Contracts in North Carolina were o ffered at 450 to 475 points off NY December 
futures." 
 •  "Merchants offered forward contracts at 350 points off NY December futures [in south 
central markets]." 
 That is, as the United States has explained, produ cers are beginning to make planting decisions for 
MY2004 and are using the December futures price as a guide to their expected returns from planting 
cotton.  A farmer in Georgia can currently lock in  a price for the 2004 crop of approximately 65-66 
cents per pound (27 Jan. 2004 December futures price of 69.05 cents per pound less 300 to 375 
points), and farmers have begun to do just that .  Thus, Brazil asserts that the US methodology of 
looking to the December futures price to gauge producer  price expectations is far less valid than using 
the (outdated November 2002) FAPRI baseline, but cotton producers
 disagree.  In the final analysis, it 
is producer decisions – and not FAPRI’s nor Dr. Sumner’s decision to use "lagged prices" – that must drive the Panel’s analysis of the effect of removal of marketing loan payments.
21 
 
203. Please provide information concerning th e organization, mandate, credentials and 
standing of FAPRI.  BRA 
 
32. The United States agrees with Brazil’s general characterization of FAPRI as a preeminent 
research institution focused on providing comprehensive analysis of the food and agricultural system.  
As noted by Brazil in its answer, the United States  takes issue with the modifications of the FAPRI 
model by Dr. Sumner.  These differences are outlined in detail in the US Comments Concerning 
                                                      
19 USDA, Weekly Cotton Market Review at 1-2 (January 9, 2004) (Exhibit US-139) 
20 USDA, Weekly Cotton Market Review at 1-2 (Jan. 23, 2004) (Exhibit US-140). 
21 We also note an argument by Brazil in paragraph 19 that farmers generate a combined revenue from 
the market and the marketing loan pr ogram that exceeds 52 cents per pound .  Brazil’s analysis is once again 
partial.   The premise is that a farm er is able to sell when prices have increased  relative to the price on the date 
they claimed the marketing loan gain.  However, in reality , there is no guarantee that prices will have increased.  
It is equally possible that prices will fall below  the price on the date when the claim was made.  As Exhibit 
US-126 demonstrates, the margin fluctuates from month to month, with the value in several months even 
negative, implying that a farmer that did not sell his cr op at the time he received the marketing loan payment 
earned less than  the marketing loan rate. WT/DS267/R/Add.2 
Page I-562  
 
Brazil’s Econometric Model  of 22 December 2003.  Chief among these differences is that manner in 
which Dr. Sumner modelled the effects direct a nd counter-cyclical payments.  FAPRI allows for 
modest effects of direct payments on all crop acreage.  Their result is consistent with the literature on 
decoupled payments, showing no or minimal effects on production.
22  By contrast, Dr. Sumner has 
included an arbitrary and completely ad hoc  formulation that exaggerates the effects of these 
payments on acreage decisions.  As compared to FAPRI’s modelling, Dr. Sumner assumes and then 
finds effects some 50 times larger.23 
 
33. The differences between the FAPRI baseline a nd Dr. Sumner’s model were highlighted as 
well by Dr. Bruce Babcock, the economist who assisted Dr. Sumner in preparing the Annex I results.  
In a letter to Dr. Glauber, Dr. Babcock states, th at the analysis of Dr. Sumner was "in no way an 
official FAPRI analysis and if FAPRI had done the analysis, FAPRI would have come up with 
different estimates of the effects of US cotto n subsidies on world prices."  Thus, to cloak 
Dr. Sumner’s analysis in the reputation of  "the  award-winning FAPRI model" is grossly misleading. 
The differences between FAPRI and the Brazil analysis  reflected in Annex I are substantial and, as 
detailed in the US Comments of 22 December, lead to the biased results presented by Brazil.  
204. Which support to upland cotton is not captu red in the EWG data ref erred to in Brazil's 
18 November further rebuttal submission?  BRA  
34. In this answer on "support to upland cotton," Brazil makes reference to "contract payments 
from base acreage other than upland cotton" and the "allocation of these payments".
24  This answer 
makes clear that Brazil proposes that such payments  with respect to non-upland cotton base acres can 
be "support to upland cotton."  The United States comments on the methodology proposed by Brazil for allocating such payments, which lacks any basis in the Subsidies Agreement, any WTO 
agreement, or in economic logic, in its comment on Brazil’s answer to Question 258.  Here, we take 
issue with Brazil’s attempt to ame nd this Panel’s terms of reference to include such payments, and to 
do so at such a late stage in this proceeding.
25 
 
35. Nowhere in Brazil’s consultation request or request for the establishment of this Panel does 
Brazil reference these payments under programmes unr elated to upland cotton.  Accordingly these 
payments are not within this Panel’s terms of refe rence.  Moreover, Brazil’ s attempt to raise these 
payments at the very end of this proceeding depr ives the United States of fundamental rights of due 
process.  The United States, as well as all WTO Members, had a right, as of the date of Brazil’s request for the establishment of this Panel, to know the " specific " measures at issue in this dispute.
26  
Brazil cannot make vague allegations  of "support" and then change at will the measures that it is 
challenging as its own position ch anges and to suit its convenience . 
 
36. Brazil’s own submissions to this Panel de monstrate that Brazil did not consider these 
payments to be measures within the Panel’s terms of  reference.  In particular, the measures Brazil has 
alleged are "support to upland cotton" govern both  Brazil’s serious prejudice claims as well as its 
Peace Clause analysis.  That is , the same measures that are "support for upland cotton" under Brazil’s 
subsidies claims must be the me asures that Brazil claims  are "support to a specific commodity" for 
purposes of the analysis under Article 13(b)(ii) of the support that current measures grant versus the 
support decided during the 1992 marketing year.  However, by seeking to allocate to upland cotton 
                                                      
22 See US Further Rebuttal Submission, paras. 81-82 (reviewing literature, which finds less than one 
per cent effect on production, even making unrealistic assumptions on wealth effects). 
23 See US Comments on Brazil’s Economic Model, para. 20. 
24 Brazil’s Answer to Question 204, para. 27. 
25 As previously noted, Brazil’s answers to the Panel’s questions contain an important concession:  in 
its answer to the Panel’s Question 247, Brazil states:  "Thus, the ‘matter’ before the Panel has not changed (and 
cannot) since the establishment of the Panel." 
26 See DSU, Article 6.2. WT/DS267/R/Add.2 
Page I-563 
 
 
"contract payments from base acreage other than upland cotton," Brazil directly contradicts the 
arguments it set forth in the Peace Clause phase of this dispute.  For example, in response to 
Question 41 from the Panel, Brazil wrote:  
The  only US domestic support measures that Br azil is aware of that would meet the 
test of being ‘support to upland cotton’  are those that it listed for purposes of 
calculating the level of Peace Clause support  in its First Written Submission.  In the 
view of Brazil, these non-green box domestic  support measures are the measures that 
constitute "support to" upland cotton for the purpose of Article 13(b).
27 
 
The footnote to the first quoted sentence cited pa ragraphs 144, 148, and 149 of Brazil’s first written 
submission.  These paragraphs, in turn, contain the tables in which calculated that budgetary outlays it 
alleged were support to upland cotton; crucially , these tables list production flexibility contract 
payments, market loss assistance payments, dir ect payments, and counter-cyclical payments for 
upland cotton base acres only.28 
 
37. Similarly, in response to Question 19, in wh ich the Panel asked Brazil to identify "the 
measures . . . in respect of which Brazil seeks relief," Brazil wrote:  
The first type of domestic support "measure" is the payment of subsidies for the 
production and use of upland cotton.  . . . . Brazil has tabulated the different types of payments (i.e., the measures) made under these legal instruments in paragraphs 146-
149 of its First Submission.
29 
Again, the referenced paragraphs list production flex ibility contract payments, market loss assistance 
payments, direct payments, and counter-cyclical payments for upland cotton base acres only.30 
 
38. Further, in explaining to the Panel why it did not allocate any portion of other payments 
notified by the United States to the WTO as non-product-specific, "some of which" (in the Panel’s 
words) "presumably deliver support to upland co tton (e.g. state credit programmes, irrigation 
subsidies etc)," Brazil explained:  
None[] of these other measures notified by the United States as non-product specific had any upland cotton specific link  in terms of historic, updated, or present upland 
cotton acreage, present upland cotton production or prices, or upland cotton groups of 
insurance policies or any other specific upland cotton provisions.
31 
 
Of course, the same analysis applies to decoupled income support payments made  with respect to base 
acres for wheat, corn, soy, oats, sorghum, barley, fl ax, sunflower, safflower, rice, rapeseed, mustard, 
canola, crambe, and sesame.  None  of these payments has any "upland cotton specific" link in terms of 
upland cotton acreage, production, prices, or "any other specific upland cotton provisions."  Indeed, 
these other payments are related to acreage historically planted to these other crops and may be (in the case of counter-cyclical payments) related to current prices of these other crops, not upland cotton .  It 
is for that reason, presumably, that Brazil did not  identify any of these payments among the measures 
it challenged. 
 
39. Indeed, an important element in Brazil’s argument that the decoupled income support 
measures it challenged were not non-product-specific – and thus constitute "support to a specific 
                                                      
27 Brazil’s Answer to Question 41 from the Pane l, para. 58 (footnote omitted) (italics added). 
28 See Brazil’s First Written Submission, paras. 144, 148, 149. 
29 Brazil’s Answer to Question 19  from the Panel, para. 15. 
30 See Brazil’s First Written Submission, paras. 146-49. 
31 Brazil’s Answer to Question 41 from the Panel, para. 57 (italics added). WT/DS267/R/Add.2 
Page I-564  
 
commodity" – was that the challenged measures contained upland cotton-specific parameters.  For example, with respect to counter-cyclical payments, Brazil wrote:  
For the purpose of calculating AMS, counter-cyclical payments (CCP) are ‘product-specific’ support for two main r easons:  (i) they are not "support provided 
in favour of agricultural producers in general," and (ii) they are directly linked to 
upland cotton-specific parameters  (current prices and historical acreage and 
yield).
32 
 
Brazil similarly argued that other d ecoupled income support measures were  product-specific support 
in favour of upland cotton because they allege dly contain upland cotton-specific parameters.33 
 
40. We also note that Brazil’s request to the Pane l to make rulings and recommendations does not 
reference any decoupled payments made with respec t to non-upland cotton base acres.  In fact, Brazil 
specifically stated that its "as such" challenge to  "Sections of the 2002 FSRI Act and the referenced 
regulations thereto," including provisions relating to  counter-cyclical payments and direct payments, 
were only made "to the extent that they relate to upland cotton."34 
 
41. In sum, Brazil’s arguments on the Peace Clause explicitly limite d its claims with respect to 
decoupled income support measures to payments made  with respect to upland cotton base acres.  In 
fact, Brazil relied on the notion that such measures contained "upland cotton-specific" parameters to 
support its argument that those measures were "support to upland cotton" rather than non-product-specific support.   
 
42. Under its serious prejudice claims, however , Brazil now seeks to expand the challenged 
measures to include decoupled income support measures with respect to non-upland cotton base 
acres
35, despite repeatedly arguing that the challenged US subsidies provided $12.9 billion in support 
over marketing years 1999-2002, a figure based on payments made under specific programmes, 
including decoupled income support with respect to upland cotton base acres only.36  Decoupled 
payments made with respect to non-upland cotton base acres would not be within the terms of 
reference of this dispute; Brazil as complaini ng party cannot unilaterally expand the terms of 
reference at the conclusion of a  dispute and claim that additional programmes, other than those at 
issue throughout the dispute, are now also challenged measures providing "subsidies to upland cotton
."37 
                                                      
32 Brazil’s Answer to Question 44 from the Panel, para. 61 (italics added). 
33 See, e.g. , Brazil’s First Written Submission, para. 60 ("Between MY 1998-2001, upland cotton 
producers thereby received an additional amount of mo ney, which was calculated based on their respective 
share of total upland cotton base times the amount of budgetary outla ys allocated for upland cotton."). 
34 Brazil’s Further Submission, para. 471(vii). 
35 The United States notes that Brazil does not appear  to seriously believe that these measures are 
within the Panel’s terms of reference since Brazil has not presented the 1992 levels of support that would 
include these additional payments, which Brazil would have  had to do to make the Peace Clause comparison. 
36 We note that Brazil seeks to have it both ways.  Th at is, it now argues that decoupled payments made 
with respect to non-upland cotton base acres can be allo cated to, and become support to, upland cotton, yet at 
the same time, when it suits its purposes, it continues to  argue that decoupled payments are support to upland 
cotton because of their alleged upland cotton-specific parameters.  See, e.g. , Brazil ’s Opening Statement at 
Second Panel Meeting, para. 60 ("[T]he 72.4 cent target price triggers CCP payments when cotton  prices are 
lower – not corn, or soybeans prices – but cotton ."). 
37 Indeed, although Brazil attempted to argue at the second panel meeting that it sought information on 
payments made with respect to non-upland cotton base acres  through the Annex V procedure that the DSB did 
not agree to initiate, Brazil itself stated in its fi rst written submission that its Annex V request was limited to 
upland cotton base acres : "Brazil requested the United States during the Annex V procedure to provide 
information on the amount of the total upland cotton base acreage and yield under the CCP (and DP) 
program ."  Brazil’s First Written Submission, para. 68 (italics added).  If so, this would be consistent with WT/DS267/R/Add.2 
Page I-565 
 
 
 
 
 
209.  It is understood that the data in the graph in paragraph 5 of the US oral statement are as 
at harvest time, while the data in the graph in pa ragraph 39 of Brazil's oral statement are as at 
planting time. Please explain why the trend of US acreage increase/decrease differs between 
these two graphs . BRA, USA   
 
43. We note that Brazil acknowledges that a comparison of "planted to planted" area would be best.  Harvested area can only be used as a proxy fo r planted area, and as indicated by the US data in 
the US Opening Statement of 2 December 2003, th e two measures can diverge significantly.  This 
divergence is especially important to note in li ght of Brazil’s answer to Panel Question 210. 
 
210. Are worldwide planted acreage figures available?  BRA, USA 
 
44. After noting in its response that consistent world-wide planting data for upland cotton are not 
available, Brazil continues to insist that world-wi de harvested area data are a good proxy for planted 
area.  Brazil offers a theoretical justification fo r using harvested area as a proxy for planted area 
(annual abandonment will average out over all cott on producing countries and be relatively stable 
over time).  But Brazil has no empirical evidence to support the theory and continues to mix "apples 
and oranges" in its charts.  For example, we note the chart at paragraph 33 of Brazil’s answers is misleading: it is not a chart of "Per cent Change in Planted Acres" as labelled.  Rather, it compares 
changes in US planted  area for upland cotton with changes in non-US harvested  area.  This 
comparison is not appropriate.  
 45. As noted in the US answers to Question 209 from the Panel, US planted and harvested area generally move in the same direction but occasiona lly move in opposite directions.  We note that, 
once again, Brazil has relied on a period that begins with marketing year 1998 to present a biased 
analysis.  The period 1998 - 2000 that Brazil focuses on in para. 33 was an unusual period for US 
cotton because of weather.  As noted in the US  Opening Statement of December 2 (para. 6), 
abandonment was especially high in 1998 and area rebounded sharply in 1999.   The year 2000 was a 
year when US planted and harvested ar ea moved in opposite directions.   
 US Planted and Harvested Upland Cotton Acres (1,000 acres) 
 
Crop year Planted acres Harvested acres 
1998 13,064 10,449 
1999 14,584 13,138 
2000 15,347 12,884 
 
 Source: USDA, National Agricultural Statistics Service, Acreage , various issues, as submitted 
in  the US Opening Statement of December 2 (para. 6). 
 
46. Because foreign planted area data are not av ailable, it is not possible to observe whether 
foreign planted and harvested area similarly diverged in these years.  Therefore, using US planted area 
and foreign harvested area is a misleading comp arison.  Brazil uses its mislabelled chart to 
simplistically conclude that whenever US plante d area moves in a divergent direction from foreign 
harvested area, the only reason must be because US subsidies insulate US upland cotton producers.  
That conclusion ignores any other possible factors th at may affect area planted – for example, weather 
or competing crop prices – and is  not supported by the data. 
                                                                                                                                                                     
Brazil ’s Peace Clause argumentation in this dispute th at only payments on upland cotton base acres could be 
product-specific support for upland cotton. WT/DS267/R/Add.2 
Page I-566  
 
 47. In para. 34, Brazil again complains that the US  chart in the US Opening Statement of 2 Dec. 
(para. 6) is inappropriate.  Brazil has it completely  backwards.  The US chart is the only appropriate 
comparison.  We agree that a comparison of plante d area data would be the best method, but the data 
are not available.  Therefore, Brazil’s conclusions  based on a "planted versus harvested" comparison 
are not valid. 
 48. We again present a comparison of changes in US harvested area for upland cotton with 
changes in harvested area for the rest of the world.   (These data are found in Exhibit US-63, but 2002 
data are updated and estimated data for 2003-04 are in cluded.)  We note again the anomalous years of 
1998 and 1999 for the US, where harvested area wa s sharply below planted area in 1998 because of 
severe adverse weather but then planted (and harv ested) area increased sharply in 1999 in reaction 
both to the previous year’s high abandonment and to favourable prices relative to competing crops.  
For the years 2000 - 2002  harvested area in the US and the rest of the world moved in tandem – 
declining in 2000, rising in 2001, and declining again in 2002.  Brazil’s claim of "distinctly different 
reactions"
38 are not supported by the data . 
 
49. Brazil further claims that US area should ha ve declined during the period 1999 - 2002.   In 
fact, it is hard to discern any trend in US (or fore ign) harvested area during this period.  But since 
1999, an admitted high year because of unique weathe r factors and favourable cotton prices relative to 
competing crops, US upland cotton area has genera lly declined.  The new data provided for 2003 
reinforce this conclusion: US area declined while th e rest of the world, including Brazil, increased. 
 
Harvested Area for Upland Cotton (1,000 hectares and per cent change from previous year) 
 
Crop year 1998 1999 2000 2001 2002 2003(p) 
 
US area 4,324 5,433 5,282 5,596 5,030 4,881 
Foreign area 28,559 26,955 26,904 28,308 25,470 28,090 
Brazil area 685 752 853 748 735 940 
 
US (% change) -20.3 25.6 -2.8 5.9 -10.1 -3.0 
Foreign (% change) 0.5 -5.6 -0.2 5.2 -9.9 10.3 
Brazil (% change) -10.5 9.8 13.4 -12.3 -1.7 27.9 
 
 Sources: USDA, Foreign Agricultural Service, Production, Supply, and Distribution Database;  World 
Agricultural Supply and Demand Estimates, World Agri cultural Outlook Board, USDA, 11 January 2004.  
Exhibit US-63, with 2003 added.  
 
50. The data show that US harvested cotton area m oves consistently with the rest of the world, 
when there are not abnormal weather events.  Braz il conceded as much (in para. 36) that US acreage 
movements were relatively consistent with the rest of the world.  How could that be if US producers 
are insulated from price movements because of subs idies?  In marketing year 2003, US cotton area 
declined 3 per cent while the rest of the world rose 10 per cent.  These divergent results again suggest 
that cotton area around the world is affected by di fferent factors and these need to be accounted for 
carefully.  But a decline  in US harvested acreage in marketi ng year 2003, following a decline in 
marketing year 2002, is certainly not consistent w ith Brazil’s theory that the United States increased 
support in the 2002 Act and that these "higher" paym ents will result in US overproduction of cotton, 
threatening to cause serious prejudice. 
 
                                                      
38 Brazil’s Answer to Question 210 from the Panel, para. 35. WT/DS267/R/Add.2 
Page I-567 
 
 
51. In discussing how producers react to price signa ls, we would note recent  trends in Brazil’s 
cotton area.  In MY2002, Brazil’s harvested area de clined about 2 per cent while the US and foreign 
cotton area dropped 10 per cent.  In MY2003, Brazil’ s cotton area is estimated to have increased 
28 per cent  while US cotton area fell 3 per cent.  In fact , since the collapse in Brazil’s cotton area in 
1996, Brazil’s cotton area has shown a much more cons istent upward trend than US or foreign cotton 
area.  We also note that in marketing years 1998, 1999, 2000 and 2001, Brazil’s harvested area moved 
in the opposite direction  from non-US cotton area.  Those different responses, in absolute values, 
ranged from 11 per cent in MY1998 to 17.5 per cent in  MY2001.  In MY2002, Brazil’s harvested area 
declined much less than the (non-US) rest of the world (1.7 per cent versus 9.9 per cent), and in 
MY2003 Brazil’s harvested area is forecast to expand by far more than the (non-US) rest of the world 
(27.9 per cent versus 10.3 per cent).  Thus, it woul d appear that, in terms of changes in harvested 
acres, Brazil deviates far more from the non-US r est of the world than does the United States. 
 52. Finally, in paragraph 35, even when Brazil’ s misleading data do show a consistent decline 
between US planted and non-US harvested area, Brazil does not accept that US cotton producers were 
responding to market signals.  Brazil simply claims  that US cotton area should have declined more 
than it did.
39 
 
53. Brazil has tried to explai n away similarities in acreage movements by asserting that 
Dr. Sumner’s analysis suggests that US cotton acreag e should have even been lower.  Not only do we 
disagree with that analysis, but we note that it fails to explain why US and non-US harvested acreage 
moves commensurately from 1997-2002.  If US produ cers were insulated from price movements, as 
Brazil claims, one would not expect US acreage to be highly correlated with acreage movements in 
the rest of the world.   In fact , the data suggests the opposite; i.e., that US producers respond in similar 
fashion with cotton producers around the world. 
 
213. What differences, if any, can be observed  in the results of econometric models in the 
literature which use lagged prices and those which use futures prices to analyse the effect of prices on planting decisions?  BRA, USA  
54. Brazil points out that the statistical estimati on literature in agricultural economics has used a 
variety of proxies for anticipated prices and reve nue for the upcoming season.  These include rational 
expectations in which many sources of information available to decision makers are combined and the 
expectations are consistent with the conditional fo recasts of the model.  Such models have strong 
theoretical grounding but have been imprac tical in most estimation situations.  
 
55. Models such as used by FAPRI, USDA and the Congressional Budget Office has been 
developed not for retrospective analysis but for prospective  analysis.  If one wants to project out over 
a period for which futures prices are not available, it makes sense to rely on lagged prices since the 
models will produce prices for a given year that ca n then be used as the price expectation for the 
following year.   
 
                                                     
 
39 In paragraph 35, Brazil again tries to buttress its claims by arguing that US  exports increased during 
a period when the US dollar was appreciating in value.  The exchange rate analysis  put forward by Brazil is 
incomplete and inadequate.  Brazil has ignored the fact that cotton is a raw material for apparel and textile 
products.  The increase in foreign demand for raw cotton dr ove an increase in US expor ts.  For example, with a 
strong US dollar, imported cotton textile and apparel b ecame relatively cheaper, thereby increasing demand for 
such products.    Increased textile and apparel demand in the United States from the higher dollar resulted in 
increased demand for raw cotton by foreign textile and ap parel manufacturers.  Foreign use of cotton increased 
from 80.8 million bales in MY 1999 to 91 million bales in MY 2002.  Foreign production, however, remained basically the same, 70.5 million bales in MY 1999 to 70.8 million bales in MY2002.  Therefore, US exports 
were responding to demand that was not met by foreign production.  Source:  Cotton and Wool Situation and 
Outlook Yearbook, Economic Research Service, USDA, November 2003, pg. 32. WT/DS267/R/Add.2 
Page I-568  
 
56. Nonetheless, the use of lagged prices may resu lt in biased results.  Over the long term, where 
there is reasonable stability in markets, lagged prices function adequately as a proxy for price expectations.  However, in those years, as in th e period Brazil has pointed to here, when unexpected 
exogenous shocks such as China dumping stocks (l ate 1990s) and unexpected yields worldwide due to 
good weather conditions such as 2001, lagged prices ar e poor predictors of expected prices.  Future 
prices, by contrast, are more efficient because th ey are based on more current information.   
Moreover, as we have argued elsewhere (see comments to question 200 and 201 above), producers 
base acreage decisions on futures markets.  Where futures prices diverge from lagged prices, there is 
reason to believe that planted acreage decisions w ill diverge from forecast acreage from models based 
on lagged prices. 
 
57. For example, during marketing years 2000, 200 1, 2002, and 2003, lagged prices significantly 
understate the harvest season prices expected by producer s as seen in the futures prices at the time of 
planting. The use of lagged prices thereby inflate the e ffect of the marketing loan rate.  In fact, those 
lagged prices would have to be increased by 8-25 pe r cent, depending on the year, to equal the harvest 
season price actually expected by producer s as indicated by the futures price.
40 
 
• For the period MY 1999-2003, when futur es prices are used to gauge producer price 
expectations, only in MY 2002 were expected ca sh prices below the marketing loan rate.   
 
•   However, over that same period, when lagge d prices are used as expected prices, the loan 
rate is higher than the expected price in every year over this period  except MY1999.   
 Thus, it is a significant error for Brazil and Dr. Su mner to use lagged prices instead of the futures 
prices Brazil’s own expert explained to be the more a ccurate gauge of farmers’ price expectations.  In 
fact, despite the hundreds of exhibits it has filed,  Brazil has provided not one single piece of evidence 
that any farmers use or have ever used lagged prices to make planting decisions.   58. While the United States would agree with Braz il that it is impossible to know precisely what 
individual farmers’ price expectations are, the United States (and Brazil’s expert, Mr. McDonald) 
believe that futures prices provide the most current expectations of market participants.  As such, 
futures prices incorporate the views of numerous market participants, including producers, regarding 
expectations of future market conditions.   The United States disagrees with the approach used by 
Brazil in its analysis to rely solely on lagged pri ces and ignore information provided by futures prices.  
While it may be impractical to include futures pr ices in some models, modelling convenience is no 
justification to ignore these objective, market-based  price expectations.  The Panel cannot rely on 
Brazil’s economic analysis that uses a proxy for expect ed prices that would have to be increased by up 
to 25 per cent to accurately reflect futures prices,  the only objective data on the record reflecting 
actual price expectations of market participants.  The biased results from using lagged prices do not 
assist the Panel in making an objective assessment of  what is the effect of the US marketing loan 
programme.  
59. Brazil ignores the fact that expected cash pri ces based on futures prices were above the loan 
rate from MY1999-2001, whereas the lagged price was be low the loan rate for 2000-2002.  That is, 
withdrawal of the marketing loan would not ha ve greater acreage impacts because producers are 
planting for market prices, not loan rate.  215. Please expand or comment on the statemen t at paragraph 91 of the US further rebuttal 
submission that the counter-cyclical target pric e ceases to be paid when the farm price rises 
above 65.73 cents per pound.  In this scenario , should the Panel disregard Direct Payments?  
BRA, USA  
                                                     
 
40 US Further Rebuttal Submission, paras. 164-65. WT/DS267/R/Add.2 
Page I-569 
 
 
60. In the US response to question 211 (b), we demonstrate that market returns have exceeded 
variable costs for cotton producers in every year but one (2001) over the period of investigation.  
Brazil continues to argue that producers require direct  payments to cover total costs of production, but 
this ignores the evidence that significant acreage is planted to cotton by cotton producers who have no 
cotton base acreage and hence are inelig ible for cotton direct payments. 
 
61. Brazil claims US producers will continue to  plant upland cotton because they face no revenue 
risk, but this argument ignores the substantial evid ence on record of huge acreage shifts, both on state 
level and within three categories of farms (i.e., t hose who plant cotton with cotton base; those who do 
not plant cotton but have cotton base; those farm s who planted cotton but have no cotton base).  
Moreover, Brazil ignores the decline in plantings  over last two years as other commodities have 
become more attractive and expected cotton prices l ess so.  Finally, the claim that direct and counter 
cyclical payments  remove risk of revenue loss r uns contrary to theory on decoupled payments.  
Farmers will plant the crop that maximizes their exp ected revenue since the decoupled payment will 
be made whether they plant or not. 
 
62. Brazil’s argument that direct payments have significant effects on production runs counter to 
the empirical literature as well as running counter to the estimated effects from the FAPRI model that 
they purport to use.  As pointed out in Dr. Glauber’s literature review41 and in the US discussion of 
direct payments in the US further submission a nd further rebuttal submission, empirical studies 
suggest that direct payments have only minimal ef fects on production.  Indeed, as pointed out in the 
US Comments Concerning Brazil’s Econometric Model of 22 December, the FAPRI baseline model 
(that is, the original FAPRI model as distinct fro m the model modified by Dr. Sumner) suggests that 
the effect of direct payments on cotton acreage is less than one per cent.   63. It is only when Dr. Sumner explicitly modifies the FAPRI model to include  an ad hoc  
production specification for direct payments that Brazil obtains the tautological result that direct 
payments have a significant effect on cotton production.   
216. How many times have upland cotton pro ducers been able to update their base acres 
since 1984?  How do upland cotton producers come to  note the possibility of future updating?  
Please provide examples of relevant material.  BRA, USA 
 64. In this answer the matter addressed has to do with base issues and whether farmers could or 
could not update their bases in the period that foll owed 1985.  In our 22 December response we gave 
a full answer on that topic.  We would note that in  the US answer it is indicated that under the 1990 
Act the running base provisions for cotton called for a fi ve-year running average.  This was an error.  
The running base period was a five-year period for other programme crops, but cotton and rice used a 
three-year period.    65. Brazil’s contention that the United States has a base building policy is belied by Brazil’s own 
recitation that there has been only one chance to a dd base cost-free (that is, without loss of benefits); 
that was in the 2002 Act, in which new crops we re added to the program me mix, necessitating a 
recalculation.  There is no guarantee nor any reason to believe that this will ever happen again.  Brazil 
is simply speculating on the likelihood that updating could occur.  What could happen in some cases 
is programme termination, such as that which occurr ed with the elimination of peanut quotas in the 
2002 Act.    
66. Brazil further speculates that some farmers could be upset by the new programme because 
they did not plant as much as they could have over 1998-2001 and that such farmers will now plant 
more than they would otherwise ha ve.  Brazil’s speculation is devoid of any facts.  In fact, the United 
States has pointed to planting data (for example, that submitted on December 18 and 19, 2003) that 
                                                     
 
41 Exhibit US-23. WT/DS267/R/Add.2 
Page I-570  
 
demonstrates just the opposite – that is, cotton planti ngs are declining.  Further, Brazil’s own scenario 
suggests that there was no such understood polic y of base building – otherwise, why would any 
farmer be surprised?  Farmers will always speculate  on the shape of the futu re, but these speculations 
(for which Brazil has presented no evidence) cannot  drive determinations of consistency or 
inconsistency of measures with WTO obligations.   
 
67. Finally, to the extent that Members would wish to limit the ability of Members to choose a 
new "defined and fixed base period" for purposes of paragraph 6(a) of Annex 2 to the Agreement on 
Agriculture, they may do so as a result of the current  Doha negotiations.  However, no such limitation 
currently appears in the text, and Brazil is acting in  contravention of Article 3.2 of the DSU in seeking 
to have a panel "add to or diminish" the rights a nd obligations of Members through dispute settlement.  
The United States would also note that Brazil’s r esponse to this question appears to assume that 
Members will not accept the US proposal for signi ficant reductions in domestic support under the 
Doha negotiations.  The overall AMS reduction commi tment would be relevant for the amount of 
support, including base acres, that a Member would provide. 
 
D. EXPORT CREDIT GUARANTEES 
 220. What will be the relevance of Articles 9 a nd 10.1 of the Agreement of Agriculture to 
export credit guarantees when discipl ines are internationally agreed?  BRA 
 
68. Brazil’s response to this question demonstrat es that Brazil continues to ignore the text of 
Article 10.2 itself.  Article 10.2 is clear that once disciplines are internationally agreed, then Members 
undertake "to provide export credits, export cred it guarantees or insurance programmes only in 
conformity therewith."  No "amendment" to Artic les 9 or 10 would be needed.  Article 10.2 has 
already specified the obligations once the negotiations  are completed.  In this sense, Article 10.2 goes 
further than, for example, Articles XIII:2 and XV:1 of the GATS, which also call for negotiations to 
develop additional disciplines but do not on thei r face already commit Members to abide by the 
results of those negotiations.   69. Brazil mischaracterizes the views of the United States with respect to the role of the OECD 
and the interpretation of Article 10.2 of the Agreement on Agriculture.   Brazil stated that "some 
participants [in the Uruguay Round negotiations ] may have been seeking additional obligations 
regarding notification, consultation and informa tion exchange, like those included in the OECD 
Arrangement on Officially Supported E xport Credits for industrial products".
42  Brazil alluded to no 
other potential disciplines available under the OE CD Arrangement.  In its Closing Statement of 
3 December 2003, the United States responded that  Brazil minimizes the significance of Article 10.2 
as reflecting: 
 
merely a banal compromise to accommoda te potential ‘additional obligations 
regarding notification, consultation, and in formation exchange.’  Brazil implausibly 
asserts that the obvious transition between the language of the Draft Final Act that would have imposed significant substan tive disciplines on export credit guarantees 
and the absence of such language in the Ar ticle 10.2 ultimately adopted can be fully 
explained as reflecting merely an agreement to work on such pedestrian disciplines as 
information exchange".
43 
70. Brazil, however, mischaracterizes the US statem ent as a dismissal of other disciplines that 
Brazil itself never mentioned: "permitted excep tions, matching of der ogations, non-conforming 
non-notified items, and terms granted by countries th at are not parties to the OECD Arrangement."44 
                                                      
42 Opening Statement of Brazil,  2 December 2003, para. 74 
43 Closing Statement of the United St ates, 3 December 2003, para. 3. 
44 Answers of Brazil (22 December 2003), Question 220, para. 54. WT/DS267/R/Add.2 
Page I-571 
 
 
 
71. Ironically, the United States – not Brazil – h as emphasized the significance of the OECD in 
the interpretation of Article 10.2.  During the Uruguay Round, WTO Members did not agree on 
disciplines to be applicable to export credit gua rantee programmes and therefore opted "to work 
toward the development of internationally agreed  disciplines," as contemplated by the text of 
Article 10.2, in the appropriate forum of the OECD to  achieve such disciplines.  As the United States 
has pointed out, the OECD was the logical forum for such negotiations because of the institutional 
experience of that organization in the development of  disciplines on officially supported export credits 
in the industrial sector.45  Six years of negotiations continued there until 2001. 
 
221. In respect of the table in paragraph 161  of the US August 22 rebuttal submission 
(concerning the cohort specific treatment of ex port credit guarantees), the Panel notes the 
subsequent US agreement (footnotes 82 and 96 in  US further submission of 30 September 2003; 
footnote 160 in US 18 November further rebutta l submission) to Brazil's assertion (footnote 67 
in Brazil's 27 August 2003 comments on US rebu ttal submission) that the total figure net of 
re-estimates should be $230,127,023 instead of the figure which originally appeared ($381,345,059).   (c) The Panel notes that the CCC 2002 financial statement in Exhibit BRA-158 
refers to annual "administrative" expen ses of $4 million, and that the US has 
also referred to this figure in its submissions (e.g. US first written submission, 
paragraph 175).  Please confirm whet her the figures in the table in 
paragraph 161 of the US August 22 rebuttal submission (or a corrected version thereof) includes "administrative expen ses", of approximately $4 million per 
year over the period 1992-2002, and expl ain why (or why not) this affects the 
substantive result .  
 72. Brazil quotes selective excerpts of 1998 tes timony of then- General Sales Manager 
Christopher Goldthwait but misconstrues them to draw the absurd proposition that export credit premia cover only administrative expenses of the programme.  These excerpts on their face not only 
do not say what Brazil claims - they contradict Brazi l’s claim.  Both Brazil and the United States have 
noted that administrative expenses of the pr ogramme are between $3 and 4 million per year.
46  Premia 
collected, of course, consistently far exceed that amount.47   
 
73. Moreover, Mr. Goldthwait’s testimony  does not state that premia cover only administrative 
expenses (even in the excerpt quoted by Brazil he tw ice says that the money collected is "more" than 
the amount of administrative expenses), and the act ual figures for premia reveal the inaccuracy of 
Brazil’s claim.  74. The testimony in Exhibit Bra-87 in fact supports the argument of the United States that it 
exercises considerable discretion in the administrati on of the programme and that contrary to Brazil’s 
repeated mischaracterizations, CCC can "stem[], or  otherwise control, the flow of" CCC export credit 
guarantees.
48 
 
75. Then Undersecretary August Schumacher stated: 
 
 "On GSM we are continually revising the changing creditworthiness of these 
overseas buyers.  We are extremely prudent in the use.  We follow this very, very 
                                                      
45 US First Written Submission (11 July 2003), paras. 155-160 
46 See, e.g., Oral Statement of Brazil (22 July 2003), para. 132. 
47 Exhibit US-128. 
48 The most recent invocation of Br azil’s misapplied mantra appears in  Brazil’s Answer to Additional 
Question 257(c) (20 January 2004), para. 38 WT/DS267/R/Add.2 
Page I-572  
 
carefully.  Without the [International Monetary  Fund], we would be very reluctant to 
operate and allocate these GSM programmes as required by the Agricultural Trade Act of 1978. 
"Actual credit packages are subject to intera gency review.  Overall, we will continue 
to achieve balance between our twin objec tives of promoting US agricultural exports 
and operating Federal programmes such as the GSM with fiduciary responsibility to 
the taxpayers and to you in Congress."
49 
76. Further testimony not quoted by Brazil included the following: 
  Congressman Minge: 
 
"I would like to ask if you could explain to us why you feel that this programme is one that will not expose the American taxpayer or the US Treasury to a loss, particularly if private sector lenders are competing with the Federal Government for 
repayment of their loans and these countries in Southeast Asia find their financial 
condition further deteriorates?  Is this a risk  that we are creating for the US Treasurer, 
or is this something you feel we are adequately protected on?" 
 
 Mr. Goldthwait:  
"We developed our programme allocations by beginning with a country risk analysis.  
It is very much the same sort of analysis that a private bank will do in setting its . . . 
confirmation line for transactions w ith a particular foreign country. 
"We . . . evaluate very carefully the financ ial situation of the country and the banks 
involved and the letters of credit that we will eventually guarantee in determining 
exactly how far further we can go and s till remain prudent with the taxpayers’  
money." 
 Congressman Minge: "So you do not expect any gr eater exposure to loss here than you have 
had historically in the operation of the programme?"   Mr. Goldthwait: "We do not".
50 
 
223. Are the premium rates applicable to GSM 102, 103 and SCGP subject to regular review 
as to their adequacy in enabling the opera ting costs and losses associated with these 
programmes?  If so, what criteria or benchmarks  are taken into consideration for this purpose? 
Secondly, how do the premium ra tes applied compare with the implicit cost of  forfaiting 
transactions and with premiums fo r export credit insurance?  USA 
 
77. Brazil asserts that "premium rates for the th ree CCC guarantee programmes are not subject to 
regular review".51  This is incorrect.  As the United States noted in its response to this question, 
premium rates are reviewed annually.  They may or  may not increase in any given year as a result of 
such annual review.  78. To avoid any potential misunderstanding the United States would also point out that the statutory cap on premia of one per cent applies onl y to GSM-102.  Brazil correctly notes this in 
                                                     
 
49 Exhibit Bra-87, page 10. 
50 Id., page. 12. 
51 Answers of Brazil to Question 223 of the Panel (22 December 2003), para. 63. WT/DS267/R/Add.2 
Page I-573 
 
 
paragraph 66 of its December 22 answ ers, but paragraph 64 could be in terpreted to imply that the cap 
similarly applies to GSM-103, which it does not.  
227. The United States has indicated that Braz il continues to "mischar acterize" the amount 
of $411 million in the 2002 financial statement of the CCC, in Exhibit BRA 158, pp. 18 & 19.  
Can the United States please indicate how it believ es this amount - referred to on p. 19 of the 
Exhibit as "Credit Guarantee Liability-End of Fiscal Year" - should be properly characterized?  How, if at all, does it represent CCC operating costs or losses? USA   
 
79. In addition to its own response to this qu estion from the Panel, the United States would 
reiterate that the $411 million figure is an estimate  and the "results of the reestimate process".
52  In 
addition, the $770 million in the ‘subsidy allowance’ is not an uncollectible amount.  It is merely a 
loan loss allowance  based on annual re-estimates reflected in  the budget.  It is obviously not an 
amount deemed uncollectible, because from 2001 to 2002,  as reflected in the very next line of the 
financial statement, the number itself declined  from $1.043 billion to $770 million.53  Similarly, the 
figure applicable to pre-1992 credit guarantees in the column "allowance for uncollectible accounts" 
is itself only a prospective allowance , which may or may not ultimately correspond to actual 
uncollectability.  As with the subsidy allowance noted above, in this case, too, the allowance declined 
from 2002 to 2003 by $389 million.54 
 
80. Office of Management and Budget Circ ular A-11 defines "allowance" as follows: 
 
"Allowance means a lump-sum included in the budget to represent certain transactions that are expected to increase or decrease budget authority, outlays, or 
receipts but that are not, for various reasons, reflected in the programme details.  For 
example, the budget might include an allowance to show the effect on the budget 
totals of a proposal that would affect many accounts by relatively small amounts, in 
order to avoid unnecessary detail in the presentations for the individual accounts.  The President doesn’t propose that Congress enact an allowance as such, but rather 
that it modify specific legislative measur es as necessary to produce the increases or 
decreases represented by the allowance."
55 
228. What accounting principles should the Pane l use in assessing the long-term operating 
costs and losses of these three programmes?  For example, if internal US Government 
regulations require costs to be treated differently to generally accepted accounting principles, is 
it incumbent on the Panel to conduct its analysis in accordance with that treatment?  BRA, USA 
 
81. Brazil incorrectly asserts that "US government ’s own accounting principles lead to a 
conclusion that premium rates are inadequate to m eet the long-term operating costs and losses of the 
CCC guarantee programmes".56  To the contrary, under current GAAP for Federal Entities, including 
the application of such principles related to th e Federal Credit Reform Act of 1990, the programme 
reflects profitability for all of the first five cohor ts (1992-1996).  In additi on, the cohort for 1999 is 
already showing profitability.57  Exhibit US-128 also reflects the long-term profitability of the 
programmes.  
                                                     
 
52 Rebuttal Submission of Brazil (22 August 2003), para. 109; US Further Submission 
(30 September 2003), fn. 94; See Exhibit Bra-158, Notes to Financial Statement, page 19. 
53 See Exhibit Bra-158, Notes to Financial Statement, p. 14. 
54 See Exhibit US-129, Notes to 2003 Financial Statement, p. 15. 
55OMB Circular A-11 (2003), Section 20.3, p. 20-2.  
http://www.whitehouse.gov/omb/circu lars/a11/current_ year/s20.pdf 
56 Answers of Brazil to Panel Questio n 228 (22 December 2003), para. 68. 
57 See Exhibit Bra-182 and US Answers to Panel Question 221(b) (22 December 2003, paras. 83-86. WT/DS267/R/Add.2 
Page I-574  
 
82. The United States has every reason to believe th is trend will continue with respect to more 
recent cohorts.  Contrary to the assertions of Brazil,  the United States is not "carefully selecting" or 
"cherry-picking" years that "did not lose money".
58  For the reasons set forth in US answers to Panel 
Questions 221(f), (g), (h), and (i)59, chronologically more recent – not "carefully selected" – years are 
reflected unnecessarily negatively in the US budget. 
 
E. SERIOUS PREJUDICE  
 229. What is the meaning of the words "may arise in any case where one or several of the 
following apply" (emphasis added) in Article 6.3 of the SCM Agreement?  Please comment on 
the possibility that these words indicate that on e of the Article 6 subparagraphs may not be 
sufficient to establish serious prejudice and that serious prejudice should be considered an additional or overriding criterion to the fa ctors specified in the subparagraphs.  BRA 
 
83. Brazil states that "[t]he phrase ‘one or several’ must be read according to its ordinary meaning" and reads this phrase to mean "at least one."   Brazil then states that it "disagrees with the 
possibility that the words one or several  indicate that one of the Article 6.3 paragraphs may not be 
sufficient to establish serious prejudice".
60  However, Brazil’s answer simply neglects to read all of 
"the words" quoted in the Panel’s question (drawn from the chapeau of Article 6.3) according to their 
ordinary meaning: "What is the meaning of the words  ‘may arise in any case where one or several  of 
the following apply" (emphasis added) in Article 6.3 of the SCM Agreement ?"  Crucially, Brazil 
simply neglects to read the words "may arise" according to their ordinary meaning.61  The ordinary 
meaning of "may" is "have ability or power to; can"62 and "to express possibility, opportunity, or 
permission".63  Therefore, the ordinary meaning of the ch apeau to Article 6.3 (that is, including the 
phrase "may arise" as well as "one or several") would be that there is a "possibility" or "opportunity" 
for serious prejudice in the sense of Article 5(c) to "a rise" where one or more of the effects listed in 
Article 6.3 is found.64 
 
84. Thus, when Brazil "disagrees w ith the possibility that the words one or several  indicate that 
one of the Article 6.3 paragraphs may not be suffi cient to establish serious prejudice," Brazil is not 
reading the chapeau of Article 6.3 according to th e ordinary meaning of all of the words in the 
provision.  Such a selective approach fails to read the treaty text according to the customary rules of 
interpretation of public international law.  Indeed, if Article 6.3 had been intended to mean that any 
one of the subparagraphs would necessarily  suffice to show serious prejudice, the text would have 
used obligatory language in favour of a finding of serious prejudice (such as, "serious prejudice . . . 
shall arise in any case where at least one of the following apply").65   
 
85. Brazil’s discussion of various provisions of the Antidumping Agreement and Subsidies 
Agreement that contain language that no one factor  can necessarily "give decisive guidance" towards 
a pertinent finding is inapt.  That is, simply because the "may arise" la nguage in the chapeau of 
Article 6.3 does not necessarily preclude  a finding of serious prejudice where the effect in only one 
subparagraph has been demonstrated does not convert the "possibility" or "opportunity" that serious 
                                                      
58 See, e.g., Answer of Brazil to Panel Qu estion 228 (22 December 2003), para. 73. 
59 US Answers to Panel Questions (22 December 2003), paras. 91-104. 
60 Brazil’s Answer to Question 229 from the Panel, paras. 76-77. 
61 See Brazil ’s Answer to Question 229 from the Panel, paras. 79-80 (setting forth no interpretation of 
"may arise" according to its ordinary meaning). 
62 The New Shorter Oxford English Dictionary , vol. 1, at 1721 (1993 ed.). 
63 The Random House Dictionary of the English Language, Unabridged Edition  at 886 (1983). 
64 See US Answer to Question 149 from the Panel, paras. 71-75. 
65 Indeed, Article 6.1 demonstrates that Members knew how to create a presumption of serious 
prejudice: they did so by explicitly stating that, in certain cases, "[s]erious prejudice . . . shall  be deemed to 
exist" (italics added).  Article 6.2, while providing a means to rebut that presumption, does not by its terms 
establish that serious prejudice "shall be deemed to exist" if one of the eff ects in Article 6.3 exists. WT/DS267/R/Add.2 
Page I-575 
 
 
prejudice arise into an obligation  to find serious prejudice.  Rather, serious prejudice "may arise" or it 
may not, for example, where a panel concludes that one or more subparagraphs  is technically met but 
the effect is not sufficient to cause serious prejudice.  86. Finally, we note Brazil’s new argument that  the "may arise" language "is necessary because 
while the facts may demonstrate that the effects of the subsidies may create the one, two, or three 
enumerated types of serious prejudice, these effects may not be actionable".
66  Brazil’ s argument 
misunderstands the nature of the serious prejudice an alysis.  As stated above, the plain language of 
Article 6.3 establishes that demonstrating one or sev eral of the effects of the subparagraphs does not 
necessarily  suffice to demonstrate serious prejudice.  Thus, it is not the case that "serious prejudice" 
will arise where one of the effects is demonstrated but an "exemption" (in Brazil’s words) in Article 6 
applies; rather, the "exemptions" cited by Brazil precl ude the very finding of "serious prejudice."   
 
•   For example, Brazil argues that the effect in Article 6.3(d) (an increase in world market 
share) may be demonstrated but may "not be actionable" because multilaterally agreed 
rules exist within the meaning of footnote 17.  But the effect of footnote 17 is to remove 
certain primary products or commodities subject  to such rules from the 6.3(d) analysis 
altogether.67  Thus, no finding of "serious prejudice" for such a product would be 
possible. 
 •   Neither does Article 6.7 support the conclusion that serious prejudice "may arise" but 
may not be actionable.  Rather, that pr ovision establishes that "[d]isplacement or 
impediment resulting in serious prejudice sha ll not arise under paragraph 3 where any one 
of the following circumstances exist"; that is, even where the effect of displacement or 
impediment is demonstrated under Article 6.3, a finding of serious prejudice is precluded 
("shall not arise"). 
 
• Finally, Brazil points to Article 6.9 and cl aims that this provision "exempts serious 
prejudice that exists even where the require ments of Article 6.3 are fulfilled because the 
subsidies are exempt from action by virtue of the peace clause."  Article 6.9 does not 
"exempt[] serious prejudice that exists," however.  The text reads: " This Article does not 
apply  to subsidies maintained on agricultural products as provided in Article 13 of the 
Agreement on Agriculture" (emphasis added) .  Because the entire "Article does not 
apply," no finding of "serious prejudice" is possible.
68 
 
87. Finally, we note that Brazil’s argument that the "may arise" language is "necessary" because 
certain circumstances may exist in which a finding  of serious prejudice is precluded would suggest 
that whenever an exception exists to a "shall" ob ligation, that obligation should be expressed using 
"may".   For example, because there is an ex ception to the prohibition on export subsidies in 
Article 3.1 of the Subsidies Agreement, presumabl y Brazil would consider that the provision should 
have been written: "Except as provided in the Ag reement on Agriculture, the following subsidies, 
within the meaning of Article 1, [may] be prohibite d."  The use of "may" in place of "shall," however, 
                                                      
66 Brazil’s Answer to Question 229, para. 80. 
67 Footnote 17 to Article 6.3(d) follows the words "the  effect of the subsidy is an increase in the world 
market share of the subsidizing Member in a particular subsidized primary product or commodity" and reads: 
"Unless other multilaterally agreed specific rules apply to the trade in the product or commodity in question." 
68 Brazil’s argument echoes its erroneous interpretati on of the "exempt from actions" language of the 
Peace Clause.  Indeed, as the United States has pointed ou t, Brazil has never explained how it is that the Panel, 
if it ultimately determines that US measures are "e xempt from actions" based on Articles 5 and 6 of the 
Subsidies Agreement, could nonetheless make findings on those claims without resulting in the DSB making 
rulings and recommendations with respect to those claims and measures.  Given the automaticity in adoption of panel and Appellate Body reports, the only means by  which Peace Clause-compliant US measures may be 
"exempt from actions" is for the Panel to decline to reach  Brazil’s claims based on t hose provisions specified in 
the Peace Clause. WT/DS267/R/Add.2 
Page I-576  
 
changes the meaning of that provision from mandatory  to permissive.  Similarly, the use of "may" 
instead of "shall" in Article 6.3 means that ther e is a "possibility" or "opportunity" for serious 
prejudice to arise where one or more of the effects liste d in Article 6.3 is found, rather than a certainty 
or necessity that serious prejudice have arisen.  232. How, if at all, should the Panel take in to account the effects of other factors in its 
analysis of the effects of US subsidies under Arti cle 6.3? If the Panel should compare the effects 
of other factors to establish the relative signific ance of one compared to others, how would this 
be done? What would be relevant "factors" for this purpose? BRA  
88. Causation is a key issue in this dispute, a nd Brazil continues to gloss over this issue.  The 
United States is interested to see Brazil argue that an econometric analysis by definition satisfies the 
causation requirements under the WTO.
69  Brazil’s position in this dispute is at odds with its position 
in other disputes, such as Steel .  Brazil appears to change its view on the correct approach to causation 
depending on whether it bears the burden or not.  Fo r example, Brazil now argues in its response to 
this question:  "But the record shows that there is  no legitimate basis to conclude that "other" supply 
and demand factors collectively (a) accounted for all of the declines in prices during the period of investigation or (b) meant that prices went as high  as they would have even  if no US subsidies had 
been provided."  In other words, Brazil appears to claim that it is entitled to a finding in its favour on 
causation unless someone else (not Brazil) shows that other factors accounted for all the effects, rather than that Brazil must show that it is not attributing to the US measures at issue effects that are due to 
other factors.  This is in error. 
 89. Brazil must establish that effect of th e challenged subsidies was "significant price 
suppression" or an increase in world market share.  Brazil has not established that it has accounted for 
"the effect of" other factors at play, even though it concedes that "[t]his wo rld market share is the 
result of several key factors including US subsidies , weather effects in many countries, and exchange 
rate effects" (italics added).  How then can Br azil claim that the effect of the subsidies is 
"significant"?  That is, if Brazil itself argues that US  subsidies were only one of "several key factors," 
its analysis must allow the Panel to  distinguish the effects of these other factors.  Brazil has not even 
attempted to explain what those effects were, nor did Brazil dem onstrate that its economic model 
accounted for these factors. 
 
90. Brazil did not answer the Panel’s question abou t what relevant factors should be taken into 
account nor did it respond to the question about ho w this should be done.  Brazil simply claims, 
through Dr. Sumner ’s analysis, that it has taken various other factors into account.  Until forced to 
respond to the US Further Submission of 30 Se pt., Brazil had not acknowledged that any factor 
besides US subsidies had any effect on world cotton markets. 
 91. In paragraph 82, we find it curious that Brazil refers to the material on other factors presented 
by the United States
70 as covering "only" weak cotton demand, flat retail consumption, falling world 
incomes, increasing US textile imports, and China’s re leasing of stocks.  Brazil also errs in referring 
to these as all "demand-related".  For example, China’ s release of stocks affects the supply of cotton.  
(The US Further Submission also included an analys is of the effects of the strong US dollar on cotton 
prices.)  These six factors were the "only" ones presented because they, in fact, provide a compelling 
explanation of the factors driving down world cotton prices at that time and encouraging the shift in US cotton use from domestic processing to export markets.    
92. The Panel asks how it should take into account the effect of other factors.  In paragraph 85, 
Brazil argues that but for  the effect of US subsidies, world co tton prices would have been significantly 
higher.  One could just as easily analyze and claim but for  the effect of China’s releasing 11.6 million 
                                                     
 
69 Brazil’s approach would certainly simplify the causation discussion in numerous other disputes. 
70 US Further Submission, paras. 22 - 44. WT/DS267/R/Add.2 
Page I-577 
 
 
bales of subsidized cotton onto world markets between 1999-2001 world prices would have been 
significantly higher.  In other words, Dr. Sumner can claim his analysis accounts for various factors because he calibrated his model to actual data fo r the recent past, but Brazil’ s analysis has not 
provided an explanation of the various  events and actions at play that would allow the Panel to form a 
reasoned conclusion that the effects of US subsidies are not in fact the effects of these other factors. 
 
93. Finally, in paragraph 87, Brazil’s repeats oft-stated arguments about the presumed revenue-cost gap faced by US cotton producers using total costs of production.  Brazil has not replied 
to US counter arguments that using total average costs  is misleading and inappropriate.  We refer the 
panel to the US further rebuttal submission, paras. 116-41, and the US answer to Question 211(b).  As 
for Brazil’s exchange rate argument, we refer the pa nel to the US answer to Question 210 above.   
 
233. In Brazil's view, what is or are the "same market(s)" for the purposes of Article 6.3(c)?  
Does Brazil's view of "world market" imply that regardless of which domestic (or other) "market" is examined, price suppr ession will be identifiable? BRA 
 94. In this answer, Brazil continues to make serious interpretive errors with respect to 
Article 6.3(c).  In addition, the evidence and argum ents made by Brazil with respect to each of the 
"markets" it identifies do not satisfy the requirements of Article 6.3(c).  The United States treats each of these issues in turn.  Brazil Misinterprets Article 6.3(c) and Fails to Bring Forward Evidence and Arguments to Establish Its Claims  
95. The United States is gratified that in this an swer Brazil finally appears to recognize that the 
"in the same market" language of Article 6.3(c) requires that Brazil make claims with respect to 
markets in which both Brazilian and US upland cotton are found.
71  This follows from the use of the 
words "same" and "market."  "Market" means "[a]  place or group with a demand for a commodity or 
service".72  "Same" means "[i]dentical with what has been indicated in the preceding context" and 
"previously alluded to, just mentioned, aforesaid".73  In the context of Article 6.3(c), the market that is 
"[i]dentical with what has been indicated in the preceding context" would be that market in which 
there is "significant price undercutting by the subsid ized product as compared with the price of a like 
product of another Member" (the phrase immediately preceding the phrase on significant price 
suppression, depression, or lost sales).  Thus, Brazil may only advance claims with respect to those markets in which US upland cotton and Brazilian cotton are both found .  96. Brazil continues to argue that there is a "world market" for upland cotton in which it may 
demonstrate significant price suppression, depression, or lost sales.  However, the text and context of 
Article 6.3(c) do not support the view that Brazil ma y assert a generalized "world" price effect.  First, 
the significant price suppression, depression, or lost sales must be "in the same market."  As explained above, this "same market" would be the market in which both Brazilian and US cotton are found and 
there is significant price undercutting.  In asserting th at a "world" market can be this "same" market, 
Brazil renders the "same market" phrase inutile si nce the products of both the complaining and 
responding parties will always be in the "world."  C onsider that one of the effects under Article 6.3(c) 
is "lost sales in the same market ."  Brazil’s interpretation would m ean that a complaining party could 
advance a claim with respect to a lost sale anywhere in the "world," even if the responding party did 
not export to the market in which the lost sale occu rred.  Again, such a result would render the "in the 
same market" language meaningless. 
                                                     
 
71 See, e.g. , Brazil’s Answer to Question 233 from the Panel, para. 113 ("[T]hese indices are 
benchmarks for prices in those ‘same markets’ where US and Brazilian cotton were exported  . . . .") (emphasis 
added). 
72 The New Shorter Oxford English Dictionary , vol. 1, at 1699 (1993 ed.). 
73 The New Shorter Oxford English Dictionary , vol. 2, at 2678 (1993 ed.). WT/DS267/R/Add.2 
Page I-578  
 
 97. Brazil’s interpretation also does not make sen se of important context for Article 6.3(c).  
Article 6.6 states that "[e]ach Member in the market of which serious prejudice is alleged to have 
arisen shall . . . make available . . . all relevant info rmation . . . as to the changes in market shares of 
the parties to the dispute as well as concerning prices of the products involved " (emphasis added).  If 
the "world" could be a "market" for purposes of  Article 6.3, which WTO Members should provide 
market data?  Read literally, Article 6.6 would seemingly oblige every  WTO Member to provide data 
on market share and prices since every Member woul d be a "Member in the market of which serious 
prejudice is alleged to have arisen."  Annex V similarly suggests that the "same market" must be an actual market, be it that of the subsidizing Member or a third-country.  For example, where Article 7.4 
has been invoked "any third-country Member concerned" – for example, any Member in whose 
market significant price suppression is alleged to have occurred – "shall notify to the DSB" the 
organization responsible for responding to informa tion requests and the procedures to be used to 
comply.
74  Furthermore, the information gathered during the information-gathering process "should 
include,  inter alia , data concerning the amount of the subsid y in question (and, where appropriate, the 
value of total sales of the subsidized firms), prices of the subsidized product, prices of the 
non-subsidized product, prices of other suppliers to the market , changes in the supply of the 
subsidized product to the market in question  and changes in market shares".75  Again, these provisions 
suggest (as does Article 6.6) that Article 6.3(c) is  directed at particular markets where competition 
exists between Brazilian and US upland cotton.  
98. Because Brazil must demonstrate price suppressi on by US imports of Brazilian imports in the 
same market, Brazil must bring forward evidence and arguments on import volumes and prices.  In 
numerous instances, Brazil has simply failed to presen t prices for Brazilian cotton and US cotton in an 
identified market, much less import volumes relating to the parties or other suppliers.  This failure to 
present, inter alia , prices for each market sufficient to demonstrate price suppression is fatal to 
Brazil’s claim with respect to each such market.  The necessity of presenting price information for 
each market is suggested by the fact that each "s ame market" in which significant price suppression is 
alleged to occur is a market in which there is signi ficant price undercutting.  Article 6.6 refers to each 
Member "in the market of which serious prejudice is alleged to have arisen" providing the "prices of the products involved," also suggesting that prices for both Brazilian and US cotton must be examined.  Further, Annex V, paragraph 5, st ates that a panel should examine "prices of the 
subsidized product, prices of the non-subsidi zed product, [and] prices of other suppliers to the 
market ." 
 
There is No "World Market Price" for Upland Cotton that Can Be Significantly Suppressed 
 
99. The preceding legal interpretation that the "sam e market" means a particular market in which 
competition between Brazilian and US cotton imports occurs is confirmed when one considers that 
nature of the "world price" that Brazil claims is significantly suppressed.  This "world market price" 
turns out not to be a price at all but several "benchma rks" or indicia of prices.  As Brazil states: "The 
record establishes that there is a "world market" for upland cotton and that the prices for that market 
are reflected in the New York futures prices and in the  A-index prices" .
76  That is, this alleged 
"market" does not have or set any price for US and Brazilian upland cotton; rather, this "price" is 
"reflected" in not one, but two price indices, the NY futures price and A-index price.  100. Brazil must argue that the "world market price" is "reflected" in the NY futures and A-index because neither  of these relates to an abstract "world market."   
 
                                                     
 
74 Subsidies Agreement, Annex V, para. 1. 
75 Subsidies Agreement, Annex V, para. 5. 
76 Brazil’s Answer to Question 233 from the Panel, para. 91. WT/DS267/R/Add.2 
Page I-579 
 
 
•   Rather, the NY futures price relates to a New York-based exchange trading in contracts 
for future delivery with various physical delivery points in the United States: Galveston, Houston, New Orleans, Memphis, or Greenville/Spartenburg (South Carolina).
77 
 
Indeed, Brazil concedes that "[w]hile the New York futures prices play a major role in influencing 
markets , the short term volatility of the futures mark et makes comparison with monthly or annual 
export prices more difficult".78  
 
•   The A-index "price" reflects delivery to Northern Europe of upland cotton with certain 
quality specifications (Middling,1-1/32 inch staple length).  Further, the A-index is not a "price" but an average of the five lowest price quotes  obtained by Cotlook, a private 
organization based in London, from various  merchants of 15 cotton growths.   
 
101. Thus, the A-index reflects price offers but does no t reflect actual prices in Northern Europe of 
either Brazilian or US (or any other) upland cotton.   The A-index relates to the Northern European 
market, not to the "world" market.  In fact, th e A-index, with its disparate price quotes from around 
the world, demonstrates that prices differ around th e world, not that there is a uniform, harmonious 
"world" market price.  The fact that Brazil points to two disparate price indices, which deviate 
significantly.79 also demonstrates that there is not a "world market price" for upland cotton.  Thus, 
neither the NY futures price nor the A-index are a "world market price" for upland cotton.  
 
Brazil Cannot Demonstrate Significant Price Suppression in the United States Because There 
Were No Brazilian Imports 
 
102. Brazil also identifies the US market as a "s ame market."  However,  Brazil does not advance 
any arguments nor evidence establishing that there were any Brazilian imports into the United States 
in marketing years 1999-2002.  In fact, our informat ion is that there have not been any imports of 
Brazilian cotton to the United States since marketing year 1996.80  Neither (and perhaps for that 
reason) does Brazil present any arguments or eviden ce on Brazilian cotton prices in the United States.  
Thus, Brazil has failed to establish that the United States is a "same market" for purposes of Article 6.3(c).  
Brazil’s Effort to Expand the Scope of Its Clai ms and Arguments to 40 Third-Country Markets 
is Untimely 
 
103. Brazil belatedly attempts to argue that it is  alleging "significant price suppression" in 40 
third-country markets; for only seven of these ha d Brazil previously even attempted to make 
argument.  Brazil has not attempted to justify presen ting this new affirmative evidence at this late 
stage in the proceeding, contrary to the Pane l’s working procedures.  To do so prejudices the 
United States, which has necessarily participated in  this dispute on the basis of the claims and 
arguments Brazil has previously set out, and woul d circumvent the notification obligations of the 
complaining party.  For example, we note that in its request to the DSB to initiate the Annex V information-gathering process, which the DSB was not able to agree to in light of the Peace Clause 
issue, Brazil did not notify these 40 WTO Members that  they were markets in which serious prejudice 
was alleged to have occurred.  By not naming these ma rkets at the outset of the dispute, but seeking to 
                                                     
 
77 See www.nybot.com (search No. 2 Cotton Futures Contract Specifications). 
78 Brazil’s Answer to Question 233 from the Panel, para. 93 (italics added). 
79 See Brazil ’s Answer to Question 233 from the Panel, para. 93 ("[P]rice oscillations of the A and 
B-index are much less pronounced than the futures market , but in the longer term they accompany the signs and 
trends coming from the futures market."). 
80 See US Department of Agriculture trade statis tics at www.fas.usda.gov/ustrade (search on 
Imports/HS-4 for Brazil). WT/DS267/R/Add.2 
Page I-580  
 
name them now, Brazil would preclude these Memb ers from fulfilling their notification obligations 
under paragraph 1 of Annex V.    104. We also note that none of these 40 markets ar e listed in Brazil’s request for rulings and 
recommendations from the Panel.  That request, in pe rtinent part, reads: "The US subsidies provided 
during MY 1999-2002 caused and continue to cause serious prejudice to the interest of Brazil by 
suppressing upland cotton prices in the US, world and Brazilian markets  for upland cotton in 
violation of Articles 5(c) and 6.3(c) of the SCM Agreement".
81  The United States is entitled to rely on 
Brazil’s representations with respect to the scope of its claims and arguments. 
 
105. Even in the markets that Braz il has raised in a timely manner,  there are other suppliers into 
that market, and Brazil has failed to explain why any price suppression should be attributed to US 
sales rather than to sales from other countries.  On e cannot presume that US sales are the only factor 
that could cause any price suppression.  Thus, with  respect to these markets, Brazil has failed to 
establish a prima facie  case on its claims. 
 
Brazil Incorrectly Argues that Significant Price Suppression in All Markets Can Be Shown 
Through Suppression of "World Market Prices"  
106. The foregoing considerations are dispositive of  Brazil’s claims with respect to significant 
price suppression in the same market.  In this  portion of its comment, the United States further 
examines the evidence and arguments Brazil has brought forward and points out that they do not 
establish the elements necessary to demonstrate a claim under Article 6.3(c).    107. Brazil argues that the US suppression of "world market prices" is transmitted to all markets as 
evidenced by the fact that price movements in indivi dual markets are similar to  the general trends of 
the A-index.  Brazil alleges that the proof of the US suppression of the A-index is the results of Dr. 
Sumner’s analysis and studies by USDA economists.  The United States has already explained in great detail to the Panel the conceptual flaws of Dr. Sumner’s analysis and will not repeat those here.  
Additionally, the USDA studies provided by Brazi l to the Panel did not address impacts on the 
A-index or futures prices, but the impact of US programmes on US prices.  While interesting academic exercises, moreover, those studies do not analyze the question before the Panel.
82 
 
108. As a factual matter, the United States has pr ovided evidence that disproves Brazil’s allegation 
that the United States suppresses the A-index.  Exhibit US-46 demonstrates that the low US quote (either Memphis or California) for the A-Index has rarely been one of the 5 low bids.  If both US 
quotes are always above (but for one month) the 5 lowest quotes used in the A-Index, the 
United States cannot be suppressing the A-Index.  Nevertheless, even if one were to follow the 
Brazilian approach, the data provided by Brazil does not provide evidence of price suppression by the United States.   
109. As set out above, a generalized claim of  price suppression is not contemplated by 
Article 6.3(c), which requires price suppression "in the same market" – that is, that market in which there is "significant price undercutting by the subs idized product as compared to the price of a like 
product of another Member."  Thus, we proceed here  to examine Brazil ’s evidence with respect to 
those "same markets" identified in its answer.  Comparison based on Export Unit Values  
110. Brazil begins its analysis by comparing US and Brazilian export unit values in various 
markets to the A-index.  It should be noted that the proper analysis would be US and Brazilian market 
                                                     
 
81 Brazil’s Further Submission, para. 471(i). 
82 See US Answer to Question 212 from the Panel, paras. 48-55. WT/DS267/R/Add.2 
Page I-581 
 
 
prices  in the market in question.  The export pri ce does not represent the final selling price in the 
market in question.  Given the short time the Unite d States had to review all of this new data, the 
discussion here will focus on those countries included in  the main text of the Brazilian response.  To 
the extent that Brazil has provided data in its exhi bits on various markets that it does not examine or 
explain, we do not consider that Brazil has adva nced arguments with respect to such markets 
sufficient to carry its burden of establishing a prima facie  case, and we ask the Panel to so find. 
 111. The fact that US or Brazil export prices to the seven markets, Argentina, China, India, 
Indonesia, Philippines, Portugal, and South Korea ge nerally may have had movements similar to the 
A-Index does not demonstrate price suppression by the United States.  In fact, Brazil does not in its 
main text show comparisons of US and Brazilia n export unit values in each market (this is only 
provided in Exhibit BRA-386), much less other relevant market information, such as import prices from other suppliers or import volumes.  This ab sence of relevant argument alone demonstrates that 
Brazil has not met its burden of establishing its pri ce suppression claims.  However, the United States 
has updated the Brazilian export unit value graphs to include data through November 2003 in order to 
set out a cursory analysis of each "same market" for the Panel.
83  On the whole, we find that it is the 
Brazilian price that undercuts the US price to these markets.  112. Brazil alleges price suppression in the Argentin e market due to the United States.  The data, 
however, does not support such a claim.  As can be seen in the graph, the United States is an infrequent supplier to the Argentine market.  For t hose time periods when no US imports were found 
in Argentina, there could be no price suppression by the US subsidized product of the prices of 
Brazilian cotton "in the same market."  Of th e 15 periods that both are in the market, the 
United States’ export price was greater than Brazil’ s export price 8 times, below Brazil 6 times, and 
the same once.  
113. Comparing US and Brazilian export unit va lues to China does not demonstrate price 
suppression by the United States.  Brazil is not a frequ ent participant in the China market.  For those 
time periods when no Brazilian imports were found in  China, there could be no price suppression by 
the US subsidized product of the prices of Brazilia n cotton "in the same market."   From August 1999 
to June 2003, Brazil only shipped to China in 13 months.  Of these 13 months, Brazil’s export unit 
value was below the US export unit value 8 times, above the US price 4 times, and the same once.  
Evidence of Brazilian price undercutting the US pri ce is inconsistent with the argument that the 
United States suppresses Brazilian prices to the China market.  114. India was one of the few markets Brazil discussed in which there were a good number of months in which both parties supplied cotton.  Of the 25 months in which both provided cotton, the 
US price was narrowly below the Brazil price in 12 months, was above Brazil in 12 months, and at the 
same level in 1 months.  The time during which the US price was below the Brazil price was during 
the period April 2001 to December 2001, in which th e high yields of MY2001 influenced.  However, 
during August 2000 to January 2001 period, US unit va lues were high and were consistently undercut 
by Brazil by a large margin.  This Brazilian undercut ting led to a plunge in US unit values.  We also 
note that US unit values appear to increase when Br azilian cotton is not in the market.  Brazilian unit 
values, on the other hand, show very little change; this  lack of price movement is not consistent with 
price suppression since the Brazilian price is unresponsiv e.  As the graph shows, there is no systemic 
relationship between the US and Brazilian unit values  to indicate that the United States is suppressing 
Brazilian prices to this market.  
115. Indonesia also was another country in whic h both the United States and Brazil were active 
participants, and each had the low price about an e qual number of times.  However, the majority of 
times the US had a lower price occurred during MY2001, a period in which the United States had 
higher than expected yields which reduced US un it values while Brazil had lower than normal yields, 
                                                     
 
83 Exhibit US-134. WT/DS267/R/Add.2 
Page I-582  
 
driving up the price for Brazilian cotton.  In MY200 2, Brazil returned to general undercutting of US 
unit values, failing to follow US price increases in ear ly 2003.  There does not seem to be any support 
for price suppression in this market as the move ments between the US and Brazilian export unit 
values are not the same.  For example, during th e period October 2000 to January 2001, US export 
unit values increased, whereas Braz il’s export unit values declined.  Again in the period December 
2001 to June 2002, the wide swings in the Brazil price relative to the steady US movements 
demonstrate that US prices are not suppressing Brazil’s.  116. Philippines is a market in which Brazil had sporadic shipments over the period.  For those time periods when no Brazilian im ports were found in Philippi nes, there could be no price 
suppression by the US subsidized product of the pr ices of Brazilian cotton "in the same market."   
There were 19 months in which both parties supplied the Philippines.   Part of the difference in price 
is probably due to the shipment sizes.  As Exhi bit BRA-383 reports, the quantities shipped are quite 
different between Brazil and the United States.  Smaller shipments typically have higher per unit 
costs.  Many of the months in which Brazil exhi bited higher export unit values to the Philippines was 
during MY 2001, a year in which the US had highe r than expected yields, driving down its price 
while Brazil had lower than expected yields, increasing its price.  117. Brazil and the United States overlapped in  the Portuguese market in 27 months, a good 
number of samples.  In all instances except for N ovember 2003, the US unit value was greater than 
the Brazilian unit value, generally by a large margin.  The fact the US unit value was greater than the 
Brazilian unit value is not consistent with price s uppression by the United States.  Even if there was a 
quality difference between the two, the spread be tween the two should be relatively constant.  
However, the movements of unit values do differ.  When the US had big swings in the late 2000 and 
late 2001 early 2002, Brazil saw only modest chang es in unit values.  Since MY2003, US prices first 
increased and have slightly declined whereas Brazilia n prices first declined and have been increasing 
slightly.  The fact that the price movements are not consistent would weaken arguments that the 
United States is causing or threatens to cause price suppression to Brazil.  
 118. The final country market discussed directly in Brazil’s response was South Korea.  As the 
graph depicts, Brazil only supplied cotton to this market in one month.  Since no Brazilian imports 
were found in South Korea over the complained of period, during those times there could be no price 
suppression by the US subsidized product of the prices of Brazilian cotton "in the same market."    
 
Comparing Import Values ("Import Prices") to A-Index  
 
119. Brazil continues its analysis by comparing av erage import prices to specific markets with the 
A-Index.  As with the "export prices" these import prices are not the prices at which the product were 
sold but its value at the border of the importing country.    Again a proper analysis would not use 
border valuation of the pro duct but the actual market prices the pr oduct was sold.  Also it is not clear 
how averaging import prices from the different source s would provide evidence that the United States 
has caused price suppression. In fact the various gra phs provided by Brazil put in doubt their theory of 
world price transmission. 
 
120. The yearly import price data in paragraphs 106-108 is too general to be of any assistance.  
Looking at the various graphs of monthly indivi dual country import prices against the A-Index 
(paragraphs 106-107) also shows discrepancies between markets. For example, looking at the graph of 
Japan’s prices against the A-Index, it is notable that  their import prices never fell below 48 cents even 
though the A-Index fell to as low as 38 cents and th at the gap between import prices and the A-Index 
were quite large when prices were falling but mini mal when prices were rising.  A similar pattern 
seems to have been present in Ecuador.  On the face  of it, these graphs would seem to imply that some 
mechanism was at work to impede the transmissi on of declining "world market prices."  This 
undermines Brazil’ s assertion that price suppress ion can be shown in all third-country markets 
through alleged effects on a "world market price."  The Hong Kong graph is exactly opposite in these WT/DS267/R/Add.2 
Page I-583 
 
 
respects from the Japanese and Ecuador graphs.  This could mean that Hong Kong is less protected from world prices, but the great deal of inconsiste ncy both within and between all of these graphs 
indicates the uncertainty surrounding Brazil’s claims that "all these third country markets are heavily 
influenced by the A-Index and New York futures prices".     Comparison of Domestic Prices and the A-Index  
121. Brazil then compares for a few countries in whic h it could get domestic prices, those domestic 
prices to the A-index.  Again their analysis conc ludes that the A-index influences domestic prices in 
these markets and therefore, the United States is guilty of price suppression.  We have explained that a 
claim of significant price suppression requires that US and Brazilian cotton be found "in the same 
market."  In addition, there are problems with  the connection between the A-Index and domestic 
prices as presented by Brazil.  To demonstrate the problems with Brazil’s analysis, the United States 
will look at the analysis on China.  
122. We agree that China’s domestic prices have al ways been significantly above the A-index  and 
tracked it rather well.  Indeed we include a full ser ies below including all the data currently available 
to us.  This starts September, 1999 and runs th rough April 2003 (Southern China prices as reported by 
East-West Inc. a Beijing agricultural consulting group) .  It is consistent with Brazil’s data although 
Brazil’s only starts in January 2001.   These data reveal that China’s domestic prices are not consistent 
with China’s export and import prices.  
 
123. China’s export prices, as can be seen in Exhibit US-141, are well below the A-index during 
most of the time China exported heavily (MY 1999 through the first half of MY 20001, and the last 
quarter of  MY 2001 through the third quarter of  MY 2002).  Contrary to Brazil’s assertion in paragraph 113 that export prices from all suppliers move with the A-Index, more often than not 
China’s export price did not, staying relatively flat during the periods from August 1999 to 
January 2001 and from February 2 002 to July 2003.  What is mo re, as can be seen from the China 
Prices graph in Exhibit US-141, China’s export prices were significantly lower than the Chinese 
domestic price when China was exporting heavily.  124. The imports are different but still problematic .  During those times when China has imported 
heavily, from the beginning of MY 2002 until the presen t, prices have tracked A-Index prices fairly 
well.   125. These data, not presented or explained by Braz il, show that Chinese domestic prices have 
some connection to the A-index but hardly the "heavily influenced" and "consistent" relationship 
Brazil asserts.  As noted in the US further submi ssion, the Chinese Government during this time had 
the goal of reducing their massive, undisclosed cotton stocks in a way that would insulate there cotton 
producers and processors from changes in prices.  The aim was to maximize cotton prices received by 
Chinese farmers while still insuring their cotton te xtile exports were competitive in world export 
markets.  China sold as much as it could on the wo rld market as long as the A-Index stayed at or 
above a trigger price around 50 cents a pound – hence the flat export price line until the stock 
situation was finally resolved  in late MY 2002.   
 
Conclusion 
 
126. Brazil has not done a proper analysis to s upport its price suppression claims.  To demonstrate 
significant price suppression that leads to serious prejudice, Brazil must provide evidence showing 
that US prices in a given market are suppressing Brazilian prices in that market.  Brazil has not 
presented and explained evidence on actual market prices of US and Brazilian cotton in third-country markets.  Thus, Brazil has not established a prima facie  case with respect to its price suppression 
claims.  In fact, the market-by- market data presented above does not support a finding of significant 
price suppression by US cotton.   WT/DS267/R/Add.2 
Page I-584  
 
 
234. Does "significant" price suppression und er Article 6.3(c) necessarily amount to 
"serious" prejudice within the meaning of Article 5(c)?  Could the level of "significance" of any price suppression under Article 6.3(c) determine whether any prejudice under Article 5(c) rises to the level of "serious prejudice"? USA, BRA 
 127. Brazil’s interpretation that whether price s uppression is "significant"  can only "be assessed 
with reference to the quality of the impacts of whatever  level of price suppression exists on the 
producers of the like product" raises concerns.  Br azil provides the example that even where "large 
amounts of price suppression" have been demonstrated, this might not be "significant" if the 
producers of the complaining party "had de minimis  production, or no exports, and/or that the total 
value of lost revenue from suppressed prices was minimal".
84  The United States believes that the 
conditions of the producers of the complaining party would not enter into an analysis of whether a 
given level of price suppression is "significant."  Br azil’s interpretation would create, out of one legal 
standard ("significant price suppression"), different th resholds that would appl y to different Members 
depending on their financial well-being.  For exam ple, a Member with a strong position in a given 
third-country market might not be able to utilize Article 6.3(c) (for significant price undercutting or significant price suppression or depression") simply on the basis that "the total value of lost revenue from suppressed prices was minimal" even if the le vel of price suppression was large.  Conversely, a 
Member with a nascent exporting industry might not be able to utilize Article 6.3(c) if it "had de 
minimis  production, or no exports," despite a desire to increase both production and exports.  Neither 
scenario appears to fit with the text of Article 6.3(c). 
 128. In addition, Brazil fails to explain how the two different terms in the text of Article 6 
("serious prejudice" and "significant price suppression" ) result in there being only one and the same 
test for both terms.  This would appear to render one of the terms superfluous, contrary to customary 
rules of treaty interpretation. 
 129. Finally, we note Brazil’s reference to the impacts on "complaining party producers" of the 
like product.  We take this to mean that, contrary  to its earlier position, Brazil has now conceded that 
"adverse effects" to other Members are irrelevant fo r Brazil’s claims.  This follows from the text of 
the Subsidies Agreement.  Under Article 5(c), no Member is to cause "serious prejudice to the 
interests of another Member ," and a request for consultations  under Article 7.2 "shall include a 
statement of available evidence with regard to . . . serious prejudice caused to the interests of the 
Member requesting consultations ." 
 
235. Please comment on paragraphs 8, 9 and 10  of the US 2 December oral statement, in 
particular, why the average Brazilian price is show n as lower than the average US price.  BRA 
 
130. Brazil’s answer to Question 235 does not refu te the US evidence that  Brazilian cotton prices 
undercut US prices from 1999-2002.  Brazil does not go so far as to claim the United States undercut Brazil’s prices – except in the Brazilian market, an  argument that is based on prices that are not 
directly comparable, as will be discussed later.  Instead Brazil argues that US and Brazilian prices 
exhibited an "absolute closeness" with Brazil’s export prices sometimes higher and sometimes lower 
than US prices.     131. Except for their own market, Brazil does not pr ovide data or analysis on country markets.  
Instead they examine aggregate data for forty ma rkets that both the United States and Brazil exported 
to in MY1999 to MY 2002.  As the United States explained in our comments on Question 233, this 
aggregate approach is not the proper method of analysis for price suppression claims under Article 6.3(c).  However, even if we accept the Braz il approach, close analysis of the aggregated data 
presented in  Brazil’s response  further supports the US claim of  Brazilian undercutting by showing 
                                                     
 
84 Brazil’s Answer to Question 234 from the Panel, para. 114. WT/DS267/R/Add.2 
Page I-585 
 
 
that consistently and on average Brazilian [un it values] prices were lo wer than those of the 
United States, even though there were periods when factors not related to subsidies led to lower US 
unit values.   
Average Unit Value Comparison 
 132. First, Brazil in the graph following paragraph 121 compares the average unit values of 
Brazilian and US exports.   It is this graph that Br azil uses to support its claim of "absolute closeness" 
between the two countries ’ export prices and the absence of Brazil undercutting, but it simply does 
not do this.  Of the 45 months when both the US an d Brazil were exporting, Br azil prices were lower 
25 months as opposed to the United States’ 20.   Fu rther eight of the United States low-price months 
were in MY 2001, when good weather allowed the Unite d States to realize record yields as opposed to 
sub-par yields for Brazil.  The US yield of 790 kgs ./hectare was 6 per cent above the five year average 
for MY 1999 to 2003.
85  Brazil’s 1073/kgs/hectare for MY 2001 was 5 per cent below its 1999-2001 
average.86  Also Brazil planting half a year later than  the United States saw a much different price 
signal as cotton prices dropped sharply and soybean prices, the  main alternative crop for both 
countries, rose slightly from February to August 2001.87  The United States increased planted area by 
6 per cent but Brazil reduced planted area by 12 pe r cent. US production consequently rose 18 per 
cent to 20.3 million bales in MY 2001, whereas Brazil’ s dropped to 18 per cent to 3.5 million bales.  
This naturally drove US export prices down compared  to Brazil’s.  Brazilian prices followed the US 
prices down in the last half of MY 2001 and have st ayed equal to or below US prices ever since.  
 
133. Setting aside MY1999 and MY 2001 for the mome nt, two years that are not representative of 
normal conditions, Brazil prices undercut US prices in 18 of the 24 months for MY 2000 and MY 
2002.88  This is consistent with Brazilian production ch anges in the two years.  In MY 2000 Brazil 
production increased 34 per cent while US barely 1 per cent from the year earlier.  In MY 2002, 
Brazil production fell 2 per cent while  US production fell 15 per cent.89  So, even using Brazil’s own 
methods we can see that Brazil undercut the United States in 2 of the 3 relevant marketing years and in that third year lower US prices are clearly rela ted to yield and normal  market price signals   
 134. The same conclusions are apparent when l ooking at the graph following paragraph 118 where 
Brazil looks at the aggregated weighted average of the 8 countries originally analyzed by the 
United States.  Looking at the data available in this graph for MY 1999-2002, in 16 of 37 months 
when both countries exported to these countries, the United States price was higher 21 times as opposed to only 16 for Brazil.  Six of the 16 periods when Brazil was higher came in MY 2001, consistent with the analysis above, and 6 came in  MY 1999 when  results were distorted because the 
volume of total Brazil exports was extremely small.   
 
Looking at All US and Brazil Exports 
 
135. To better look at the issue of Brazil’s undercu tting of US prices, it is appropriate to expand 
Brazil’s analysis.  Although Brazil emphasizes the closely interconnected world market, as noted 
before, their analysis looks only at data from countries  to which Brazil and the United States both 
                                                     
 
85 Exhibit US-135. 
86 Exhibit US-135. 
87 The relevant futures prices ratio of cotton to soybean for Brazil in August 2001 was the May 2002 
cotton and May 2002 soy which was 8.63.  The relevant ratio for US farmers in February 2001 was the Dec 2001 cotton to Nov 2001 soybean which was 12.55.  (New York Board of Trade and Chicago Board of 
Trade). 
88 In MY 1999, Brazil only exported 12,000 bales of cotton compared to an average of 438,000 bales in 
MY 2000, MY 2001, and MY 2002.  (See Exhibit US-135) As discussed in the preceding paragraph, MY 2001 
was a year of atypical yields fo r both Brazil and the United States. 
89 Exhibit US-135 (Production data ) WT/DS267/R/Add.2 
Page I-586  
 
exported. The graph below looks at  unit values for the entirety of US  and Brazilian exports during this 
period, which Brazil would argue is appropriate if in fact there is a "world pr ice" that is transmitted 
with little interference to all cotton markets.   Th e graph presents data obtained directly from the 
Foreign Agricultural Service/USDA web site
90 and Brazilian customs data  provided through the 
World Trade Atlas, a for-fee service that collects an d enters in an easily accessible database official 
data from Brazil and numerous other countries ( produ ced by Global Trade Information Service Inc.) 
showing value, quantity and unit values.91 It also expands Brazil’s data by incorporating data through 
November 2003.   136. This graph reenforces what was discussed above  regarding Brazil’s 40-same-markets data.  In 
this case though, Brazil export unit values are lower than the United States in all but one of the 
24 months in MY 2000 and MY2002.   Although very si milar to Brazil’s graph, it is even clearer here 
that Brazil’s export prices were consistently an d often significantly lower than those of the 
United States.  As the graph depicts, Brazil unde rcuts the United States during MY 2000, resulting in 
a decline in US unit values.  In MY2001, both continue d to decline because of record yields and slack 
demand.  But at the beginning of MY2002, US export values rebound whereas Brazil’s remain low, 
undercutting the US export values.  In the start of MY 2003, US prices begin a sharp increase, but Brazilian prices decline slightly before making a s light increase resulting in  an increased spread 
between the United States and Brazil.  
Cumulative Average Values Using all the Data 
 137. Going further and looking at the cumulative weighted price as Brazil did in paragraph 120, 
but again using the entirety of US and Brazilian exports, the average US price for MY 1999-2002 was 47.59 cents per pound for the United States as compared to an average for Brazil of 44.70 (Brazil calculation was almost exactly the same at 44.65).  This means the United States average export value 
during the period was 2.89 cents per pound (6 per cent) higher than that of Brazil.  Looking at just the 
40 markets, Brazil still found US prices were higher but by only 0.68 cents.  This is an important point in itself when addressing the question of Brazil’ s price undercutting.   This means the increased 
spread between average US and Brazilian prices when lo oking at all exports – as compared to just the 
40 countries identified by Brazil – was due almost en tirely to United States exporters being able to 
charge higher prices in markets where Brazil was not competing.  This is clearly consistent with 
Brazil undercutting.  
 138. Looking at the cumulative averages fo r the atypical  MY 2001 when there were 
weather-related reasons for low US prices, Brazil’s method showed a cumulative US average export price lower than Brazil’s by 5.22 cents (44.05 for Br azil and 38.83 for the United States).  Looking at 
the entirety of  exports, the difference was only 3. 65 cents (44.14 for Brazil and 40.49 for the United 
States).  In addition, a distortion in Brazil’s cumulative analysis magnifies the importance of MY2001.  Nearly 45 per cent of Brazil’s exports during this 4-year period came in MY 2001.
92  By 
contrast, the United States only exported 30 per cent of its 4-year total in MY 2001.93  This means the 
difference between the unit average values is even  further skewed.  Looking at the difference in 
average unit values for years other than MY2001 (that is, in MY1999, MY2000 and MY2002 
combined), the average unit value  for the Un ited States is 50.83.  In Brazil it is 45.15.  US prices are 
higher by 5.68 per cent or almost 12 per cent. 
 
                                                      
90 Exhibit US-136 (FAS US trade data) 
91 Exhibit US-137 (WTA Brazilian trade data) 
92 Exhibit US-135. 
93 Exhibit US-135. WT/DS267/R/Add.2 
Page I-587 
 
 
Prices in the Brazil Market 
 
139. It is also misleading for Brazil to claim as th ey do in paragraph 130 that US cotton imported 
into Brazil undercuts domestic Br azilian cotton.  This claim is based on comparing US FOB export 
prices to Brazil domestic prices.  That is, it ignores Brazil’s tariff on cotton imports as well as 
transportation and other costs incurred shipping co tton to Brazil, which would raise the US price 
significantly.  The Brazilian tariff was 8 per cent in  1999 and 2000, 8.5 per cent in 2001, 10 per cent 
in 2002 and 9.5 per cent in 2003.94  In all years except 1999, the difference between Brazil domestic 
and US export prices fell well short of even coveri ng the tariff.  In 1999 the difference of 10.27 per 
cent only exceeded the tariff by 2.27 per cent.  Rece nt trader price quotes for transportation to Brazil 
exceed 10 cents a pound, more than offsetting the diffe rence.  In sum, Brazil’s use of non-comparable 
prices cannot support a finding of price suppression, much less significant price suppression.  
Price Suppression 
 
140. Even using Brazil’s method of looking at the average unit value of exports, rather than actual 
third-country domestic prices, strong evidence of Br azilian price undercutting exists – contrary to 
Brazil’s arguments.  Brazil’s second line of argument is that price undercutting is irrelevant, arguing 
that it is not a question of undercutting but  price suppression and that the global marketplace 
instantaneously translates subsidy-induced lower prices in the United States into lower prices 
world-wide.  Brazil further contends that "prices in each of those 40 third country markets as well as 
the Brazilian and US market were already suppr essed before any cotton was shipped by US or 
Brazilian exporters" (paragraph 131).  141. The price mechanism in cotton is relativel y sophisticated, but Brazil’s explanation is 
unrealistic.   It says essentially that everyone in th e market has perfect knowledge of the market and 
can adjust instantly.   If over the period when  US subsidies increased, they had a significant 
suppressing effect on world markets, this would have been manifested in the United States continually 
lowering prices to take more market share with ot her suppliers being forced to follow.  It is 
implausible to assume that this would have occu rred without some time lag between US and Brazilian 
prices that would have been evident in monthly export  data – and yet, no such dynamic can be seen in 
the price data.
95 
 
142. The fact that, other than in MY2001, US prices generally stayed above Brazilian prices 
indicates that is was not US subsidies, but other factors that drove down prices.  The textile market was extremely competitive during this period.   Ch ina’s industry, operating in a tightly controlled  
market with access to cheap government stocks w as pushing down prices.  Also a sluggish world 
economy kept consumption growth in the same 1.5 to  1.75  per cent annual growth range it had been 
in the previous 4 years despite ma rkedly lower cotton prices.  Processo rs of  raw cotton, other than 
those in China, demanded lower prices from supplie rs in order to remain competitive with the 
Chinese.  At the same time, the US textile and a pparel industry was faced with increasing textile and 
apparel imports, domestic raw cotton use fell sharpl y, and US cotton growers and merchants had to 
turn to exports.  The fact that US stocks grew significantly during this time  also indicates that US 
                                                     
 
94 Source: Various USDA/FAS Attache Reports (available at: www.fas.usda.gov  (search on Attache 
Reports, Brazil, Cotton, 1999-2003)). 
95 Prices take time to adjust.  Suppliers are hesitant to lower prices particularly when they have not seen 
a reduction in their own costs and cannot be sure the pri ces will stay lower.  They will be willing to allow stocks 
to build until the need to drop prices is inevitable.  Similarly, customers will not immediately switch since 
changing to a new unfamiliar supplier has costs particularly if the new lower prices do not continue.  
Additionally, as put forth by Brazil in its response to question 233 (para. 104), even if Brazilian suppliers and 
their customers had through the global pricing system perfect knowledge of US prices and their future direction, they would still have contractual commitments at higher prices that must be met and thus would delay the 
transmission of declines in price movements.  Brazil, however, in its discussion ignored that this delayed 
transmission due to contracts also coul d bound a supplier to a lower price although spot prices are increasing. WT/DS267/R/Add.2 
Page I-588  
 
suppliers were the price takers and not the price setters in this market.
96   Further, the shift in raw 
cotton consumption from the United States to other c ountries (much of which is shipped back to the 
United States in the form of cotton apparel) expl ains why US cotton exports increased as the US 
world market share was unchanged.  
 
143. The point is reinforced by looking at the A-Index and the corresponding quotes for the 
United States and Brazil.  Again one would expect that a US cotton industry  with subsidized excess 
production to dispose of on export markets would ha ve been consistently pricing below the average 
represented by the A-Index (the 5 lowest price quot es obtained by Cotlook CIF Northern Europe).  
But this is not the case as can be seen in the graph below of the A-Index and the US Memphis and 
California / Arizona  A-Index quotes.    
• At no point during MY1999-2003 to date wa s the California / Arizona quote below the 
A-Index.   
 
• Only once during MY1999-2003 to date, Se ptember 2002, was the Memphis quote below 
the A-Index. 
 144. Consistent with what was discussed before, a tightening of the gap between the A-Index and 
US quotes is apparent in MY 2001.  However, Br azil aside, a number of countries had good weather 
and significantly increased area in that year so that  US prices were still above the average as measured 
by the A-Index.    145. A parallel analysis can be made by comp aring the US and Brazilian A-Index quotes (data 
from Brazil Exhibit 242).  This graph is the same as that used by Brazil in paragraph 128 (although 
the last 3 data points are not in the exhibit).  Again, US price quotes are well above Brazil quotes in 
marketing years 1999, 2000, 2002, and 2003 to date .  In MY 2001 quotes grew closer, and for a few 
months the Memphis quote fell below the Brazilian.     •   At all other times, the evidence demonstr ates that Brazilian exporters  were offering cotton 
at prices well below the US A-index quote.  
 
146. Indeed, looking at the graph below compar ing the A-Index to the Brazilian A-index quote, 
there are considerable periods, particularly in MY  2000, when Brazil was consistently quoting below 
the A-Index.  This evidence of low price quotes by Br azilian exporters is consiste nt with the view that 
Brazilian price undercutting exerte d downward pressure on prices. 
 
237. Could a phenomenon that remains at approximately the same level over a given period 
of time be considered a "consistent trend" within the meaning of Article 6.3(d)?  Do parties have any suggestions as to how to determine a "c onsistent trend", statistically or otherwise?  
BRA, USA  
147. Although not entirely clear from Brazil’s answer, Brazil appears to assert that as long as there 
is an increase in a Member’s world market share ove r the preceding three-year average, the fact that 
the Member’s world market share remains at approxima tely the same level could be compatible with a 
finding of an "increase" following a "consistent trend" within the meaning of Article 6.3(d).  We 
would disagree.  A flat world market share over a three-year period followed by a one-year increase 
would not demonstrate that the last year’s "inc rease follows a consistent trend over a period when 
subsidies have been granted" (in the words of Artic le 6.3(d)).  A flat "consistent trend" would not 
suffice since an "increase" could not "follow[] a [fla t] consistent trend."  In that situation, the 
"increase" would be deviating from, not following, the flat "consistent trend." 
 
                                                     
 
96 Exhibit US-135. WT/DS267/R/Add.2 
Page I-589 
 
 
148. From a statistical standpoint, we would agree with Brazil’s comment in paragraph 137 that due to the limited number of observations it is diff icult to calculate a trend that is statistically 
significant.  However, the United States strongly di sagrees with the analysis presented by Brazil in the 
graphs accompanying paragraph 139.  Note that if  the trend line were calculated between 1986 and 
2000 or 1996 to 2000, the trend line would be flat or slightly negative.  As we have argued in the 
Second Submission to the Panel, the change in export share is due primarily to the decline in the US 
textile industry which resulted in almost two-thirds  of US cotton being exported in 2002 compared to 
almost two-thirds milled domestically in 1998.  149. Indeed, if we observe the trend in the US market share as presented in our Second Submission 
to the Panel and in the Concluding statements to the panel of 8 October, the share of the world market 
for upland cotton supplied by US cotton has been flat over the period from marketing year 1999-2002.  And of course Article 6.3(d) is talk ing about "the effect of the subsidy" which requires that it be the 
same subsidy at issue for each year of the "consistent trend".  244. What proportion of the 2000 cottonseed p ayments benefited producers of upland cotton, 
given that payments were made to first handlers,  who were only obliged to share them with the 
producer to the extent that the revenue from sale of the cottonseed was shared with the 
producer? (see 7 CFR §1427.1104(c) in Exhibit US-15). BRA  
150. USDA did not require handlers of cottonseed to report their payments to producer, rather the 
payments went to first handlers.  Handlers were allowed to settle up with their producers as they saw 
fit.  The programme, however, ipso facto ,  did give the producers a basis for possible complaint 
against handlers who had effectively moved low seed pr ices back to their producers. If so, the remedy 
was lay in whatever civil remedies might be  available in a particular jurisdiction. 
 
151. It would appear that to the extent that the cost of low cottonseed prices were charged against 
the producer so as to create a duty for the handler to pass on the payment to the producer, the recovery 
by the producer would have been simply for higher ginning costs paid by the producer.  That is, the producer would have suffered the loss to the exte nt the ginner charged more for ginning because the 
return to the ginner from the seed was too low.   
152. Payments here are disaster- like in that the cost that was suffered and passed through to 
producers, to the extent that it was passed throug h, was after the fact.  The season was long over and 
thus payments could not have induced the planting of the crop.  In short, if there was a pass through, it 
was a wash to reflect higher ginning costs.  Those costs were not associated with the marketing of 
upland cotton, but of cottonseed.  
 
245. Can a panel take Green Box subsidies into  account in considering the effects of non-
Green Box subsidies in an action based on Arti cles 5 and 6 of the SCM Agreement?  BRA, USA 
 
153. Brazil and the United States agree that green box subsidies may not be taken into account in 
considering the effects of non-green box subsidi es in an action based on Articles 5 and 6 of the 
Subsidies Agreement.  Article 13(a)(ii) of th e Agreement on Agriculture states that green box 
measures are "exempt from actions based on Article  XVI of GATT 1994 and Part III of the Subsidies 
Agreement."  We recall that previously in this  dispute Brazil asserted that the phrase "exempt from 
actions" did not preclude the Panel from considering Brazil’s serious prejudice claims but only from 
imposing remedies.
97  Nonetheless, in its answer, Brazil appears to have read this "exempt from 
                                                      
97 Brazil’s Brief on Preliminary Is sue Regarding the "Peace Clause" of the Agreement on Agriculture, 
para. 2 (5 June  2003) (interpreting "exempt from  actions" to mean that "a co mplaining Member cannot receive 
authorization from the DSB to obtain a remedy  against another Member’s domestic and export support 
measures that otherwise would be subject to the disciplines of certain provisions of the Agreement on Subsidies 
and Countervailing Measures . . . or Article XVI of GATT 1994") (emphasis added).   WT/DS267/R/Add.2 
Page I-590  
 
actions" phrase to " prohibit  . . . the effects of these subsidies being included along with other effects 
of non-green box subsidies in assessing Brazil’s actionable subsidies claims" .
98  Thus, Brazil here 
appears to read this phrase according to its ordinary  meaning – that is, "not exposed or subject to" a 
"legal process or suit" or the "taking of legal steps to establish a claim  or obtain a remedy".99  This is 
the definition that the United St ates has advanced in this dispute, and the Panel should consider 
Brazil’s answer to this question an  endorsement of that definition. 
 
246. Can a panel take prohibited subsidies into account in considering th e effects of subsidies 
in an action based on Articles 5 and 6 of the SCM Agreement?  BRA, USA  
154. Brazil errs when it claims in its response to th is question that "the Panel is required to take 
into account all non-green box subsidies, including prohibited subsidies in assessing Brazil’s Article 5 
and 6 claims under the SCM Agreement."  The Panel has discretion in assessing Brazil’s claims.  The United States would note, for example, that Article  6.3(c) and (d) each refer to the "effect of the 
subsidy," which clearly permits the Panel to exam ine the effect of each subsidy individually. 
 
247. Can the Panel take into account trends and volatility in market and futures prices of 
upland cotton after the date of establishment of the Pa nel?  If so, how do they affect the analysis 
of Brazil's claim of a threat of serious prejudice?  BRA, USA  
155. The United States does not disagree that facts arising after the date of panel establishment may be taken into account, for example, in analyzin g Brazil’s threat of serious prejudice claim.  As 
we have explained, as market prices have r ecovered strongly over marketing year 2003 (continuing 
their upwards trend since the trough reached in  marketing year 2001), Brazil has jettisoned its 
proposed legal standard that the Panel examine wh ether there is a clearly foreseen and imminent 
likelihood of future serious prejudice.  One could speculate that it has done so because the facts are no 
longer favourable – that is, high cotton prices will result in significantly lower budgetary outlays for 
two price-based measures (marketing loan payments  and counter-cyclical payments) in marketing 
year 2003 than seen in previous years.  156. Brazil describes the task for the Panel "in an Article 5 and 6 claim" is to "assess[] whether 
present or threatened effects presently exist".
100  We would agree but note that Brazil has provided no 
basis to conclude that past subsidies, such as pa yments made for the 1999-2001 marketing years, that 
were fully expensed in past years could have "pr esent . . . effects [that] presently exist."  To the 
contrary, to the extent that these subsidies are not allocated to future production – and the Panel will 
recall that Brazil itself has both expensed these paym ents for purposes of its Peace Clause calculation 
as well as recognized that these r ecurring subsidies payments would be expensed for countervailing 
duty purposes – no lingering effects can exist becau se the subsidies themselves are deemed to have 
been used up.  Thus, the question before the Panel is whether present subsidies – that is, those made 
for marketing year 2002 through the date of pa nel establishment – were causing certain adverse 
effects to presently exist and whether the US laws and regulations in existence as of the date of 
establishment of the Panel threaten serious prejudice.  Any payments not in existence as of the date of 
establishment are not measures within the Panel’ s terms of reference.101 
 
157. We also note that Brazil cites two reports in support of its arguments:  Argentina Footwear  
and Argentina Peaches .  Those citations are misplaced for several reasons.  First, Brazil entirely 
ignores that both reports interpreted the Agreement on Safeguards , not the Subsidies Agreement, and 
                                                      
98 Brazil’s Answer to Question 245 from the Panel, para. 145. 
99 See, e.g. , Comments of the United States of Ameri ca on the Comments by Brazil and the Third 
Parties on the Question Posed by the Panel, paras. 8-10 (June 13, 2003). 
100 Brazil’s Answer to Question 247 from the Panel, para. 150. 
101 We recall once again that Brazil now admits that the matter before the Panel cannot change after 
establishment.  Answer to Panel Question 247. WT/DS267/R/Add.2 
Page I-591 
 
 
that the two agreements have different texts.  Br azil compounds the problem by failing to mention that 
the paragraphs it quotes in both reports dealt not with th e issue of threat of injury, but with the issue of 
whether imports had "increased" (within the meani ng of the Safeguards Agreement).  Finally, while 
Brazil does acknowledge the existence of  the Appellate Body report in US Lamb , it fails to point out 
that, in the context of a discussion of threat of ser ious injury under the Safegua rds Agreement, in that 
report the Appellate Body made a finding th at undercuts Brazil’s position dramatically: 
 
Like the Panel, we note that the Agreement on Safeguards provides no particular 
methodology to be followed in making determ inations of serious injury or threat 
thereof.  However, whatever methodology is chosen, we believe that data relating to 
the most recent past will provide comp etent authorities with an essential, and, 
usually, the most reliable, basis for a determin ation of a threat of serious injury.  The 
likely state of the domestic industry in the very near future can best be gauged from 
data from the most recent past.  Thus, we agree with the Panel that, in principle, within the period of investigation as a whol e, evidence from the most recent past will 
provide the strongest indication of the likely future state of the domestic industry.
102 
 
158. The strong recovery in market prices and futur es prices demonstrate that there is no clearly 
foreseen and imminent likelihood of future serious prejudice.  As we have previously seen with 
respect to the December 2004 future  contract, price recovery has been sustained and steady; the 
contract average monthly close was 61.34 cents per pound in December 2002, and the current (as of 
22 January 2004) monthly average close is 68.78 cents  per pound.  As a result of higher prices, US 
outlays are markedly down, with no marketing loan payments being made.  In addition, the expectation of continuing high prices embodied in  current future price suggests that no further 
marketing loan payments will be made this marketi ng year and that counter-cyclical payments will be 
dramatically lower. 
 159. In assessing the credibility of Brazil’s argumen t that the baseline projections of FAPRI are 
more probative than futures prices, the Panel s hould recall the "testimony" of Brazil’s own economic 
expert, Mr. MacDonald.  Brazil has presented no ev idence or analysis to suggest that FAPRI’s 
baselines are more accurate price projections th an what the NY futures indicates; in fact, the 
United States has put before the Panel evidence show ing that FAPRI’s baseline projections have been 
far off the mark.  160. For corroboration, the Panel need only co nsider the marketing year 2003-2008 baseline 
projections made by FAPRI in November 2002, January 2003, and November 2003.  The price 
outlook for cotton has improved considerably since publication of the November 2002 FAPRI 
baseline used by Dr. Sumner in his Annex I estim ate of the effects of US subsidies on US cotton 
production.    
•   The table below shows that FAPRI’s pr ojections for the MY2003 Adjusted World Price 
(used for calculating the marketing loan payments) are as much as 20 cents per pound, or 
54 per cent, higher  in the November 2003 baseline as under the November 2002 baseline.   
 •   Even so, FAPRI’s November 2003 projected Adjusted World Price is still almost 6 cents 
per pound lower than the current Adjusted World Price.
103 
 
161. As a result of these revisions, FAPRI’s estimated marketing loan gains (the difference 
between the marketing loan rate and the estimated Ad justed World Price) are reduced considerably.   
                                                      
102 Appellate Body Report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen 
Lamb Meat from New Zealand and Australia , WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, 
para. 137 (footnote omitted). 
103 The Adjusted World Price for January 23-29, 2004, is 63.25 cents per pound. WT/DS267/R/Add.2 
Page I-592  
 
 
•   Under the November 2003 baseline, the estimated marketing loan gain for 2003/04 is 
zero, compared to almost 15 cents per pound  under the November 2002 baseline used by 
Dr. Sumner.   
 
•   Over the five-year period 2003/04 to 2007/08, the average marketing loan gain under the 
November 2003 baseline is estimated to be only 1.32 cents per pound .  This is compared 
to 10.39 cents per pound  using the November 2002 baseline used by Dr. Sumner. 
 
FAPRI’s Revised Price and Marketing Loan Gain Baseline Projections 
 
Year Adjusted World Price (cents/lb) Est. marketing loan gain 1/ (cents/lb) 
 Nov 2002 Jan 2003 Nov 2003 2/ Nov 2002 Jan 2003 Nov 2003 2/ 
2003/04 37.22 44.8 57.36 14.78 7.2 0 
2004/05 39.83 45.4 50.96 12.17 6.6 1.04 
2005/06 41.94 46 50.82 10.06 6 1.18 
2006/07 43.6 46.7 50.35 8.4 5.3 1.65 
2007/08 45.48 48 49.24 6.52 4 2.76 
 Average 41.61 46.18 51.75 10.39 5.82 1.32 
 
 1/ The estimated marketing loan gain is the difference, if positive, between the loan rate (52 cents per 
lb) and the Adjusted World Price. 
 
 2/ Source: FAPRI Baseline, November 2003 (Exhibit US-132)  
 
162. We also note the New York Cotton Exchange closing prices for 23 January 2004, showed the 
March 2004 contract at 75.94 cents, the May 2004 contract at 77.02 cents, and the July 2004 contract at 77.90 cents.  Based on these futures prices, the latest (although preliminary) FAPRI baseline still 
appears to have projected near-term future cotton prices too low.  163. The marketing loan programme contributes to over 42 per cent of the estimated effects of 
removing subsidies on production under th e model developed by Dr. Sumner.
104  A s  t h e  
November 2002 baseline projected significant marke ting loan payments through 2008 whereas the 
November 2003 baseline projects no or minimal ma rketing loan payments, updating Dr. Sumner’s 
model to the November 2003 baseline would significan tly reduce the overall estimated effect of US 
payments on production.  Any remaining effects woul d largely be those incorrectly attributed to 
decoupled income support payments und er Dr. Sumner’s flawed model. 
 164. Finally, in paragraph 154 of its answer, Brazil again tries to muddy the waters by referencing 
the wholly arbitrary "expected adjusted world pri ce first mentioned in its opening statement at the 
second substantive meeting of the Panel with the pa rties.  There, Brazil attempted to provide an 
alternative to the US futures analysis.  Brazil’s alternative was that farmers look to an "expected 
adjusted world price" when making planting decisi ons since the marketing loan programme benefits 
are ultimately determined by the Adjusted Worl d Price.  Whereas the United States has provided 
references to numerous sources that demonstrate farm ers look to the futures prices in making planting 
decisions.
105 Brazil has not provided any evidence to support its assertion that farmers look to an 
"expected adjusted world price" in making planting decisions. 
 
                                                      
104 See Brazil’s Further Submission, Annex I, table 1.4. 
105 See US Answers to Questions 200 and 201. WT/DS267/R/Add.2 
Page I-593 
 
 
165. Without any sources to back up its assertion,  Brazil implied that farmers could readily 
calculate an "expected adjusted worl d price" in making planting decisions.106  According to Brazil, a 
farmer at planting time for MY 1999 would take  the December 1999 futures price and subtract 
18.5 cents to get the "expected adjusted world price"  (which would then be compared to the marketing 
loan rate).  Why 18.5 cents?  For each of MY 1996-MY2002, Brazil calculated the difference between 
the December futures price and the average adjusted world price for th at marketing year.  Brazil then 
calculated the average of the differe nces for these 7 years as 18.5 cents. 
 166. As with Brazil’s lagged price calculation, how ever, this formula has never been, nor could it 
ever be, applied by a farmer in real-life.  First,  calculating the "average adjusted world price" for a 
given year – say, MY 1999 – requires knowledge of the adjusted world prices that actually result in 
that year.  Thus, a farmer making a planting deci sion for MY 1999 (that is, in January-March 1999) 
has no way of calculating the "average adjusted world price" for marketing year 1999 (1 August 1999 – 31 July 2000).  Moreover, the same farmer making a planting decision for MY 1999 could not 
possibly know the December futures prices for MY 2000 - MY2002; nor could that farmer know the 
"average adjusted world price" for MY2000 - MY2002.   Thus, that farmer could not have calculated 
the 18.5 cents per pound average for the "average adju sted world price," nor could he have calculated 
the "expected adjusted world price"
107  as set out by Brazil.108  Thus, Brazil’s critique of the US 
futures price approach to planting decisions is not only incorrect but grossly misleading . 
 
167. Brazil’s assertions relating to "lagged prices," "average adjusted world prices," and "expected 
adjusted world prices" are utterly irrelevant to an  analysis of the effect of the marketing loan 
programme because they are simply not knowable by the farmer at the time of planting.  In fact, the 
only parts of Brazil’s spurious methodology that are objectively knowable at the time of planting – 
and undisputed facts on the record of this dispute – are (1) the December futures price at the time of 
planting and (2) the marketing loan rate.  These ar e precisely the elements that make up the US 
analysis of the effect of the marketing loan programme.  
249. The Panel notes that the definition of eligible "exporter" in 7 CFR 1427.104(a)(2) 
includes "a producer":    
 (a) How does this reconcile with Brazil's argument that Step 2 "export payments" 
do not directly benefit the producer?   How, if at all, would this be relevant for an analysis of the issue of export contingency under the Agreement on Agriculture or the SCM Agreement?  BRA 
 
168. In response to Brazil’s statement that Step 2 "payments are conditional upon proof of 
export,"
109 the United States would simply remind the Panel that such payments are made to users of 
upland cotton upon demonstration of the use of cotton.  Such use can be manifest either by opening 
the bale of cotton or by export.  The programme is indifferent to whether recipients of the benefit of 
this subsidy are exporters or pa rties that open bales for the manufacture of raw cotton into cotton 
products.  Indeed, to the extent a consumer that had intended to export instead opens the bale, then 
that consumer could still obtain the payment upon submission of the requisite documentation.  This 
subsidy is therefore not contingent on expor t performance and is not an export subsidy.110  T h e  
situation here is analogous to that in the Ad No te to Article III of the GATT 1994 which makes clear 
                                                      
106 The methodology is set out in Brazil’s opening statement at the second panel meeting and in 
Exhibits BRA-356 and BRA-357. 
107 December futures - 7-year average of "average adjusted world price". 
108 See Brazil’s Opening Statement at the Second Panel Meeting, paras. 44-47; Exhibit BRA-356, -357, 
-358; Brazil’s Answer to Question 247, para. 154. 
109 Answers of Brazil to Question 249(a) (22 December 2003), para. 163. 
110 See, e.g., US First Written Submission (11 July 2003), paras. 127-135. WT/DS267/R/Add.2 
Page I-594  
 
that just because a measure that covers all produc ts evenly is applied in the case of imports (here 
exports) at the border, does not change it to a border measure.  169. As was pointed out in the Opening Statement of the United States of America at the Second 
Session of the First Meeting of the Panel with the Parties , Brazil’s analysis of Step 2 payments 
exaggerates the effect of Step 2 payments on world prices.  Because demand for cotton is more price 
responsive than supply, the incidence of processor s ubsidies like Step 2 accrue to supply rather than 
demand.  That is, producers gain through higher prices paid to producers while world prices are relatively unaffected.  This is consistent with a prev ious analysis of Step 2 by FAPRI in 1999 (Exhibit 
US-61).  In that study, FAPRI estimated an average Step 2 payment of 5.3 cents per pound.  (By way 
of contrast, the Step 2 payment rate in effect fo r January 23 - 29, 2004, is 1.62 cents per pound.)  
These payments resulted in an increase of the spot price of US cotton by 4 cents and a fall in the 
world cotton price of less than 0.5 cents.   170. While it is true as Brazil points out that the margin of difference that  is required between the 
relevant delivered US price and the A index has b een adjusted slightly by the 2002 farm bill, the 
Brazil answer shortchanges several aspects of th e continued limitations on Step 2 payments. The 
statute continues to allow payments only when the de livered  US price in Northern Europe is higher 
than the going local Northern European price, a nd only when that difference has existed for four 
weeks straight, and only when the prevailing local Northern European price (adjusted for price and 
location) is not more than 134 per cent of the US loan  rate of 52 cents per po und.  That figure, 134 per 
cent of the loan rate, would be about 69.6 cents, a nd the current adjustment for location and quality is 
about 13 cents per pound.  This means that where the prevailing local N.E. price was more than about 
82 cents, there would be no Step 2 payments irrespec tive of the amount of difference in the two prices 
that are otherwise compared to determine whether Step 2 payments are made.  Also missing in the 
Brazil answer is a reference to reflect that th e relief from the additional 1.25 cent differential is 
temporary as under current law that 1.25  cents will return on 1 August 2006.
111 
 
G. REMEDIES 
 250. Does Brazil seek relief under Article XVI of  GATT 1994 in respect of expired measures?  
What type of recommendation would the Panel be authorized to make?  (Brazil further 
submission, paragraph 471 (iii))  BRA  
171. In Brazil’s answer, it states that it does not seek relief "under . . . Article XVI of GATT 1994" 
in respect of "the legal instruments cons isting of the 1996 US Farm Bill providing, inter alia , for 
production flexibility contract payments, as well as various emergency a ppropriation Acts in 
1998-2001 providing, inter alia , for market loss assistance payments."  However, Brazil also clarifies 
that "Brazil’s claims under Artic les 5(a) and 6(c) of the SCM Agreement do include the adverse 
effects today and in the future of subsidies provided  under these expired legal provisions".
112  Brazil’s 
answer points out the difficulty in its  approach to actionable subsidies. 
 
172. As Brazil acknowledges, "a panel may not make a recommendation to the DSB that a 
Member bring a measure into conformity with its WT O obligations if that measure no longer exists."  
                                                      
111 We have sought additional information on whether producers in the capacity of manufacturers or 
exporters ever receive Step 2 payments. As we indicated, this would only occur with ve ry large producers, if at 
all. We have examined recent Step 2 payment lists, and th ey indicate that at the very best any such payments 
would be highly isolated.  Cooperatives would not, in this sense, be considered  "producers" since a cooperative 
does not, as such, have a risk in the crop during the growing season.  Step 2 payments are never paid more than 
once for the same cotton and absent export are only paid in connection with the manufacturing process for 
breaking open bundles.  A producer who simply bundled cotton just to break the bundle would not be eligible 
for the payment. 
112 Brazil’s Answer to Question 250 from the Panel, para. 164 (emphasis added). WT/DS267/R/Add.2 
Page I-595 
 
 
Simply put, if a measure does not exist at the time of  panel establishment, then that "measure" is not 
part of the "matter" referred to the panel and ca nnot be within the panel’ s terms of reference.  
Furthermore, there is nothing to be brought into conformity.  In this dispute, recurring subsidies 
"provided" (in Brazil’s words) with respect to past  years and fully expensed to those years no longer 
exist once a new marketing year, for which new re curring subsidies are paid, commences.  Thus, not 
only did these measures (subsidies) for past marketi ng years (1999-2001) not exist at the time Brazil’s 
panel request was filed and the panel established ( during marketing year 2002), they do not exist 
today (half way through marketing year 2003) and ca nnot be the subject of any recommendation to be 
brought into conformity.113 
 
173. For this reason, Brazil’s insistence that its  serious prejudice "claims . . . do include the 
continuing adverse effects today and in the future  of subsidies provided under these expired legal 
provisions" is troubling.  Were the Panel to consid er that expired subsidies have some continuing 
effect (and we note that Brazil has never explained how long those effect s could be deemed to last nor 
how they would be distinguished from the present effect s of current subsidies), "include" them as part 
of its analysis of Brazil’s serious prejudice clai ms, and render a finding of present serious prejudice, 
the Panel could not recommend that these expired measu res be brought into conformity.  On the other 
hand, a recommendation that the adverse effects be removed would be of questionable use since those 
"effects" would have included the effects of expired measures.  Thus, Brazil’s claims of present serious prejudice should be limited to those measures that currently existed at the time of Brazil’s 
panel request and panel establishment. 
 
251. In light, inter alia, of Article 7.8 of the SCM Agreement, if the Panel were to find that 
any subsidies have resulted in adverse effects to the interests of another Member within the 
meaning of Article 5 of the SCM Agreement, should it make any recommendation other than 
the one set out in the first sentence of Article 19.1 of the DSU?  BRA 
 
174. The United States disagrees with Brazil’s answer.  There is no recommendation made 
"pursuant to Article 7.8 of the SCM Agreement."  Ra ther, there is an obligation under Article 7.8 on a 
Member granting or maintaining a subsidy inconsis tently with Article 5 to "remove the adverse 
effects or . . . withdraw the subsidy" after adoption  of the relevant reports "in which it is determined 
that any subsidy has resulted in adverse effects to the interests of another Member."  Article 19.1 of 
the DSU addresses the entirely separate ques tion of what recommendations should be in the 
report.
1141  We also note the contrast between Subsidies Agreement Articles 4.7 and 7.8 in that the 
text of Article 4.7 specifically authorizes the Pa nel to take an action ("shall recommend that the 
subsidizing Member withdraw the subsidy w ithout delay")  while Article 7.8 does not. 
 
252. Without prejudice to any findings by the Panel, if the Panel were to find that any of the 
challenged measures constitute prohibited subsid ies within the meaning of Article 3 of the SCM 
Agreement, what are the considerations that  should guide the Panel in making a 
recommendation under Article 4.7 of the SCM Agreeme nt relating to the time period "within 
which the measure must be withdrawn"? What should that time period be? BRA  
175. In its answer, Brazil sets forth no considera tions that could guide the Panel in making a 
recommendation under Article 4.7 relati ng to the relevant period of time, other than to say that the 
period should be 90 days.  The United States understa nds that different time periods have been set by 
panels that have made findings of  prohibited subsidies given the natu re of the measure in question.  
                                                     
 
113 This is so for all the reasons we have given earlie r in this dispute, as well as for the reason that 
Brazil gives:  the matter before a Panel "cannot" cha nge after establishment.  Brazil’s Answers to Panel 
Question 247. 
114 DSU Article 19.1 ("Where a panel or the Appellate Body concludes that a measure is inconsistent 
with a covered agreement, it shall recommend that the Member concerned bring the measures into conformity 
with that agreement .") (emphasis added; footnote omitted). WT/DS267/R/Add.2 
Page I-596  
 
For example, in several disputes in which it app ears that solely administrative action would be 
necessary to withdraw the measure, it appears that  panels have set 90-day periods.  In the 
United States – FSC  dispute, the panel found that withdrawal of the measure would require legislative 
action and provided an appropriate period of time.  The time for appeal and adoption would also be a 
relevant consideration.  The United States has expl ained on several occasions the intricacies of the US 
legislative process and the time needed to enact legi slation, including in submissions to arbitrators 
acting under Article 21.3(c) of the DSU.  No such ar bitrator has ever concluded that a period as short 
as 90 days is a reasonable period of time for the United States to complete implementation of the DSB’s recommendations and rulings wh ere legislative action is needed.
115 
 
176. Brazil has challenged Step 2 payments, th e export credit guarantee programmes, and FSC 
benefits to upland cotton as prohibited subsidies.  Brazil has also asserted that these measures are 
"mandatory," such that officials have no discreti on to implement the measures in a WTO-consistent 
fashion.  While the United States does not accept Br azil’s assertion, the United States would suggest 
that the 90-day period given with respect to measu res requiring only administra tive fixes would not be 
appropriate.  177. With respect to the FSC legislation, should th e Panel find this to be inconsistent with US 
obligations under Article 3.2 of the SCM Agreem ent, it is not a practical possibility that the 
United States could withdraw the subsidy within 90 days, given that legislative action would be 
required.  However, the United States notes that ther e already are bills before both houses of Congress 
that would repeal the FSC and that have been re ported out of their respective committees.  In the 
event of a prohibited subsidy finding, the United Stat es should be given until the end of this year to 
complete the legislative process and enact this legislation into law.  H. MISCELLANEOUS  255. How does Brazil respond to US assertions concerning the circuit-breaker provision? (see 
US 2 December oral statement, paragraph 82).  Does this mean that US subsidies cannot be "mandatory" for the purposes of WTO dispute settlement?  BRA  
178. The United States provides comments on the mandatory / discretionary analysis in its 
comments on Brazil’s answer to question 257.   
257.  The Panel takes note of the Appellate Body Report in United States – Sunset Review of 
Anti-Dumping Duties on Corrosion-Resistant Carbon Steel Flat Products from Japan (DS244), 
which was circulated to WTO Members on 15 Dece mber 2003.  The Panel is aware that this 
report has yet to be adopted by the Dispute Settlement Body.  Nevertheless, the Panel asks the parties to respond to the fo llowing related questions. 
  (a) In that report, the Appellate Bo dy cautioned against the "mechanistic" 
application of the so-called "mandatory /discretionary distinction" and stated 
that the import of this distinction may vary from case to case (para. 93).  For the Appellate Body, the question of wheth er a measure is mandatory or not is 
relevant "if at all" only as part of the assessment of whether the measure is, as such, inconsistent with particular obligations.  How, if at all, are these statements and the related findings concerning the mandatory/discretionary 
distinction in that Appellate Body Report relevant to: 
                                                     
 
115 The Panel may wish to refer, inter alia , to the 21.3(c) arbitrations  conducted in the dispute 
United States – Continued Dumping and Subsidy Offset Act of 2000  (WT/DS217/14, WT/DS234/22, award 
circulated 13 June 2003), to which Brazil was a party.  Other such arbitrations include United States - 
Anti-Dumping Measures on Certain Hot-Rolled Steel Products From Japan  and United States - Antidumping 
Act of 1916 . WT/DS267/R/Add.2 
Page I-597 
 
 
 
179. Brazil’s response to question 257 begins w ith a general discussion of the Appellate Body 
report in United States – Sunset Review.116  As reflected in the US answer to the same question, the 
United States agrees with the view expressed in para graphs one and two of Brazil’s response that the 
United States – Sunset Review  report has no significant impact on this dispute and that the Appellate 
Body in United States – Sunset Review in fact undertook an analysis of whether the measure at issue 
in that dispute was mandatory based on a traditi onal "mandatory / discretionary" analysis.  The 
language cited in the Panel’s question was drawn from a separate section of the United States – Sunset 
Review  report addressing the preliminary jurisdictional issu e of what is a measure, and that question is 
not present here. 
 
180. While the United States agrees that the US–Sunset  report is not relevant to the analysis in this 
dispute, the United States nevertheless disagrees with Br azil’s further characterizations of that report.   
 181. For example, in paragraph three of Braz il’ s answer, Brazil addresses the Appellate Body 
discussion on the interpretation of a Member’s domestic  law.  In its statement at the 9 January 2004, 
meeting of the DSB at which the report was adopted  (attached as Exhibit US-138), the United States 
placed the Appellate Body statement which Brazil c ites in its proper context, which is that the 
meaning of a domestic law must be determined based on applicable domestic  legal principles of 
interpretation.  It is simple error to conclude  that a measure mandates behaviour by government 
officials of a Member if, under the domestic law of  that Member, the behaviour is not mandated.  
Thus, Brazil’s speculations in paragraph four of its answer that it is permissible to examine whether 
"the operation of a measure" creates requireme nts for government officials to act in a 
WTO-inconsistent manner is both groundless and mean ingless.  US officials are required to do what 
US laws require, and there is no principle of US  law indicating that a law’s "operation" requires 
anything.   
 
182. Brazil elaborates on its discussion of the "ope ration of a measure" with a reference to the 
Appellate Body’s discussion of "normative" requirements.  However, the United States notes, as it did in its answer to Question 257(d), that the Appellate Body’s discussion of an instrument’s "normative" 
character came in the context of its analysis of wh ether an instrument can be a measure, and not the 
separate question of whether a measure mandates a br each of any WTO obligation.  It is only this 
latter question that is before this Panel. 
 183. Likewise, the Appellate Body statement on protecting future trade which Brazil cites in 
paragraph five of its answer and analyzes in para graph six came in the context of the Appellate 
Body’s discussion of why certain instruments should be  considered measures, and not in the Appellate 
Body’s separate analysis of whethe r that measure mandates a WTO breach.  Again, it is not disputed 
that the measures at issue in this case are "measures."  Thus, as Brazil itself notes, the Panel "need not 
examine whether the subsidy measures that Braz il has challenged are mandatory as a preliminary 
jurisdictional matter," but should do so only in th e context of determining whether the measures 
breach US obligations.
117 
 
 (i) the legal standard and elements Br azil sets out to establish its export and 
prohibited subsidy claims under the provi sions of the Agreement on Agriculture 
and Articles 3.1(a) and (b) of the SCM Agreement, concerning: BRA 
 
- Step 2 payments (see, e.g. paras. 244-245 & 250 Brazil's first written submission; Panel 
Question 109 and parties' responses/comments thereon); and 
                                                      
116 Appellate Body Report, United States – Sunset Review of Anti-Dumping Duties on Corrosion 
Resistant Carbon Steel Flat Products from Japan , WT/DS244/AB/R (adopted 9 January 2004) (" United States – 
Sunset Review "). 
117 See Brazil’s Answer to Question 257 from the Panel, para. 2. WT/DS267/R/Add.2 
Page I-598  
 
 
184. Brazil has challenged Section 1207(a) of th e 2002 Act providing for Step 2 payments as both 
a prohibited export subsidy under Subsidies Agr eement Article 3.1(a) and an import-substitution 
subsidy under Subsidies Agreement Article 3.1(b).
118  Brazil argues that the statute mandates 
payments inconsistent with WT O obligations and therefore is per se  WTO inconsistent.119 
 
185. The United States – Sunset Review Appellate Body report did not analyze or alter the 
mandatory/discretionary analysis that has been u sed in past WTO disputes.  Thus, for purposes of 
Brazil’s per se  challenge to Section 1207(a) of the 2002 Ac t, the relevant issue is whether that 
measure mandates a violation of the WTO Agreement.120  It does not, and therefore Brazil’s per se  
claim must fail.  
186. The United States has explained that "subject to the availability of funds (that is, the 
availability of CCC borrowing authority), Step 2 paym ents must be made to all those who meet the 
conditions for eligibility."
121  That is, the United States may not arbitrarily deny payment to eligible 
recipients when the price conditions for payment have  been met.  However, the absence of discretion 
given these conditions does not mean the measure manda te a violation of Articles 3.1(a), 3.1(b), and 
3.2 of the Subsidies Agreement.   
 187. Brazil states that "US government officials are not provided with any flexibility under Section 
1207(a) of the 2002 FSRI Act" and therefore "the Act violates Articles 3.3 and 8 of the Agreement on Agriculture, and Articles 3.1(a) a nd 3.1(b) of the SCM Agreement".
122  Whether or not US 
government officials have flexibility with regard to  administration of the Step 2 programme, Step 2 
subsidies can violate Articles 3.3 and 8 of the Agr eement on Agriculture only if they constitute export 
subsidies.  For the reasons summarized in the US Comment to Brazil Answer to Panel Question 249, 
Step 2 subsidies are not export subsidies.  188. The Step 2 subsidy payments are included in  the Total Aggregate Measurement of Support 
reported by the United States.  The United States has also remained within its domestic support 
reduction commitments as set forth in Part IV of its Schedule.  Pursuant to Article 6.3 of the 
Agreement on Agriculture and Paragr aph 7 of Annex 3 of that Agreem ent, the United States therefore 
"shall be considered to be in compliance with its domestic support reductio n commitments."  Under 
Article 6.3 a Member may choose to provide "amber box" support in any direct or indirect manner so 
long as that Member’s "Current Total AMS does not exceed the corresponding annual or final bound 
commitment level specified in Part IV of the Memb er’s Schedule."  Furthermore, the first words of 
Article 3 of the SCM Agreement render that artic le subject to the terms of the Agreement on 
Agriculture.  The terms of Articles 3.1(a) and 3.1(b) of the SCM Agreement apply "except as 
provided in the Agreement on Agriculture".
123  Therefore, without regard to flexibility in operation of 
                                                      
118 Brazil’s First Written Submission, para. 235 ("The measure Brazil challenges as a per se  violation 
of the Agreement on Agriculture and the SCM Agreement is the Step 2 expor t payment program as set forth in 
Section 1207(a) of the 2002 FSRI Act."); id., para. 331("The measure Brazil challenges is therefore 
Section 1207(a) of the 2002 FSRI Act, which mandates the payment of Step 2 domestic payments."). 
119 Brazil’s First Written Submission, para. 250 (" Section 1207(a) of the 2002 FSRI Act mandates 
Step 2 export payments that are prohibited export subsidies within the meaning of SCM Agreement 
Article 3.1(a)."); id., para. 341 ("The programme also constitutes a per se violation of ASCM Articles 3.1(b) and 
3.2, because payments are mandatory under US law.  Section 1207(a) of the 2002 FSRI Act gives no discretion 
to the US Secretary of Agricu lture to apply the measure in a WTO consistent manner."). 
120 Appellate Body Report, US – Anti-Dumping Act of 1916 , WT/DS136/AB/R, para. 88 (adopted 
26 September 2000). 
121 US Answer to Question 109 from the Panel. 
122 Brazil’s Answers to Question 257(a)(i) (20 January 2004), para. 8. 
123 See US First Written Submission (11 July 2003),  paras. 138-145.  See also, Answers of the 
United States to Panel questions 111-116 (22 August 2003), paras. 222-226; US Further Submission 
(30 September 2003), paras. 165-176. WT/DS267/R/Add.2 
Page I-599 
 
 
the Step 2 programme, to the extent the United St ates has not exceeded its  domestic support reduction 
commitments, the Step 2 programme and its authorizing legislation do not constitute a per se  violation 
of Article 3.1(a) or 3.1(b) of the Subsidies Agreement.124 
 
- export credit guarantee programmes: GSM- 102, GSM-103 and SCGP (see, e.g., para. 90 
Brazil's oral statement at second Panel meeting).  
 
189. With respect to export credit guarantee progr ammes, the United States will not reiterate its 
myriad points regarding the carve-out conferred by  Article 10.2 of the Agreement on Agriculture and 
the data indicating that, in any event, premia ar e sufficient to cover long-term operating costs and 
losses.125  We do note that, as Brazil recognizes, the programmes are currently below the 1 per cent 
cap on premiums.  Because the United States has di scretion to raise the fees to the cap, which along 
with other elements of discreti on over provision of actual guarantees, creates a "discretionary" aspect 
to the programme that does not "m andate" WTO inconsistent measures . 
 
190. However, the United States notes the disingenuous response of Brazil, in paragraph 16 of its 
response to Question 257(a)(i).  On the one hand Braz il claims to have "looked at historical data 
concerning premiums collected and costs and loss es incurred" to allege dly make its case under 
item(j), but in the very same paragraph it states th at "Brazil does not agree with the United States that 
item(j) necessarily ‘requires a certain retrospection.’" Brazil literally uses retrospection in an effort to 
make its case on this very poin t: "Brazil has demonstrated that, retrospectively  [italics added], costs 
and losses incurred by the programmes exceeded premiums collected over a 10-year period".126  The 
United States of course disagrees with the factual pr emise of the statement, but Brazil cannot credibly 
disagree that "a certain retrospection" is necessary for a proper analysis under item(j). 
 
 (ii) the legal standard and elements Brazil sets out to establish its serious prejudice 
and "threat of serious prejudice" claims, and in particular, its designation of 
marketing loan; crop insurance; counter-cyclical payments; direct payments and Step 2 as "mandatory"?   BRA 
 
191. Brazil’s answer does not explain the significance of assigning the "mandatory" label to 
challenged measures for purposes of its serious prejudice claim.  Brazil has challenged certain statutory and regulatory provisions as per se  inconsistent with Articles 5( c) and 6.3(c) and (d) of the 
Subsidies Agreement and Article XVI:1 and :3 of GATT 1994.
127  Brazil’s challenge to these 
measures is "as such".128  As explained above with respect to Section 1207(a) of the 2002 Act, under 
Brazil’s per se  challenge, the relevant issue is whether th e challenged measures mandate a violation of 
the WTO Agreement.129   They do no t. 
                                                      
124 Step 2 payments are available to all users of domestic upland cotton within the United States, be 
they domestic users or exporters.  Thus, payment is not contingent upon export performance, and 
Section 1207(a) does not mandate the grant or maintenanc e of a prohibited export subsidy within the meaning of 
Article 3.1(a).   
125 In the view of the United States, the relevant  analysis under the Subsidies Agreement whether 
export credit guarantees  are export subsidies could only be the cost-to-government approach set out in item (j) 
of the Illustrative List of export subsidies. 
126 Brazil’s Answer to Question 257(c) (20 January 2004), para. 40. 
127 Brazil’s Further Submission, para 413 ("Brazil challenges as per se  violations of Articles 5(c), 
6.3(c), and 6.3(d) of the SCM Agreement, and Article XVI:1 and 3 of GATT 1994 selected mandatory 
provisions of the 2002 FSRI Act and the 2000 ARP Act, as  they cause a threat of se rious prejudice within the 
meaning of those provisions."). 
128 Brazil’s Further Submission, para. 471(vii) ("The following Sections of the 2002 FSRI Act and the 
referenced regulations thereto violate, as such, Ar ticles 5(c), 6.3(c), 6.3(d) of the SCM Agreement and 
Articles XVI: 1 and 3 of GATT 1994 to the exte nt that they relate to upland cotton."). 
129 Appellate Body Report, US – Anti-Dumping Act of 1916 , WT/DS136/AB/R, para. 88 (adopted 
26 September 2000). WT/DS267/R/Add.2 
Page I-600  
 
 
192. Both Brazil and the United States agree that , given certain conditions such as price levels, 
these challenged measures would be "mandatory" in the sense that the United States could not 
arbitrarily decline to provide them.  However, for purposes of a mandatory / discretionary analysis, no 
WTO-inconsistency is mandated by those measures because serious prejudice does not necessarily 
result, even where there is no discretion not to provide payment.    
•   For example, a finding of serious prejudice based on Article 6.3(d) requires that there be 
an increase in the world market share of the subsidizing Member in a subsidized primary 
product and the increase follow a consistent tre nd over a period when subsidies have been 
granted.  This finding cannot be made in  the abstract but depends upon real-world 
conditions, such as the current and recent sh ares of the world market for upland cotton 
held by the United States.   
 •   Similarly, a finding of serious prejudice ba sed on Article 6.3(c) requires that there be 
"significant price suppression" in the "same market" where imports of both the 
complaining and responding party are found.  Th is finding also cannot be made in the 
abstract but requires an examination of actual prices, import levels, and an analysis of the effects of challenged subsidies.   
 
Thus, that certain US measures "mandate" payments  given certain conditions  (such as price levels) 
does not establish that these measures mandate a WTO-inconsistency under a mandatory / 
discretionary analysis of Brazil’s per se  serious prejudice claim. 
 193. With respect to Brazil’s threat of serious  prejudice claims "that do not involve claims 
regarding the ‘ per se ’ validity of the statutes," Brazil colloqu ially describes the 5 US subsidies in the 
Panel’s question as "mandatory," but the mandatory / discretionary analysis is inapplicable to this 
threat claim.  In this context, it is significant th at certain of the challenged payments are not mandated 
if price conditions are not met.  Thus, in evaluati ng the threat of serious prejudice resulting from these 
measures, the likelihood  that price conditions will be satisfied must be taken into account.  (For 
example, the price conditions have not been met for marketing loan payments since September 2003, 
and none are currently being made.  Furthermore, farm prices have risen to the point that the 
counter-cyclical payment for marketing year 2003 is projected at one-third or less of its statutory maximum.)    194. Brazil argues that "a threat of serious prej udice under Articles 6.3 and 5(c) will be more likely 
to exist if the subsidies are mandatory" and that  "there are no provisions in US law limiting the 
payments, and, thus, limiting the threat of prejudice. "  Putting aside the fact that the "circuit breaker" 
provision could serve to "limit[] the payments,"
130 Brazil’s argument rests on the flawed notion that 
the absence of a "legal mechanis m to limit the amount of potential subsidies that could be paid" 
necessarily creates a threat of serious prejudice.  Th is proposed standard does not withstand scrutiny. 
 
195. As the United States has noted131, Brazil looks to the Appellate Body report in United States – 
FSC, but that report involved the "threat of circ umvention" of export subsidies standard of 
Article 10.1 of the Agreement on Agricultu re.  Because agricultural export subsidies are subject to 
volume and value limits, it may be appropriate in that  particular circumstance to conclude that the 
absence of a mechanism to control the flow of s ubsidies could threaten circumvention of those 
absolute commitment levels.  However, the commitment  in the case of Articles 5(c) and 6.3 is not to 
                                                      
130 Although the trigger for the circuit breaker pr ovision is compliance with the United States’ AMS 
commitments, the Secretary would appear to have discretion over what "adjustments in the amount of such expenditures" would be made.  That is, the Secretary could determine to make adjustments in expenditures for 
one product or multiple products or decoupled income supports. 
131 See, e.g. , US Opening Statement at the Seco nd Panel Meeting, paras. 83-85. WT/DS267/R/Add.2 
Page I-601 
 
 
threaten serious prejudice – that is, not threaten a particular form of adverse effect .  Whether a 
particular type and level of subsidy could threaten that effect necessarily depends upon a 
fact-intensive examination of, inter alia , the subsidy, the relevant ma rket or markets, supply and 
demand factors, etc.  Thus, the FSC standard for claims of "threat of  circumvention" of export subsidy 
commitments is not relevant in this context. 
 
196. Brazil’s continued reliance on EC – Sugar Export Subsidies  is misplaced.  In that dispute, the 
panel found that as there was no legal mechanism to  control the EC’s sugar export subsidies, the 
subsidy constituted a permanent thre at of instability.  That panel, however, provided no basis for 
selecting that standard, which is not reflected in the text of the Subsidies Agreement or GATT 1994 
Article XVI:1.132  We further note that Brazil itself, when it first presented this report to the Panel, 
commented that "[t]he panel’s conclusion was based on several key factual findings".133  Thus, even 
that GATT panel report’s finding of threat was based on the particular factual circumstances it 
reviewed, and that report would not support an abstract  standard that the lack of a legal mechanism to 
control the flow of subsidies suffices to  create a threat of serious prejudice. 
 
 (iii) the legal standard and elements Braz il sets out to establish its "per se" "serious 
prejudice" claims (e.g. Brazil's 9 September further submission, para. 417 ff; US oral statement at second Panel meeting, para. 86 ff.)? BRA 
 
197. Given the way in which Brazil structured its  answer, the United States directs the Panel’s 
attention to its comment on Brazil’ s answer to question 257(a)(ii).  We do note, however, that Brazil 
has not commented on or rebutted that portion of th e US oral statement referred to in the Panel’s 
question.  There, we pointed out that Brazil had asser ted that in either of two price circumstances, the 
United States is required to act in a manner incons istent with US WTO obligations.  The first price 
circumstance is that "both USDA’s and FAPRI’s baseline expect mark eting loan and counter-cyclical 
payments to be made during the lifespan of the 2002 FSRI Act, i.e., through MY 2007.  Thus, the 
circumstances that will exist during the lifespan of the 2002 FSRI Act are such that all of the five 
mandatory subsidies will be paid  until MY 2007 and that they will threaten to cause serious 
prejudice".
134  Brazil avoids discussing the fact that market  price developments during marketing year 
2003 have already superseded this analysis by Brazil.  
198. The second price circumstance Brazil posits is when prices are sufficiently high that only 
direct payments and crop insurance payments ar e made.  Brazil has provided no analysis of the 
estimated effects of direct payments and crop insura nce payments at such high market price levels – 
that is, its economic analysis is made using baseline prices that are not sufficiently high that only 
direct payments and crop insurance payments ar e made.  Neither has Br azil responded to this 
criticism.  
 
 (b) How and to what extent are the legal  and regulatory provisions cited in paras. 
415 and 423 of Brazil's 9 September further submission "normative" in nature and treated as binding within the US le gal system (see, e.g., para. 99 of the 
Appellate Body Report)?  Does your resp onse differ depending on whether the 
payments are dependent upon market price conditions? BRA 
 
                                                     
 
132 Indeed, the GATT panel’s conclusion that "the Community system and its application constituted a 
permanent source of uncertainty in world sugar markets an d therefore constituted a threat of serious prejudice in 
terms of Article XVI:1" does not clarify any standard to  distinguish subsidies that threaten serious prejudice 
from those that do not since any subsidy that has some production effect could be deemed to "constitute[] a 
permanent source of uncertainty."  See GATT Panel Report, EC – Sugar Exports II(Brazil), L/5011, 27S/69, 
part V(g). 
133 Brazil’s Further Submission, paras. 296-97. 
134 Brazil’s Further Submission, para. 430. WT/DS267/R/Add.2 
Page I-602  
 
199. As explained in the US answer to questi on 257(d), the Appellate Body’s discussion of the 
"normative character and operation" of an instrument came in the context of its explanation of how to 
determine whether an instrument is a "measure" subject to challenge in dispute settlement.  The 
Appellate Body distinguished this question from the separate question of whether the instrument, if a 
measure, mandates a breach of a WTO obligation unde r a "mandatory/discretionary" analysis.  Since 
there is no dispute that the cited legal and regul atory provisions are "measures," the "normative" 
character of those measures is not at issue.  Indeed , Brazil recognizes this in stating that, "[a]s used by 
the Appellate Body, the term ‘normative’ includes as a subcategory the group of measures that are 
mandatory, within the meaning of the traditi onal mandatory/discretionary distinction".
135  In other 
words, "normative" measures may or may not ma ndate a WTO-breach, as analyzed based on the 
"traditional mandatory / discretionary distinction."  
 200. Brazil further notes correctly that "[t]he focu s for deciding whether a measure is mandatory or 
discretionary is on whether it provides government officials with the discretion to implement the 
measure in a WTO-consistent manner".
136  However, discretion is only one reason why a measure 
may not be found to mandate a breach of a WT O obligation.  Here, Brazil’s challenge is 
fact-dependent.  There is no basis for presuming the ex istence of a particular set of facts, and hence no 
basis for presuming that measures mandate a breach of WTO obligations.  Brazil erroneously denies the relevance of the conditions attached to payments.
137  For example, if, when those conditions  are 
met, only some  of the elements which establish a breach have  been shown to exist, then there is no 
breach.   
 
201. The United States has explained that, given th e existence of certain conditions (for example, 
in the case of marketing loan payments, an adjusted  world price less than 52 cents per pound), the five 
sets of measures Brazil challenges on a per se  basis would mandate that payments be made.  
However, as set out in the US comment on Brazil ’s answer to question 257(a)(ii), these measures do 
not mandate any inconsistency with the obligati on not to cause serious prejudice because payment 
alone is not sufficient to establish a breach of th e obligation.  Even if all the conditions mandating 
payment have been met, one cannot simply presume that serious prejudice will result; it must also be demonstrated that the effect of the subsidy is one or more of the effects listed in Article 6.3 of the 
Subsidies Agreement and that serious prejudice results from such effect(s).  Moreover, it cannot be 
disregarded that when those conditions ha ve not been met, those payments will not be made and 
therefore cannot cause serious prejudice.   
 (c) Does Brazil challenge as "mandatory" the "subsidies" themselves, the subsidy 
programmes or the legal/regulatory provisions for the grant or maintenance of 
those subsidies, or something else?  BRA 
 
202. With respect to Brazil’s arguments relating to  its threat of serious prejudice claims, the 
United States refers the Panel to its comment on Braz il’s answer to question 257(a)(ii).  We do find it 
revealing that, as in its further rebuttal submissi on and its statements at the second panel meeting, 
Brazil makes no reference to the "clearly foreseen a nd imminent" standard it set forth in its further 
submission.
138  The absence is even more striking when  one considers Brazil’s argument that, 
"[h]aving established the existence of present se rious prejudice from the actionable subsidies, 
                                                      
135 Brazil’s Answer to Question 257(b), para. 24. 
136 Brazil’s Answer to Question 257(b), para. 27. 
137 Brazil’s Answer to Question 257(b), para. 29. 
138 See, e.g. , Brazil’s Further Submission, para. 292 ("Prior to addressing the specifics of these three 
claims, Brazil sets forth two legal standards that could be  used to analyze the threat of serious prejudice.  The 
first is the standard established by the GATT Panels in EC – Sugar Exports I (Australia)  and EC – Sugar 
Exports II (Brazil) of a "permanent source of uncertainty" requiring a demonstration that guaranteed subsidies 
by a large exporter have no effective production or expor t limitations.  The second standard includes the same 
elements necessary to demonstrate pr esent serious prejudice focusing on the likely effects of the subsidies in 
suppressing world prices and in increasing and maintain ing a high level of world export market share."). WT/DS267/R/Add.2 
Page I-603 
 
 
demonstrating that such prejudice is ‘clearly for eseen and imminent’ from the effects of the same and 
even larger subsidies is not difficult".139 
 203. We would suggest that to argue that "suc h prejudice is ‘clearly foreseen and imminent’" 
became much more difficult for Brazil as upland cotton prices recovered over the course of marketing 
year 2003.  That is, the increase in prices had the simultaneous effect of reducing current outlays (for 
example, no marketing loan payments have been made since September and projected 
counter-cyclical payments have been reduced by  two-thirds) and invalidating Brazil’s (flawed) 
economic analysis for marketing years 2003-2007, which was based on an ou tdated FAPRI baseline 
projection that understates the MY2003 AWP by 54 pe r cent and overstates the estimated marketing 
loan gain by nearly 15 cents per pound (or 100 per cent).  The 5-year high prices reached in marketing 
year 2003, and the high futures prices for th e remainder of marketing years 2003 and for the 
marketing year 2004 crop, also severely undercut Brazil’s rhetorical linking of the large amount of 
outlays in past marketing years with the extremely low prices experienced.   
 
• That is, if US subsidies caused "significant price suppression" in marketing years 
1999-2001, and Brazil claims that support under the 2002 Act has " significantly 
increased " from those levels
140, then how can prices have rebounded to 5-year highs ?   
 
Thus, Brazil has good reason not to focus the Pane l’s attention on actual market developments141, 
which demonstrate that there is no "clearly for eseen and imminent" likelihood of future serious 
prejudice.  To the contrary, there is a clearly foreseen and imminent likelihood of record cotton 
plantings in Brazil142 and of continued high cotton prices in marketing year 2004. 
 
204. With respect to Brazil’s arguments relating to the export credit guarantee programmes, the 
United States refers the Panel to its comment on Brazil’ s answer to question 257(a)(i).   In additions to 
those observations, the United States further notes th at Brazil has not explained why premium rates at 
any particular level, let alone if they were signifi cantly increased to the one per cent rate of GSM-102, 
will necessarily  not be sufficient to cover long-term ope rating costs and losses.  The United States has 
numerous mechanisms, such as evaluation of cred itworthiness of particular countries and the 
establishment of individual bank limits, to insula te itself from "credit risks and meet costs".143  Brazil 
does not suggest a "magic bullet" rate that would under all circumstances necessarily cover long-term 
operating costs and losses because it cannot, nor does it explain why the flexibility inherent in the 
operation of the export credit guarantee programme is necessarily less effective than some unknown 
rate.  
205. With respect to Brazil’s threat of circ umvention claim against the CCC programmes "as 
such," this claim cannot stand.  Assuming arguendo  that Article 10.2 of the Agreement on Agriculture 
contrary to its terms did not obligate Members to work towards internationa lly agreed disciplines on 
export credit guarantees and thereafter provide e xport credits only in conformity with such 
disciplines, then the only way to judge whether the export credit guarantee programmes provide an 
                                                     
 
139 Brazil’s Further Submission, para. 308. 
140 See Brazil’ s Further Submission, para. 309 ("The 2002 FSRI Act, along with the 2000 ARP Act, 
create a legal structure guarant eeing and mandating the payment of significantly increased levels of spending  for 
the production, use and export of US upland cotton beyond the 1996 FAIR Act and special appropriation bills in 
1998-2001.") (emphasis added). 
141 See Brazil’s Further Submission, para. 308 ("The evidence presented by Brazil below is based on 
facts regarding the mandated and unlimited nature of the US subsidies, as well as on actual market conditions demonstrating the present and likely fu ture effects of the US subsidies.") .  As the Panel will have noted, 
subsequent to Brazil’s further submission, Brazil focused on the first half of this passage and sought to minimize 
the latter half. 
142 Exhibit US-131 ("Brazil’s Mato Grosso to tr iple winter cotton area," Reuters, 2004-01-20 
("Increased winter cotton planting will result in a record overall area.")). 
143 Brazil’s Answer to Question 257(c) (20 January 2004), para. 40. WT/DS267/R/Add.2 
Page I-604  
 
export subsidy – and hence either circumvent US export subsidy reduction commitments or threaten 
to – is to look to item (j) of the Illustrative List.  Under item (j), the relevant inquiry examines whether 
premiums are sufficient to cover long-term operating  costs and losses.  That is, it is the operating 
experience of the programmes that would matter.  Thus, the programmes "as such" could not threaten 
circumvention. 
 
206. Brazil argues in paragraph 39 that the expor t credit guarantee programmes themselves "confer 
‘benefits’ per se ."  The United States has previously noted Article 10.2 provides the appropriate 
analysis for claims against export credit guarant ee programmes for agricultural products.  Were the 
Subsidies Agreement relevant to such programmes, th e relevant test would be that of item(j) of the 
Illustrative List of Export Subsidies; the Unite d States has shown that the export credit guarantee 
programmes meet that test.  Further, we would note  that Brazil has not demonstrated that any benefit 
is conferred by these programmes; in fact, Brazil h as conceded that it "is not in a position to quantify 
the benefit to the recipients that has arisen from the application of the GSM 102 export credit 
guarantee programme to exports of US  upland cotton between MY 1999-2002.
144  Neither has Brazil 
attempted to quantify any alleged benefit to reci pients of export credit guarantees for any other 
agricultural products.  Thus, Brazil may not obtain  findings under Articles 1.1 and 3.1(a) of the 
Subsidies Agreement by virtue of Articles 10.2 and 21.2 of the Agreement on Agriculture, nor has Brazil established any per se  inconsistency with Article 1.1 and 3.1(a).
  
 
258. Please submit a detailed explanation of th e method by which one could calculate total 
expenditures to producers of upland cotton under th e four relevant programmes on the basis of 
the data which it seeks.  BRA  
207. The Panel’s question highlights Brazil’s failure to provide its methodology prior to this late 
stage of the proceedings.  The United States is gratified that the Panel’s question has finally 
compelled Brazil to come forward and explain its methodology for allocating decoupled income 
support payments.  Brazil states that it "appreciates  the opportunity to describe to the Panel" this 
methodology, but Brazil needed no invitation to do so.  In fact, as the complaining party alleging that certain decoupled income support payments are support to upland cotton for purposes of 
Article 13(b)(ii) of the Agreement on Agriculture and actionable subsidies for purposes of Articles 1, 
5(c), 6.3, and 7 of the Subsidies Agreement, it has always been Brazil’ s burden to make claims and 
arguments with respect to these measures.  Rath er, Brazil’s answer demonstrates that Brazil’s 
proposed methodology lacks any basis in the Subs idies Agreement, any WTO agreement, or in 
economic logic.  Thus, the Panel should find that Brazil has not made a prima facie  case of WTO 
inconsistency with respect to these measures. 
 
208. Furthermore, Brazil’s response demonstrates th at it is attempting to add new measures to its 
claims in this proceeding, an attempt that is in consistent with the Panel’s terms of reference.  
Payments for programmes other than upland cotton are not within the terms of reference and are to be 
excluded from Brazil’s claims.  Brazil cannot now alte r the terms of reference to add programmes for 
base acreage for other crops.  As Brazil itself has admitted (in its response to question 247):  "Thus, 
the ‘matter’ before the Panel has not changed ( and cannot ) since the establishment of the Panel" 
(emphasis added).  
Brazil’s Proposed Methodology is not Based on Any Text, Nor Does It Adequately Deal with 
Fundamental Subsidies Issues 
 209. By way of introduction, we recall the proper approach to attributing a non-tied (or decoupled) 
subsidy to particular products.  The United States ha s explained that a complaining party in a serious 
prejudice dispute must demonstrate which product or products benefit from the challenged subsidy.
145  
                                                      
144 Brazil’s Answer to Question 140, para. 82. 
145 See, e.g. , US Further Rebuttal Submission, paras. 6-17. WT/DS267/R/Add.2 
Page I-605 
 
 
This requirement flows from several sources.  Fi rst, Article 6.3 and pr ovisions explaining it 
specifically identify certain effects – for example,  displacement or impediment, significant price 
undercutting, suppression, or depres sion, and increase in world market share) – caused through a 
"subsidized product".146  Thus, to determine whether "the effect of the subsidy" is one of those listed 
in Article 6.3 requires a finding that upland cotton is a "subsidized product" with respect to that 
subsidy . 
 
210. Second, a "subsidy" does not exist within the meaning of Article 1 of the Subsidies 
Agreement if a "benefit" is not conferred.147  As Brazil is asserting the existence of serious prejudice 
with respect to upland cotton, the challenged subsid y must actually "benefit" cotton and not any other 
crop.  
 
211. With respect to decoupled income support, a recipient need not produce upland cotton in 
order to receive payment.  In fact, the recipient n eed not produce anything at all – hence, the support 
is "decoupled" from production requirements.  Si nce decoupled income support payments do not, on 
their face, provide a "benefit" to upland cotton, th e question of what products  benefit from the subsidy 
arises.   212. Brazil now answers this question by inven ting a methodology by which "excess" base acres – 
that is, base acres of a crop historically grown on the farm in excess of the planted acres of that crop 
in a given year – are allocated to other crops wi th "excess" planted acres  (but only if they are 
"programme crops") – that is, planted acres in exce ss of the base acres of that crop historically grown 
on the farm.  It is ironic to recall that Brazil criticized  the US approach to this  issue by writing that the 
"alleged requirement" to allocate untied subsidies acro ss the total value of production on a recipient’s 
farm "lacks any textual basis".
148 
 
•   In fact, the Panel will search Brazil’s answer to question 258 in vain for a single citation 
to a WTO provision that sets out or even indirectly supports its proposed allocation 
methodology. 
 
213. The methodology explained by the United States, on the other hand, is rooted in the text and context of the Subsidies Agreement.  As set out a bove, to establish that the effect of a subsidy is 
serious prejudice with respect to upland cotton, Brazil must identify the subsidized products  – that is, 
the products that benefit from the payment and th e portion of those payments that benefit upland 
cotton.  Annex IV provides useful context in its methodology for calculating an ad valorem  
subsidization rate.  An ad valorem  subsidy rate is the quotient of  a numerator (subsidy amount) and a 
denominator (value of the subsidized product).  T hus, to perform the calculation, one must know what 
the subsidized product is.    
                                                     
 
146 For example, for purposes of a claim under Article 6.3(c) of the Subsidies Agreement, the "effect of 
the subsidy" must be "significant price undercutting" or "significant price suppression, price depression, or lost 
sales" caused by " the subsidized product ."  Article 6.5 confirms that price undercutting includes "any case in 
which such price undercutting has been demonstrated through a comparison of prices of the subsidized product  
with prices of a non-subsidized like product supplied to the same market."  Similarly, under Article 6.3(d) "the 
effect of the subsidy" must be an increas e in world market share "in a particular subsidized primary product or 
commodity ."  Finally, under Articles 6.4 and 6.3(b), pursuant to which Brazil is not claiming serious prejudice, 
the "change in relevant market shares " involves an examinati on of the "relative shares  of the market" of the 
non-subsidized like product and " the subsidized product ." 
147 See Panel Report, United States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead 
and Bismuth Carbon Steel Products Originating in the United Kingdom , WT/DS138/R, adopted 7 June 2000, 
paras. 6.65 and 6.66 (quoting and agreeing with Canada – Aircraft  panel: "‘A "benefit" does not exist in the 
abstract, but must be received and enjo yed by a beneficiary or a recipient.  Logically, a "benefit" can be said to 
arise only if a person . . . has in fact received something.’"). 
148 Brazil’s Further Rebuttal Submission, para. 103. WT/DS267/R/Add.2 
Page I-606  
 
•  Paragraph 2 of Annex IV provides that " the value of the product  shall be calculated as the 
total value of the recipient firm’s sales  in the most recent 12-month period, for which 
sales data is available, preceding the period in  which the subsidy is granted"  (footnotes 
omitted & italics added). 
 
•  Paragraph 3 of Annex IV modifies the genera l principle of paragraph 2, providing that 
"[w]here the subsidy is tied to the production or sale of a given product , the value of the 
product shall be calculated as the total value of the recipient firm’s sales of that product  
in the most recent 12-month period, for which sales data is available, preceding the period in which the subsidy is granted" (italics added). 
 
Thus, "[w]here the subsidy is [not] tied to the production or sale of a given product," the general 
methodology of paragraph 2 applies.  Because the "v alue of the [subsidized] product" is the "total 
value of the recipient firm’s sales," it follows that the subsidized product is the entirety of what the 
recipient sells.  To determine the share of the subsid y that is attributable to upland cotton, one would 
multiply the value of the payment by the share of the total value of production accounted for by 
upland cotton.  Brazil does not deny that both th e EC and Brazil apply this very methodology for 
purposes of their domestic countervailing duty procedures
149, nor that Brazil has proposed that 
Members adopt this very methodology as a "guideline" on calculating the amount of the subsidy.150 
 
214. Brazil can only assert that the allocation methodology set out in Annex IV of the Subsidies 
Agreement and applied by Brazil itself and th e EC for purposes of their countervailing duty 
procedures "are irrelevant to Article 6.3 claims".151  And yet, some  allocation methodology for 
purposes of Article 6.3 is necessary to deal with non-tied (decoupled) payments – to assert otherwise 
is to deny the relevance of the "s ubsidy" definition of Article 1 as we ll as those provisions of Article 6 
contingent on the existence of a "subsidized produc t".   However, Brazil’s proposed methodology is 
not even based on a Subsidies Agreement text, nor based on its own  procedures for determining the 
subsidized product that benefits from a non-tied (d ecoupled) payment.  One could reasonably ask how 
Brazil’s own countervailing duty procedures could d eal with non-tied subsidies in one way while 
Brazil proposes a contradictory approach for purposes of its serious prejudice claims, given that both situations are faced with the same issues of whether a subsidy benefits  a particular product. 
 215. In judging the credibility of Brazil’s proposed methodology in comparison to the 
methodology explained by the United States, the Panel may wish to compare the sources that Brazil 
and the United States, respectively, have drawn upon: 
  
Comparison of Allocation Methodologies for Non-Tied (Decoupled) Payments 
Party Methodology Interpre tive and Other Sources 
Brazil Payments for base acres for historically grown crop are 
attributed to current plantings of that crop, if any; payments 
for base acres in excess of plantings are attributed to all 
crops planted in excess of base acres for that historically grown crop by the proportion of a crop’s excess planted 
acres to total excess planted acres None
152 
                                                      
149 See Brazil’s Opening Oral Statement at the Second Panel Meeting, para. 4. 
150 Paper by Brazil, Countervailing Measures: Illustrative Major Issues, TN/RL/W/19, at 6 
(7 October 2002) ("If the benefit of a subsidy is limited to a particular product, the denominator should reflect 
only sales [production/exports] of that product.  If this is not the case, the denominator should be the recipient’s 
total sales."). 
151 Brazil’s Opening Statement at the Second Panel Meeting, para. 4. 
152 See Brazil’ s Answer to Question 258, paras. 43-55. WT/DS267/R/Add.2 
Page I-607 
 
 
Comparison of Allocation Methodologies for Non-Tied (Decoupled) Payments 
Party Methodology Interpre tive and Other Sources 
United States Payments that are not tied to the production or sale of a 
given product are attributed to all the products the recipient 
produces; the subsidy benefits a particular product by its share of the total value of production SCM Agreement, Article 1.1(a); 
Articles 6.3, 6.4, 6.5; Annex IV, paras. 
2-3  
CVD practice, Brazil and EC 
 
Brazilian CVD proposal
153 
 
 
Simply put, Brazil has pointed to nothing in the WTO agreements that would support its approach to 
the allocation of non-tied (decoupled) payments.  216. Finally, Brazil’s argument that the Annex IV methodology  cannot  apply to claims of serious 
prejudice does not withstand scrutiny.  Although the provision to which Annex IV relates – 
Article 6.1(a) – is no longer in effect, it may still be  relevant for purposes of interpreting the Subsidies 
Agreement.  For example, in United States – Countervailing Measures (EC) , the Appellate Body 
relied on Annex IV as context in interpreting another provision of the Subsidies Agreement.
154  
Similarly, in United States – FSC: Article 22.6 , Arbitrator cited the expired  Articles 8 and 9 as 
"helpful . . . in understanding the overall architectur e of the Agreement with respect to the different 
types of subsidies it sought and seeks to address" .155 
 
217. There is a difference between looking to th e expired provisions of Article 6.1 for a legal 
obligation (for example, the presumption created by a 5 per cent ad valorem  subsidization rate) and 
looking to the provisions of Annex IV for a methodology, or logical approach to identifying the 
subsidized product.  In the former case, it is precise ly the expiry of the provision that indicates that the 
presumption created by that rule no longer has effect.  In the latter case, unless there is some basis to 
draw a negative implication from the expiry of the rule in Article 6.1, the methodology can be 
examined for its underlying logic.  If the methodology fits with pertinent subsidies concepts, it may provide useful guidance in determining the product that benefits from the subsidy.   In this regard, we 
note Brazil’s statement that the Annex IV methodology  existed only because "[n]egotiators wanted to 
be certain that if such a presumption [of serious pr ejudice] was created [by virt ue of Article 6.1(a)], 
the precise level  of subsidization was carefully calculated".
156  To the extent that the Panel agrees that 
it must "be certain" that the non-tied subsidies at issue benefit upland cotton and that "the precise level of subsidization [must be] carefully calculated," we  suggest that Annex IV provides the appropriate 
methodology. 
 
Brazil’s Allocation Methodology Does Not Make Economic Sense 
 
218. The foregoing discussion suffices to show th at Brazil’s allocation methodology has no basis 
in the Subsidies Agreement.  As Brazil has not de monstrated, for each challenged decoupled payment 
(production flexibility contract, market loss assistance, direct, and counter-cyclical payments), what is 
the subsidized product nor what is the benefit to upland cotton, Brazil cannot and has not made a 
prima facie  case with respect to these payments.  That is, Brazil cannot begin to demonstrate "the 
effect of the subsidy" if it has not shown th e subsidy benefit and the subsidized product. 
 219. It may be of interest to the Panel, howe ver, that Brazil’s allocation methodology does not 
make economic sense.  In essence, Brazil’s approach arbitrarily assigns payments for base acreage to 
particular planted acres, as if the current crop was "planted on" base acr eage, even though "base 
                                                     
 
153 US Further Rebuttal Submission, paras. 9-13. 
154 WT/DS212/AB/R, para. 112. 
155 WT/DS108/ARB, note 56. 
156 Brazil’s Further Rebuttal Submission, para. 103. WT/DS267/R/Add.2 
Page I-608  
 
acres" do not correspond to any physical acres on a farm; they are a mere accounting concept.  At the same time, however, any "excess" base acres are assigned to crops that have "excess" planted acres.  This methodology leads to situations in which a partic ular crop could be subsidized at different rates, 
depending on whether it is planted on "excess" acreage or base acreage.  It leads to situations in which 
a particular crop could receive a greater subsidy th an another crop that accounts for more acreage on 
the farm.  It also allocates payments only to cer tain "programme" crops, ignoring the fact that the 
subsidy recipient may grow crops for which no base ac reage exists and may engage in other types of 
production.  Neither situation makes sense from an economic perspective, and neither results from the 
correct (Annex IV) methodology explained above.  
220. The first situation is one in which a par ticular crop, such as upland cotton, could be 
subsidized at different rates, depending on what type of acreage it is "planted on."  For example, 
consider a farm with 200 base acres, 100 of cotton and 100 of soybeans, and 200 planted acres, 150 of 
cotton and 50 of soybeans.  According to Brazil’s proposed methodology, 100 base acres of cotton are allocated to 100 acres of planted cotton, leaving 50 planted acres of cotton; similarly, the 50 of the 
100 base acres of soybeans are allocated to the 50 base acres of soybeans, leaving 50 "excess" soy 
base acres that can be allocated to the 50 "excess"  cotton planted acres.  However, this allocation 
methodology results in two different rates of subs idization for cotton acreage.  The 100 cotton acres 
deemed to be "planted on" cotton base acreage is subsidized at the rate corresponding to decoupled 
payments for upland cotton base acres while the 50 co tton acres deemed to be "planted on" soy base 
acreage is subsidized at the rate correspondi ng to decoupled payments for soy base acres.
157  There is 
no rationale for deeming one acre of cotton to r eceive one subsidy and deeming the next acre of 
cotton to receive an entirely different subsidy.  These decoupled payments are not tied to production 
of a particular commodity; in fact, the "upland cotton" base acreage could now be "planted to" soybeans or nothing at all.  In economic terms, money is fungible, and payments received through 
decoupled payments are deemed to subsidize whatever  the recipient chooses to produce.  As all of the 
recipient’s production is the "subsidized product," th e subsidy should be neutrally allocated to all of 
those products.  221. The second situation is one in which a particular crop that is with "excess" plantings could 
receive a greater subsidy than another crop that accounts for more acreage on the farm.  For example, 
consider a farm with 200 base acres of soybeans an d none of cotton and with  75 planted acres of 
cotton and 50 planted acres of soybeans.  Seventy-fi ve base acres of soybeans are attributed to the 75 
planted acres of soybeans, and "[p]ayments on any fu rther base acreage for [that] programme crop[ is] 
allocated to the crops for which planted acres exceed base acres".
158  Since cotton is the only crop "for 
which planted acres exceed base acres, payments for 125 base acres of soybeans are allocated the 50 
acres of cotton.159  This produces the anomalous result that the lesser planted crop (upland cotton, 
with 50 planted acres) would be deemed to receive  a greater subsidy than the crop with greater 
planted acreage (soybeans, with 75 planted acres) .  If the same farm decided to plant 75 acres of 
soybeans and only one acre of cotton, again, all of the "ex cess" base acres would be allocated to the 
one acre of cotton.  Again, this result mak es no economic sense since the farm "allocated" its 
plantings 75 to 1, soy over cotton.  The allocation of  payments not tied to production of a particular 
commodity should reflect the recipient’s decisions on what production to undertake. 
 
                                                      
157 See, e.g. , Brazil’s Answer to Question 258, para. 48 (Sample Farm 4: 160 planted acres of cotton are 
allocated 100 base acres of cotton and 60 base acres of rice). 
158 Brazil’s Answer to Question 258, para. 48. 
159 See, e.g. , Brazil’s Answer to Question 258, para. 51 (Sample Farm 5: 140 planted acres of cotton are 
allocated payments for 160 base acres  (100 cotton, 40 wheat, 20 rice). WT/DS267/R/Add.2 
Page I-609 
 
 
222. Brazil’s erroneous methodology also allocat es payments only to certain "programme" crops, 
for which base acreage exists.160  This ignores the fact that the subsidy recipient may grow crops for 
which no base acreage exists and may engage in other types of pr oduction.  A farmer’s activities and 
plantings are not restricted to "programme" crops.  In the production flexibility contract era, farmers 
who planted cotton did not just plant wheat, oats, ri ce, corn, sorghum, and barley.  They also planted 
other crops, like peanuts, sugar, soybeans, and perh aps tobacco.  They may have also planted fruits 
and vegetables on any acreage exceeding their base acreage.  They may have produced hay or had 
livestock operations on the farm.  The possibilities are numerous.  Given the myriad production activities that a payment recipient could (and did) c hoose to undertake, there is no basis to allocate 
non-tied (decoupled) payments solely to programme  crops and not to the entirety of a farm’s 
production. 
 223. In sum, these illogical results follow from a methodology in which payments on "excess" base 
acreage are allocated only to those crops for which plantings "exceed" their base.  If Brazil believes a 
decoupled payment is capable of allocation when base acreage "exceeds" planted acreage, Brazil must 
concede that the payment is not tied to production, use, or sale of particular commodity.  However, 
the same consideration must apply to those payments  with respect to base acreage for which there is 
an equal amount of planted acres – that is, those le gally indistinguishable payments on "non-excess" 
base acres are not tied to production, use, or sale of a particular commodity either.  Thus, one, consistent allocation methodology must apply to  the entire amount of a recipient’s decoupled 
payments.  Brazil’s erroneous a llocation methodology does not provide that.  The methodology set 
out in Annex IV and also applied by Brazil for purposes of its countervailing duty procedures under 
Part V of the Subsidies Agreement does.  
Implications of Brazil’s Erroneous Methodol ogy for Subsidies Claims and Peace Clause 
 
224. As Brazil’s answer makes perfectly clear, and as it had previously stated
161, Brazil rejects the 
allocation methodology for non-tied (decoupled) payments suggested, inter alia , by Annex IV to the 
Subsidies Agreement.  That is, Brazil has refused  to acknowledge that such payments must be 
allocated across the total value of the recipien t’s production.  Therefore, as the United States 
suggested in its answer to question 256, Brazil ha s not advanced claims and arguments that would 
allow the Panel to determine the subsidy benefit to upland cotton.  It follows that Brazil has failed to 
make a prima facie  case that decoupled income support paymen ts cause or threaten to cause serious 
prejudice.  225. Brazil’s refusal to adopt a proper methodol ogy for determining the subsidy benefit and 
subsidized product also has important implications  for its Peace Clause arguments.  The Panel will 
recall that Brazil argued that "support to a specifi c commodity" in the Peace Clause proviso could 
only be gauged by using budgetary outlays.  Howeve r, calculating the subsidy benefit to upland cotton 
is indispensable – on Brazil’s approach – to determin ing the "support to" upland cotton.  To the extent 
that Brazil has not utilized the correct methodology, its Peace Clause calculation of the support to upland cotton from decoupled payments is erroneous.    
226. In addition, the fact that Brazil seeks to a ttribute upland cotton decoupled payments made for 
"excess" base acres is an important point.  Braz il acknowledges that these decoupled payments are not 
tied to production, and therefore can be attributed  across production.  Our difficulty with Brazil’s 
approach, is that it claims the attribution is only made to crops with "excess" acreage.  As explained 
above, there is no basis for attributing part of a payment to only some crops planted on the farm, 
                                                     
 
160 See, e.g. , Brazil’s Answer to Question 258, para. 50 ("In Brazil’s methodology, payments available 
for allocation – i.e., not allocated to the program crop itself – ar e pooled and allocated proportionally to the 
remaining program crop acreage."). 
161 Brazil’s Further Rebuttal Submission, paras. 103 -05; Brazil’s Opening St atement at the Second 
Panel Meeting, para. 4. WT/DS267/R/Add.2 
Page I-610  
 
rather than attributing the entire value of such payments across all production.  Thus, Brazil has not 
established that US domestic support measures brea ch the Peace Clause, and the US domestic support 
measures are entitled to Peace Clause protection.  227. Brazil’s answer also highlights that decoupl ed income support payments do not grant "support 
to a specific commodity" within the meaning of Ar ticle 13(b)(ii).  Brazil has asserted that such 
support can be any support that benefits upland cotto n.  Thus, Brazil would seek to allocate decoupled 
payments to the products on the farm as set out in  its methodology.  However, Brazil’s approach is 
incompatible with important Agreement on Agriculture  concepts.  As is clear from Brazil’s answer, a 
payment made with respect to base acreage historica lly planted to one crop can be support to that crop 
and support to any other "programme" crop at the same  time.  Such a result is inconsistent on its face 
with the ordinary meaning of "support to a specifi c commodity" since such a payment would in fact 
be  ‘support to multiple commodities.’  228. In addition, Brazil’s approach would render nugatory non-product-specific support for 
purposes of the Peace Clause.  Brazil has argued th at the decoupled income support payments it 
challenges are not non-product-specific support because they are not support to producers "in general."  And yet, the recipients of decoupled payments are producers "in general" because they are 
free, with limited exceptions, to plant any commodi ty and are free, without exception, to undertake 
other agricultural activities.  Thus, they are producer s generally of whatever products they choose to 
produce.  By asserting that the allocation of such non-product-specific support to the commodities a 
recipient produces renders such payments "s upport to a specific commodity," Brazil reads 
non-product-specific support out of the scope of the Peace Clause.  If non-product-specific support could simply be allocated to a recipient’s pr oduction and thereby become support to each specific 
commodity produced, there would simply be no reason to have a category of non-product-specific support in the Agreement on Agriculture. 
 
229. In fact, the Agreement on Agriculture does not permit an interpretation that would allocate all 
non-product-specific support to specific commodities.  First, the precise definition of product-specific 
support in Article 1(f) ensures that support that is not "provided for an agricultural product in favour 
of the producers of the basic agricultural produc t" must be categorized as non-product-specific 
("support provided in favour of agricultural produ cers in general").  Second,  paragraph 1 of Annex 3 
establishes that non-product-specific support must be kept separate from product-specific support for 
purposes of AMS calculation.
162  Brazil has stated that "support to  a specific commodity" under the 
Peace Clause may be measured either using budge tary outlays or an "AMS-like methodology using 
rules in Annex 3".163  Therefore, since Annex 3 specifically provides that non-product-specific support 
must be kept separate from product-specific support, non-product-specific support must also be kept 
separate from "support to a specific commodity" fo r purposes of the Peace Clause analysis.  Brazil 
may not allocate non-product-specific decoupled pa yments to certain products for Subsidies 
Agreement purposes and then, on that basis, assert that such allocated payments are "support to a 
specific commodity" for Peace Clause purposes.  The product-specific / non-product-specific categories in the Agreement on Agriculture are sui generis  and may not be rendered inutile by the 
application of Subsidies Agreement concepts (subsid y, benefit, subsidized product) not used in nor 
directly applicable to the Peace Clause
. 
 
                                                      
162 Agreement on Agriculture, Annex 3, para. 1 ("Support which is non-product-specific shall be 
totalled into one non-product-specific AMS in total monetary terms."). 
163 Brazil’s Rebuttal Submission, para. 87. WT/DS267/R/Add.2 
Page I-611 
 
 
  
List of Exhibits
 
 
US131  Brazil’s Mato Grosso to triple winter cotton area   2004-01-20 20:10:01 GMT 
(Reuters), By Inae Riveras 
 US132  Chart, US Crops Cotton su pply and utilization, and Baseline  
 US133  Statement By O A Cleveland 1/16/04 
 
US134  Charts of US and Brazilian E xport Unit Values to 7 Destinations 
 US135  Production, Yield, Trade, and Stocks Data, MY99-02  
US136  USDA/FAS US trade data, MY99-03  
 US137  World Trade Atlas official Brazilian trade data, MY99-03   US138  Statement of the United States at the DSB (9 January 2004) on adoption of the reports 
in United States- Sunset Review of Anti-Dumping Duties on Corrosion-Resistant 
Carbon Steel Flat Products for Japan 
 
US139  USDA Weekly Cotton Market Review 1/9/04 
 US140  USDA Weekly Cotton Market Review 1/23/04 
 
US141  Charts of Chinese (Domestic, Import, Export) Prices vs. A-Index   US142  NY Board of Trade, NY Cotton Exchange, 27 January 2004 futures data WT/DS267/R/Add.2 
Page I-612  
 
ANNEX  I-15 
  
BRAZIL’S COMMENTS AND REQUESTS REGARDING DATA 
PROVIDED BY THE UNITED ST ATES ON 18/19 DECEMBER 2003 
AND THE US REFUSAL TO PR OVIDE NON-SCRAMBLED DATA 
ON 20 JANUARY 2004 
 
(28 January 2004) 
 
 
TABLE OF CONTENTS 
 
Page  
 
1. Introduction and Summary .............................................................................................. 615  2. Brazil's Request for Information as Posed by the Panel on 8 December 2003 
 and 12 January 2004.......................................................................................................... 6 15 
 3. The United States 18/19 December 2003 and 20 January 2004 Responses to the  Panel's and Brazil's Request for Information ................................................................. 617  
4. The US Assertions of Confidentiality Are Baseless......................................................... 624 
 5. There Is No Basis under WTO Rules fo r the United States to Withhold 
 Planted Acreage Information on the Basis of Confidentiality ....................................... 627  6. The Panel Should Draw Adverse Inference s from the US Failure to Cooperate......... 631 
 
7. The US Refusal to Provide the Information Requested Renders Brazil's  14/16
th Methodology the Most Accurate Information on Record Concerning the 
 Amount of Support to Upland Cotton from Contract Payments .................................. 634  
8. Brazil's Intended Methodology For Allo cating Contract Payments as Support 
 to Upland Cotton.............................................................................................................. .. 635 
 9. Using the Problematic and Incomplete US 18/19 December 2003 Aggregate  Date for Allocating Contract Paymen ts as Support to Upland Cotton Does Not 
 Contradict Brazil's 14/16
th Methodology ......................................................................... 636 
 
10. Application of The US-Proposed Allocation Methodology to The US Summary  Data .......................................................................................................................... ........... 639 
 11. The Japan – Agricultural Products  Decision is Inapposite.............................................. 644 
 
12. Conclusion ................................................................................................................. ......... 646 
 WT/DS267/R/Add.2 
Page I-613 
 
 
TABLE OF CASES  
 
 
Short Title Full Case and Citation 
EC – Sugar Exports I 
(Australia) GATT Panel Report, European Communities – Refunds on Exports of 
Sugar Complaint by Australia, L/4833 – 26S/290, adopted 
6 November, 1979 . 
EC – Sugar Exports II 
(Brazil) GATT Panel Report, European Communities – Refunds on Exports of 
Sugar Complaint by Brazil, L/5011 – 27S/69, adopted 
10 November 1980 . 
US – Gasoline Appellate Body Report, United States – Standards for Reformulated and 
Conventional Gasoline , WT/DS2/AB/R, adopted 20 May 1996. 
EC – Hormones Appellate Body Report, European Communities - Measures Concerning 
Meat and Meat Products (Hormones),  WT/DS26/AB/R, adopted 
13 February 1998. 
Australia – Salmon Panel Report, Australia – Measures Affecting Importation of Salmon, 
WT/DS18/R, adopted 6 November 1998. 
EC – Bananas Panel Report, European Communities – Regime for the Importation, Sale 
and Distribution of Bananas – Recourse to Arbitration by the European 
Communities under Article 22.6 of the DSU , WT/DS27/ARB, adopted 
9 April 1999. 
Brazil – Aircraft Panel Report, Brazil – Export Financing Programme for Aircraft, 
WT/DS46/RW, adopted 28 August 2000. 
Indonesia – 
Automobiles Panel Report, Indonesia – Certain Measures Affecting the Automobile 
Industry,  WT/DS54/R, adopted 23 July 1998.- 
Argentina – Textiles 
and Apparel Panel Report, Argentina – Measures affec ting Imports of Footwear, 
Textiles, Apparel and Other Items , WT/DS56/R, adopted 22 April 1998. 
Canada – Aircraft Panel Report, Canada – Measures affecting the Exports of Civilian 
Aircraft,  WT/DS70/R, adopted 20 August 1999. 
Canada – Aircraft Appellate Body Report, Canada – Measures affecting the Exports of 
Civilian Aircraft,  WT/DS70/R, adopted 20 August 1999. 
Japan – Agricultural 
Products Appellate Body Report, Japan – Measures Affecting Agricultural 
Products, WT/DS76/AB/R, adopted 19 March 1999. 
Korea – Dairy 
Safeguards Appellate Body Report, Korea – Definitive Safeguard Measure on 
Imports of Certain Dairy Products , WT/DS98/AB/R, adopted 
12 January 2000. 
Canada – Dairy Appellate Body Report, Canada – Measures Affecting the Importation of 
Milk and the Exportation of Dairy Products, WT/DS103/AB/R, adopted 
27 October 1999. 
Canada – Dairy (21.5) (II) Appellate Body Report, Canada – Measures Affecting the Importation of 
Milk and the Exportation of Dairy Products, WT/DS103/AB/RW, 
adopted 17 January 2003.  
US – FSC Appellate Body Report, United States – Tax Treatment for “Foreign 
Sales Corporation”, WT/DS108/AB/R, adopted 20 March 2000. 
Australia – Leather Panel Report, Australia – Subsidies Provid ed to Producers and Exporters 
of Automotive Leather, WT/DS126/R,  adopted 16 June 1999. 
Australia – Leather 
(21.5) Panel Report, Australia – Subsidies Provid ed to Producers and Exporters 
of Automotive Leather, WT/DS126/RW,  adopted 11 February 2000. 
US – 1916 Act Appellate Body Report, United States – Anti-Dumping Act of 1916,  
WT/DS136/AB/R, adopted 26 September 2000. 
US – Wheat Gluten Panel Report, United States – Definitive Safeguard Measures on Imports 
of Wheat Gluten from the European Communities,  WT/DS166/R, adopted 
19 January 2001. WT/DS267/R/Add.2 
Page I-614  
 
Short Title Full Case and Citation 
US – Wheat Gluten Panel Report, United States – Definitive Safeguard Measures on Imports 
of Wheat Gluten from the European Communities,  WT/DS166/R, adopted 
19 January 2001. 
Chile – Agricultural Products (Price Band) Appellate  Body Report, Chile- Price Band System and Safeguard 
Measures Relating to Certain Agricultural Products, WT/DS207/AB/R, 
adopted 23 October 2002. 
US – CVD’s on EC Products  Appellate Body Report, United States – Countervailing Duties on EC 
Products,  WT/DS212/AB/R, adopted 8 January 2003. 
Canada – Aircraft II Panel Report, Canada – Measures Affecti ng the Export of Civilian 
Aircraft,  WT/DS222/R, adopted 19 February 2002. 
EC – Sardines Appellate Body Report, European Communities – Trade Description of 
Sardines,  WT/DS231/AB/R, adopted 23 October 2002. 
EC – Sardines Panel Report, European Communities – Trade Description of Sardines,  
WT/DS231/R, adopted 23 October 2002. 
Japan – Apples Appellate Body Report, Japan – Measures affecting the Importation of 
Apples, WT/DS245/AB/R, adopted 10 December 2003. 
 WT/DS267/R/Add.2 
Page I-615 
 
 
1. Introduction and Summary 
 
1. Brazil and the Panel have repeatedly request ed information from the United States regarding 
the amount of four different types of contract payments to upland cotton producers.  The Panel 
requested this information five months ago, in August 2003, and again in October 2003, in 
December 2003 and, finally, in January 2004.  Brazil first requested this information in 
November 2002.  This information is relevant to th e “peace clause” portion of the dispute.  It would 
have permitted the Panel to determine with consid erable accuracy the amount of support provided to 
upland cotton from PFC, market loss assistance, direct  and counter-cyclical payment subsidies.  After 
repeatedly denying for over thirteen months that it even collected or maintained the payment 
information, the United States finally acknowledge d in its 18/19 December 2003 and 20 January 2004 
Letters to the Panel that USDA collected, compiled,  and organized all data that would permit an 
allocation of the amount of contract payments re ceived by producers of upland cotton for MY 1999-
2002.  Regrettably, even after admitting it has this highly relevant information, the United States 
refuses to produce the data.  Accordingly, Brazil h as no choice but to request the Panel to draw 
adverse inferences from the refusal of the United States to produce this data.  
 2. In this document, Brazil first describes in Section 2 the factual background and the purposes 
behind its various requests for contract payment inform ation.  In Section 3, Brazil details exactly what 
the United States produced (and did not produce) on 18/19 December 2003 when it “scrambled” farm-specific data and refused to produce other types of data.  Brazil then addresses in Section 4 the post 
hoc and invalid US arguments that the farm-specific information is “confidential” under US law.  In 
Section 5, Brazil sets forth the relevant WTO juri sprudence interpreting Article 13.1 of the DSU, 
which requires Members to produce even confidential information when so requested by panels.  In 
Sections 6-8, Brazil then makes its request for the Panel to draw adverse inferences that the withheld 
information would show contract payments higher than those estimated in Brazil’s 14/16
th 
methodology, and that, therefore, the Panel shoul d find that the United States has no peace clause 
protection.  In Sections 9 and 10, Brazil attempts  to use the summary information provided by the 
United States on 18/19 December 2003, together with  a number of assumptions, to apply Brazil’s 
methodology for calculating the amount of the contract payments, as well as to perform the methodology advanced by the United States.  The re sults of this analysis each support the amount of 
allocated payments, as calculated using Brazil’s 14/16
th methodology.  Finally, in Section 11, Brazil 
demonstrates that the Japan – Agricultural Products  decision relied on by the United States is 
inapplicable.  
2. Brazil’s Request for Information as Posed by the Panel on 8 December 2003 and 
12 January 2004 
 
3. Brazil’s request for information is set out in Exhibit Bra-369.  Brazil requested “farm-specific 
data to determine the amount of cotton planted on contract base acreage during marketing year 1999-
2002.”  The purpose of Brazil’s request for contract  acreage and planted acreage data for each farm 
producing upland cotton was to obtain actual data to  permit as exact an allocation as possible of 
contract payments (from both upland cotton as well as other programme crop base acreage) to current 
producers of upland cotton.  This farm-specifi c base and planting information (together with 
requested yield base information) would have perm itted the calculation of the amount of support to 
upland cotton from contract payments by combin ing two different components of support:  (a) upland 
cotton contract payments to current producers of upland cotton, and (b) other crop contract payments 
to current producers of upland cotton.  These paym ents would then be allocated to the current 
plantings of upland cotton on the farm and, finally, aggregated.
1  This would help the Panel in 
determining the amount of contract payments that  constitute “support to” upland cotton, within the 
meaning of Article 13(b)(ii) of the Agreement on Agriculture, and to decide on the peace clause.  
Finally, to a large extent, the requested informati on would have also permitted the Panel to apply the 
                                                      
1 See Brazil’s 20 January 2004 Answers to Additional Questions, paras. 43-55. WT/DS267/R/Add.2 
Page I-616  
 
(incorrect) US-proposed methodology for calculating the amount of “benefit” from these subsidies to 
current upland cotton producers.    4. Brazil first requested this information in November 2002.
2  The Panel requested it in August, 
October, and December 2003, as well as in January 2004.3  Faced with repeated US denials that it 
“maintained” such information, Brazil offered its so-called “14/16th” methodology during the peace 
clause phase of this dispute.4  Because Brazil conclusively learned in late November 2003 ( inter alia 
via the rice FOIA request5) that the United States had falsely stat ed that it did not maintain contract 
and planted acreage information for each farm, it s ought the information deta iled in Exhibit Bra-369 
to confirm further its 14/16th methodology, which was already supported by a large amount of 
circumstantial evidence.  In effect, Brazil sought to replace the 14/16th methodology with a 
methodology using actual farm-specific data that would provide precise information that the Panel 
could rely on in making its determination of the amount of support to upland cotton.6  There is no 
question that the information withheld by the Unite d States would have been the best information for 
allocating contract payments that constitute support to upland cotton. 
 
5. Based on its experience working with the data  produced in the rice FOIA request, Brazil 
knew how easy it is to use the computerized farm-s pecific data to perform the necessary calculations 
and present the evidence in a summary  form.  As the Panel could see from the computerized rice data 
displayed during the meeting on 3 December 2003, this farm-specific data permits the ready 
calculation of the amount of contract payment s upport provided to upland cotton producers.  Brazil 
had an entire team ready on 18 December 2003 (and on 20 January 2004) to perform these operations 
quickly.  Brazil had intended to present the evidence in a summary form (obviously not in a farm-
specific form) for its Answers to Questions on 22 December 2003.  But as described below, unlike 
USDA’s response to the rice FOIA request, the Un ited States intentionally “scrambled” the farm-
specific information to make it useless for purposes of  the comparison sought by the Panel and Brazil, 
i.e., for calculating the allocated contract paym ent figures (which the Panel had requested the 
United States to provide, inter alia , in response to Question 67 bis on 27 August 2003).   
 6. On 12 January 2004, the Panel again request ed the United States to produce the data, and 
offered the United States the option to (1) produce the data using “substitute farm numbers which still 
                                                     
 
2 Exhibit Bra-101 (Questions for the Purpose of Consultations, Questions 3.4, 3.5, 3.13, 3.14 and 11.2).  
Brazil has made a similar request during the Annex V procedure, during which the United States refused to participate (Exhibit Bra-49 (Brazil’s Questions for the Purpose of the Annex V Procedure, Questions 3.8 – 
3.10)).  Brazil reiterated its request in note 411 of its 24 June 2003 First Submission. 
3 25 August 2003 Communication from the Panel, Question 67 bis; 13 October 2003 Communication 
from the Panel, Question 125(9);  8 December 2003 Communication from the Panel, second bulled point;  
12 January 2004 Communication from the Panel, p. 1. 
4 Brazil’s 11 August 2003 Answers to Questions 60 and 67. 
5 Brazil’s request in Exhibit Bra-369 was modeled on a very similar request regarding rice made by a 
private US citizen who received rice fa rm-specific information as set out in  Exhibit Bra-368.  The rice FOIA 
request resulted in the production of farm-specific acreage information showing (a) the amount of rice contract acreage and (b) the amount of planted rice acreage for th e entirety of rice farms between MY 1996-2002.  (As 
noted in Exhibit Bra-368 (Second Statement of Christopher Campbell – Environmental Working Group, 
para. 6), more than 99.5 per cent of rice acreage planted is accounted for in th e data provided in response to this 
FOIA request.  The data on rice base acreage is naturally complete.)  This farm-specific information allowed the 
easy tabulation of precise aggregate amounts of payments  received by current rice producers between MY 1999-
2002.  Brazil presented the non-confidential aggregate rice information to the Panel in Exhibit Bra-368.  This 
aggregated data demonstrates the absurdity of the US claim that the rice (or cotton) aggregate data is somehow 
“confidential.”   
6 Brazil’s 20 January 2004 Answers to Additional Qu estions, paras. 43-55.  Brazil also sought the 
information to rebut the US argument that under its “value” allocation methodology that the amount of support 
to upland cotton would be much smaller. WT/DS267/R/Add.2 
Page I-617 
 
 
permit data-matching,” and (2) to arrange  for special confidentiality procedures.7  I n  i t s  
20 January 2004 Letter to the Panel, the United St ates refused again to provide the information.8 
 
3. The United States 18/19 December 2003 and 20  January 2004 Responses to the Panel’s 
and Brazil’s Request for Information9 
 
7. The first and fundamental conclusion from the US 18 December 2003 Letter and the 
accompanying data is that the United States admits, fo r the first time, that it collects, maintains, and 
can readily analyze whether every farm planting upl and cotton is doing so on contract base acreage.  
It admits that it knows how many farms planted upland cotton in MY 1999-2002.10  It admits that it 
knows the amount of acreage for each farm that planted upland cotton.11  It admits that it knows the 
number of upland cotton contract acres planted to upland cotton.12  It admits that it knows the amount 
of non-upland cotton contract acreage planted to upland cotton.13  And it admits that it knows the 
yield information for each farm with contract acreage.14  Indeed, it admits that it knows the amount of 
contract payments received by each current producer of upland cotton.15  
 
8.  In other words, the United States knows today, and it knew on 18 December 2003 and on 
20 January 2004, exactly how many dollars of contr act payments were paid to producers of upland 
cotton during MY 1999-2002.  Moreover, the United States, at a minimum, had the information necessary to make all payment calculations for MY 1999-2001 in November 2002 when Brazil first 
requested it.
16  And the United States had this information for MY 1999-2002 in August 2003, in 
October 2003, in December 2003, and in January 2004 when the Panel requested its production.17   
                                                      
7 See 12 January 2004 Communication from the Panel. 
8 See US 20 January 2004 Letter to the Panel, p. 3. 
9 Brazil notes that the United States provided the MY 2002 data on 19 December (one day after the 
deadline set by the Panel).  When Br azil refers to the 18 December data, any such reference includes the MY 
2002 data provided on 19 December. 
10 See Electronic PFC and DCP Summary Files prov ided by the United States on 18 and 
19 December 2003 respectively.  These files contain su mmarized data based on farm-specific data that is 
grouped in three categories:  (1) farms producing upland cotton and holding upland cotton base, (2) farms not 
producing upland cotton but holding upland cotton base, and (3) farms producing upland cotton but not holding 
upland cotton base.  Categories (1) and (2) would be relevant in this respect. 
11 See Electronic Planted Acreage Files for MY 1999-2001 and MY 2002 provided by the United States 
on 18 and 19 December 2003 respectively offering fa rm-specific information but no farm-identifying 
information.  See also Electronic PFC and DCP Summary Files provided by the United States on 18 and 
19 December respectively offe ring summary information. 
12 This information would result from matching the farm-specific information on contract acreage and 
planted acreage.  The United States withheld the farm id entification number for the acreage information so that 
Brazil and the Panel are unable to match the information pr ovided and to generate this information.  However, 
the United States performed this exercise as can be  seen from the electronic PFC and DCP Summary Files 
provided by the United States on 18 and 19 December 20 03 respectively.  Had the United States not matched 
the information, it would have been impossible to group the farms into the three categories for which summary 
information is provided: (1) farms planting upland cotton and holding upland cotton contract base acreage, (2) 
farms not planting upland cotton but holding upland cotton contract base acreage, and (3) farms planting upland cotton and not holding upland cotton contract base acreage. 
13 This results from the information discussed in the pr evious note.  It is the residual category of the 
amount of upland cotton planted in any marketing year minus the amount planted on upland cotton base. 
14 See Electronic PFC and DCP Files including yield info rmation.  The United States used the farm-
specific yield information to provide summaries of payment units for each crop in each of the three categories 
for the contained in the PFC and DCP Summary Files pr ovided on 18 and 19 D ecember 2003 respectively. 
15 This would be the result of multiplying the farm-specific payment units for each programme crop on 
each farm that plants upland cotton by  the respective payment rate for the programme crop in that marketing 
year. 
16 Brazil’s 18 November 2003 Further Rebuttal Submission, paras. 36-40. 
17 Brazil’s 18 November 2003 Further Rebuttal Submission, paras. 36-41. WT/DS267/R/Add.2 
Page I-618  
 
 9. The Panel can readily see from the US three-page description of the data it presented on 18 December 2003 that the data provided prevents any farm-specific analysis that would permit the 
calculation under either of the allocation methodologies advanced by the parties in this dispute.  On 
page 2, the United States states that it is producing “second
, a farm-by-farm file (with particular farm 
identification information) with all the requested  data (plus additional data regarding payment 
quantities) but not including planted acres and cropland .”18  Further, the United States states that it is 
producing “[t]hird, farm-by-farm files for planted acres . . . with the order of the farms scrambled in 
order to prevent any matching of farms. ”19  In short, the United States admits that it does not “provide 
planted acreage information associated with an individual farm.”20  Translated, this means that neither 
the Panel nor Brazil can use the provided informatio n to calculate the amount of contract payments 
made to all farms producing upland cotton and allocate th e support to upland cotton.  Brazil has 
explained this briefly in its 22 December 2003 Answers to Questions.21 
 10. While the United States provided a considerable am ount of farm-specific data, the fact that it 
scrambled the data on plantings made any matchi ng of contract base and current planting data 
impossible, and renders all data useless for purpo ses of producing any conclusive figures under any 
legitimate allocation methodology.  Admitting this, th e United States then provides aggregate data for 
three groups of farms:  (1) those planting upland cotton and having at least some upland cotton base 
acreage, (2) those not planting upland cotton but having at least some upland cotton base acreage, and (3) those planting upland cotton a nd not holding upland cotton base.
22  The United States appears to 
consider that this summary data could serve as a substitute for the farm-specific information.23  This is 
fundamentally wrong.  11. The United States states as follows in its 20 January 2004 Letter to the Panel:  
 
[T]he information relevant to the Panel’s assessment would not be  farm-specific data  
but rather some aggregation  of data to permit this “assessment of . . . total 
expenditures.”  As noted above, the Unite d States has provided both farm-specific 
and aggregated contract data that would pe rmit an assessment of total expenditures of 
decoupled payments to farms planting upland cotton.
 24 
Further, the United States has provided bot h farm-specific and aggregated contract 
data that would permit the Panel to make the assessment it identifies, that is, an 
                                                      
18 US 18 December 2003 Letter to the Panel,  p. 2 (emphasis and underlining added). 
19 US 18 December 2003 Letter to the Panel,  p. 2 (emphasis and underlining added). 
20 US 18 December 2003 Letter to the Panel, p. 2. 
21 Brazil’s 22 December 2003 An swers to Questions, para. 7. 
22 See Electronic PFC and DCP Summary Files prov ided by the United States on 18 and 
19 December 2003 respectively. 
23 US 20 January 2004 Letter to the Panel, p. 2.  (“the United States notes that it has previously 
provided data that permits calculation of “total expenditures” for all decoupled payments made to farms planting 
upland cotton with respect to historical base acres (whether upland cotton base acres or otherwise).  In particular, for the production flexibility contract paymen t era, we provided a farm-b y-farm file (“Pfcby.txt”) 
with base acreage and yield data for all programme crops for all “cotton farms” as defined in BRA-369 and data 
file (“Pfcsum.xls”) that aggregated this data for ease of use.  The “programme payment units” field allows for 
easy calculation of “total expenditures” to farms planting upland cotton in any given year by multiplying 
payment units by the applicable payment rate.  Similarl y, for the direct and counte r-cyclical payment era, the 
United States provided a farm-by-farm file (“Dcpby.txt”) with base acreage and yield data and an aggregate data 
file (“Dcpsum.xls”).  Again, the “programme paymen t units” field allows for easy calculation of total 
expenditures by multiplying payment units by the applicable payment rate.  Thus, the data already provided by the United States to Brazil and the Panel would permit an assessment of total expenditures of decoupled 
payments to farms planting upland cotton.”) (notes omitted). 
24 US 20 January 2004 Letter to the Panel, p. 3-4 (emphasis added). WT/DS267/R/Add.2 
Page I-619 
 
 
assessment of total expenditures of dec oupled payments to farms planting upland 
cotton. 25   
12. Both the Panel’s 12 January 2004 Communica tion and Exhibit Bra-369 are clear that the 
United States was required to produce farm-specific information, on the basis of which the allocation 
of contract payments as support to upland cotton co uld be performed.  The Panel’s 12 January 2004 
Communication states: 
 
[T]he Panel requests the United States to provide the same data that it agreed to 
provide in its letters dated 18 and 22 Dece mber 2003 but in a format which permits 
matching of farm-specific  information on contract payments with farm-specific  
information on plantings. The Panel consid ers it both necessary and appropriate to 
seek this information in a suitable format in order to undertake its mandate to assist 
the DSB in discharging its responsibilities under the DSU and the covered agreements.
26   
13. There is a fundamental reason why the US summary (non-farm specific) data does not allow 
for an allocation of support to upland cotton in any given marketing year.  To obtain undistorted 
results, any allocation calculation has to be done on the basis of individual farms .  Aggregating farm-
specific data does not generate the correct amount of  contract payments to be allocated to upland 
cotton.  On the contrary, using the aggregate data  provided by the United States to allocate payments 
will inevitably trigger distortions of the results due  to an aggregation problem.  This problem is 
illustrated by considering two cotton farms with the following combination of upland cotton base and 
current upland cotton plantings. 
 
 Farm 1 Farm 2 
Cotton Base 99 acres 1 acre 
Cotton Plantings 1 acre 99 acres 
Aggregate Cotton Base 100 acres 
Aggregate Cotton Plantings 100 acres 
Suggested Aggregate Cotton 
Plantings on Cotton Base 100 acres 
Actual Cotton Plantings On Cotton 
Base 1 acre 1 acre 
Real Aggregate Cotton Plantings on 
Cotton Base Acreage 2 acres 
 
Farm 1 plants 99 acres of upland cotton and has 1 upland cotton base acre.  Farm 2 plants 1 acre of 
upland cotton and has 99 upland cotton base acres.  In the aggregate, there are 100 acres of upland 
cotton planted and 100 upland cotton base acreage – a perfect match suggesting that 100 per cent of 
the upland cotton is planted on upland cotton base.  The underlying farm-specific data reveals, however, that this is not the case.  Both farms only plant 1 upland cotton acre on upland cotton base.  
Thus, the real aggregate upland cotton planting on upland cotton base is only 2 acres – not 100 acres.  
The remaining upland cotton acreage may be pl anted on some other crop base acreage – as the 
information requested by the Panel a nd Brazil would have established.  
 14. This example demonstrates that using aggregat e data to allocate contract payments distorts 
the results, possibly to a considerable extent.  W ithout non-scrambled farm-specific data (exclusively 
controlled by the United States), it is impossibl e to assess how severe this problem is.  More 
importantly, the same aggregation problem arises when other crop plantings and crop base acreages 
                                                     
 
25 US 20 January 2004 Letter to the Panel, p. 4. 
26 12 January 2004 Communication from the Panel, p. 1 (emphasis added).  WT/DS267/R/Add.2 
Page I-620  
 
are considered.  This increases the possible distortio n that stems from the analysis of aggregate data 
and makes any judgement as to the direction of the distortion (over- or under-stating the results) impossible.    15. It follows from the discussions above that it is  also necessary to have farm-specific data for 
any allocation exercise.  It is only these farm-spe cific data that allow for farm-specific payment 
allocations, which, in turn, can be aggregated to “total expenditures.”
27  Contrary to the US 
assertions,28 aggregate data will not suffice.  In sum, despite its numerous assertions on 
18 December 2003 and 20 January 2004 to the contrary, the United States failed to provide the requested data. 
 
16. In addition to not providing usable farm-specific planted acreage data, the United States also 
refused to provide other information requested by the Panel and Brazil.  17. First, the Panel and Brazil also requested th e United States to produce farm-specific data on 
the amount of other contract crop base acreage on farms producing upland cotton with no upland 
cotton base acreage.  But the United States refused to  provide this information – even in summary 
form.
29  Although the United States claims otherwise in its 20 January 2004 Letter,30 the summary 
files, in fact, do not contain data on contract payments to farms that plant upland cotton but do not 
have upland cotton base.31  The fact that farms do not have any contract base for upland cotton cannot 
mean that no such farms have any base acreage wh atsoever, which the US-pro duced data appears to 
suggest.  To the contrary, at least some of these fa rms are likely to have contract base for other crops, 
such as rice, corn, and wheat, among others.  Becau se the United States withheld that information, 
Brazil and the Panel would need to make assumptio ns on the amount of contract payments received 
by farms in this third category.  Any such assu mptions necessarily distort the resulting allocation of 
contract payments that constitu te support to upland cotton. 
 
18. It appears that the reason for the US refusal  to provide even summary data on non-upland 
cotton contract base acreage for these farms stems from the erroneous US argument that Brazil has only challenged upland cotton contract payments  made to current producers of upland cotton.
32  The 
United States concludes, therefore, that it is ina ppropriate for Brazil to allocate contract payments 
made to producers of upland cotton producing on other types of base acreage.33  This refusal is based 
on an entirely flawed legal argument.  In fact, th e Panel’s terms of refere nce include the following 
broad references to contract payments:    
Subsidies and domestic support provided unde r [the 2002 FSRI Act] … related to … 
direct payments, counter-cyclical payments … that provide direct or indirect support 
to the US upland cotton industry.
34  
Subsidies and domestic support provided unde r [the 1996 FAIR Act] … relating to … 
production flexibility contract payments … provi ding direct or indirect support to the 
US upland cotton industry.35   
                                                      
27 12 January 2004 Communication from the Panel, p. 1. 
28 US 20 January 2004 Letter to the Panel, p. 2-4. 
29 See Electronic PFC and CCP Summary Files provided by the United States on 18 and 
19 December 2003 respectively (Information on co ntract base of farms in the third category). 
30 US 20 December Letter to the Panel, p. 2. 
31 See Electronic PFC and CCP Summary Files provided by the United States on 18 and 
19 December 2003 respectively (Information on co ntract base of farms in the third category). 
32 US 2 December 2003 Oral Statement, para. 31. 
33 US 2 December 2003 Oral Statement, para. 31. 
34 WT/DS267/7, p. 2.  
35 WT/DS267/7, p. 2.  WT/DS267/R/Add.2 
Page I-621 
 
 
Subsidies provided under the [1998-2001 A ppropriation Acts, i.e., market loss 
assistance subsidies]36 
19. These terms of reference in Brazil’s request fo r the establishment of a panel are not limited in 
any way to contract payments made on upland cotton base acres.  Brazil listed contract payments 
(unqualified) providing support to the US upland cotton industry, not upland cotton contract 
payments providing support to the US upland cotton in dustry.  Indeed, the reference to “indirect” 
subsidies is more than broad enough to encompass any type of payment, including payments made 
from non-upland cotton base acreage.  In addition,  Brazil’s allocation methodology always has 
included payments made to producers of upland cotton on non-upland cotton base acreage.37  In short, 
the US argument ignores the Panel’s terms of re ference, evidences a misunderstanding of Brazil’s 
allocation methodology, and a misunderstanding of the Panel’s and Brazil’s requests for 
information.38  (As with the other data the United States refuses to produce, Brazil discusses, in 
Section 5 below, how this constitutes a violation of  the US obligations under Article 13.1 of the DSU 
to cooperate in a panel proceeding.39) 
 
20. Second, the United States has not  provided the requested data for market loss assistance 
payments received by the farms listed for MY 1999-2001 .  Therefore, the Panel and Brazil would 
have to make assumptions about the amount of market loss assistance paym ents that constitute 
support to upland cotton, based on the information about PFC payments that constitute support to 
upland cotton.  This might distort the results.  Fu rther, since market loss assistance payments were 
also made for soybean base (that otherwise was not e ligible to receive PFC payments), this allocation 
methodology may significantly underestimate the am ount of market loss assi stance payments that 
constitute support to upland cotton.40  In its 20 January 2004 Letter, the United States appears to 
recognize that market loss assistance payments we re within the scope of the Panel’s request.41  It also 
implies that it has provided the information – at the very least on an aggregate basis.42  The fact, 
however, remains that it has not done so.43 
 
21. Third, Brazil notes that the 19 December 2003 US data concerning MY 2002 does not contain 
any information regarding the amount of direct a nd counter-cyclical payments made on peanut base.44  
As with the missing information on market loss  assistance payments (specifically the soybean 
                                                      
36 WT/DS267/7, p. 2.  
37 Brazil’s 22 August 2003 Rebuttal Submission, Sectio n 2.2 and particularly paras. 32, 38, 42; Brazil’s 
27 October 2003 Answers to Questions, para. 40; Brazil’s 18 November 2003 Further Rebuttal Submission, 
paras. 2, 17, 50. 
38 Exhibit Bra-369 (Brazil’s Request to the United States for Farm-Specific Planting and Base Acreage 
Data). 
39 See Section 5. 
40 The Electronic DCP Summary File demonstrates that farms growing upland cotton in MY 2002 
(categories I and III) also grow a significant amount of soybeans, this would have been eligible for a 
considerable amount of market loss assistance payments in MY 1999-2001 (for which no such data is available). 
41 US 20 January 2004 Letter to the Panel, p. 2. 
42 US 20 January 2004 Letter to the Panel, p. 2 (“In  particular, for the production flexibility contract 
payment era, we provided a farm-by-farm file (“Pfcby.txt”) with base acreage and yield data for all programme crops for all “cotton farms” as defined in BRA-369 and data  file (“Pfcsum.xls”) that aggregated this data for 
ease of use.
42  The “programme payment units” field allows for easy calculation of “total expenditures” to farms 
planting upland cotton in any given year by multiplying payment units by the applicable payment rate.  
Similarly, for the direct and counter-cyclical payment era, the United States provided a farm-by-farm file 
(“Dcpby.txt”) with base acreage and yield data  and an aggregate data file (“Dcpsum.xls”).42  A g a i n ,  t h e  
“programme payment units” field allows for easy calculation of total expenditures by multiplying payment units 
by the applicable payment rate.”). 
43 See Electronic PFC Summary File, which contains no information on soybean base for market loss 
assistance payments and no information on possible discrepancies between PFC base and market loss assistance 
base for the other PFC crops. 
44 Exhibit US-112. WT/DS267/R/Add.2 
Page I-622  
 
payment information), the missing data on peanut contract payments for MY 2002 would cause lower 
aggregate payments allocated as support to upland cotton.
45  It follows that any such figures would 
lead to understating the real support to upland cotton by an amount unknown to Brazil.  22. The United States asserts that the summary da ta it provided allows for the “easy calculation” 
of “total expenditures of decoupled pa yments to farms planting upland cotton.”
46  This is simply not 
true.  The table below presents Brazil’s calculations of total contract payments to farms that actually 
produce upland cotton in as far as they were “easy” to perform.47  The table also reflects the holes in 
the US summary data described above.  These holes prevent any “easy,” or even “difficult,” 
calculation of the amount of contract payments to upland cotton farms.  Only by making a number of 
assumptions, as detailed in Sections 9 and 10 below,  can the incomplete summary data be used. 
 
Subsidy 
Programme Farms Planting Cotton and 
Holding Cotton Base Farms Planting Cotton 
and Not Holding Cotton 
Base1 Total 
Payments 
Marketing Year 1999 
PFC Payments 
 
MLA Payments2 $695,912,51048 
 
? ? 
 
? ? 
 
? 
Marketing Year 2000 
PFC Payments  MLA Payments
2 $650,579,66749 
 
? ? 
 
? ? 
 
? 
Marketing Year 2001 
PFC Payments  MLA Payments
2 $520,230,90850 
 
? ? 
 
? ? 
 
? 
Marketing Year 2002 
Direct Payments3 
 CCP Payments
3 $619,049,30551 
 
$1,062,580,72952 ? 
 
? ? 
 
? 
 1 The United States has not provided any information on contract payments to farms that plant 
upland cotton, but do not hold any uplan d cotton base in its summary files. 
                                                      
45 The President of the National Cotton Council testifie d to Congress in 2001 that he grew primarily 
cotton and peanuts.  Exhibit Bra-41 (Congressional Hearing, “The Future of the Federal Farm Commodity Programmes (Cotton),” House of Representatives, 15 February 2001, p. 2).  Peanuts are generally grown in the 
Southern states of the United States, wh ere also cotton is grown.  Therefore, it is likely that many cotton farms 
have also peanut base, which is a high per-acre payment base. 
46 US 20 January 2004 Letter to the Panel, p. 3-4. 
47 Brazil has omitted the third category of farms, for which the United States ha s presented data (farms 
not planting upland cotton but holding upland cotton base), as those farms do not produce upland cotton.  Therefore, any contract payments received by th ese farms cannot be “sup port to” upland cotton. 
48 See Exhibit Bra-424 (Allocation Calculations Based on US Methodology and US Summary Data) for 
the details of the calculation.  (Also provided electronically as ‘allocation calculations.xls’). 
49 See Exhibit Bra-424 (Allocation Calculations Based on US Methodology and US Summary Data) for 
the details of the calculation.  (Also provided electronically as ‘allocation calculations.xls’). 
50 See Exhibit Bra-424 (Allocation Calculations Based on US Methodology and US Summary Data) for 
the details of the calculation.  (Also provided electronically as ‘allocation calculations.xls’). 
51 See Exhibit Bra-424 (Allocation Calculations Based on US Methodology and US Summary Data) for 
the details of the calculation.  (Also provided electronically as ‘allocation calculations.xls’). 
52 See Exhibit Bra-424 (Allocation Calculations Based on US Methodology and US Summary Data) for 
the details of the calculation.  (Also provided electronically as ‘allocation calculations.xls’). WT/DS267/R/Add.2 
Page I-623 
 
 
 
 2 The United States has not provided specific info rmation on market loss assistance payments.  
In particular, any information on soybean payments to upland cotton farms is missing.  
 3 Brazil recalls that the United States withheld  information on peanut base payment, thus, 
these figures are in all likelihood understated. 
 23. As the Panel can readily see, the only “easy to calculate” payment figures are the PFC, DP 
and CCP payments figures to farms planting uplan d cotton and holding upland cotton base (with the 
DP and CCP payment figures being understated due to the peanut base issue).  The other payment 
figures relating to all market loss assistance paymen ts, and to farms that plant upland cotton but hold 
only non-upland cotton base cannot be calculated, because the United States produced no data.  
 24. These calculations are, however, only one step to allocating the amount of contract payments that are actually support to “upland cotton.”  As Brazil has detailed above, any allocation of “support 
to” upland cotton has to be performed on a farm-sp ecific basis, to avoid aggregation problems.  Any 
calculation using the US summary data will further dist ort the results by due to  its incompleteness, as 
demonstrated by the table above.   25. In sum, the fundamental shortcomings in th e scrambled and incomplete data provided by the 
United States on 18 and 19 December 2003 rende r it unusable for purposes of Brazil’s allocation 
methodology, discussed below,
53 and, for that matter, any allocation methodology. 
 26. While the United States argued in its 20 Ja nuary 2004 Letter that the summary data it 
provided was useful for calculating the amount of contract acreage that constitutes support to upland cotton
54, the Panel must realize that this is – at best  – “second-best” evidence, which, due to all the 
shortcomings just discussed, only allows for di storted calculation results, heavily depending on 
assumptions.    27. Nevertheless, because the redacted, scrambled and incomplete US data is what was produced, 
Brazil has attempted to use it.
55  In particular, in Section 9, Br azil has attempted to use the summary 
data provided by the United States on 18 and 19 D ecember 2003 to allocate contract payments that 
constitute support to upland cotton, within the me aning of Article 13(b)(ii) of the Agreement on 
Agriculture.56  Due to the limitations of the data di scussed above, Brazil was required to make a 
number of critical assumptions.  None of Brazil’s assumptions would have been necessary had the 
                                                      
53 See Section 3 below. 
54 US 20 January 2004 Letter to the Panel, p. 2. 
55 Brazil notes that the data provided by the United States appears to be complete, as shown by the 
following table: 
MY Contract Acres (US 
Data) Contract Acres 
(USDA) Percentage Planted Acres (US 
Data) Planted Acres 
(USDA) Percentage 
1999 16,416,399.4 16.4 m illion 100 % 14,572,963. 5 14.584 million 99.92 % 
2000 16,306,696.2 16.3 m illion 100 % 15,388,002. 9 15.347 million 100.26 % 
2001 16,245,896.4 16.2 m illion 100 % 15,463,934. 5 15.499 million 99.77 % 
2002 18,558,304.2 not yet reported - 13,541,505. 9 13.714 million 98.74 % 
Sources:  
Contract Acres (USDA): Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, 
Table 19. 
Planted Acres (USDA): MY 1999-2001: Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, 
January 2003, p. 4);  MY 2002: Exhibit US-95.  Contract Acres (US Data) and Planted Acres (US Data) are 
taken from the Electronic PFC and DC P Summary Files provided by the Un ited States on 18 and 19 December 
respectively. 
56 See Section 9 below.  Brazil has applied publicly available information on the payment rates for the 
contract crops in the ma rketing yeas concerned ( see Exhibit Bra-394 (Agricultural Outlook Tables, USDA, 
November 2003, Table 19). WT/DS267/R/Add.2 
Page I-624  
 
United States produced the requested complete farm-sp ecific information within its exclusive control.  
Therefore, Brazil cautions against the use of these results.  However, Brazil offers these calculations 
as further circumstantial evidence that its 14/16
th methodology is reasonable.   
 28. In Section 10, Brazil has also attempted to  use the US data to perform the US-proposed 
methodology of allocating contract payments over the total value of  the crops produced on the farms 
producing upland cotton.
57  Brazil strongly disagrees with the US position that such an allocation is 
required under Part III of the SC M Agreement and GATT Article XVI.58  Similarly, although Brazil 
cautions against relying on Brazil’s results  from applying the US-proposed methodology59 due to the 
limitations of the data and the resulting assumptions  it had to make, the results would indicate that 
Brazil’s 14/16th methodology generates fairly similar results. 
 
4. The US Assertions of Confidentiality Are Baseless 
 
29. The United States attempts to justify its “scram bling” of the acreage data on the grounds that 
it is “confidential” data barred by the US Privacy Act.60  A close examination of the facts, including 
the federal court precedent that binds USDA’s admi nistrative actions, shows that the farm-specific 
acreage data requested by the Pane l and Brazil are not confidential.61   
 30. The primary basis for the US confidentiality assertion is an 11 April 2002 USDA FOIA decision concerning FOOS Farm (Exhibit US-104).  This non-appealed USDA decision stands for the 
fairly narrow proposition that a FOIA request for a single farm’s planting records is an invasion of 
privacy rights of that farm’s operator.  In that decision, USDA found that the “release of the number of acres farmed by FOOS Farms would not contribu te significantly to public understanding of the 
operations and activities of FSA.”
62   
 
31. As the USDA FOOS Farm decision in Exhibit US-104 demonstrates, there is clearly a 
difference between a FOIA request for a single farm ’s acreage data and an across-the-board request 
for all acreage information – such as that set out in Brazil’s 3 December request, and in the rice FOIA 
request.  USDA – and USTR – are bound by US fede ral court decisions that made exactly this 
distinction.  The leading case is US district court decision in Washington Post v. United States 
Department of Agriculture, 943 F.Supp. 31 (D.D.C. 1996).63  In that case, the federal court rejected 
USDA’s arguments that the Priv acy Act prevented it from producing information on the US cotton 
programme, including over $1 billion in marketing loan  payments, Step 2 payments, and deficiency 
payments, among others, to US cotton farmers.  The court found that there were no violations of 
privacy rights of US cotton farmers from the “discl osure of names, addresses, and payments that 
commodity programme recipients received.”64  A close reading of the decision highlights the 
illegitimacy of the post hoc US assertions of confidentiality raised in this dispute.  Consider the 
following passages from the decision:    
The nature of the list [names, addresses, amount of subsidies] sought by plaintiff in this case does not create the same sort of personal privacy concerns or invite the kind of unwarranted intrusion that would justif y nondisclosure.  The only individualized 
                                                     
 
57 See Section 10 below. 
58 See Brazil’s 18 November 2003 Further Rebuttal Submission, Section 3.5 and Brazil’s 
2 December 2003 Oral Statement, Section 3. 
59 See Section 10 below. 
60 US 18 December 2003 Letter to the Panel, p. 1-2. 
61 See also 12 January 2004 Communication from the Panel, p. 1. 
62 Exhibit US-104, p. 2. 
63 Cited in Exhibit US-104, p. 2. 
64 Exhibit Bra-418 (Washington Post v. United States Department of Agriculture, 943 F.Supp. 31 
(D.D.C. 1996, p. 5). WT/DS267/R/Add.2 
Page I-625 
 
 
information that would be ascertainable from th e release of the list is that a particular 
individual grows cotton, the address of the farm where the cotton is grown and where 
the subsidy is received, and how much of a subsidy that cotton farmer received in 1993.  It might also be deduced from the amount of the subsidy how much cotton the 
producer grew in 1993.  The Court is unable to di scern, nor have defendants 
persuasively explained, how any of th is relatively generic information about 
thousands of similarly situated business people could constitute clearly unwarranted 
invasions of their personal privacy.  Indeed, it is precisely because the list is so large 
and the information so generic that the impact on privacy interests are so small .
65   
32. The court went on to note that there was a strong public interest in the disclosure of the 
information, rejecting USDA’s arguments that the da ta “pertaining to the cotton programme recipients 
would not shed any light on the work ings of the agency and that theref ore there is no public interest in 
its disclosure.” 66  The court found (in language that is partic ularly applicable to this WTO dispute) 
that “a significant public interest lies in sheddi ng light on the workings of the Department of 
Agriculture and the administration of this ma ssive subsidy programme, and plaintiffs have 
persuasively demonstrated how the release of the recipients names, addr esses and subsidy amounts 
could illuminate the USDA’s actions.”67  Thus, despite the Privacy Act of 1974, the court ordered 
USDA to turn over the farm-specific information.  33. A 1999 US federal court decision in Hill v. United States Department of Agriculture  found 
there was a privacy interest in in stances where the FOIA request sought information on loans made to 
an individual borrower.  Citing the Washington Post case, the court reasoned that because the 
information related to the finances of one closel y-held family corporation and not to “tens of 
thousands of otherwise indistinguishable business pe ople,” it found the corporation had a significant 
privacy interest.
68   
 
34. In light of this precedent, it is not surpri sing that USDA’s FOIA office in Kansas City (which 
is USDA’s only FOIA office for such data) agreed  on 14 November 2003 to provide complete 
contract base and acreage data in relation to rice.  This is because that request covered all rice planted 
acreage and all rice contract acreage.  Pursuant to the reasoning in the Washington Post  case, USDA’s 
FOIA representatives necessarily must have determin ed that because the request did not focus on an 
individual producer’s farm, the interests of the public  in understanding and ev aluating the operation of 
the contract payment schemes outweighed any privacy in terests.  Otherwise, the rice data would never 
have been released.  The post-hoc attempt by the United States on 18 December 2003 and 
20 January 2004 to argue that this information was provided by “mistake” is simply not credible.   
 35. Brazil notes, further, that the United St ates provided no evidence that any mandatory 
provisions of US law or regulations prevent the pr oduction of acreage information.  The United States 
incorrectly argues that the Privacy Act of 1974 prohib its the release of planted acreage information for 
individual farms.
69  But nothing in the text of the Privacy Act cited by the United States requires this.  
Indeed, the fact the federal court in Washington Post  ordered the production of farm-specific payment 
data shows the fallacy of this US arguments.  The Washington Post  decision teaches that the Privacy 
                                                      
65 Exhibit Bra-418 (Washington Post v. United States Department of Agriculture, 943 F.Supp. 31 
(D.D.C. 1996, p. 3)(emphasis added).  None of the information at issue this case is stigmatizing, embarrassing, 
or dangerous; it does not expose these cotton farmers to creditors and nothing about the success or failure of the 
farm or the wealth or poverty of the recipient. 
66 Exhibit Bra-418 (Washington Post v. United States Department of Agriculture, 943 F.Supp. 31 
(D.D.C. 1996, p. 3).   
67 Exhibit Bra-418 (Washington Post v. United States Department of Agriculture, 943 F.Supp. 31 
(D.D.C. 1996, p. 4). 
68 Exhibit US-104 citing Hills v USDA decision.   
69 US 18 December 2003 Letter to the Panel, p.2.  WT/DS267/R/Add.2 
Page I-626  
 
Act of 1974 does not function as an inviolate shield to protect individual crop planting data with no exception other than the written permission of e ach US farmer, as the United States incorrectly 
asserts.   36. In fact, the only reference to acreage repor ts is in what the United States incorrectly 
characterizes as a “long-standing policy” set out in FSA’s FOIA Handbook.
70  But this FOIA “policy” 
does not constitute a US law mandating confidentialit y of planted acreage information.  It is only 
guidance to FOIA officers that obviously can be  disregarded by the USDA Secretary or other 
implementing officials in individual cases.  The release of the rice information by USDA’s FOIA 
office on 14 November 2003 demonstrates that this policy guidance is not mandatory.  In fact, the 
statutory FOIA requirements, as interprete d by the US federal courts (as in the Washington Post 
decision) clearly take priority over any internal  USDA policy guidance documents.  The United States 
is not barred by any provision of US law, either  on its face or as interpreted by US courts, from 
providing the information requested by the Panel.  
37. The evidence cited by the United States in suppor t of its refusal to provide the requested data 
does not, therefore, support its conclusi on that the data cannot be released.
71  In effect, the US 
government has attempted to create, post-hoc , a new mandatory policy for the purposes of this 
dispute.  This blatant attempt to prevent the Pa nel and Brazil from gaining access to information that 
was readily supplied to a private US citizen in th e case of rice was rejected by the Panel in its 
12 January 2004 Communication.  Unfortunately, th e United States’ 20 January 2004 Letter continues 
this approach.   
 38. Finally, Brazil notes that even if the US DA FOIA policy “guidance” were set out in a 
mandatory US statute, the United States could still provide the information requested by the Panel and 
Brazil without “scrambling” it.  As the Panel has not ed in its 12 January 2004 Communication, there 
would have been various options available to th e United States to produce the information in a 
manner that would have protected the confidentiality ri ghts of US farmers.  Brazil made it clear in its 
22 December 2004 Answers to Questions that a substitute number protecting the alleged 
confidentiality rights of farmers would be acceptable.
72  Since neither Brazil nor the Panel has any 
interest in an individual farm’s identity, providing the requested information in such a manner would 
have provided Brazil and the Panel with the paym ent information that they have long sought.   
 
39. In its 20 January 2004 Letter, the United St ates now asserts that no farm-specific data was 
actually requested, as the Panel has only sought to de termine the total amount of  contract payments to 
farms producing upland cotton.73  However, both the Panel’s 12 January 2004 Communication and 
Exhibit Bra-369 are clear that the United States was required to produ ce farm-specific information, on 
the basis of which the allocation of contract paymen ts as support to upland cotton  could be performed.  
And as Brazil has demonstrated above,74 the initial allocations have to be performed on a farm-
specific level to avoid any aggregation problems.  40. The United States did not even provide a complete summary of the data resulting from the farm-specific comparison between planted and contract acreage on an aggregate basis.
75  S u c h  
                                                      
70 Exhibit US-106. 
71 Similarly 12 January Communication from the Panel, p. 1.  
72 Brazil’s 22 December 2003 An swers to Questions, para. 7. 
73 US 20 January 2004 Letter to the Panel, p. 3. 
74 See Section 3. 
75 Of course, since the United States fails to provide other requested data, even the summary data of the 
farm-specific data has huge gaps.  For example, the United States does not provide data on contract base on farms that have no upland cotton base but may have other crop contract base.  Further, the United States does 
not provide any MY 2002 data on peanut base on whichever type of farm, thus triggering an understatement of 
the actual support to upland cotton from contract payments, calculated under any allocation methodology.  WT/DS267/R/Add.2 
Page I-627 
 
 
summary aggregate information is, of course, not co nfidential, since it could never reveal the names 
of any producers, their farms, or the location of th e farms.  Of course, such a summary document is 
not a perfect substitute for the complete farm-specific data requested by the Panel.  But the US failure 
to present this obviously non-confidential data highl ights its continuing non-justifiable concealment of 
key information from the Panel and Brazil.   
 
41. Had the United States been willing to coopera te on this issue, it could have either provided 
the data, as the Panel’s 12 January 2004 Communication and Brazil’s 22 December Answers to Questions
76 suggested, using a dummy farm number or a consolidated single file for contract and 
planted acreage (with no farm number),77 or clarified with Brazil whether there could be a way to 
address the US confidentiality concern, including throught special procedures for confidential 
information, as foreseen by Articles 13 and 18 of the DSU.78  Instead, the United States has simply 
chosen to refuse to produce the information.  42. Lastly, the United States’ 18 December 2003 Lette r dramatically calls for Brazil to “return” 
the rice FOIA request data that was request ed and received by a private US citizen.
79  Yet, US federal 
courts have held that “once records are relea sed, nothing in FOIA prevents the requester from 
disclosing the information to anyone else.”80  Thus, under US law, the rice data is in the public 
domain.  However, in the spirit of cooperation, Br azil notes that it understands that neither it, nor any 
person in or formerly in its delegation, or which pr ovided statements to the Panel, currently retains 
any of this now-public data released by USDA pursu ant to its FOIA authority.  Moreover, the only 
information from the rice request used by Brazil in this dispute is set out in Exhibit Bra-368, which 
reflects aggregated data gleaned from the farm-specific compar isons of rice contract acreage with rice 
planted acreage.  Brazil assumes that even the United States would agree that this aggregated data is 
not confidential.   5. There Is No Basis under WTO Rules for the United States to Withhold Planted Acreage 
Information on The Basis of Confidentiality 
 
43. As described in Section 4 above,  the effect of the “scrambling” of planted acreage and 
contract acreage data by the United States amounts to withholding information specifically requested 
by the Panel.  Further, the failure of the United States to provide any non-cotton base acreage for the 
third category of farms,
81 and the failure of the United States to produce any information on market 
loss assistance payments and peanut direct a nd counter-cyclical payments, also amounts to 
withholding the information requested by the Panel.    44. In its 20 January 2004 Letter, the United Stat es now makes the additional argument that it can 
no longer provide the requested information in an anonymous format,
82 using either a dummy farm 
number, or providing a consolidated file that would contain both contract acreage and planted acreage, but no farm serial number.
83  According to the United States,  this is because it has already 
provided contract acreage with farm serial numb ers, and that, with the additional information 
                                                                                                                                                                     
Finally, the United States does not provide informati on on market loss assistance payments during MY 1999-
2001. 
76 Brazil’s 22 December 2003 An swers to Questions, para. 7. 
77 The United States was aware that neither Brazil nor presumably the Panel was interested in the farm 
serial number per se . 
78 The Panel has suggested that in its 12 January 2004 Communication as well. 
79 The United States reiterates its request in its 20 January 2004 Letter to the Panel, p. 3. 
80 Swan v. SEC, 96 F.3d 498, No. 95-5376, slip. Op. at 4 cited in Washington Post, Exhibit Bra-418, 
p. 2.   
81 Those that produce upland cotton, but do not have upland cotton contract acreage. 
82 This was suggested by the Panel in its 12 January 2004 Communication. 
83 As suggested by Brazil in its 22 Decem ber 2004 Answers to Questions, para. 7. WT/DS267/R/Add.2 
Page I-628  
 
requested by the Panel, Brazil would be able to  deconstruct the “confidential” farm serial number.
84  
This argument is irrelevant, because the United Stat es has an obligation to produce the information, 
even if it is “confidential.”  45. The United States asserts that, pursuant to th e US Privacy Act, it cannot release so-called 
“confidential” farm-specific planted acreage information associated with a particular farm.
85  
Nevertheless, despite the alleged bar of the US Privacy Act, the United States produced farm-specific 
information concerning the contract acreage d esignating it as “confidential due to its sensitive 
nature.”86  The United States never explained how it could produce contract payment information  on a 
farm-specific basis, which would be protected  by WTO confidentiality procedures, but not farm-
specific acreage information .  If the WTO confidentiality procedures are good enough for one set of 
confidential data, then they must be good enoug h for another set of “confidential” data.   
 46. But even accepting, arguendo , that  the US acreage data is confid ential under US law, there is 
no basis for the United States to argue or assert that the confidentiality of this information would not 
be protected in these WTO proceedings.  Paragraph 3 of the Panel’s working procedures states that 
“Members shall treat as confidential information submitted by another Member to the Panel which 
that Member has designated as confidential.”  Th ese working procedures, like DSU Articles 13.1 and 
18.1, require information designated as confidential by the United States to be protected as such by 
both the Panel and Brazil.  Nothing in the Panel’s working procedures or any other DSU rule suggests 
that the United States should be concerned that its information would not be protected.  Certainly, 
nothing suggests that the United States may unilate rally withhold or redact requested information on 
confidentiality grounds.  Indeed, the Panel notes in its 12 January 2004 Communication that this 
information “can be protected under the DSU and our working procedures.”
87  Brazil fully agrees. 
 47. Brazil notes that the US 18 December 2004 Letter also did not request the adoption of any 
special confidentiality procedures.  Nor did the United States attempt to contact Brazil prior to 
18 December 2003 to discuss whether Brazil would agr ee to special procedures for the protection of 
the allegedly confidential information – procedures that Brazil has agreed to repeatedly in past 
disputes involving business confidential information.
88  The United States has similarly participated in 
many earlier WTO disputes in which it has agreed to such procedures.89  Nor has the United States 
presented evidence or argument suggesting that existing WTO confidentiality provisions would not 
fully protect the confidentiality of planted acreage information.  It goes without saying that Brazil 
would have treated such information in a confiden tial manner, consistent with its obligations under 
the Panel’s working procedures, and Articles 13.1 and 18.1 of the DSU.     48. There is no legal basis under WTO rules for the United States to withhold this information 
following the Panel’s August 2003, October 2003,  3 December 2003 and 12 January 2004 requests 
that it produce this information.  These request s to the United States to produce the information 
requested by Brazil in Exhibit Bra-369 were made  pursuant to the Panel’s authority under DSU 
Article 13.1.    
                                                     
 
84 US 20 January 2004 Letter to the Panel, p. 3. 
85 US 18 December 2003 Letter to the Panel, p. 2. 
86 US 18 December 2003 Letter to the Panel, p. 3. 
87 12 January 2004 Communication from the Panel. 
88 Panel Report , Brazil – Aircraft , WT/DS46/R, para. 1.10; Panel Report, Canada – Aircraft , 
WT/DS70/R, paras. 9.57 – 59.  
89 Panel Report, EC – Bananas (22.6) (US) , WT/DS27/ARB, para. 2.5 (as requested specially by the 
United States); Panel Report, Australia – Leather, WT/DS126/R, para. 4.1; Panel Report, Australia – Leather 
(21.5) ,WT/DS126/RW, para. 3.2; Panel Report, US – Wheat Gluten , WT/DS166/R, para. 3.1; Panel Report, 
Canada – Aircraft , WT/DS70/R, para. 9.54-56. WT/DS267/R/Add.2 
Page I-629 
 
 
49. The Appellate Body and panels  have held that a Member is required to provide information – 
including confidential business information – upon  a request made under DSU Article 13.1.  The 
Appellate Body in Canada – Aircraft  found that WTO Members “are … under a duty and an 
obligation to ‘respond promptly and fully’ to re quests made by panels for information under 
Article 13.1 of the DSU.”90  The obligation in DSU Article 13.1 is not limited to only non-confidential 
information.  Indeed, Article 13.1 explicitly antic ipates the production of confidential information, 
providing that “confidential information which is provided shall not be revealed without formal 
authorization from the individual, body, or authoriti es of the Member providing the information.”  As 
the Appellate Body stated in Canada – Aircraft :  
 
[t]o hold that a Member party to a dispute is not legally bound to comply with a 
panel's request for information relating to that  dispute, is, in effect, to declare that 
Member legally free to preclude a pa nel from carrying out its mandate and 
responsibility under the DSU.  So to rule would be to reduce to an illusion and a 
vanity the fundamental right  of Members to have disputes arising between them 
resolved through the system and proceedings for which they bargained in concluding 
the DSU .91 
50. The “refusal by a Member to provide info rmation requested of it” has been found by the 
Appellate Body to “undermine seriously the ability of  a panel to make an objective assessment of the 
facts and the matter, as required by Article 11 of the DSU.”92  The obligation to provide information 
has been deemed a “requirement for collaboration of  the parties in the presentation of the facts and 
evidence to the panel.”93  Panels have found that “the mo st important result of the rule of 
collaboration appears to be that the adversary is obligated to provide the tribunal with relevant 
documents which are in its sole possession.”94 
 51. In US –  Wheat Gluten , the Appellate Body reaffirmed th is “obligation” and “duty” under 
DSU Article 13.1 to produce all information request ed, including information designated as “business 
confidential.”  In that case, the Un ited States only agreed to produce to  the panel, but not to the EC, 
information redacted from the public version of a USITC report in a safeguard investigation.  The 
panel in that case proposed three different special  procedures for business confidential information, 
but the United States still refused to make the inform ation available to the EC.  The panel indicated 
that the information withheld “would have facilitate d our objective assessment of the facts in this 
case, and of the matter before us.”
95  On appeal, the Appellate Body reaffirmed the “obligation” and 
“duty” of Members to produce all information, incl uding business confidential information, to panels 
when requested under DSU Article 13.1.  In affirmi ng the panel’s ruling, the Appellate Body stated 
that it “deplore[d] the conduct of the United St ates” in refusing to produce business confidential 
information.96   
 
52. The panel in Canada – Aircraft similarly emphasized the oblig ation of a Member under DSU 
Article 13.1 to provide “highly sens itive business confidential information,”97 as well as information 
that Canada claimed was governed by a “Cabinet privilege.”98  Similar to what the United States did 
in “scrambling” the key information in this case, Canada argued that while it could not provide the 
confidential “Cabinet privilege” documents, it c ould provide a summary of the criteria the 
                                                      
90 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 187 (emphasis added). 
91 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 189 (emphasis added). 
92 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 189. 
93 Panel Report, Argentina – Textiles and Apparel, WT/DS56/R, para. 6.40. 
94 Panel Report, Argentina – Textiles and Apparel,  WT/DS56/R, para. 6.40. 
95 Panel Report, US – Wheat Gluten , WT/DS166/R, para. 8.12.   
96 Appellate Body Report, US – Wheat Gluten , WT/DS166/AB/R, para. 171.   
97 Panel Report, Canada – Aircraft , WT/DS70/R, para. 9.293 (Canada’s description).   
98 Panel Report, Canada – Aircraft , WT/DS70/R, para. 9.294.  WT/DS267/R/Add.2 
Page I-630  
 
Government used to award one particular contribution.
99  However, the panel rejected the utility of 
this proffered information, finding that the informa tion provided by Canada was not sufficient to rebut 
Brazil’s prima facie case that Canada had provided export subsidies.100  In addition, as with the 
“scrambled” information provided by the United Stat es, the panel noted the uselessness of business 
confidential information “redacted” by Canada.  The panel found it had been so heavily redacted that 
it was “simply of no value to the panel.”101 
 53. As in Canada – Aircraft, the US “scrambling” of contract and acreage data effectively 
“redacted” the information requested by the Panel to such an extent that it cannot be relied on.  In 
addition, the United States’ offer to provide “summa ry” data tabulating the incomplete “scrambled” 
acreage data on the one hand, and the contract acrea ge on the other hand, should be rejected by the 
P a n e l .   A s  i n  Canada – Aircraft , a party refusing to cooperate  under Article 13.1 should not be 
permitted to selectively present evidence while withhol ding evidence within its exclusive control that 
is far more directly relevant.  As the panel found in Canada – Aircraft, “Canada has outright refused 
(on the basis of Cabinet privilege) to provide what in the Panel’s view are the most relevant of the 
documentation that it requested regarding the five contributions identified by Brazil.”
102  D a t a  
permitting the linking of contract and acreage data is  similarly the most relevant of the documentation 
requested by the Panel.    54. The US refusal to provide certain allegedly confidential information in this dispute without 
even seeking special confidentiality provisions
103 (while providing other information it designates as 
confidential) is completely inconsistent with  its arguments before the Appellate Body in Canada – 
Aircraft .  In that appeal, the United States argued th at “the need for additional procedures for 
protecting business confidential information is extr emely important, because it goes to the viability of 
WTO dispute settlement as a vehicle for preservi ng the rights and obligations of Members.”104  
Moreover, the United States argued that the a pplication of procedures for protecting business 
confidential information promotes important objectives, because Members’ rights and obligations 
under the covered agreements can only be prese rved if due process is accorded to both the 
complaining party and the responding party.105  The United States maintained that “the demands of 
due process are not satisfied, however, if the absence of such procedures precludes a Member from properly making its case.”
106   
 
55. Finally, while it argues in this case that the 1974 Privacy Act allegedly prevents it from 
providing the acreage information in any form, the United States maintained in Canada - Aircraft that 
“a Member’s national laws do not provide a basis for depriving another Member of its rights under the 
WTO Agreement.”107  In that case, the EC – as a third party – argued that requiring its officials to sign 
a non-disclosure form as part of special confidentiality procedures set up by the Canada – Aircraft 
panel would violate their duties of disclosure under EC law.  In response, the United States argued 
                                                      
99 Panel Report, Canada – Aircraft , WT/DS70/R, para. 9.294.   
100 Panel Report, Canada – Aircraft , WT/DS70/R, para. 9.345.  
101 Panel Report, Canada – Aircraft , WT/DS70/R, para. 9.345.   
102 Panel Report, Canada – Aircraft , WT/DS70/R, para. 9.345.   
103 In addition to DSU Article 13.1, DSU Article 18.2 provides procedures concerning the protection of 
confidential information.  In addition, Article 12.1 of the DSU permits panels to adopt working procedures in 
addition to those established in the DSU.  This would provide private business interests with adequate protection 
for their business information, if it is considered of sensitive nature.  If the US concern was indeed 
confidentiality, it could have requested the Panel to ar range for the proper procedures to deal with the 
information the US claims has such a high confidential status, that it cannot be provided to the Panel or Brazil under normal business confidential information procedures.  Therefore, such procedures could have addressed 
the US concerns about the confidential nature of the information withheld.  The United States has not done so. 
104 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 137.  
105 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 139. 
106 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 139. 
107 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 140. WT/DS267/R/Add.2 
Page I-631 
 
 
that the EC’s claim that “its officials would be  unable, under their staff regulations, to accept the 
undertaking proposed ‘should not be allowed.’”108  
 56. In conclusion, there is no justification unde r WTO rules for the United States to refuse to 
produce all of the information sought by th e Panel in August 2003, October 2003, and on 
3 December 2003 and 12 January 2004.  The conti nuing refusal to provide this highly-relevant 
information is clear evidence of non-cooperation.    
6. The Panel Should Draw Adverse Inference s from the US Failure to Cooperate  
 57. In light of the US failure, in response to the Panel’s four requests for information on the 
amount of contract payments provided to current producers of upland cotton, to provide information 
within its exclusive control, Brazil requests the Pa nel to draw the following adverse inferences:   
 
 •  That the application of Brazil’s methodology
109 for allocating PFC, MLA, CCP, and DP 
payments to current producer of upland co tton in each of the marketing years 1999-2002 
using data exclusively within the control of the United States would have resulted in 
payments that were higher than those estimated by Brazil’s 14/16th methodology. 
 
 •  That the application of the US methodology for allocating PFC, MLA, CCP, and DP 
payments to current producer of upland co tton in each of the marketing years 1999-2002 
using data exclusively within the control of the United States would have resulted in 
payments that were as high or higher than those estimated by Brazil’s 14/16th 
methodology. 
 
 •  That the information withheld by the United States would have been detrimental to its 
arguments that PFC, MLA, DP, and CCP payments are not support to upland cotton, within the meaning of Article 13(b)(ii) of th e Agreement on Agriculture, or alternatively, 
“non-product-specific” support.     
 58. The legal basis for the Panel’s drawing adverse inferences is found in the Appellate Body’s 
decision in Canada – Aircraft , where it found that “the authority to draw adverse inferences from a 
Member’s refusal to provide information belongs a fortiori also to panels examining claims of 
prohibited export subsidies.  Indeed, that authority se ems to us an ordinary aspect of the task of all 
panels to determine the relevant facts of any dispute involving any covered agreement: a view 
supported by the general practice us age of international tribunals.”
110  The Appellate Body in Canada 
– Aircraft stated that “if we had been deciding the issue that confronted the panel [when referring to 
the drawing of adverse inferences] we might have c oncluded that the facts of the record did warrant 
the inference that the information Canada withhe ld included information prejudicial to Canada.”111  
The Appellate Body based its “adverse inferences” holding on an interpretation of the DSU and the 
SCM Agreement, as well as on support from the follo wing international law jurisprudence:   
 
 •  In The Corfu Channel Case , where the International Court of  Justice stated that “… the 
victim of a breach of international law is of ten unable to furnish direct proof of facts 
giving rise to responsibility.  Such a State should be allowed a more liberal recourse to 
                                                      
108 Appellate Body Report, Canada – Aircraft, WT/DS70/AB/R, paras 135, 140. 
109 See Brazil’s 20 January 2004 Answers to Additional Questions, paras. 43-55. 
110 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 202; See also “Evidence Before 
International Tribunals,” D.V. Sand ifer, Revised Edition, Un iversity Press of Virginia 1975, p.153. 
111 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 205. WT/DS267/R/Add.2 
Page I-632  
 
inferences of fact and circumstantial evidence.  This indirect evidence is admitted in all 
systems of law, and its use is recognized by international decisions.”
112 
 
 •  Case Concerning Military and Paramilitary Ac tivities In and Against Nicaragua, where 
on the basis of the facts before it, the International Court of Justice found that it could 
reasonably infer that certain aid had b een provided from Nicaraguan territory.113 
 
 •  Case Concerning the Barcelona Traction, Light and Power Company Limited,  where 
Judge Jessup, in his separate opinion, opined that “… if a party fails to produce on 
demand a relevant document which is in its po ssession, there may be an inference that the 
document if brought, would have exposed facts unfavourable to the party… .”114 
 
 •  In William A. Parker (USA) v. United Mexican States , the Mexican-United States General 
Claims Commissions stated that “in any case where evidence which would probably 
influence its decisions is peculiarly within the knowledge of the claimant or of the 
respondent Government, the failure to produce it, unexplained, may be taken into account 
by the Commission in reaching a decision.”115 
 
59. In US – Wheat Gluten , the Appellate Body provided additional guidance on the drawing of 
adverse inferences, noting that the complaining pa rty must identify which facts support a particular 
inference and what inferences the Panel should have drawn from those facts.116 
 60. In view of these legal standards, Brazil set s forth and references the facts which support the 
drawing of these three adverse inferences it has requested.   
 61. First, at the time it refused to produce th e requested information on 20 January 2004, the 
United States was aware of the following key facts:  (1) it knew Brazil’s latest estimates using the 14/16
th methodology,117 (2) it knew the results of the EWG database tabulations,118 and (3) it had 
access to all farm-specific contract, yield, payment and planted acreage data in a centralized database 
that would have permitted a calculation of th e total amount of support under a variety of 
methodologies, including that advocated by the United States.  These facts support the drawing of the first two (adverse) inferences requested by Brazil.    62. Second, the United States was fully capable of  calculating the amount of payments allocable 
to current US producers of upland cotton.  As an initial matter, the data would allow for an exact 
payment total of the amount of upland cotton contract payments received by upland cotton farmers.  
Thus, without using any allocation methodology fo r non-upland cotton payments, the United States 
knows the exact amount of all these cotton-specific pa yments.  Further, the United States was fully 
instructed on how Brazil calculated the support attrib utable to rice in Exhibit Bra-368, Tables 2-3 and 
accompanying data.  Further, throughout the briefi ngs on the different allocation methodologies, the 
United States left no doubt that it was fully aware of how to calculate the amount of payments using a 
                                                     
 
112 The Corfu Channel Case, 1949, ICJ, 4, p.18, cited  in Appellate Body Report, Canada – Aircraft,  
WT/DS70/AB/R; note 128. 
113 Case Concerning Military and Paramilitary Activities , 1986 ICJ 14, p. 82-86, paras. 152, 154-156,  
cited  in Appellate Body Report, Canada – Aircraft,  WT/DS70/AB/R; note 128. 
114 Case Concerning the Barcelona Traction, Light and Power Company Limited, 1970 ICJ 3, p. 215, 
para. 97, cited  in Appellate Body Report, Canada – Aircraft,  WT/DS70/AB/R; note 128. 
115 Reports of International Arbitr al Awards, Vol. IV, 35, p.39, cited  in Appellate Body Report, Canada 
– Aircraft,  WT/DS70/AB/R; note 128. 
116 Appellate Body Report, US – Wheat Gluten , WT/DS166/AB/R, para. 176. 
117 Set out in Brazil’s 22 December 200 3 Answers to Question, para. 8.  
118 Brazil’s 18 November 2003 Further Rebuttal Submission, Section 2.1.  See also Brazil’s 
28 January 2004 Comments on US Answers, paras. 20-22. WT/DS267/R/Add.2 
Page I-633 
 
 
number of different methodologies, including Brazil’s 14/16th methodology, as well as the 
methodology advocated by the United States itself.119  Given this knowledge, opportunity, and 
capability, the Panel may infer that the United Stat es knew the amount of payments resulting from the 
application of both the Brazilian as well as their own allocation methodologies.  These facts support the drawing of the first two (adverse) inferences. 
 
63. Third, the consistently misleading information provided by the United States concerning its possession of data regarding acreage and payment inform ation for contract payments is another fact 
supporting the drawing of all three adverse inferen ces.  Brazil first requested this information in 
November 2002, and then repeatedly through December 2003.  The Panel made similar requests.  It is 
uncontested that the United States government, thro ugh USDA’s Kansas City Administrative Office 
and its database, collected, organized and maintained in a centralized database all of the data that 
would be responsive to Brazil’s and the Panel’s re quests.  The United States now argues it did not 
“maintain” information on the amount of contract  payments paid to current producers of upland 
cotton.
120  The ordinary meaning of the word “maintain” is “practice habitually,” “observe,” “cause to 
continue (a state of affairs, a condition, an activity).”121  The rapid response of USDA’s Kansas City 
office to the rice FOIA request provides compe lling evidence of habitual practice of the US 
government in “maintaining” both contract and planted acreage information.122  In sum, the pattern of 
misrepresentations supports the finding that the Unit ed States sought to hide this information and to 
mislead Brazil and the Panel, because it knew that th e requested information would be harmful to its 
defence.   
 
64. Fourth, a major issue in this dispute has b een whether the US contract payments are support 
to upland cotton, or alternatively, as the United St ates argued, whether they are “non-product-specific 
support.”  As the United States knew on 20 January 2004, a key element of Brazil’s proof of support 
to upland cotton is demonstrating th e extent to which the allegedly “decoupled” contract payments are 
actually paid to current producers of upland cott on.  Brazil has provided extensive circumstantial 
evidence demonstrating this link.123 The refusal of the United States to provide the information 
provides the basis for the Panel to infer that the United States knew this information would be 
detrimental to its argument that these payments were not linked to current cotton production.  
 65.   In deciding whether to draw any adverse inferences, the Panel may wish to consider the 
precedential impact of the US refusal to cooperate.  If a Member can easily block a panel’s request for 
information without any consequences, it will provid e a clear roadmap for avoiding subsidy and other 
WTO disciplines in the future.  It will also encour age parties to a future dispute to obfuscate and 
refuse to provide requested evid ence.  The WTO dispute settlement  system will simply cease to 
function over the long run unless there are c onsequences that follow from a Member’s non-
cooperation.  In short, the US lack of coopera tion, in the words of the Appellate Body in US – Wheat 
Gluten , is to be “deplored,” rather than rewarded.
124   
 
                                                      
119 US 18 November 2003 Further Submission, paras. 11-17;  US 2 December 2003 Oral Statement, 
paras. 23-24, 26-28. 
120 US 22 December 2003 Answers to Questions, paras. 6-11. 
121 New Shorter Oxford Dictionary, 1993 edition, p. 1669.   
122 The current WTO rules do not permit Brazil to rec over the enormous costs it has incurred in this 
dispute to prove circumstantially what the United States had in its possession for the past 15 months.  The Panel 
should consider that, if the misrepresentations made by the United States in this proceeding had been made in 
US Federal Courts, they would have resulted in the aw ard of significant attorney’s  fees and costs in a US 
Federal Court.  See e.g., Federal Rule of Civil Procedure 26(g)(2)(A), (3) (sanctions include reasonable 
expenses including attorney’s fees due to misleadin g certification of accuracy of  discovery responses).  
123 See e.g. Brazil’s 9 October Closing Statement, Annex I, although later submissions provided 
considerable additional information such as Brazil’s 18  November Further Rebuttal Submission, Sections 2.1, 
3.1 and 3.7.5.   
124 Appellate Body Report, US – Wheat Gluten , WT/DS166/AB/R, para. 171. WT/DS267/R/Add.2 
Page I-634  
 
66. Finally, any adverse inferen ces drawn by the Panel become part of the evidence on the basis 
of which the Panel must make an objective assessm ent of the facts under DSU Article 11.  Among the 
best available “facts” are the adverse inferences themselves.  The Appellate Body in Canada – 
Aircraft held that “a panel must draw inferences on the b asis of all of the facts of record relevant to 
the particular determination to be made,”
125 and that “[w]here a party refuses to provide information 
requested by a panel, that refusal will be one of th e relevant facts on record, and indeed an important 
fact, to be taken into account in determini ng the appropriate inference to be drawn.”126 
 
7. The US Refusal to Provide the Information Requested Renders Brazil’s 14/16th 
Methodology the Most Accurate Information on Record Concerning the Amount of 
Support to Upland Cotton from Contract Payments 
 
67. Since the United States has not provided the da ta, the best available information before the 
Panel is Brazil’s so-called “14/16th” methodology.  This information is the most accurate proxy for the 
amount of contract payments that constitute suppor t to upland cotton.  By this methodology, Brazil 
has made the assumption that all upland cotton is pl anted on upland cotton base.  Or, put differently, 
for each acre planted to upland cotton an average cont ract payment in the amount of an upland cotton 
contract payment is received.  Accordingly, Braz il has adjusted the amount of upland cotton contract 
payments made in any marketing year by the ratio of the acreage actually planted to upland cotton and 
the upland cotton contract payment base acreage in that marketing year.127  For MY 2002, the original 
ratio was about 14/16th,128 therefore the name of the methodology.  In fact, Brazil has used a different 
adjustment factor for each marketing year.129   
 68. Brazil has demonstrated with circumstantia l evidence that current upland cotton producers 
need contract payments to generate suffici ent returns to remain economically viable.
130  Brazil has 
also demonstrated that current producers of upland cotton need high per-acre contract payments (such 
as those provided for upland cotton, rice, peanut or  corn base) to cover the cost of upland cotton 
production.131  Thus, in the absence of the withheld data, it is fair to assume that some upland cotton 
was planted on base acreage with higher  payments than upland cotton base ( e.g., rice132), and some 
was planted on base acreage yielding lower contract payments than upland cotton base ( e.g., corn).  
These phenomena would, on average, cancel each othe r out, so that one can reasonably assume that 
the average planted upland cotton acre received a cont ract payment in the amount of an upland cotton 
contract payment.133 
 69. In addition, the incomplete EWG data supports  the conclusion that most US upland cotton is 
planted on upland cotton base.
134  Three quarters of all upland cotton base payments are paid to 
                                                      
125 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 204. 
126 Appellate Body Report, Canada – Aircraft , WT/DS70/AB/R, para. 204. 
127 Since planted acreage in all marketing years is below the base acreage, this amounts to a downward 
adjustment of the total payments made in relation to upland cotton base acreage. 
128 The final planted acreage figure provided by the United States in a later stage of this dispute 
required a slight adjustment to the figure: see Brazil’s 22 December 2003 An swers to Questions, para. 8. 
129 See Brazil’s 11 August 2003 Answers to Questions, Notes to Table at paras. 97 and 130.  
130 These facts are summarized in Annex 1 to Br azil’s 9 October 2003 Closing Statement but are 
contained in a number of Brazil’s earlier submissions to the Panel beginning on 24 June 2003.  See also Brazil’s 
18 November Further Rebuttal Submission, Sections 3.1 and 3.7.5. 
131 Brazil’s 22 August 2003 Rebuttal Submission, paras. 30-34 and 39-44;  Brazil’s 27 October 2003 
Answers to Questions, paras. 14-24 and Brazil’s 2 December 2003 Oral Statement, paras 26-27. 
132 Brazil notes that the data provided by the United States does not contain any information on peanut 
base payments, which would also be a high per-acre payment crop.  
133 Brazil’s 18 November 2003 Further Rebuttal Submission, paras. 50-51. 
134 Brazil’s 18 November 2003 Further Rebuttal Submission, paras. 22-28.  See also Brazil’s 
28 January 2004 Comments on US Answers, paras. 20-22.  WT/DS267/R/Add.2 
Page I-635 
 
 
producers of upland cotton.135  The EWG data further demonstrates that the great majority of both 
contract payments and marketing loan payments  received by upland cotton producers are for upland 
cotton.136  Thus, while part of the contract payment support to upland cotton comes from non-upland 
cotton contract payments, any over- or under-counting resulting from Brazil’s “14/16th” methodology 
would be minimal. 
 
70. Finally, in making this factual finding, the Panel should also take into account, as a fact of record, the adverse inferences outlined in Section 6 above, which fully support a finding that Brazil’s 
14/16
th methodology is correct.  In addition, the Pane l should take into account the adverse inference 
that the US allocation methodology would have resulted in contract payments at least as high as those 
in Brazil’s 14/16th methodology.  However, in making its obj ective assessment of the facts, the Panel 
should reject the partial information proffered by  the United States in its 18 and 19 December 2003 
Letter and reflected in various submissions.137  A s  i n  Canada – Aircraft , this heavily redacted 
information, which excludes the most relevant  information requested, should be ignored.   
 8. Brazil’s Intended Methodology For Allocating Contract Payments as Support to Upland 
Cotton 
 
71. Brazil intended to use the data requested fro m the United States to calculate the amount of 
contract payments that constitute “support to” upland cotton,
138 within the meaning of Article 13(b)(ii) 
of the Agreement on Agriculture.139  In its 20 January 2004 Answers to Additional Questions, Brazil 
provided more detailed information concerning its allocation methodology.140  Brazil emphasizes that 
it intended to apply this methodology since early on in this dispute, but was prevented from doing so 
due to (1) the US denial that the data existed and (2) the US refusal to prov ide the data requested by 
the Panel and Brazil.141  Only because of the US argument th at it did not have the information 
requested and – after demonstrating the incorrectness of that argument – because of the US refusal to 
provide the information, Brazil sugg ested to apply its so-called “14/16th” methodology as a proxy. 
 
                                                      
135 Brazil’s 18 November 2003 Further Rebuttal Submission, paras. 23-24. 
136 Brazil’s 18 November 2003 Further Rebuttal Submission, para. 26. 
137 E.g., in note 12 of the 22 December 2003 US Answer s to Questions the United States asserts that 
only 30.7 per cent of cropland on US upland cotton farms was planted to upland cotton in MY 2002.  This 
figure is however misleading, as the United States has classified as “upland cotton farm” not only farms that 
currently grow upland cotton, but also farms that historically grew upland cotton (and, therefore, have upland 
cotton base) yet have stopped to do so.  This is an inappropriate categorization.  By contrast, in paragraph 186 of 
its 22 December 2003 Answers to Questio ns, the United States provides the correct figure of 48 per cent of 
cropland on farms actually producing upland cotton is planted to upland cotton.  The Panel should not allow the 
United States to selectively use its data (which cannot be  checked), but not allow the Panel or Brazil to receive 
the data needed to calculate the amount of support to upland cotton from the contract payments. 
138 Brazil’s 18 November 2003 Further Rebuttal Submission, paras. 3, 17-19, 47-49;  Brazil’s 
2 December 2003 Oral Statement, para. 2 and Exhibit Br a-369 (Brazil’s Request to the United States for Farm-
Specific Planting and Base Acreage Data). 
139 Brazil notes that it is its position that the peace cl ause is an affirmative defence and that it is the 
burden of the United States to demonstrate that its curre nt support to upland cotton  does not exceed the support 
decided during 1992 ( see inter alia Brazil’s 22 July 2003 Oral Statement, pa ras. 5-11).  The United States has 
not lived up to its burden of proof and has repeatedly failed to provide the data that would allow the Panel and 
Brazil to calculate the exact amount of support to upland cotton. 
140 Brazil’s 20 January 2004 Answers to Additional Questions, paras. 43-55. 
141 See inter alia Brazil’s 9 October 2003 Closing Statement, paras. 2-9, in particular para. 2, 6 and 9;  
Brazil’s 18 November 2003 Further Rebuttal Submission, paras. 2-3, 17, 32 and 47-51. WT/DS267/R/Add.2 
Page I-636  
 
9. Using the Problematic and Incomplete US 18 / 19 December 2003 Aggregate Data for 
Allocating Contract Payments as Support  to Upland Cotton Does Not Contradict 
Brazil’s 14/16th Methodology 
 
72. In this Section, Brazil presents its resu lts from applying a simplified version of its 
methodology applied to the US summary data.  Br azil incorporates all of its reservations it has 
expressed regarding this data.
142  Brazil further recalls its various arguments why contract payments 
constitute support to specific commodities.143  Therefore, contract payments are principally allocated 
to the programme crops covered, as suggested by  Brazil’s methodology presented in its 20 January 
2004 Answers to Additional Questions.144   
 
73. As the record demonstrates, none of four types of contract payments145 is truly “decoupled,” 
given the production of programme crops by the fa rms holding contract payment base.  To the 
contrary, they are intended to and, in fact, do pr ovide support for the production of programme crops.  
This is particularly true in the case of high per-acre payment crops, such as upland cotton and rice.146  
Therefore, Brazil allocates contract payments to the programme crops covered.  This approach is 
reasonable, since contract payments are eliminated, fo r instance, if fruits and vegetables are grown.  In 
sum, Brazil maintains its position – supported by all third parties147 – that the support from contract 
payments that can be allocated to upland cotton is  product-specific support within the meaning of the 
Agreement on Agriculture.148 
 
74. Although Brazil could not use the data provide d by the United States for its intended purpose, 
Brazil has attempted to apply a similar but less complex allocation methodology149 to the aggregate 
data provided by the United States.150  The summary data provided by the United States groups farms 
in three different categories and provides aggregate data for these categories:  (1) those farms planting 
upland cotton and holding upland cotton contract ba se acreage, (2) those farms not planting upland 
cotton but holding upland cotton contract base acrea ge, and (3) those farms planting upland cotton 
and not holding upland cotton contract base acreage.151  For purposes of this analysis, only the 
aggregate data concerning farms in category (1) and (3) are of interest, as only those farms actually plant upland cotton.  Brazil discusses below how it has calculated the contract payment support to 
upland cotton for each of these categories.    
75. Due to the summary nature of this data, Braz il had to make several critical assumptions that 
would not have been necessary had the United States provided usable non-scrambled farm-specific data rather than summary data and “scrambled” farm-specific data.  These assumptions are set out below.  
                                                     
 
142 See Section 3. 
143 See inter alia  Brazil’s 9 October 2003 Closing Statement, Annex 1. 
144 Brazil’s 20 January 2004 Answers to Additional Questions, paras. 43-55. 
145 PFC, market loss assistance, dir ect and counter-cyclical payments. 
146 See inter alia  Brazil’s 9 October 2003 Closing Statement, Annex I for a summary of these 
arguments. 
147 See Brazil’s 22 August 2003 Rebuttal Submission, para. 13 for further references. 
148 See e.g.  Brazil’s 22 August 2003 Rebuttal Submission, paras. 13-23 and 24-52 for evidence and 
arguments concerning the four contract payments. 
149 Due to the limitations of the data provided by th e United States, Brazil had to simplify its suggested 
methodology (Brazil’s 20 January 2004 Answers to Add itional Questions, paras. 43-55) so as to enable its 
application to aggregate rather than farm-specific data.  
150 Brazil notes that as explained above, the farm-specific data provided by the United States does not 
allow for matching the contract payment data with the data on current plantings of contract programme crops.  Therefore, Brazil could only use the summa ry data for this allocation exercise.  
151 See Electronic PFC and DCP Summary Files pr ovided by the United States on 18 and 
19 December 2003 respectively. WT/DS267/R/Add.2 
Page I-637 
 
 
76. First, Brazil had to assume that no “aggregati on problem” exists with the US summary data.  
Brazil’s example in Section 3 above  demonstrates that basing calcul ations on aggregate rather than 
farm-specific data can distort the results to a c onsiderable extent.  Without usable non-scrambled 
farm-specific data, it is impossible to avoid this  problem – although Brazil does not know how severe 
the problem is in the case of upland cotton contract payments.  Using the US aggregate base acreage 
data and aggregate planting data to allocate contract  payments will most likely trigger distortions of 
the results due to the allocation problem.    77. It bears repeating that a proper allocation calculation has to be done on the basis of individual farms to obtain undistorted results.  Only aggregatin g farm-specific allocations of contract payments 
as support to upland cotton generates th e correct total amount of contract  payments to be allocated to 
upland cotton.    78. Further critical assumptions are discussed in the course of the description of the allocation 
methodology used, as set out below. 
 
79. First, Brazil has considered the data for uplan d cotton planted on farms that also have 
upland cotton base .  As indicated in Brazil’s allocation approach,
152 as a first step in these 
calculations, Brazil has assigned all aggregate upland cotton base payments received by farms 
producing upland cotton a nd holding upland cotton base as support to upland cotton – yet only up to 
the share of upland cotton base acreage th at was actually planted to upland cotton.153  The monetary 
value of contract payments to these farms was calcu lated by multiplying the payment units for a crop 
base (as provided by the United States) by the paymen t rate for that crop in the marketing year in 
question.154  For MY 1999-2001, all upland cotton PFC pa yments to farms producing upland cotton 
and holding upland cotton base were allocated as support to upland cotton, because the aggregate 
acreage planted to upland cotton by that group of farms exceeded their aggregate upland cotton base 
acreage.155  For MY 2002, only a percentage of tota l upland cotton direct and counter-cyclical 
payments was allocated as support to upland cotto n, because upland cotton acres planted by farms 
holding upland cotton base were below their upda ted upland cotton base for that marketing year.156  
The percentage of payments allocated corresponds to  the ratio of aggregated upland cotton planted 
acreage to aggregated upland cotton base acreage for the group of farms producing upland cotton and 
holding upland cotton base.157  It follows that in MY 2002 for this group of farms no further direct or 
counter-cyclical payments from other crops were allocated. 
 80. Since for MY 1999-2001 upland cotton acreage planted by farms that also had upland cotton 
base exceeded that base, additio nal PFC payments paid on other crop base were allocated as support 
to upland cotton.  As discussed in Brazil’s methodology,
158 PFC payments for other crops were 
primarily allocated as support for these crops – up to the share of contract acreage planted to the 
respective crop – in a manner identical to the above described first step for upland cotton.  Any further 
payments stemming from contract acreage not plan ted to the respective base crop were pooled and 
                                                      
152 Brazil’s 20 January 2004 Answers to Additional Qu estions, paras. 43-55, in particular para. 47 
discussion of Sample Farms 1-3. 
153 Brazil’s 20 January 2004 Answers to Additional Questions, paras. 44-48.  
154 Exhibit Bra-394 (Agricultural Outlook Tables, USDA, November 2003, Table 19). 
155 See Exhibit Bra-419 (Allocation Calculations Based on Brazil’s Methodology and US Summary 
Data).  (Also provided electronica lly as ‘allocation calculations.xls’). 
156 See Exhibit Bra-419 (Allocation Calculations Based on Brazil’s Methodology and US Summary 
Data).  (Also provided electronica lly as ‘allocation calculations.xls’). 
157 See Exhibit Bra-419 (Allocation Calculations Based on Brazil’s Methodology and US Summary 
Data).  (Also provided electronica lly as ‘allocation calculations.xls’). 
158 Brazil’s 20 January 2004 Answers to Additional Questions, para. 48 discussing Sample Farm 4. WT/DS267/R/Add.2 
Page I-638  
 
allocated as additional support to those contract  crops whose aggregate planting exceeded their 
aggregated base acreage.
159 
 81. Second, Brazil has analyzed the US summary data concerning upland cotton that has been 
planted on farms without upland cotton base .  Unfortunately, the United States did not provide the 
requested information (even in summary form) regard ing the amount of contract acreage that existed 
on those farms.
160  The second critical assumption Brazil, therefore, must make is that, for each 
upland cotton acre planted on a farm without upland co tton base, contract payments were received in 
an amount identical to the average per-acre paymen t allocated to upland cotton planted by the first 
group of farms.  This assumption triggers furthe r uncertainty about the reliability of the results, 
because it assumes that this group of farms receiv es contract payments in an equal manner as 
compared to group planting upland cotton and holding upland cotton base.161 
 82. Third, since the United States has not provided any information on the amount of market loss assistance payments received by any farm produci ng upland cotton – the United States did not even 
provide aggregate information – Brazil has assumed
162 that any allocation of market loss assistance 
payment as support to upland cotton would have to be  made in the same manner as the allocation of 
PFC payments in the marketing year in question.163  
 83. Combining the resulting PFC, market loss assistance, direct and counter-cyclical payments from these calculations yields the following amount of  contract payments that would be considered 
support to upland cotton. 
                                                     
 
159 See Brazil’s 20 January 2004 Answers to Additional Questions, paras. 49-55 discussing Sample 
Farms 5-7.  For MY 1999 and 2000, only upland cotton plantings exceeded the crop base acreage, thus, all 
additional payments were allocated to upland cotton.  For MY 2001, also oats and sorghum were planted on 
more acreage than their respective contract base (“overp lanted”), thus, triggering additional payments being 
allocated pursuant to the cr op’s share of the total acr eage being “overplanted.”  See Exhibit Bra-419 (Allocation 
Calculations Based on Brazil’s Methodology and US Summary Data).  (Also provided electronically as 
‘allocation calculations.xls’). 
160 See Electronic PFC and DCP Summary Files pr ovided by the United States on 18 and 
19 December 2003 respectively.  Considering the fact  that US upland cotton producers needed contract 
payments to produce upland cotton in an economically viable manner, it is simply not realistic to assume that there were farms without any kind of contract acreage planting upland cotton.  See Sections 4 and 5 rejecting the 
US reasoning for not providing the data.  
161 Brazil also recalls that the US data for MY 2002  does not contain any information concerning the 
amount of direct and counter-cyclical payments made on peanut base (Exhibit US-112).  Thus, the missing 
peanut contract payments for MY 2002 are also missing in the calculation of the amount of direct and counter-
cyclical payments that constitute support to upland cotton.   It follows that these figures are understated by an 
amount unknown to Brazil.  
162 Brazil recalls that market loss a ssistance payments are made on the same basis as PFC payments – 
with the exception that market loss assistan ce payments were also made for soybeans. 
163 See note to the summary table below.  This assumption leads to an understatement of the resulting 
payments, since market loss assistan ce payments also covered soybean production in additional to any PFC 
payment base.  Thus, just relying on PFC payments as a proxy leaves out a potential significant amount of 
money that may have supported upland cotton. WT/DS267/R/Add.2 
Page I-639 
 
 
 
MY 1999 2000 2001 2002 
PFC Payments $619,336,990.11 $564,607,044.52 $456,554,286.78 - 
MLA Payments164 $616,320,738.53 $601,042,809.61 $630,594,516.48 - 
DP Payments - - - $464,596,092.01 
CCP Payments - - - $1,025,653,053.34
 
84. For purposes of comparison, Brazil presents  below its results based on the “14/16th” 
methodology:165 
 
MY 1999 2000 2001 2002 
PFC Payments $547,800,000 $541,300,000 $453,000,000 - 
MLA Payments $545,100,000 $576,200,000 $625,700,000 - 
DP Payments - - - $454,500,000 
CCP Payments - - - $935,600,000 
 
 As the Panel can see, Brazil’s figures based on the 14/16
th methodology are consistently below  the 
results using the US summary data provided on 18 and 19 December 2003.  It follows that the results 
of this methodology using the flawed US summary da ta, at the very least, do not contradict Brazil’s 
14/16th methodology.  Judging from these results, it appears that, even having in mind all the 
limitations of the US data as discussed above,166 Brazil’s methodology is rather conservative 
compared to an allocation based on the US summary  data, which the United States seems to endorse 
as a valid base for calculating support to upland cotton.167  
 
10. Application of The US-Proposed Allocation Methodology to The US Summary Data  
 
85. Brazil recalls that its allocation methodologies o ffered so far and their results are provided in 
the context of the peace clause analysis under Ar ticle 13(b)(ii) of the Agreement on Agriculture.168  
The United States has criticized Brazil’s 14/16th methodology and asserts that, for purposes of Brazil’s 
claims under Articles 5(c) and 6.3 of the SCM Agreemen t, Brazil has to allocate contract payments to 
farms producing upland cotton over the entire sales of those farms.169  (On the other hand, the 
United States maintains that any such allocation is not warranted for purposes of the peace clause170 – 
                                                      
164 The amount of market loss assistance payments has been calculated by applying the ratio of 
allocated PFC payments (as calculated) to upland cotton PFC payments as provided in Exhibit Bra-4 (“Fact 
Sheet: Upland Cotton,” USDA, January 2003, p. 6) to the amount of upland cotton market loss assistance 
payments as provided by the same source. 
165 The figures in this table are reproduced from Brazil’s 9 September 2003 Further Submission, 
Table 1.  MY 2002 data is taken from the updated figu res presented by Brazil in its 22 December 2003 Answers, 
para. 8. 
166 Brazil notes that some of the limitations result in distortions in different directions.  The omission of 
peanut base information tends to lower the amount of payments allocated.  The missing information on market loss assistance payments has an unkn own effect and so does the aggrega tion problem.  The missing information 
on base acreage of farms that produce upland cotton but have no upland cotton base could slightly overstate 
results – however, Brazil cautions that this effect may not be too strong, as the mount of upland cotton planted 
on such farms is very limited.  
167 US 20 January 2004 Letter to the Panel, p. 2. 
168 Brazil maintains that no allocation methodology is warranted under Part III of the SCM Agreement.  
Rather, it is the effect of the subsid ies that is the subject of scrutiny. 
169 See e.g. US 7 October 2003 Oral Statement, para. 17;  US 18 November 2003 Further Rebuttal 
Submission, paras. 11-17;  US 2 December 2003 Oral Statement, para . 24;  US 22 December 2003 Answers to 
Questions, paras. 11, 159-164, 184. 
170 US 22 December 2003 Answers to  Questions, paras. 159-164. WT/DS267/R/Add.2 
Page I-640  
 
an entirely untenable position, as Brazil explai ns in its 28 January 2004 Comments on the US 
22 December 2003 Answers to Questions.
171) 
 86. Despite its serious misgivings  about the proposed US methodolog y, Brazil sets forth below its 
analysis of the US methodology.  Since the United States provided on 18/19 December 2003 some 
limited summary data on the production composition of  upland cotton farms, Brazil has attempted to 
offer an estimate using the US allocation methodology .  As described below, Brazil has been required 
to make several assumptions, given the shortcomings in the data and due to the US refusal to provide 
data in support of its own methodology.    
87. Brazil notes that for MY 2002, the United St ates collected and has access to information on 
all acreage planted to any crops , including non-programme crops, produced by farmers receiving 
contract payments and marketing loan payments.
172  The United States has never produced this 
information to the Panel or Brazil in any form (eith er as summary or farm-specific data).  Thus, while 
the United States asserts that the Panel should appl y a particular methodology, it refuses to provide 
the information that would permit the Panel to cal culate the payments under the US methodology.   
 88. But the information requested by Brazil on a ll different types of contract crop plantings 
during MY 1999-2002 would go a long  way towards permitting the calcula tion of the value of all crop 
production, as well as the calculation of the value of upland cotton produced in relation to other crops 
produced.  This is because most cotton farms produc ing upland cotton specialize in the production of 
upland cotton as opposed to other crops, and only produce a limited amount of other crops and almost 
no livestock.
173   
 89. Brazil notes that among the selected information provided by the United States is the amount 
of total cropland on farms producing upland cotton.
174  The following table shows the percentage of 
total cropland and the percentage of total program me cropland that is planted to upland cotton (and 
other programme crops) on upland cotton producing farms, i.e., farms in category (1) and (3).175  
  
                                                     
 
171 See Brazil’s 28 January 2004 Comment on US Answer to Question 243.  See also Brazil’s 
2 December 2003 Oral Statement, paras.  4-6.  Brazil strongly disagrees that  this is a required or appropriate 
methodology under Part III of the SCM Agreement or under GATT Article XVI (or even under Article 13(b)(ii) 
of the Agreement on Agriculture).  The US arguments in that respect are not supported by any Vienna 
Convention interpretation of these provisions. 
172 Brazil’s 18 November 2003 Further Rebuttal Submission, para. 41. 
173 Brazil’s 27 October 2003 Answers to Questions, para s. 7-13.  While the exclusion of tiny livestock 
production on upland cotton farms from the allocation of contract payments might slightly understate the 
resulting contract payments allocated to upland cotton, any such over counting would be outweighed by the 
missing data on peanut contract payments made to farms that results in an undercounting of the contract 
payments allocated to upland cotton. 
174 See Electronic PFC and DCP Summary Files pr ovided by the United States on 18 and 
19 December 2003 respectively. 
175 Farms planting upland cotton and holding upland cotton base and farms planting upland cotton 
without holding upland cotton base.  Farms not planting upland cotton are excluded from these calculations, as 
they are entirely irrelevant for purposes of this dispute.  They are simply not upland cotton farms, they only have 
been in the past. WT/DS267/R/Add.2 
Page I-641 
 
 
 MY 1999 MY 2000 MY 2001 MY 2002176 
Total Cropland 
30,628,557.4 
acres Total Cropland 
31,090,742.9 
acres Total Cropland 
30,635,774.0 
acres Total Cropland 
28,141,085.2 
acres 
 Total Programme 
Cropland 
21,388,415.0 
acres Total Programme 
Cropland 
22,552,704.4 Total Programme 
Cropland 
22,793,179.7 
acres Total Programme 
Cropland 
22,753,369.8 
acres 
Percentage of Total Cropland on the Farm Planted to That Crop Programme Crop Percentage of Total Programme Cropland on the Farm Planted to That Crop 
47.58 per cent 49.49 per cent 50.48 per cent 48.12 per cent Planted to 
Upland Cotton 68.13 per cent 68.23 per cent 67.84 per cent 59.51 per cent 
8.95 per cent 10.60 per cent 8.58 per cent 10.36 per cent Planted to Wheat 12.82 per cent 14.61 per cent 11.54 per cent 12.82 per cent 
0.28 per cent 0.32 per cent 0.61 per cent 0.56 per cent Planted to Oats 0.40 per cent 0.44 per cent 0.82 per cent 0.69 per cent 
1.72 per cent 1.35 per cent 1.77 per cent 1.50 per cent Planted to Rice 2.46 per cent 1.86 per cent 2.38 per cent 1.86 per cent 
4.94 per cent 5.37 per cent 4.90 per cent 6.35 per cent Planted to Corn 7.07 per cent 7.41 per cent 6.59 per cent 7.86 per cent 
6.17 per cent 5.21 per cent 7.87 per cent 6.13 per cent Planted to 
Sorghum 8.83 per cent 7.19 per cent 10.58 per cent 7.58 per cent 
0.20 per cent 0.19 per cent 0.18 per cent 0.18 per cent Planted to Barley 0.29 per cent 0.26 per cent 0.25 per cent 0.22 per cent 
7.48 per cent Planted to 
Soybeans no information, as 
no PFC 
programme crop no information, as 
no PFC 
programme crop no information, as 
no PFC 
programme crop 9.26 per cent 
Total Programme 
Farmland as a 
Percentage of 
Total Cropland 69.83 per cent 72.54 per cent 74.40 per cent 80.85 per cent 
 
 
90. As demonstrated by this table, US farms pl anting upland cotton are specialized in that crop.  
Upland cotton plantings account for 50 per cent of their cropland and for between 60 and 70 per cent 
of the land devoted to programme crops.  Important  alternative crops plante d by upland cotton farms 
are wheat, corn, sorghum, soybeans and rice.  A bout 20 per cent of the cropland on farms producing 
upland cotton is devoted to non-programme crops or to no crops.177  As detailed below, Brazil has 
conservatively assumed that the value of the crops produced on this 20 per cent of farmland is the 
average per-acre value of production of non-programme  crops in that marketing year in the entire 
United States, as reported by USDA.178 
 91. Performing the US-invented allocation methodol ogy, Brazil starts again by considering the 
group of farms that produce upland cotton and have upl and cotton base acreage.  As a first step, Brazil 
has calculated the total amount of contract pa yments received by these farms by multiplying the 
                                                     
 
176 Brazil has not indicated the percentages for ot her oilseeds, as the figures were so small. 
177 The lower figures for MY 1999-2001 are explained by the fact that soybean s were not a contract 
programme crop. 
178 This most certainly overstates their value for the farms under scrutiny, as it includes uses for the 
production of tobacco, greenhouse crops and other high value crops not likely produced on cotton farms.  The 
result is an allocation of contract payments to upland cotton that is too low.  WT/DS267/R/Add.2 
Page I-642  
 
contract payment units provided in the US summary files by the payment rates applicable to the crop 
in any given marketing year.
179  The resulting payments have been summed up. 
 92. As a second step, Brazil has calculated th e value of the programme crop production on farms 
producing upland cotton and holding upland cotton base.  To estimate the value of the programme 
crop production on these farms,
180 Brazil has multiplied the acreage planted to a crop by its average 
yield in the United States and the average price rece ived by US farmers for that crop in any given 
marketing year.181  As the United States has not provided any specific information on what upland 
cotton farms plant on the remainder of the cropland not devoted to the programme crops, Brazil had to 
make several assumptions.  First, Brazil assume d that the per-acre value of these non-contract 
programme crops equals the average per-acre valu e of total US non- contract programme crop 
production, excluding fruits and vegetables.182  Brazil has, therefore, calculated the total value of non-
contract payment crops as the total value of US crops minus the value of programme crops and fruits 
and vegetables for each marke ting year between MY 1999-2002.183  The resulting figure has been 
divided by the total US cropland184 (minus cropland devoted to fruits185 and vegetables186 and 
programme crops187).188  The per-acre value thereby generate d has been multiplied by the acreage not 
planted to programme crops on category (1) farms,189 resulting in a figure for the total value of non-
contract programme crops produced on the group of  farms that produce upland cotton and hold upland 
cotton base.190 
 93. Following these preparatory steps, it is now possible to allocate contract payments that 
constitute support to upland cotton.   Summing up the value of all crops  produced on the farm provides 
the total value of the production on farms that pr oduce upland cotton and hold upland cotton base.  
Dividing the value of the upland cotton crop by the value of all crops provides the adjustment factor to be applied to the total contract pa yments received by that group of farms.
191  This concludes the 
allocation for all group (1) farms. 
 
94. Turning to farms in group (3), the Panel will recall that these farms plant upland cotton, but do not hold upland cotton base.  The Panel will furt her recall that the United States has not provided 
                                                     
 
179 Payment rates are published by USDA, see Exhibit Bra-394 (Agricultu ral Outlook Tables, USDA, 
November 2003, Table 19). 
180 Brazil recalls that the United States has only provided information on programme crop production 
on upland cotton farms.   
181 MY 1999-2002 yields and farm prices for programme crops are published by USDA, see Exhibit 
Bra-420 (Agricultural Outlook Tables, November 2003, Table 17).   
182 Brazil considers this exclusion justified due to th e elimination of contract payments if fruits and 
vegetables are planted.  
183 Exhibit Bra-421 (ERS Briefing Room: Farm Inco me and Costs: US Farm Sector Cash Receipts 
from Sales of Agricultural Commodities, USDA). 
184 Exhibit Bra-106 (“United States State Fact Sheet,” ERS, USDA, 15 July 2003, p. 2).  The figure 
represents the total amount of US cropland pursuant to the 1997 census.  This is the latest figure available to 
Brazil.  However, since the total of  US cropland can be presumed to not vary too greatly, this may be a 
reasonable assumption. 
185 Exhibit Bra-422 (Fruits and Tree Nuts Yearbook, USDA, October 2003, Table A-2). 
186 Exhibit Bra-423 (Vegetables and Melons Yearbook, USDA, July 2003, Table 3). 
187 Exhibit Bra-420 (Agricultural Outlook Tables, USDA, November 2003, Table 17).  
188 See Exhibit Bra-424 (Allocation Calculations Based on US Methodology and US Summary Data) 
for the details of the calculation.  (Also provide d electronically as ‘allocation calculations.xls’). 
189 Farms that produce upland cotton and hold upland cotton base. 
190 See Exhibit Bra-424 (Allocation Calculations Based on US Methodology and US Summary Data) 
for the details of the calculation.  (Also provide d electronically as ‘allocation calculations.xls’). 
191 See Exhibit Bra-424 (Allocation Calculations Based on US Methodology and US Summary Data) 
for the details of the calculation.  (Also provide d electronically as ‘allocation calculations.xls’). WT/DS267/R/Add.2 
Page I-643 
 
 
any information concerning contract paym ents for this group of upland cotton farms.192  T h i s  U S  
refusal renders any precise calculations for the third group of farms impossible.  Therefore, Brazil has 
assumed that farms producing upland cotton but not holding upland cotton base receive per acre of 
upland cotton the same amount of allocated contr act payments as farms producing upland cotton and 
holding upland cotton base.193 
 
95. Since the United States has not provided any information on the amount of market loss assistance payments received by any farm produci ng upland cotton – the United States did not even 
provide aggregate information
194 – Brazil has assumed that any allocation of market loss assistance 
payment as support to upland cotton would have to be  made in the same manner as the allocation of 
PFC payments in the marketing year in question.195  
 96. Contract payments allocated in both groups  of upland cotton farms are aggregated.  The 
results of this calculation are reported in the table below:   
MY 1999 2000 2001 2002
196 
PFC 
Payments $477,692,236.06 $473,744,959.03 $333,295,919.25 - 
MLA 
Payments197 $475,365,812.83 $504,317,124.58 $460,349,590.68 - 
DP 
Payments - - - $416,216,862.44 
CCP 
Payments - - - $714,424,543.18 
 
 
97. For purposes of comparison, Brazil presents  below its results based on the “14/16th” 
methodology:198 
  
                                                     
 
192 See Electronic PFC and DCP Summary Files pr ovided by the United States on 18 and 
19 December 2003 respectively. 
193 See Exhibit Bra-424 (Allocation Calculations Based on US Methodology and US Summary Data) 
for the details of the calculation.  (Also provide d electronically as ‘allocation calculations.xls’). 
194 See Section 3. 
195 See note to the summary table below.  Brazil recalls that market loss assistance payments were made 
for soybeans in addition to the PFC crops.  This increases the total amount of market loss assistance payments 
that would be allocated to upland cotton.  Solely using the PFC payments as a basis, undercounts Brazil’s results by an unknown amount.  Brazil also r ecalls that the US data for MY 2002  does not contain any information 
concerning the amount of direct and counter-cyclical pa yments made on peanut base (Exhibit US-112).  Thus, 
the missing peanut contract payments for MY 2002 are al so missing in the calculation of the amount of direct 
and counter-cyclical payments that constitute support to upland cotton.  It follows that these figures are 
understated by an amount unknown to Brazil. 
196 Brazil also recalls that the US data for MY 2002  does not contain any information concerning the 
amount of direct and counter-cyclical payments made on peanut base (Exhibit US-112).  Thus, the missing 
peanut contract payments for MY 2002 are also missing in the calculation of the amount of direct and counter-
cyclical payments that constitute support to upland cotton.   It follows that these figures are understated by an 
amount unknown to Brazil.  
197 The amount of market loss assistance payments has been calculated by applying the ratio of 
allocated PFC payments (as calculated) to upland cotton PFC payments as provided in Exhibit Bra-4 (“Fact 
Sheet: Upland Cotton,” USDA, January 2003, p. 6) to the amount of upland cotton market loss assistance 
payments as provided by the same source. 
198 The figures in this table are reproduced from Brazil’s 9 September 2003 Further Submission, 
Table 1.  MY 2002 data is taken from the updated figu res presented by Brazil in its 22 December 2003 Answers, 
para. 8. WT/DS267/R/Add.2 
Page I-644  
 
MY 1999 2000 2001 2002 
PFC Payments $547,800,000 $541,300,000 $453,000,000 - 
MLA Payments $545,100,000 $576,200,000 $625,700,000 - 
DP Payments - - - $454,500,000 
CCP Payments - - - $935,600,000 
 
 98. As the Panel can readily see, even using the methodology proposed by the United States as relevant under Part III of the SCM Agreement r esults in amounts of support to upland cotton from 
contract payments that, accounting for the shortcomi ngs of the US data, are roughly equivalent to the 
figures produced by Brazil’s 14/16
th methodology.  Brazil cautions against the direct use of these 
results, as they may be tainted by the assumptions Brazil had to make due to the refusal of the 
United States to provide data that would render possible performing the allocation that the United 
States asserts is called for under Part III of the SCM Agreement.199  In particular, the data withheld on 
MY 2002 peanut contract payments to farms pr oducing upland cotton would have increased the 
amount of contract payments allocated to upland cott on.  Other shortcomings of the data are discussed 
above.  
11. The Japan – Agricultural Products  Decision is Inapposite 
 
99. The United States claims that the Appellate Body’s decision in Japan – Measures Affecting 
Agricultural Products would have prevented the Panel from using the information the United States 
refused to provide to calculate the amount of co ntract payments across the “total value of the 
recipient’s production.”
200  However, this Appellate Body decision is inapposite.201 
 100. In Japan – Agricultural Products , the complaining party (the United States) did not “claim” 
in its request for establishment of a panel that there was an alternative SPS testing “measure” 
(determination of sorption levels) that was less trade restrictive.
202  Rather, the request for 
establishment “claimed” that testing by product (n ot variety) was sufficient to achieve Japan’s 
appropriate level of protection.  The panel, based on expert testimony and not on any arguments or 
evidence presented by the United States, found a viol ation of SPS Article 5.6 based on the alternative 
(sorption levels) testing “measure.”  This decision was taken despite a US argument to the panel that 
“it is not within the scope of the Panel’s terms of  reference to make findings with respect to the 
comparative efficacy of alternative treatments proposed by technical experts.”203   
 101. On appeal, the Appellate Body reversed the pa nel’s finding.  Noting that a panel has authority 
under DSU Article 13.1 to request information, it fou nd that “this authority cannot be used by a panel 
to rule in favour of a complaining party which has not established a prima facie case of inconsistency 
based on specific legal claims asserted by it.”  The Appellate Body found the panel had erred in 
relying on expert information and advice as the basis for a finding of inconsistency with SPS 
Article 5.6, “since the Unite d States did not establish a prima facie case of inconsistency with 
Article 5.6 based on claims relating to the ‘determination of sorption levels.’”
204 
 
 
                                                      
199 Again, Brazil notes that this allocation is not required under Part III of the SCM Agreement and 
GATT Article XVI:3.  Both provisions deal with the effect of subsidies, and not their amount or subsidization rate. 
200 US 20 January 2004 Letter to the Panel, p.4.  
201 See also Brazil’s 28 January 2004 Comments on Question 256. 
202 WT/DS76/2. 
203 Appellate Body Report, Japan-Agricultural Products, WT/DS76/AB/R, note 79.   
204 Appellate Body Report, Japan-Agricultural Products, WT/DS76/AB/R, para. 130.  WT/DS267/R/Add.2 
Page I-645 
 
 
102. The factual situation in this dispute is entirely different from that in Japan –Agricultural 
Products .  Brazil’s “claim” in relation to the withheld data is, first, that the United States does not 
enjoy peace clause protection because, inter alia , the non-green box contract payments provide 
support to upland cotton in excess of the level of support decided by the United States in MY 1992.205  
The “measures” impacted by the w ithheld data are PFC, market loss assistance, direct and counter-
cyclical payment subsidies provided unde r the 1996 FAIR Act and the 2002 FSRI Act,206 which fall 
squarely within the Panel’s terms of reference.  The withheld data is also relevant to Brazil’s 
actionable subsidy “claims” to establish the volum es of subsidies provided for US upland cotton 
production.207  Further, the withheld data is relevant to support Brazil’s arguments that the contract 
payments are “support to upland cotton,” because most of the upland cotton base payments are paid to 
current producers of upland cotton.  Finally, the withhe ld data is relevant to provide the factual basis 
for Brazil to rebut US arguments that the US pr eferred “value” methodology for allocating payments 
results in much lower benefits to upland cotton.208  Brazil notes that the Panel’s 12 January 2004 
request falls squarely within these various Brazi lian claims and arguments when it states that 
“[d]isclosure is sought to permit an assessment of  the total expenditures of PFC, MLA, CCP and 
direct payments by the US Federal Government to  upland cotton producers in the relevant marketing 
years.”209 
 103. The implication in the US citation to the Japan – Agricultural Products  decision is that the 
Panel’s 8 December 2003 and 12 January 2004 request  may be designed to establish a “claim” never 
advanced by Brazil.  This sugges tion is obviously contrary to the factual record outlined above.  
Moreover, it reveals a profound misunderstanding  of the difference between a “claim” and an 
“argument.”  The Appellate Body in EC –Hormones held that there is a distinction between legal 
claims reflected in a panel’s terms of reference, and arguments used by a complainant to sustain its 
legal claims.  The Appellate Body ruled that “nothi ng in the DSU limits the faculty of a panel freely 
to use arguments submitted by any of the parties – or to develop its own legal reasoning – to support 
its own findings and conclusions of the matter under its consideration.”
210  Numerous panel reports 
have narrowly interpreted “claims” to involv e only legal claims and have freely permitted 
complaining parties to advance arguments not expressly reflected in a panel request.211  A  c l o s e  
reading of the Appellate Body’s decision in Japan – Agricultural Products shows that it was based on 
the fact that the United States had not advanced  legal “claims” relating to an alternative SPS 
“measure.”  The fact that the United States had also not made legal “arguments” on its non-claim only 
reinforced the underlying reasoning.212  
 
                                                      
205 This is a claim in the alterna tive because, as Brazil has argued, it is the United States burden of 
proof to establish that it enjo ys peace clause protection.  See e.g. Brazil’s 24 June 2003 First Submission, paras. 
110-121;  Brazil’s 22 July 2003 Oral Statement, paras.  5-11;  Brazil’s 11 August 2003 Answers to Questions, 
paras. 48-51; Brazil’s 22 August 2003 Comments, paras 42-45.  
206 The market loss assistance payments were  based on various appropriations bills. 
207 Brazil has argued that the exact amounts of the subsidies are not legally relevant (contrary to the US 
arguments) but rather that th e “effects” of the subsidies are what is at  issue in claims under Article 6.3 of the 
SCM Agreement.   
208 See Section 10 above .    
209 12 January 2004 Communication from the Panel, p. 1.   
210 Appellate Body Report, EC – Hormones , WT/DS26/AB/R, para. 156 (emphasis added). 
211 Panel Report, EC – Sardines , WT/DS231/R, paras. 7.142-145 ( “…Peru’s requests for findings were 
actually just summations of its arguments and not claims.”); Appellate Body Report, Korea – Dairy Safeguards , 
WT/DS98/AB/R, paras. 139-140 (“…EC reliance on the OAI report during the rebuttal stage of the panel proceeding to be a new argument rather than a new claim, and therefore, did not exclude it.”); Panel Report, 
Australia – Salmon , WT/DS18/R, paras. 8.24-8.25 (Panel consid ered that “this ‘new claim’ to be a new 
argument, not a new claim.”). 
212 Appellate Body Report, Japan-Agricultural Products , WT/DS76/AB/R, para 130 (Appellate Body, 
after ruling the Panel erred noted that “The United States did not even argue that the ‘determination of sorption 
levels’ is an alternative measure which meets the three elements under Article 5.6”).   WT/DS267/R/Add.2 
Page I-646  
 
 104. This United States suggestion that the Panel’s request of 8 December 2003 and 
12 January 2004 would improperly make the case for Brazil is totally baseless.  In the Japan – 
Agricultural Products  case, the United States did not seek the expert information to support a “claim” 
or “measure” within the Panel’s terms of reference.  By contrast, Brazil repeatedly  sought the 
information withheld by the United States for fourte en months.  Further, the Panel’s 8 December 2003 
and 12 January 2004 requests incorporated Brazil’s re quest of 3 December 2003, as set out in Exhibit 
Bra-369.  Brazil, as a litigating party, has no inde pendent right to request information from the 
United States;  that must be conducted through the Panel’s authority under DSU Article 13.1.  Thus, 
the US assertion that somehow the Panel (and not also Brazil) is seeking evidence to support a 
“measure,” “claim” or even “argument” ne ver advanced by Brazil is fallacious.   
 105. Indeed, the United States cautions that the Pa nel “must take care not to use the information 
gathered under [the] authority [of DSU Article 13.1]  to relieve a complaining party from its burdens 
of establishing a prima facie case.” 
213  This is a curious argument given the fact that the United States 
has refused to produce information the Panel fou nd was “necessary and appropriate … in order to 
undertake its mandate to assist the DSB in disch arging its responsibilities under the DSU and the 
covered agreements.”214  Brazil must ask how the Panel is to even evaluate the ev idence to “take care 
not to use” the information, if  it does not even have it?   
 106. Finally, Brazil notes that this is the first di spute involving interpretations of the peace clause, 
as well as many provisions in Part III of the SC M Agreement.  Brazil obviously does not know how 
the Panel will resolve many interpretative issues.   A good example is the issue of the relevant 
allocation methodology under the peace clause, or whether subsidies challenged under Part III of the 
SCM Agreement are required to be allocated at all,  and if so, by what methodology.  Brazil believes 
strongly that the US methodology is not supported by any textual or legitimate contextual basis.  But 
in order to “cover all the bases,” and conscious of the absence of any remand procedures, Brazil has 
presented – or has attempted to present in the case of the withheld US data – considerable evidence to 
provide the Panel with the basis to make the f actual determinations s upporting any possible legal 
interpretation of these not previously interpreted WTO provisions.  As demonstrated by Brazil’s 
analysis in Section 3, above, the information withhe ld by the United States h as deprived the Panel and 
Brazil of the opportunity to use the most accurate an d complete information possible – even to apply 
the inappropriate US methodology for allocating contract payments.
215       
 
12. Conclusion  
 
107. In sum, the United States has refused to provide the information concerning the amount of 
contract payments made to current producers of upland cotton.  There are no legitimate confidentiality 
concerns that would prevent the United States fro m producing the data.  And even if there were, 
confidentiality procedures under Article 13.1 of the DS U and/or the Panel’s working procedures could 
have addressed these concerns.  108. Therefore, Brazil asks the Pane l to draw adverse inferences (lis ted in Section 6) and conclude 
that the withheld information would have been adver se to the US defence in this case.  Furthermore, 
Brazil asks the Panel to use the best information av ailable, including the adverse inferences, to find 
that the figures Brazil has estimated under its so-called 14/16
th methodology are supported by the 
                                                      
213 US 20 January 2004 Letter to the Panel, p. 4.  
214 12 January 2004 Communication from the Panel, p. 1.   
215 See Brazil’s 28 January comment on Question 256.   WT/DS267/R/Add.2 
Page I-647 
 
 
evidence in the record.  Brazil also  notes that its attempts to apply the flawed and incomplete US 
summary data to both a simplified version of its own and the US approach yields results that further 
confirm the results of Brazil’s 14/16th methodology. WT/DS267/R/Add.2 
Page I-648  
 
 
ANNEX I-16 
  
COMMENTS OF THE UNITED STATES ON COMMENTS  
BY BRAZIL ON US CO MMENTS CONCERNING  
BRAZIL’S ECONOMETRIC MODEL 
 
(28 January 2004) 
 I.   Introduction  
 
1. The United States wishes to rebut Brazil' s response to the US 22 December 2003 Comments 
Concerning Brazil's Econometric Model.  Our aim is to make clear the fundame ntal flaws in Brazil’s 
analysis that invalidate its claims.  In the follo wing section, we lay out the erroneous approach 
Dr. Sumner took in modelling the effects of cotton payments.  We believe that our rebuttal provides 
convincing evidence why the Panel should reject this model as supporting a finding of serious 
prejudice.  Moreover, Dr. Sumner’s rebuttal fails to  allay our concerns regarding technical issues and 
lack of transparency with the model.  These concerns are laid out in Section III. 
 
II.   US Concerns with the Sumner Model  
 
2. The United States reiterates the following con cerns it has with Brazil's approach to its 
economic analysis in this dispute:   (c) Dr. Sumner continues to imply that his model is essentially the FAPRI model.  It is 
not.  Dr. Sumner has made significant modifications to the FAPRI model.  The fact 
that Dr. Sumner’s model is “in no way a FAPRI model”  is acknowledged by 
Dr. Babcock in his letter to staff members of the Senate and House of Representatives 
(Exhibit US-114). 
  (d) The ways in which Dr. Sumner has modelled decoupled payments (including 
Production Flexibility Contract payments, Ma rket Loss Assistance  payments, Direct 
payments and Counter cyclical payments ), crop insurance payments, and export 
credit guarantees differ sharply from the FAPRI model and are not based on empirical studies.  These ad hoc  modifications contribute to the large effects on production and 
other variables obtained by Dr. Sumner when he simulates the removal of cotton 
subsidies.  We argue that the effects are thus largely tautological with no empirical 
grounding. 
  (e) In particular, Dr. Sumner’s results di ffer sharply from the economics literature on the 
effects of decoupled payments on productio n.  As we have argued in numerous 
submissions, Dr. Sumner’s treatment of decoupled payments (particularly from 
Annex I on pages 16-21) is neither a “standard ” feature of other models, nor is it as 
“consistent” with USDA work in the area as repeated citations of that work might 
suggest.  There has been considerable work done by the USDA and other researchers 
on such programmes, both theoretical and empirical, which acknowledges the programmes may have some minimal impact on production.   However, the research 
concludes that the impact appears negligible  (less than 1 per cent of acreage).  As we 
pointed out in our Comments Concerning Brazil’s Econometric Model of 
22 December 2003 , similar results are obtained by FAPRI (less than 0.3 per cent 
impact on cotton acreage).  In contrast, Dr. Sumner’s model produces results WT/DS267/R/Add.2 
Page I-649 
 
 
suggesting cotton acreage impacts as high as 15.9% - that is, more than 50 times larger than what the FAPRI model would indicate. 
  (f) Likewise, we disagree with Dr. Sumner’s modelling of the crop insurance 
programme.  We take issue with how the subsidies were calculated and how they 
affect production. In particular, we have argued that most cotton production has been 
insured at  coverage levels less than 70 per cen t and thus it is likely that any 
production effects are minimal.  Moreover, we  have noted that Dr. Sumner has failed 
to take into account the potential effects of moral hazard on input use and crop yields 
that potentially offset any impacts on area. 
 
 (g) We also take issue with how Dr. Sumner modelled export credit guarantees.  In our 
previous comments, we have argued that  Dr. Sumner’s formulation is entirely ad hoc .  
He has essentially assumed an effect. 
 
 (h) As for marketing loans and deficiency payments, we would agree that such 
programmes are potentially production distorti ng when expected market prices fall 
below loan rates.  However, we have ar gued that the use of lagged prices, while a 
modelling convenience for large scale models such as FAPRI and the model used by Dr. Sumner, nonetheless introduce potential biases that can overstate effects when 
futures market prices differ substantially fro m lagged prices, as they did in 2001 and 
2002.   
  (i) Lastly, as we point out in our Comments on Answers of Brazil to Questions from the 
Parties following the Second Panel Meeting, calibrating Dr. Sumner’s model to the 
November 2002 FAPRI baseline exaggerates the effects of price-based programmes 
such as marketing loans, counter-cyclical payments and Step 2 payments.  The price 
outlook for cotton has improved considerably since publication of the November 2002 FAPRI baseline used by Dr. Sumner to estimate the effects of subsidies on US cotton production.  Improving price forecasts suggest minimal marketing loan outlays over 2003-12.  
 
3. We will briefly summarize our points below. 
 
Dr. Sumner’s treatment of decoupled programmes is unconventional and not based on theory 
or empirical evidence  
 4. Dr. Sumner’s treatment of decoupled paymen ts (particularly from Annex I on pages 16-21) is 
neither a “standard” feature of other models, nor is it as “consistent” with USDA work in the area as repeated citations of that work might suggest.  Th ere has been considerable work done by the USDA 
and other researchers on such programmes, both theoretical and empirical, which acknowledges the 
programmes may have some impact on production, and that those impacts depend in part on farmers’ 
expectations (Westcott et al., 2002).
1  However, the research concludes that the impact appears 
negligible. 
 5. Dr. Sumner, on the other hand, uses a stylized  logic to come up with the estimates for the 
impact of production flexibility contract (PFC) paymen ts that have neither empirical nor theoretical 
grounding.  He cites, then ignores, recent USDA em pirical work showing that decoupled payments 
have only a small impact (ERS 2003).
2  He justifies this, in part, by saying that the analysis looked at 
                                                      
1  Westcott, P., Young, C.E., and Price, M., USDA, ERS, The 2002 Farm Act, Provisions and 
Implications for Commodity Markets, Economi c Research Service, November 2002.  ( See Exhibit BRA-42) 
2  USDA, ERS, Decoupled Payments:  Household Income Transfers in Contemporary US Agriculture, 
M.E. Burfisher and J. Hopkins, Eds. USDA ERS AER Number 822. February 2003.  ( See Exhibit US-53) WT/DS267/R/Add.2 
Page I-650  
 
all programmes, while he is looking only at cotton.  However, in both their inception and 
administration, these programmes must be considered as a whole.  Treating part of the overall programmes as though they were a “cotton programme” distorts the programmes.   It is widely 
accepted that these programmes have whole farm impacts rather than crop specific impacts—the payments received do not have crop-specific impacts.   Furthermore, the impact is much smaller than 
Dr. Sumner has estimated; the whole farm impact is , at its upper estimate,  perhaps one-quarter to 
one-fifth the impact he cites for cotton alone.  He t hus vastly overstates the impact of these payments 
on cotton production.
3   
 6. Dr. Sumner argues that market loss assistance (MLA) payments have a larger effect on area 
than do PFC payments despite the fact that MLA payments were paid on the identical payment base 
as the PFC payments.  Moreover, MLA payments were authorized by Congress on a post hoc  basis as 
emergency supplemental payments.  Supplemental le gislation authorizing each of these payments was 
passed several months after planting for the crop year in question had occurred.  Dr. Sumner included these payments in his acreage equations and asserts that producers had expectations that they would 
receive market loss assistance paym ents at the time of planting.  If producers had expectations of 
payment, then they also knew that they would be  eligible to receive such a payment regardless of 
what crop they planted.  Indeed, they could choose not  to plant and still be eligible for the payment.  
This would argue that market loss assistance paym ents, like production flexibility contract payments, 
direct payments, and counter-cyclical payments, ar e decoupled from planting decisions and should not 
be included in an acreage response equation.
4 
 
7. Like other direct payments, counter-cycli cal payments are based on historical production 
rather than actual production.  The fact that the pa yment rate is tied to current prices does not mean 
that payments are less decoupled from current production.  Indeed, as economists have shown, 
producers can hedge counter-cyclical payment rates us ing options markets, thus converting a counter-
cyclical payment into a fixed direct payment.5  
 8. Lastly, empirical evidence supports the decoupl ed nature of these payments.  As reported in 
the US Answer to Panel Question 125(5), a prelimin ary review of data from the Farm Service Agency 
shows that 47 per cent of upland cotton farms eligib le for decoupled income support payments planted 
no cotton in marketing year 2002.  This number is consistent with the Environmental Working Group 
data presented by Brazil in its further rebuttal submis sion that showed the per cent of farms receiving 
only contract payments in 2000, 2001, and 2002.
6  Thus, Brazil and the United States would agree that 
the data support the notion that decoupled inco me support is, in fact, decoupled from production 
decisions since nearly half of historic upland cotton farms no longer plant even a single acre of cotton.  
9. As was shown in Exhibit US-95, enrolle d upland cotton base acreage exceeded planted 
acreage by over 5.1 million acres.  Thus, planted acres accounted for less than 73 per cent of total 
base acres in 2002,
7 supporting the decoupled-from-production na ture of direct and counter-cyclical 
                                                      
3  As we pointed out in our Comments Concerning Brazil’s Eco nometric Model of 22 December 2003 , 
similar results are obtained by FAPRI (less than 0.3 per cent impact on cotton acreage).  In contrast, Dr. Sumner’s model produces results suggesting cotton acreage impacts as high as 15.9% - that is, more than 
50 times larger than what th e FAPRI model would indicate. 
4  Dr. Sumner has argued that base updating provisions of the 2002 Farm Bill effectively relink direct 
payments to production, but as we have shown in Dr. Glauber’s presentation at the Second Panel Meeting in 
December 2004, the economics argue th e opposite and the empirical eviden ce suggests that concerns that 
producers are planting cotton in expectation of future base updating are unfounded. 
5  Anderson, C.G.  “Consider "Hedging" Strategies to Enhance Income Beyond Farm Programme 
Payments”  Texas A&M University, Extension Economics, October 2002 ( See Exhibit US-54) 
6  Brazil’s Further Rebuttal Submission, para. 23. 
7  We note that these numbers are similar to the Environmental Working Group data that show that 
73.6 per cent of total contract payments in marketing y ear 2002 were on farms that also received marketing loan 
payments. WT/DS267/R/Add.2 
Page I-651 
 
 
payments.  The ratio of planted acreage to base acr eage varies considerably by region, ranging from 
about 40 per cent of eligible base in the West to al most 93 per cent of eligible base in the Southeast.  
The data also support the notion that rather than  being required to base planting decisions on acreage 
base allocations, producers were able to exercise th eir planting flexibility, clearly choosing to plant 
other crops instead of cotton. 
 
Dr. Sumner’s analysis of the US crop insurance programme ignores effects of moral hazard on 
yields  
 
10. As we have documented in our previous su bmissions, crop insurance subsidies are generally 
available for most crop producers and hence do not  give a specific advantage to one crop over 
another.  Thus, their effects are not commodity specific, and have no or minimal impacts on cotton markets.    11. Moreover, crop insurance purchases by cotton grow ers have generally been at lower coverage 
levels than for other row crops.  This was partic ularly the case before 2002 when less than 5 per cent 
of insured cotton acres were insured at coverage levels greater than 70 per cent.  Over 2002-03, 
roughly 90 per cent of cotton acreage insured was at c overage levels of 70 per cent or less.   This 
supports the notion that crop insurance h as had minimal effects on production. 
 12. Lastly, the economic literature on the effect s of crop insurance on production is clearly 
mixed.  While many studies like the ones cited by Brazil have suggested crop insurance subsidies may 
have a slight effect on acreage, the effects on production are less clear.  If crop insurance encourages moral hazard problems like those cited by Brazil, crop yields will be adversely affected as producers attempt to increase crop insurance indemnities.  If moral hazard and adverse selection problems are severe, they could potentially have a negative effect on production.
8  
 
Impacts attributed to the export credit  guarantee programme are unsubstantiated  
 
13. Neither Brazil nor Dr. Sumner has offered empirical analysis as to how much or whether the export credit guarantee programme actually affects expor ts.  As demonstrated in Bra-313, Dr. Sumner 
imposed an ad hoc  reduction in US export estimates of 500,000 bales (using the National Cotton 
Council testimony as his sole economic foundation), which correspondingly reduced US prices, which 
correspondingly both reduced US acreage and slight ly increased exports - cutting into the initially 
imposed 500,000 bale shift.  
The effects of marketing loans depend on underlyi ng assumptions regarding price expectations 
 14. As we have argued elsewhere, we agree with the statement of Dr. Collins that marketing loan 
payments are potentially  production- and trade-distorting.
9  The United States has consistently 
notified upland cotton marketing loan payments as  cotton-specific amber box payments in its WTO 
Domestic Support notifications.  The issue in this di spute is not whether marketing loan payments are 
                                                      
8  The Economic Research Service study cited by Dr. Sumner (Young et al. 2001) only examines the 
effects of crop insurance subsidies on acreage.  The authors assume th at yields are unaffected when they 
simulate production effects.  Recent studies by Smith  and Goodwin (1996), Babcock and Hennessy (1996) and 
Goodwin and Smith (2003) suggest that farms with more insurance tend to use less inputs like fertilizer and 
pesticides and vice versa.  This demonstrates a potentia l moral hazard problem with cr op insurance that suggests 
that crop insurance participation may have a negative effect on yields.  Lower yields may well offset the 
marginal effects on crop area. 
 
9  See US Answers to Questions of the Panel to the Pa rties following the Second Meeting of the Panel, 
22 December 2004, para. 74. WT/DS267/R/Add.2 
Page I-652  
 
potentially production- and trade-distorting, but th e degree to which they have actually distorted 
production and trade in a particular year, give n market prices and other relevant factors. 
 15. The degree of distortion caused by the marke ting loan programme depe nds on the relationship 
of the expected harvest price to the loan rate at the time of planting.  If the expected price is below the 
loan rate, the loan rate may provide an incen tive to plant cotton because farmers will receive a 
government payment for the difference between the loan rate and the adjusted world price.   For this 
reason, we believe that the marketing loan progr amme was more distorting in 2002 when expected 
cash prices were below loan rates at planting than  in 2001, when expected cash prices were higher 
than loan rates at the time of planting.  However, as explained previously, the observed decline in 
upland cotton planted acreage in marketing year 200 2 was commensurate with the decline in futures 
prices over the previous year.  16. In this dispute two approaches have been advocated in determining farmers’ expectations 
about prices.  Brazil and its economic consultant have used lagged prices as the mechanism to gauge 
farmers’ expectations about prices.  Dr. Sumner wrote: 
 
Of course, it is impossible to know precisely what individual growers expect.  I have adopted the long-standing approach of FAPR I, and other models[,] to approximate 
these expectations by using the current y ear final realized market prices as the 
expectation for the following season’s price.
10 
The lagged prices used by Brazil and its economic c onsultant can, at best, be an approximation of 
farmers’ price expectations.  That is because the lagged prices used in Brazil’s analysis incorporate 
pricing information that occurs after US farmers make their planting decision  (that is, prices from 
April through July of a given marketing year, when  planting decisions are taken in the January to 
March period).  Therefore, by necessity, farmers cannot  be looking at a lagged price that incorporates 
prices that do not yet exist. 
 17. The United States, on the other hand, has a dvocated the use of futures prices, a market- 
determined expectation of prices.  It is evident from the use of futures and options markets by cotton 
producers
11 and from numerous market reports available to producers that producers look to futures 
markets rather than lagged prices for in formation regarding future cash prices. 
 
18. Furthermore, economic literature supports this view.  For example, in his classic paper on 
rational price expectations, Muth (Exhibit US-48) ar gued that there is little evidence that expectations 
based on past prices are economically meaningful.  Additionally, in a 1976 paper Gardner (Exhibit 
US-49) contended that the future price for next year’s crop is the best proxy for expected price.  
 
19. As we have repeatedly argued, the use of lagge d prices may result in biased results.  Over the 
long term, where there is reasonable stability in ma rkets, lagged prices function adequately as a proxy 
for price expectations.  However, in those years,  as in the period under investigation here, when 
unexpected exogenous shocks such as China dumping stocks and unexpected yields worldwide due to 
good weather conditions, lagged prices are poor predicto rs of expected prices.  Future prices, by 
contrast, are more efficient because they are based on more current information. 
 20. For example, during marketing years 2000, 200 1, 2002, and 2003, lagged prices significantly 
understate the harvest season prices expected by producer s as seen in the futures prices at the time of 
planting. The use of lagged prices thereby inflate the e ffect of the marketing loan rate.  In fact, those 
lagged prices would have to be increased by 8-25 pe r cent, depending on the year, to equal the harvest 
                                                     
 
10  Brazil’s Further Submission, Annex I, para. 18. 
11  See US Answers to Questions of the Panel to the Pa rties following the Second Meeting of the Panel, 
22 December 2004, para. 58. WT/DS267/R/Add.2 
Page I-653 
 
 
season price actually expected by produ cers as indicated by the futures price.12  For the period MY 
1999-2003, only MY 2002 exhibits expected prices be low the marketing loan rate when using futures 
prices.  However, over that same period, when lagge d prices are used as expected  prices, the loan rate 
is higher than the expected price in every year over this period  except MY1999.  Thus, it is a 
significant error for Brazil and Dr. Sumner to use la gged prices instead of the futures prices Brazil’s 
own expert, Mr. MacDonald, explained to be the more  accurate gauge of farmers’ price expectations. 
  
Harvest Futures Prices at Planting Time Co mpared to “Lagged Prices”(cents per pound)  
 MY1999 MY2000 MY2001 MY2002 MY2003 
Futures Price1  60.27 61.31 58.63 42.18 59.6 
Expected Cash Price2  55.27 56.31 53.63 37.18 54.6 
Lagged Prices3 60.2 45 49.8 29.8 44.5 
Difference -4.93 11.31 3.83 7.38 10.1 
 1 February New York futures price for December delivery. 
 2 Futures price minus 5 cent cash basis.  
 3 Prior crop year average farm pri ce, weighted by monthly marketings.13 
 
21. Looking more specifically at Dr. Sumner’s analysis in Annex I provides further evidence of 
the bias of lagged prices relative to future pri ces.  Consider the 2002 crop year.  In the Sumner 
analysis, area response to the removal of the cotton loan programme results in a 36 per cent reduction in US planted area – the largest single effect for any of the years considered in his analysis.  Based on 
lagged prices, price expectations for 2002 were  29.8 cents per pound, a 40 per cent reduction from 
2001 levels.  Yet, the futures market data sugge sts a far smaller reduction in expected price.  
December futures prices taken as the average daily  closing values in February 2002 averaged 
42.18 cents per pound, a 28 per cent drop from year earlier levels.  Based on Dr. Sumner’s range of supply response elasticities of 0.36 to 0.47, a decl ine of this magnitude would suggest a drop in 
acreage of 10 to 13 per cent from the preceding year.  In fact, actual US cotton acreage dropped 12 per cent (from 15.5 million acres in 2001 to 13.7  million acres in 2002), suggesting acreage levels 
entirely consistent with world market conditions an d price expectations.  Thus, in marketing year 
2002, lagged prices would significantly overestimate th e decline in plantings in the absence of a 
marketing loan rate.   22. While the United States would agree with Braz il that it is impossible to know precisely what 
individual farmers’ price expectations are, the United States argues that futures prices provide the 
most current expectations of market participants.  The United States disagrees with the approach used 
by Brazil in its analysis to rely solely on lagged prices and ignore information provided by futures prices.  While it may be impractical to include fu tures prices in some m odels, modelling convenience 
is no justification for ignoring these objective, mark et-based price expectations, and the biased results 
from using lagged prices do not assist the Panel in making an objective assessment of what is the 
effect of the US marketing loan programme. 
 
Use of the November 2002 baseline exaggerates th e effects of the removal of subsidies 
 
23. The price outlook for cotton has improved considerably since publication of the November 2002 FAPRI baseline used by Dr. Sumner to  estimate the effects of subsidies on US cotton 
production.  As we show in the US Response to Brazil’s Answers to the Questions of the Panel of the 
Parties Following the Second Meeting of the Panel, FAPRI projections for the Adjusted World Price 
are as much as 20 cents per pound higher in the November 2003 baseline as under the November 2002 baseline.  
                                                     
 
12  US Further Rebuttal Submission, paras. 164-65. 
13  Exhibit US-90. WT/DS267/R/Add.2 
Page I-654  
 
24. As a result, estimated marketing loan gains are reduced considerably.  Under the 
November 2003 baseline, the estimated marketing loan gain for 2003/04 is zero, compared to almost 
15 cents per pound under the November  2002 baseline.  Over the five  year period 2003/04 to 2007/08, 
the average marketing loan gain is estimated to be 1.32 cents per pound.  This is compared to 
10.39 cents per pound utilizing the November 2002 b aseline used by Dr. Sumner in his estimates. 
 
25. Under Dr. Sumner’s model, the marketing loan programme contributes to over 42 per cent of 
the estimated effects of removing subsidies on production ( see Annex 1, table 1.4).   Thus, updating 
the model to the November 2003 baseline would significantly reduce the estimated effect on 
production, with the remaining effects largely attr ibuted to direct payments under Dr. Sumner’s 
flawed model, with which we strongly disagree.  
 
26. In addition, the FAPRI baseline from Nove mber 2002 projected 50.7 cents per pound for the 
A-Index for marketing year 2003 and the January 2003 baseline projected 58.4 cents per pound for the 
A-index for marketing year 2003.  FAPRI’s November 2003 preliminary baseline projection for the 
A-Index is 70.9 cents per pound, 40 per cent highe r than the FAPRI projections used by Dr. Sumner.
14  
The actual A-index was 76.1 cents per pound on January 15, 2004.  In fact, FAPRI’s November 2002 projections (through 2012/13) did not show the A-Index ever rising as high as current prices.  The 
current high cotton prices and market expectations  of continued high prices are crucially relevant 
because, as mentioned, marketing loan payments wi ll not be made if cotton prices are above the loan 
rate of 52 cents per pound and, fu rther, counter-cyclical payments will not be made if the season 
average farm price is above 65.73 cents per pound (t he target price of 72.5 cents minus the direct 
payment rate of 6.67 cents). The weighted averag e farm price for August-November was 62.4 cents 
per pound, as reported by USDA on 11 January 2004.
15  
 
Conclusions  
 
27. Brazil’s estimates of the impact of US subsidies on world cotton markets have rested largely on the basis of Dr. Sumner’s flawed model.  As we pointed out in our Comments on Brazil’s 
Econometric Model , Dr. Sumner’s model is not the FAPRI mode l.  The modifications he has made are 
ad hoc ; rather than being based on empirical research as is  claimed, they are, in fact, at odds with the 
empirical literature.  
 
III.  Technical Comments on Brazil’s Rebuttal 
 
28. Brazil's explanations of exactly what was done  to the FAPRI/CARD model have been stated 
and restated by Brazil at least three times to this point. 
 
29. With each new statement, different clarifications are made, different variables used.  In Annex I, Brazil submitted its economic analysis of the impacts of the US cotton programme.  In Bra-
313, Brazil provided more detail about its original economic analysis, in light of its seeming inability 
to provide the Panel with the actual model used.  Finally, in its submission of 20 January 2004, Brazil 
informs the Panel that its Annex I discussion was a "simple heuristic discussion"
16 with Bra-313 
explaining how the "heuristic explanation in Anne x I was operationalized" and rationalizes the fact it 
did not use the baseline it stated it did in Annex I as "necessary recalibration."17  These post hoc  
                                                      
14  Cotton:  World Markets and Trade , Foreign Agricultural Service, USDA.  January 2004, Table 8, 
pg. 20. 
15  World Agricultural Supply and Demand Estimates , USDA, WAOB, WASDE-406, 11 January 2004. 
16  See para. 58, Brazil's Comments on US  Model Critique, 20 January 2004. 
17  See para. 3, Brazil's Comments on US Model Critique, 20 January 2004. WT/DS267/R/Add.2 
Page I-655 
 
 
rationalizations of Annex I differ dramatically from oral statements delivered to the Panel on 
7 October 2003.18 
 
Brazil further confuses the impact of its elasticity modifications  
 30. Brazil clings to its repeated representations that its model uses " exactly the same elasticities of 
supply and demand that are also used in the FAPRI model ,"
19 yet, in its latest iteration of what is 
really included in its analysis, Brazil seems to be saying something different:  
As I will demonstrate, the differences betw een the two sets of estimates of the 
United States is primarily due to differen ces in the magnitude of elasticities of 
supply the United States used, as compared to  the elasticities that I actually used.  
The United States applied time-varying, linear elasticities because this is what is 
suggested by the FAPRI linear modelling framework.   My Annex I results of the 
effects of these listed programmes are, however, based on a constant elasticity 
structure." 20 [emphasis supplied] 
31. This current claim contradicts documentation in  Annex I, oral statements made before the 
Panel, and Bra Exhibit-313. Table I.1 of Annex I cl early presents time-varying elasticities. This time-
varying approach is again reported in equation (4 ) – (6) of Exhibit-313.  Dr. Sumner's equations 
clearly indicate that the supply el asticity changes depending on the year t. 
 
32. The United States remains convinced that neither  it nor the Panel can be fully sure of whether 
the elasticities used by Brazil were "exactly the same" as those used in the FAPRI model as Brazil 
stated on 7 October, or whether those elasticities we re based on a different structure entirely, as Brazil 
states in its 20 January 2004 submission. Brazil has never submitted a simple table showing a 
comparison of the elasiticities. 
 
33. Finally, the United States does not agree w ith Dr. Sumner that the time-varying, linear 
elasticities, which would be consistent with the FAPRI modelling framework, lead to a dramatic 
underestimation of the effects. The United States stan ds firm by its belief th at FAPRI has it right and 
that Dr. Sumner’s approach leads to a dramatic overestimation of the impacts.  Calibration vs. manipulation vs. mislabelling
21 
 
34. The United States pointed out that Brazil stated  that its analysis in Annex I was based on the 
FAPRI November 1 baseline, when it, in fact, was not.   Now, Brazil confirms that those baseline 
numbers were, in fact, "necessarily recalibrated" by Dr . Sumner in order to conform to his use of the 
CARD International model -- a use that is not co nsistent with FAPRI's modelling and a use that 
decidedly was not made clear to the Panel in Annex I,22 contrary to Brazil's assertions in paragraph 24 
                                                      
18  "For more detail on these equations and the discussi on of the incentives prov ided, please refer to my 
written description of the model in Annex I.  My Annex I statement discusses in detail the analysis of the 
production enhancing impacts of the US supply side subsidies." Oral Statement of Dr. Sumner, 7 October 2003, 
paragraph 11.  The United States read these and other statements, and the failure of Brazil to deliver its Annex I analysis, as indication that Brazil meant what it said in  Annex I.  The US was unaware that the document in 
which Dr. Sumner "discusses in detail the analysis" was, in  fact, a "simple heuristic discussion."  That revelation 
is no doubt a surprise to the Panel, as well. 
19  Oral Statement of Dr. Sumner, 7 October 2003, pa ragraph 20.  A similar comment was made at least 
twice in Annex I. 
20  See p ara. 71, Brazil's Comments on US  Model Critique, 20 January 2004. 
21  See para. 24 and subsequent paragraphs in Brazil’s 20 January submission. 
22  In paragraph 3 of Annex I, Dr. Sumner states that he used "the international model and parameters 
used in two recent publications from [CARD] …."  He goes on to state that the "approach used here is standard 
and has been applied by the USDA Economic Research Service in thei r analysis of the FSRI Act of 2002 ….," WT/DS267/R/Add.2 
Page I-656  
 
of its recent submission.  Ultimately, Brazil passes off this significant discrepancy as "confusion" in 
the "labelling of the baseline used in Annex I."
23  This continues a pattern of carelessness in modelling 
and analysis that has added significantly to the burden in discerning underlying data and model constructs in order to appropr iately evaluate the validity of Brazil's proffered results.
24 
 Crop Insurance programme results  
 
35. The United States continues to disagree with  Dr. Sumner’s characterization of the crop 
insurance programme presented in paragr aphs 31-33. The United States does not accept  Dr. Sumner’s 
logic that $1 from the crop insurance programme that is  paid in the event of a crop failure would have 
the same production impact as $1 of benefit that is tied directly to the production decision.  While the 
United States does not accept Dr. Sumner’s logic, we are puzzled by his operational implementation of the acreage impacts. Dr. Sumner argues that FAPR I’s net returns specificati on includes the value of 
the crop insurance programme by reducing variable costs of production. Based on this first step of reasoning, it is unclear to the United States why Dr . Sumner did not implement his scenario by simply 
increasing the costs of production in the FAPRI baseline by the amount of the per-acre benefit that he 
calculates. Such an approach would have produced smaller acreage impacts. 
 
Replicating history and predicting the future  
 
36. In paragraphs 43-56, Dr. Sumner develops a lengthy discussion regarding his view of the use 
of simulation models.  Dr. Sumner dismisses a US concern that Dr. Sumner's analysis does a very 
poor job of explaining the movement in cotton acreag e in the United States.  Dr. Sumner appears to 
assert that policy simulation models do not attempt to "forecast the future."  From a layman's point of view, it seems surprising that a model that changes th e past and then estimates how that change would 
have resulted in a different future can be said to not be an attempt to forecast the future. 
 
37. From an economic point of view, the analysis  doesn't really change.  Economists who develop 
structural models employ a number of techniqu es for validating the accuracy and reliability of a 
model.  One of those techniques is testing the ab ility of the model to simulate actual historical 
outcomes.  In such an historical simulation, the mo del is solved for each year of a historical period 
and predicted values for the exogenous variables ar e compared to the actual data. Not only is the 
model evaluated based on its ability to approximate hist orical values, but also on its ability to capture 
the turning points in the observed values, i.e. dete rmine if the model’s predicted values for a variable 
move in the same direction as the actual values from one year to the next.  38. The process of model validation involves testing the performance of the model over the 
historical period that corresponds to the timeframe used for the statistical estimation of parameter 
values, i.e. the in-sample period.  In addition, the model will also be tested over a historical period 
outside of the estimation period.  This is referred  to as out-of-sample validation.  If a model does not 
                                                                                                                                                                    
 
citing the Westcott study.  However, one of the two stud ies referenced in footnote 4 did not use the CARD 
International Cotton Model; it used FAPRI's full interna tional model.  Similarly, the study referenced in 
footnote 5 also used FAPRI's full international model.  It is clear by reviewing paragraphs 3-11 of Annex I 
(particularly footnote 10) and Dr. Sumner's Oral Statement of 7 October 2003, that Brazil's documents manifestly led the Panel to believe it was using a broad,  multi-commodity international model in its analysis.  
Only later did Brazil clearly admit it did not use such a m odel and that all competing crops were not included in 
its international analysis.  
23  See para. 42, Brazil's Comments on US  Model Critique, 20 January 2004. 
24  The United States notes also that with each disc overed discrepancy, Brazil has supposedly rerun its 
analysis to demonstrate that none of its misstatemen ts has had any appreciable affect on the Sumner model 
results and asserts this demonstrates the "robustness" of the Sumner model.  As noted in the introductory 
statements to this submission, ever y economic result ascribed to a FAPRI-t ype analysis by Brazil contains the 
same flawed assumptions originally introduced by Dr. Sumner, apart from the few corrections Brazil has made.  
It is no surprise that each rerun of the same ba sic construct would reveal the same basic results. WT/DS267/R/Add.2 
Page I-657 
 
 
perform well under these validation methods, then pa rticular components or equations within the 
system are evaluated and re-specified.  39. It does not appear that Dr. Sumner employed  any of these standard techniques for validating 
the robustness of his model. It is doubtful that his model, with its modified acreage equations, would 
pass this common test. However, despite the lack of  documented validation of the model, Dr. Sumner 
nevertheless proceeds to use the model and treats the results as credible.  40. Dr. Sumner’s “simple illustration” provided in  paragraph 50 does not address the true issue 
and is not relevant to the example of US cotton.  The United States has repeatedly shown that the 
overriding economic signals that have affected cotton acreage have been the expected prices of cotton 
and relevant competing crops.  41. To conclude our response to Dr. Sumner’s ar guments in paragraphs 43-56, it is abundantly 
clear that Dr. Sumner can produce no meaningful empirical validation for his approach.  His results 
are based on forced outcomes that are the results of his ad hoc  modelling specifications. 
 
Inconsistent descriptions of "full net revenue"  
 
42. In paragraph 63, Dr. Sumner states that “fu ll net revenue including all programme payments” 
form the basis for his model specification.  He states that he does not understand how the 
United States made such a mistaken assumption.  Dr. Sumner’s current claim is in direct contradiction 
to his documentation in Exhibit Bra-313.  43. On page 2, in equation (2) and the subseque nt paragraph of Exhibit Bra-313, Dr. Sumner 
clearly states that his net revenue includes only the farm price and the marketing loan and not the full 
programme payments.  Then, in equations (4) - (6), the net revenue, which presumably is the same as 
specified in equation (2), is again denoted as bei ng a portion of the denominator in his determination 
of the impacts of the programme in question. The United States maintains its assertion that the full 
programme payments should have been in the denomin ator of the function. Neither the United States 
nor the Panel can be certain of Dr. Sumner’s ex act approach because his explanation changes with 
each submission. 
 
Incorrect assertions  
 
44. Dr. Sumner’s criticisms in pa ragraph 65 of the calculations provided by the United States are 
unfounded. 
 
45. The claim in paragraph 65 that the Southe rn Plains revenue of $109.04 does not include 
marketing loan benefits is patently incorrect.  Th e Panel and Dr. Sumner need only to look in cell 
AO236 of the Equations sheet of the file FINAL  US2003CropsModel WORKOUT.xls and they will 
find that the value of net revenue from the market and the marketing loan is $109.04.  All subsequent 
critiques on this issue put forth by Dr. Sumner are ob viously incorrect because of his error reading the 
spreadsheets submitted by Brazil. 
 46. Dr. Sumner attempts to invalidate the US cr iticisms in paragraph 69-70 by claiming that the 
numbers are not the ones reported in Annex I.  He indicates that the numbers were generated by the 
United States, but that is incorrect. The United Stat es properly references the source of the acreage 
impacts as being the file FINAL US2003CropsMode l WORKOUT.xls.  More specifically, the data 
come from rows 721-771  of the Equations sheet and are the first-round  impacts reported in the model.  
These are appropriately compared to first-round impacts calculated in the US critique.  WT/DS267/R/Add.2 
Page I-658  
 
Marketing loan and step 2 impacts  
 
47. Given Brazil's efforts to misstate the US pos ition on marketing loan and step 2 impacts in 
paragraphs 8 and 9, the United St ates refers the Panel to its earlier discussion included in section G 
(paragraphs 152, et seq.) in the US Further Rebuttal Submission, 18 November 2003 where the 
United States stresses the need for the Panel to  investigate the actual decisions facing producers 
making their planting decisions.  The United States h as also not altered its position regarding the step 
2 programme.  The US submission of 22 December 2003  was directed at its critique of Dr. Sumner's 
economic modelling.  While the US has indicated to the Panel its belief that the FAPRI model is not 
the best measure of impacts of the marketing loan  or step 2 programmes, it did not specifically 
criticize Brazil's analytical method in this rega rd as Brazil apparently did not make significant 
changes to the FAPRI model on these points - as it did in virtually every other aspect of its analysis.  
 
Annex I results have never been independently confirmed  
 48. The models used and outputs obtained by Braz il and submitted to the Panel were not retained 
by Brazil's employed experts.
25  The record remains incomplete  with respect to Dr. Sumner's 
adaptations.     49. The United States has found that the current submission by Dr. Sumner is fraught with many of the same types of errors contained in his prev ious submissions. He disput es numbers that are taken 
directly from files that either he or Dr. Babcock has provided to the Panel. He continues to provide 
contradictory explanations and documentation of his methodology. Furthermore, detailed electronic 
verification of his calculations used in Annex I ha ve never been provided to the United States or the 
Panel. Dr. Sumner has repeatedly claimed that he has provided all information to the Panel. That is 
obviously not the case, since new info rmation, such as the regional crop insurance numbers, were just 
provided in this most recent submission. 
 
Impacts attributed to the export credit  guarantee programme are unsubstantiated 
 
50. The United States is surprised that, despite repeated opportunities to offer some degree of 
economic support to the 500,000 bale impact Brazil attributes to the US export credit guarantee 
programme, Brazil has still not done so.
26  Worse, Brazil still refers to its estimates of the impact of 
this programme as "conservative."  As the United States indicated  in its critique of the Sumner  model, 
the figures bandied about regarding acreage imp acts of the export credit guarantee programme on 
cotton are anything but conservative.  
51. In the September 9 Brazil Submission before the Second Session of the First Panel Meeting, 
(paragraphs 192-194), Brazil implied that Dr. Sumn er's export estimates with respect to the export 
credit guarantee programme were more conservative than the unsubstantiated estimate it cites from the National Cotton Council (the "NCC").  Paragra ph 194 of that submission acts as if the NCC 
estimate of a possible 3 cent per pound US price impact and Dr. Sumner's estimate of a .57 cent per pound world
 price impact are somehow independent analyses - and demonstrate Dr. Sumner's 
conservative approach.  However, as demonstrated in Bra-313, all Dr. Sumner did was force a 
reduction in the US export estimates of 500,000 bal es (using the NCC testimony as his sole economic 
foundation ), which correspondingly reduced prices in the US, which correspondingly both reduced 
US acreage and slightly increased exports - cutti ng into the initially imposed 500,000 bale shift. 
 
                                                      
25  See Letter dated October 31, 2003 from Dr. Bruce Babcock to Dr. Dan Sumner, submitted to the 
Panel by Brazil on 5 November 2003. 
26  Other than citing congressional testimony offered by the National Cotton Council, a US trade 
association that operates on behalf of the US cotton industry. WT/DS267/R/Add.2 
Page I-659 
 
 
52. The "different" price estimates were, in fact, estimates of two different sets of prices - US and world.  Brazil inappropriately characterized Dr. Sumn er’s results as being conservative relative to the 
NCC estimate. ( see para. 192, Brazil's Further Submission to the Panel, 9 September 2003)   Later 
when the Panel raised a question about the resu lts, Dr. Sumner somehow forced a full 500,000 bale 
decline in US exports, ignoring the impacts of price response. ( See, e.g., Bra-325, last category of 
tables - export credit guarantee with fixed 500,000 bale impact.)  In that response, Brazil also 
maintained the stance that these two "analyses," neither demonstrating economic foundation, were 
somehow independent, while fairly clearly demons trating that Dr. Sumner merely took the NCC 
testimony and imposed a 500,000 bale demand shift.    
53. Neither Brazil nor Dr. Sumner have ever o ffered any analysis at all as to how much or 
whether the export credit guarantee programme actually affects exports.  They took someone else's word for it, with no demonstrated economic founda tion - much the same approach Brazil has asked 
the Panel to take with respect to important aspects of the Annex I model.  Conclusions  
 
54. Dr. Sumner's economic analysis should not be  relied upon by the Panel as credible support for 
any findings on the effect of challenged US cotton subs idies.  Brazil offers Dr . Sumner's model results 
as evidence that but for the US cotton programmes, US cotton acr eage would have declined and world 
prices would have increased.  In order to support this claim, Brazil and Dr. Sumner had to make 
significant modifications to a previously well-r espected econometric system.  The United States has 
demonstrated the weakness inherent in those modifi cations and the failure of  Brazil to independently 
validate those modifications.  Throughout its subm issions, Brazil has claimed that nebulous factors 
such as a producer's "anticipation of policy ch ange" are legitimate pillars on which to base 
Dr. Sumner's modifications to the FAPRI model.  Brazil has pushed this questionable logic despite the 
fact that FAPRI itself has refused to ascribe the type  of impacts forced on its model by Brazil.  When 
confronted by the United States and pointedly questi oned about the particulars of its approach, Brazil 
has been unable to advance convincing, supportable or  even consistent explanations of its analysis. 
 55. As stated previously, while the US has dem onstrated fatal flaws in Brazil's arguments on 
subsidy identification, causation, and its actionable subsidies claims, it is clear to the United States 
that but for the significant modification and adaptation of the FAPRI model carried out by Brazil and 
Dr. Sumner, acreage impacts attributed to the US  cotton programme by that economic model would 
be far less than reported in Annex I.  Brazil has offe red nothing in its critique to change the US view 
of the failure of Brazil's evidence to prove this aspect of its claim. WT/DS267/R/Add.2 
Page I-660  
 
ANNEX I-17 
  
BRAZIL'S RESPONSE TO THE 
PANEL'S QUESTIONS 
 
11 February 2004 
 
 
TABLE OF CASES 
 
 
Short Title Full Case and Citation 
EC – Hormones Arbitrator Report, EC – Measures Concerning Meat and Meat Products 
(Hormones) , WT/DS26/15, WT/DS48/13, circulated 29 May 1998. 
Brazil – Aircraft Panel Report, Brazil – Export Financing Programme for Aircraft, 
WT/DS46/R, adopted 20 August 1999. 
Canada – Aircraft Panel Report, Canada – Measures Affecti ng the Export of Civilian 
Aircraft , WT/DS/70, adopted 20 August 1999. 
Korea – Alcoholic 
Beverages Arbitrator Report, Korea – Taxes on Alcoholic Beverages , WT/DS75/16 
and WT/DS84/14, circulated, 4 June 1999. 
US – FSC Panel Report, United States – Tax Treatment for “Foreign Sales 
Corporation” , WT/DS108/R, adopted 20 March 2000. 
Australia – Leather Panel Report, Australia – Subsidies Provid ed to Producers and Exporters 
of Automotive Leather, WT/DS126/R,  adopted 16 June 1999. 
US – 1916 Act Arbitrator Report, US – Anti-Dumping Act of 1916 , WT/DS136/11 and 
WT/DS162/14, circulated 28 February 2001. 
Canada – Automotive 
Industry Panel Report, Canada – Certain Measures Affecting the Automotive 
Industry , WT/DS139/R and WT/DS/142/R, adopted 19 June 2000. 
US – Section 110 Arbitrator Report, United States – Section 110(5) of the US Copyright 
Act, WT/DS160/12, circulated 15 January 2001. 
US – Hot-Rolled Steel Arbitrator Report, US – Hot-Rolled Steel from Japan , WT/DS184/13, 
circulated 19 February 2002. 
US – Byrd Amendment Arbitrator Report, US – Continued Dumping and Subsidy Offset Act , 
WT/DS217/14 and WT/DS234/22, circulated 13 June 2003. 
Canada – Aircraft II Panel Report, Canada – Measures Affecti ng the Export of Civilian 
Aircraft,  WT/DS222/R, adopted 19 February 2002. 
 WT/DS267/R/Add.2 
Page I-661 
 
 
276. The Panel notes the parties' responses and comments relating to Question No. 252 
concerning the time period within which any prohibited measure must be withdrawn within the meaning of Article 4.7 of the SCM Agreement .   Please supplement your 
original response, taking into account the pa rticular nature of each alleged prohibited 
subsidy measure  (i.e. "Step 2" payments  under Section 1207(a) of the 2002 FSRI Act, 
export credit guarantee programmes and the ETI Act) and the functioning of the US 
legal and regulatory system in respect of these measures. 
 
Brazil’s Answer: 
 1. Brazil thanks the Panel for the opportunity to supplement its 22 December 2003 response to 
Question 252.
1  As Brazil has previously noted, the three pr ohibited subsidies at issue in this dispute 
(Step 2 payments, CCC export credit guarantees a nd ETI Act subsidies) all involve mandatory 
measures requiring changes to the statutes th at provide for these prohibited subsidies.  
 
2. The ordinary meaning of the phrase “without de lay” in Article 4.7 of the SCM Agreement is 
“as quickly as possible.”  While the text does not state “immediately,” neither does it use a qualifier 
such as “reasonable delay.”  The term implies a certain sense of urgency.  And it suggests that 
implementing governments must move  more quickly to implement prohibited subsidies measures than 
other types of measures.  In particular, the phr ase “without delay” requires a faster implementation 
than the “reasonable period of time” provisions of Article 21.3 of the DSU.  Article 21.3 provides that 
if it is “ impracticable  to comply immediately with the recommendations and rulings, the Member 
shall have a reasonable  period of time in which to do so” (emphasis added).  The use of terms 
“impracticable” and “reasonable” suggest a less urgent approach to implementation in DSU Article 21.3 than in Article 4.7 of the SCM Agreem ent.  This is exactly how the provisions of DSU 
Article 21.3 have been interpreted by a nu mber of arbitrators, as discussed below. 
 
3. The context of Article 4.7 of the SCM Agreement strongly supports a more rapid implementation for prohibited subsidy measures than for other measures.  First, there are special 
expedited dispute settlement procedures in Artic les 4.4-4.6 of the SCM Agreement for prohibited 
subsidy disputes.  Why would the drafters have cu t the time for litigating pr ohibited subsidy cases in 
half, if they had expected “business as usual” in the implementation phase by using the same 
“reasonable period” implementati on provisions of DSU Article 21.3?  The “special rule and 
procedure” status of Article 4.7 of the SCM Agreem ent in DSU Annex 2 is also significant.  This 
special status must be given meaning by the Panel.   To simply treat implementation according to the 
“reasonable period of time” standard of DSU Article 21.3, as the United States argument 
suggests
2,would effectively denude the “without delay” sta ndard in Article 4.7 of any “special” status. 
 
4. The  “prohibited” status of subsidies c overed by Articles 3 and 4 of the SCM Agreement 
suggests that the object and purpose of prohibite d subsidy disciplines is to create significant 
disincentives for Members to continue providing such  subsidies.  These provisions demonstrate that 
negotiators determined that special dispute settle ment and implementation procedures were required 
for prohibited subsidies because of their particular ly trade-distorting nature.  The object and purpose 
of Articles 3 and 4 would be frustrated if the phr ase “without delay” were interpreted to permit a 
Member to take as long as normally required to impl ement any legislative changes.  Each day that a 
prohibited subsidy, such as Step 2 payments, con tinues to be provided is a day in which trade is 
distorted.  This is particularly true gi ven the recent fall in cotton futures prices.3  
  
 
                                                      
1 See Brazil’s 22 December 2003 Answ ers to Questions, para. 167. 
2 See US 28 January 2004 Comments, paras. 175-177. 
3 http://www.nybot.com (click on cotton and then future s).  As of 10 February 2004, the futures price 
for the March 2004 contract had fallen to 64.96 cents from a high of 86 cents in October 2003. WT/DS267/R/Add.2 
Page I-662  
 
 5. There is only one precedent applying the Artic le 4.7 “without delay” provision to prohibited 
subsidy measures requiring legislative changes.  In the US – FSC dispute, the Panel found 
1 October 000 (15 months after the interim report w as issued) to be the appropriate “without delay” 
period.
4  However, the facts of US – FSC highlight the reason for such a long period of 
implementation.  In that case, the Panel found that legislation repealing a tax break had to be enacted 
before the start of the next US fiscal ( i.e., tax) year.  The Panel found that in view of the likely appeal 
of its report and the timing of the fiscal year, 1 October 2000 would be the earliest possible implementation date and, thus, a peri od of time constituting “without delay”.
5    
 
6. Unlike the FSC  measure, the export credit guarantee and Step 2 subsidies at issue in this 
dispute are not tax breaks determined (retrospectively)  on the basis of annual income and in force for 
a fiscal year.  Step 2 payments and export credit gua rantees are also not paid on the basis of marketing 
years or any other time period.  Instead, the benefi ciaries of these two types of prohibited subsidies 
receive financial contributions that confer benefits on a transaction-by-transaction  basis.  Therefore, 
the United States cannot claim that ther e is a need to wait to enact legisl ation before a “fiscal year”, as 
was required in the US – FSC dispute.6 
 7. Although the DSU Article 21.3 standard requi res a less rapid legislative response than 
Article 4.7 of the SCM Agreement, the decisions of  various arbitrators provide a useful reference 
point for the Panel’s interpretation of Article 4. 7.  The now standard language in almost all 
arbitrators’ reports under DSU Article 21.3 is that implementation must occur in the shortest period 
possible within the normal legal system of a Member.
7  DSU Article 21.3(c) implementation need not 
employ “extraordinary legislative procedures”.8  In other words, under DSU Article 21.3, an 
implementing Member’s legislative process need not move faster than it would normally operate in 
moving legislation through its legal system.9   
 
8. But the Panel’s role is to interpret the mean ing of Article 4.7 of the SCM Agreement and to 
give meaning to the term “wit hout delay” as a special provision apart from DSU Article 21.3.  This 
does not require the Panel to find that there is a conflict between the provisions.  Rather, the Panel 
must prevent Article 4.7 from being totally absorbed  within the meaning of DSU Article 21.3, as that 
latter provision has been interpreted by numerous arb itrators.  Any interpretation of Article 4.7 that 
would not give it special and independent meaning by instead adopting a “business as usual” approach 
to implementation for prohibite d subsidy measures would render that provision inutile.   
 9. In determining what “without delay” means for the United States’ implementation obligations 
in this case, Brazil notes that various arbitrat ors have emphasized that the US Congress has 
considerable flexibility to enact legislation quickly.
10  The United States has confirmed this fact.11  
Indeed, the United States enacted the FSC replaceme nt measure in less than eight months after the 
adoption of the panel report in US – FSC .12  Arbitrators applying DSU Article 21.3(c) have found that 
the United States must be given the right to use “nor mal” legislative procedures, and therefore granted 
                                                      
4 Panel Report, US – FSC , WT/DS108/R, para. 8.8. 
5 Panel Report, US – FSC , WT/DS108/R, para. 8.8. 
6 Panel Report, US – FSC , WT/DS108/R, para. 8.8. 
7 Arbitrator Report, EC – Hormones , WT/DS26/15, para. 26.  See also Arbitrator Report, US – 
Section 110 , WT/DS160/12, para. 31. 
8 Arbitrator Report, US – Section 110 , WT/DS160/12, para. 32; Arbitrator Report, Korea – Alcoholic 
Beverages , WT/DS75/16, para. 42. 
9 Arbitrator Report, US – Section 110 , WT/DS160/12, para. 32. 
10 Arbitrator Report, US – Section 110 , WT/DS160/12, para. 38; Arbitrator Report, US – 1916 Act , 
WT/DS136/11, para. 43; Arbitrator Report, US – Byrd Amendment , WT/DS217/14, para. 32. 
11 Arbitrator Report, US – Section 110 , WT/DS160/12, para. 38. 
12 Arbitrator Report, US – 1916 Act , WT/DS136/11, para. 43. WT/DS267/R/Add.2 
Page I-663 
 
 
the United States between 1013 and 1514 months for implementation requiring legislative changes.  But 
Article 4.7 of the SCM Agreement is not a “normal”  procedure – it is a special one.  And it requires 
special efforts of implementing legislators to act more quickly than may be “normal”.   10. The record shows that Step 2 payments are prohibited subsidies that are paid upon proof of 
export shipments or domestic use by US textile mill s.  Eliminating this pr ohibited subsidy requires no 
complex word play or textual wrangling.  Rather, it  simply involves the repeal of Section 1207(a) of 
the 2002 FSRI Act.  Therefore, Brazil considers that  90 days after the adoption of the Panel Report by 
the DSB should be considered to be “without delay”.
15   
 
11. With respect to the CCC export credit guaran tee programmes, the Panel should specify that 
within six months after the adoption of the Panel Report, the prohibited subsidies must be withdrawn 
by enacting the necessary changes to the statutes and regulations providing for GSM 102, GSM 103 and SCGP.  These changes would have to result in CCC guarantees being provided on market terms and at premium rates that are adequate to cove r the long-term operating costs and losses of the 
programmes.  Due to the more complex nature of the implementation with respect to the CCC export 
credit guarantee programmes, Brazil considers a period of  time of six months to be consistent with the 
“without delay” obligation.  12. With respect to the ETI Act, the United States has repeatedly indicated that implementation is 
underway and that “bills are before both houses of Congress that would repeal the FSC and that have 
been reported out of their respective committees.”
16  In view of the implementation process, which 
has already begun, and the text of Article 4.7 of the SCM Agreement requiring the withdrawal of the prohibited subsidies “without delay”, the Panel shou ld specify that, with respect to the ETI Act, 
“without delay” means a period of 90 days.  This re presents an appropriate period of time that would 
be consistent with the “without delay”  obligation to withdraw the ETI Act. 
                                                     
 
13 Arbitrator Report, US – 1916 Act , WT/DS136/11, para. 45. 
14 Arbitrator Report, US – Hot-Rolled Steel , WT/184/13, para. 40.   Brazil notes that this case also 
involved changes to the regulations that could only be adopted after the underlying statute had been changed by 
Congress.  Therefore, the arbitrator considered a period of more than 10 months to be “reasonable.” 
15 The period of 90 days is also consistent with the specification of earlier panels that “without delay” 
generally means 90 days.  See Brazil’s 22 December 2003 Answ ers to Questions, para. 167.  See Panel Report, 
Brazil – Aircraft , WT/DS46/R, para. 8.5;  Panel Report, Canada – Aircraft , WT/DS70/R, para. 10.4;  Panel 
Report, US – FSC , WT/DS108/R, paras. 8.7-8.8;  Panel Report, Australia – Leather , WT/DS126/R, paras. 10.6-
10.7, Panel Report, Canada – Automotive Industry , WT/DS139/R and WT/DS142/R, paras. 11.6-11.7, and 
Panel Report, Canada – Aircraft II , WT/DS222/R, para. 8.4. 
16 See most recently: US 28 January 2004 Comments, para. 177.  See also US 11 July 2003 First 
Submission, para. 189 and US 11 August Answers to Questions, paras. 229-230. WT/DS267/R/Add.2 
Page I-664  
 
ANNEX I-18 
  
UNITED STATES' RESPONSE TO THE 
PANEL'S QUESTIONS 
 
11 February 2004 
 
 
259. With respect to the Privacy Act of 1974, 5 U.S.C. 552a: 
 (a) Whose interests are protect ed under section 552a(b) in light of the definition of 
“individual” in section 552a(a)(2)?  Do all payment recipients, including corporations 
and organizations, have Privacy Act rights?  If  not, is the United States prevented by its 
domestic law from releasing such of the in formation requested on 12 January 2004 as 
relates to payment recipients without Privacy Act rights?  Please explain with references to case law. 
 1. We appreciate the Panel’s interest in the Privacy Act interests that the United States 
Department of Agriculture is obligated, under US do mestic law, to protect.  Farm-specific planting 
data is one such protected interest
1, and was one since long before the inception of this dispute.  We 
discuss this point further in response to question 259(c) below.  2. Under the Privacy Act of 1974, generally, “[n] o agency shall disclose any record which is 
contained in a system of records by any means of communication to any person . . . ”.   5 U.S.C. 
552a(b).  The statute provides a criminal penalty for any agency employee who willfully discloses 
protected records knowing that disclosure is prohibi ted.  5 U.S.C. 552(a)(I)(1).  A “record” is defined 
as “any item, collection, or grouping of information about an individual that is maintained by an 
agency” (5 U.S.C. 552a(a)(4)), and an “individual” is  defined as “a citizen of the United States or an 
alien lawfully admitted for permanent residence” (5 U.S.C. 552a(a)(2)).  Therefore, courts have held 
that the rights of the Privacy Act of 1974 do not extend to corporations or organizations. See, e.g. , 
Dresser Industries v. United States
, 596 F.2d 1231 (5th Cir. 1979).  Wh ile corporations do not have a 
personal privacy interest, closely held corporations are an exception in that the release of information 
about the corporation is tantamount to a releas e of information on the individuals involved. 
 
3. With respect to planting information of non-clo sely held corporations, courts have held  that 
information voluntarily received from a corporation is to be withhe ld under exemption (4) of the 
Freedom of Information Act (FOIA), 5 U.S.C. 552 (5 USC (b)(4)), if it is not the type of information that would customarily released by the corporation to the public. See also
, Center for Auto Safety v. 
National Highway Traffic Safety Administration , 244 F.3d 144, 147 (DC Cir. 2001). This is the case 
with respect to plantings.  Furthermore, the Trade Secrets Act, 18 U.S.C. 1905, prohibits the release of 
any information that falls within the exemption from disclosure provided by 5 U.S.C. (b)(4) unless 
otherwise permitted by law.  CNA Financial Corp. v. Donovan , 830 F.2d 1132, 1151-1152 (D.C. Cir. 
1987).  
4. The 1999-2001 plantings information of non- closely held corporations was voluntarily 
submitted.  For 2002 and beyond the reports are required by statute.   Thus, such data could 
presumably be released for non-closely held corp orations (it would still be protected under the 
Privacy Act for individuals and closely-held corpor ations).  However, determining which farms are 
                                                     
 
1 We discuss below an exception to this principle for farms owned by corporations other than closely 
held corporations. 
 WT/DS267/R/Add.2 
Page I-665 
 
 
non-closely corporations would require examining, on a case by case basis, th e circumstances of each 
operation.  That would require  the considerati on in county offices across the cotton-growing country 
of some 200,000 files.  5. As explained in the US letter of 20 January 2004, Brazil’s insistence on receipt of contract 
payment and planting data identified by farm number  is unnecessary to resolution  of the issues in this 
dispute.  Instead, to the extent any of this inform ation is relevant to this dispute, given Brazil’s 
arguments, aggregation of payment data would provide information in the appropriate format, and 
aggregation would moreover be cons istent with US law.  The Panel has now requested aggregated 
data, and as explained elsewhere in today’s submissi ons the United States is working to provide that. 
 
(b) The Panel notes that data concerning th e four relevant programmes, in particular, 
payment amounts, identified by specific farms,  is freely available on the internet.  Please 
explain why that data can be disclosed but the requested planted acreage data cannot.  Do individual recipients have Privacy Act rights with respect to their entrepreneurial 
activity?  Please explain with references to case law. 
 
6. The Panel is correct to distinguish be tween information on government activity and 
government payments, and individual activity, in pa rticular individual entrepreneurial activity.  
Indeed, there are long-standing and well-recognized di stinctions in the United States between, on the 
one hand, government-generated in formation and conclusions formed  by the government itself (such 
as payment amounts, bases, and yields), and, on the other hand, the private reportings of farmers (such 
as plantings) which do not generate  any payments and which are submitted for compliance purposes 
only.  Filings of the latter kind have long been r ecognized in US agricultura l law as being private in 
nature.  See, e.g.,  7 USC 1373 and 7 USC 1502(c) (protecting such filings under the terms of the 
Agricultural Act of 1938 and in the crop insurance context).
2 
 
7. The interrelationship between the Privacy Ac t of 1974 and the FOIA requires an analysis 
balancing the privacy interest of the individual w ith the “core purpose” of FOIA which is to “shed 
light on an agency’s performance of its statutory duties”.  United States Department of Justice v. 
Reporters Committee for Freedom of the Press , 489 US 749 (1989).  Information that does not 
directly disclose government operations cannot be f actored into the balance.  Reporters Committee , 
489 US at 775.   
 8. Information concerning planted acreage does not demonstrate anything regarding the 
government’s operation – it only demonstrates what a producer is doing.  Accordingly it is protected 
from disclosure.  By contrast, information regard ing payment amounts relate to the government’s 
implementation of farm programmes,  and this outweighs any privacy interest on the part of the 
producer.
3 
 9. With respect to the final part of the Panel’s question, while there is a split of authority in US 
courts as to whether individuals have Privacy Act righ ts with respect to their entrepreneurial activities, 
the Department of Agriculture has determined that an  individual acting in an entrepreneurial capacity 
is protected by the Privacy Act of 1974.  See Metadure Corporation v. United States
, 490 F. Supp. 
1368 (S.D.N.Y. 1980); Campaign for Family Farms v. Glickman , 200 F.3d 1180 (8th Cir. 2000).    
 
                                                      
2 It would be odd, to say the least, to say that such planted acreage information would be protected for 
crop insurance purposes but then releaseable by some other avenue. 
3 This sort of weighing process was the basis of the decision in Washington Post Company v. 
United States Department of Agriculture , 943 F.Supp. 31 (D.D.C. 1996).  There, the court found some privacy 
interest in payment information, but found that interest to be both minimal and outweighed by a “substantial” 
public interest in identifying “fraud and conflict of interest”.  943 F. Supp. at 37. WT/DS267/R/Add.2 
Page I-666  
 
(c) Please provide any further available evidence of the USDA’s long-standing policy that 
planted acreage information will not be released. 
 
10. Exhibit US-144 is a notice dated December 1, 1998, from the Acting Administrator of the Farm Service Agency (“FSA”) to all FSA employ ees setting out “FSA’s policy on information that 
can be released” to the public and “exclusions to FSA’s policy on releasing lists of names and 
addresses.  Page 2 of the notice states that “[ a]creage, production data, and other producer-related 
information, without any personal identifiers atta ched, may be released when grouped . . . unless the 
request would be able to identify an indivi dual producer from the information provided”.   
 
11. Exhibit US-143 is a 18 September 1998, memorandum from the Director of the Legislative 
Liaison Staff for FSA, to State Offices.  In th is document, the author seeks to correct any 
misunderstandings that may have arisen after the Washington Post
 district court decision regarding 
what information may be releaseable under the Fr eedom of Information Act.  The memorandum 
makes clear that, unlike the payment data at issue in that case, planted acreage information is not 
releaseable information under FOIA.  
 12. The Panel will see from these document that the positions taken by the Department of 
Agriculture here predate this dispute by several years.  
260. On 27 August 2003, in its response to Question No. 67 bis, the United States indicated 
that “it does not maintain information on th e amount of expenditures made under the cited 
programmes to US upland cotton producers”.  On 12 January 2004, the Panel requested the 
United States to provide information “to permit an assessment of the total expenditures of PFC, 
MLA, CCP and direct payments by the US Fede ral Government to upland cotton producers in 
the relevant marketing years”.  On 20 January 2004, the United States informed the Panel that 
“the data already provided by the United States to Brazil and the Panel would permit an 
assessment of total expenditures of decoupled pa yments to farms planting upland cotton”.  Is 
the latest statement responsive to the Panel’s req uest?  If so, how can it be reconciled with the 
first statement? 
 
13. It is important to distinguish between information on plantings
 and information on 
production .  The United States maintains some inform ation on plantings, but does not maintain 
information on individual farm production.  The 27 August 2003 statement concerned production, 
while the 20 January 2004 statement concerned planti ngs.  Brazil has all of the payment data and, for 
every “cotton farm” (as defined in Exhibit BRA-369), all of the yield data and all of the base data.  In 
addition, the summary files that the United States prepared also present total cropland data for these 
“cotton farms”.  However, the United States does not  maintain information on whether farms that 
planted cotton produced (i.e., harvested) that cott on or abandoned it.  For cotton, abandonment rates 
can be significant.  
261. Please confirm that each record in the actu al planting database relates to a specific farm 
(Filenames: rPFCplac and rDCPplac in Exhibits US-111 and US-112).  For example, in the data 
from rDCPplac: 
   First line: 
Field9;Field16;Field22;Field28;Field34;Field40;Field46;Field52;Field58;Field64;Field70Field76;Field82;Field88;Field94;Field100 
 
 Second line: 
237.10;23059.80;5566.20;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00 
  Does the second line represent data on  plantings by the same farm?  
 WT/DS267/R/Add.2 
Page I-667 
 
 
  14. Yes, we can confirm that the panel’s understa nding of the files is correct.  That is, for the 
detailed farm-by-farm text files, each farm wa s given its own line, with fields separated by 
semi-colons.  The last field would not be followed by  any mark; rather, after the last field for a given 
farm, a new line was started, indicating a new farm entry. 
 
262. The Panel has noted the two CD-ROMs delivered by the US in the evening of 
23 December 2003.  They are marked “US-111” and “US-112” respectively, but the contents 
actually do not correspond to the indication.  Th e Panel also takes note of the US letter dated 
28 January 2004 and the CD-ROM delivered together wi th it.  For the record, please clarify the 
correct CD-ROMs and provide corresponding descriptions of their contents with exhibit numbers.  
 
15. The United States originally prepared and s ubmitted six data files.  The files designated 
“PFCby.txt” (the base acreage and yield file for the PFC payment era)
4 and “DCPby.txt” (the base 
acreage and yield file for the DCP payment era)5 set out all base acres for each “programme crop” on 
every identified farm and the associated programme yield.  For the Panel’s and Brazil’s convenience, the United States also calculated the payment units  (bushels or pounds) for each “programme crop”.  
 16. The United States also provided farm-by-fa rm planted acreage information, with farm-
identifying information removed, in the files “ PFCplac.txt” (planted acreage for the PFC payment 
era)
6 and “DCPplac.txt” (planted acreage for the DCP payment era).7  The United States has explained 
that, under US law, it could not provide the farm-by -farm planted acreage information in a format that 
would permit identification of a specific farm.8   
 
17. Finally, to assist the Panel and Brazil in  interpreting the voluminous data provided, the 
United States prepared and submitted summary fil es setting out aggregate cropland, base acreage, 
base yield, payment units, and planted acreage.  These summaries were labeled “PFCsum.xls” (for the 
PFC payment era) and “DCPsum.xls” (for the DCP payment era).  18. On 28 January 2004, the United States submitted re vised data files to the Panel that corrected 
for certain programming errors that inevitably resulte d in the rush to provide nearly 220 megabytes of 
data within the limited time available to reply to Br azil’s request for data.  As set out in the US letter 
of 28 January, the file names are identical to tho se previously submitted but with an “r” preceding the 
original file name.  Thus, the files are now titled “rDcpsum.xls” (aggregate data file), “rDcpby.txt’ 
(farm-by-farm base and yield data file), “rDcpplac.txt” (planted acres file), “rPfcsum.xls” (aggregate 
data file), “rPfcby.txt” (base and yield data file ), and “rPfcplac.txt” (planted acres file).   
 19. In Exhibit US-145 that is being submitted today,  the United States sets out the contents of the 
four revised farm-by-farm “.txt” files (that is, not the summary files) that were submitted to the Panel 
on 28 January 2004, on CD-ROM.  (We note that, in each of the four “.txt” files, the fields are 
separated by colons and field labels are set out with in the file, with each farm having its own line, just 
                                                     
 
4 A description of the file contents for the “P FCby.txt” file was submitted as Exhibit US-109. 
5 We note that Exhibit US-111 set out a description of the file contents (by field number and heading) 
for the “DCPby.txt” file.  Any mark ing of a CD-ROM delivered on 23 December 2003, as “Exhibit US-111” 
was therefore in error. 
6 A description of the file contents for the “PFC plac.txt” file was submitted as Exhibit US-110. 
7 We note that Exhibit US-112 set out a description of  the file contents for the “DCPplac.txt” file.  
Therefore, any marking of a CD-ROM delivered on 23 D ecember 2003, as “Exhibit US -112” was in error.  We 
apologize for any confusion that may have been caused. 
8 See US Letter to Panel of 18 December 2003; US Lette r to Panel of 20 January 2004; US Answers to 
Questions 259(a), (b), (c) from the Panel (11 February 2004). WT/DS267/R/Add.2 
Page I-668  
 
as in the corresponding “.txt” files submitted on 18 and 19 December 2003.)  These four revised files 
follow the same fields and formats as the files orig inally submitted on 18 and 19 December 2003.  As 
explained on 28 January, those revised electroni c files were prepared and submitted after the 
United States became aware of certain errors  in the original data files submitted.   
 263. The Panel has noted that the United States’ response to Question No. 214 refers to 
Exhibits US-117 and US-118. Are these the cor rect documents to which the United States 
intended to refer in that response?  If not, pl ease provide a copy of regulations regarding the 
marketing loan programme and loan deficiency  payments published at 58 Federal Register 
15755, dated 24 March 1993. 
 
20. The exhibits submitted in response to Qu estion 214 were in error.  A copy of the 
24 March 1993, Federal Register notic e is attached as Exhibit US-263.   The United States regrets any 
inconvenience its error may have caused.   264. The Panel asks the United States to clarify certain aspects of Exhibit US-128:  (a) Is the Panel correct in understanding that -- as Brazil asserts in footnotes 290 and 291 of 
Brazil's 28 January 2004 comments on US re sponses to questions -- Exhibit US-128, all 
data are presented on a cohort-specific basis?   If so, please also present the information 
originally requested by the Panel in anoth er chart containing programme (as opposed to 
cohort-specific) activity by fiscal year.  
 
21. The data presented in Exhibit US-128 is pr esented on a cohort-specific basis.  However, a 
cohort by definition reflects activity related to guarant ees issued within a specifi c fiscal year.  Exhibit 
US-128 also presents such data with respect to each of the individual programmes (GSM-102, GSM-
103, and SCGP), as well as their cumulative totals .  This data reflects actual performance of the 
programmes, unlike the data in the US budget to whic h Brazil alludes in its footnote 290, which, as 
the United States has repeatedly explained, are b ased on estimates and re-est imates required under the 
Federal Credit Reform Act of 1990.  22. Although the data in Exhi bit US-128 is already presented by programme (as well as 
cumulatively), the United States infers from the Pa nel’s question that it nevertheless would like to see 
a different presentation of the same data.  Accordi ngly, Exhibit US-147 presents the same data, except 
Columns D (Claim Payments), E (Claims Rec overed), F (Claims Resc heduled), G (Claims 
Outstanding), L (interest collected on claims recovered), and M (interest collected on reschedulings) are presented on a chronological basis (i.e., instead of  applying the particular activity back to the 
cohort of the guarantee  related to such activity, th e cash-flows are set out in the fiscal year in which 
they occurred).  
(b) Does the US agree with the statement in paragraph 135 of Brazil's 28 January 2004 
comments on US responses to questions that  the difference between the $1,148 billion in 
the chart at para. 165 of Brazil's 11 August answers to questions and the $666 million 
amount in Exhibit US-128 ($1.75 billion) closely corresponds to the total "Claims 
rescheduled" figure reported by the US in Exhibit US-128 (column F)?   
 
23. The United States is examining the cited figures and expects to be able to provide an answer 
within the same period as its response to the Pane l’s supplemental request for information.   
 
 
(c) Does the US agree that from the formula in column G (that is: (Column (D) minus (E) 
minus (F)), it follows that a rescheduled cl aim no longer constitutes an outstanding 
claim at the moment the terms of the re-sch eduling are agreed and that a rescheduling is WT/DS267/R/Add.2 
Page I-669 
 
 
treated as 100 per cent recovered, as Brazil  states in footnote 292 of Brazil's 
28 January 2004 comments on US responses to questions? 
 
24. The Panel’s understanding is correct.  Ho wever, other than interest collected on 
reschedulings, Exhibit US-128 does not reflect the receipt of payments under the reschedulings.  
Consequently, no principal payments  received under reschedulings are reflected in Exhibit US-128.  
As the principal amounts rescheduled are set fo rth in Column F and subtracted from Claims 
Outstanding in Column G, to include such princi pal payments as received would constitute double-
counting.  (d) Is the Panel correct in understanding that th e amount of $888,984,7 92.04 in column F in 
Exhibit US-128 under "ALL" for 1992 represents  the total continuing amount of 
unrecovered claims for the 1992 cohort, and that the amount of 387,692,219.39 represents the total continuing amount of unrecovered claims for the 1993 cohort, etc?  
Please indicate and substantiate how much pr incipal and/or interest has actually been 
paid/recovered/rescheduled annually 1992-2003 in  respect of each of the amounts shown 
in Columns D, E & F in the table.   
 
25. The Panel’s understanding  is not correct.  The figures in column F to which the question 
refers do not reflect a continuing amount of unrecovered claims.  As reflected in the response to 
question 264(c) these figures do not in any way refl ect payment performance under the reschedulings 
themselves and therefore do not reflect a “conti nuing amount of unrecovered claims”.  Although 
Column M of Exhibit US-128 reflects interest collect ed on reschedulings, neither payment of original 
principal nor payments of capitalized interest are reflected in Exhibit US-128.  Column M reflects 
only payments of interest on such original principal or on such capitalized interest. 
 
26. Exhibit US-148 reflects, with respect to the sa me data as originally included in Exhibit US-
128, principal and interest “paid/recovered/resch eduled” annually for 1992-2003, on a chronological 
cash basis.    
265. In connection with the US response to Qu estion No. 225, please also provide amounts 
actually "written off" and "forgiven" annually fo r each post-1992 cohort, with annual details of 
country and amount (principal/interest).  
27. The response to Question 225 was intended to be comprehensive.  CCC financial records 
indicate that no amounts have been “written off” or “forgiven” with respect to any post-1992 cohort. 
 266. What are the precise terms, conditions and duration of each rescheduling reflected in column F in Exhibit US-128? 
 
28. Exhibit US-153 summarizes the principal terms, conditions, and duration of each 
rescheduling reflected in column F in Exhibit US-1 28.  In each instance in which a Paris Club Agreed 
Minute is noted, the terms of the US rescheduling a dhere to the multilateral terms agreed within the 
Paris Club.  In no instance does the debt owed th e United States and rescheduled in accordance with 
Paris Club terms pertain exclusively to debt ar ising from CCC export credit guarantee transactions. 
 
267. Is the Panel correct in understanding that  "interest collected on reschedulings" in 
Column M in Exhibit US-128 refers not to amount s that have been actually collected by the 
CCC but rather to interest capitalized in conjuncti on with the rescheduling?  If so, what are the 
terms, conditions and duration of the a rrangements pertaining to these amounts? 
 
29. The Panel’s understanding is not correct.  As noted in the response to Question 264(d),  
Column M of Exhibit US-128 reflects only interest collected on reschedulings.  It does not reflect  
 WT/DS267/R/Add.2 
Page I-670  
 
either payment of original principal nor payments  of capitalized interest.  At the inception of a 
rescheduling some outstanding interest may be capita lized or interest may be capitalized during the 
term of the rescheduling.  Such capitalized interest  is not itself reflected in any way in Exhibit US-
128.  Column M reflects only payments of interest on original principal or on such capitalized interest.  
 
268. Concerning Column N in Exhibit US-128, please elaborate upon "Interest earned from 
US Treasury on uninvested funds".  What is the source and authority for these funds and for 
the interest thereon to be part of the CCC total revenues?  What are the terms, conditions and 
duration of the arrangements pertaining to these amounts? 
 
30. Section 505(c) of the Federal Credit Re form Act (2 USC Section 661d(c)) applies to 
“Treasury transactions with financing accounts”.  In relevant part, it provides:  
The Secretary of the Treasury shall borrow fro m, receive from, lend to, or pay to the 
financing accounts such amounts as may be appropriate.  The Secretary of the 
Treasury may prescribe forms and denomin ations, maturities, and terms and 
conditions for the transactions described above, except that the rate of interest 
charged by the Secretary on lending to financ ing accounts [...] and the rate of interest 
paid to financing accounts on uninvested bala nces in financing accounts shall be the 
same as the rate determined pursuant to [2 USC section 655(b)] [.....]  This subsection 
shall apply to transactions related to dir ect loan obligations or loan guarantee 
commitments made on or after October 1, 199 1 [...] Cash balances of the financing 
accounts in excess of current requirements shall be maintained in a form of uninvested funds and the Secretary of the Treasury shall pay interest on these funds. 
31. Such section 655(b) provides: “In estimating ne t present values, the discount rate shall be the 
average interest rate on marketable  Treasury securities of similar ma turity to the cash flows of the 
direct loan or loan guarantee for which the estimate is being made.”  32. Exhibit US-149 is Treasury Financial Manual I TFM 2-4600 (December 2003).  This 
document, promulgated by the US Department of Treasury, prescribes Treasury reporting instructions for Federal credit programme agencies in accordance with Federal credit reform legislation.  Section 
4640 of that document addresses “Interest on Uninvest ed Funds”.  That section provides, in part: 
“Uninvested funds in the financing account consis t of fund balances with Treasury from borrowings 
and/or offsetting collections that have not been di sbursed.  This balance earns interest from Treasury 
as determined by the disbursement-weighted average interest rate or single effective rate for each 
cohort in the financing account.” 
 
33. Agencies must report interest revenue and expe nse separately.  Interest income becomes part 
of the cash balance in the financing account and is available to fund future disbursements. 
 
269. The Panel notes the table submitted by the US in its answer to Question No. 224 (CCC 
Financing Account Payments of Interest on Borro wings from Treasury and Interest Earned on 
Uninvested Funds).  Is the Panel correct in understanding that the figures in this table 
correspond to the "ALL" figures in Columns I and N of Exhibit US-128?   
 
34. Yes.  Column I of Exhibit US-128 corresponds to “Interest on Borrowings” found in the table associated with the response to Question 224, and Co lumn N corresponds to “Interest Earned” in that 
same table. 
 
270. With respect to Column I in Exhibit US- 128,  ("Interest paid on borrowing from US 
Treasury") and Note 8, p. 25 of Exhibit US-129:  WT/DS267/R/Add.2 
Page I-671 
 
 
 (i) please provide the total annual am ounts (interest bearing and non-interest 
bearing) borrowed by the CCC from the US  Treasury (annually since 1992), as 
well as the terms, conditions, interest rate (where applicable) and duration of such borrowing.   Please provide details of any other amount borrowed by the CCC from the US Treasury during this peri od that may not have formed part of 
the regular annual borrowings.  
 
35. The Panel’s Question 270 in its various s ub-parts suggests that the Panel may have a 
misunderstanding regarding the scope of Note 8, p.  25 of Exhibit US-129.  As the Panel is aware, 
CCC has extensive domestic and foreign operations.  No te 8 reflects Debt to the Treasury with respect 
to myriad activities of CCC, the preponderance of which is associated with borrowings from Treasury 
to carry out programmes other than th e export credit guarantee programmes. 
 36. Column I of Exhibit US-128 sets forth the total annual amount of interest paid on borrowing from the US Treasury with respect to GSM-102, GS M-103, and SCGP for the periods described.  All 
references to “non-interest bearing” debt or repaym ents in Note 8, p. 25 of Exhibit US-129  are 
unrelated to the export credit guarantee programmes.  
 (ii) Please explain the nature of "CCC's permanent indefinite borrowing authority 
from Treasury" referred to in Note 8, p. 25 of Exhibit US-129. 
 37. This borrowing authority does not apply to the export credit guarantee programmes.  Similar 
to “non-interesting bearing” debt or repayments  noted in the preceding response, “CCC’s permanent 
indefinite borrowing authority from Treasury” is not available with respect to export credit guarantee 
programmes and activities and has not been available since the advent of the Federal Credit Reform 
Act of 1990.  It has therefore not been available w ith respect to any cohorts from 1992 to the present.  
 
38. The permanent indefinite borrowing authority to which the question and Note 8, p. 125 of Exhibit US-129 refer is available to finance and ca rry out many (but not all) activities of the CCC, 
including, for example, certain domestic commodity and conservation programmes, but not including the export credit guarantee programmes.  CCC may incu r realized losses in the course of carrying out 
such other activities, and such net realized losses are restored through the annual Federal 
appropriations process. 
 
 (iii) What determines the level of CCC export credit guarantee borrowing 
(interest-bearing and non-interest-bearing)?   Is the interest-free borrowing up to 
the amount of unreimbursed realized losses?   
 
39. As noted in the preceding responses no “non-inte rest bearing” or “interest-free” borrowing is 
available with respect to the export credit guarantee programmes.  40. Generally speaking, the principal determin ant of the level of CCC export credit guarantee 
financing will be the estimated programme activity in  a particular fiscal year.  Budget authority is 
based on estimates of all anticipated programme ac tivity such as dollar value of guarantees projected 
to be issued, premia to be collected, payments to be received, and claims to be paid.  Infrequently, 
borrowing from Treasury is also used if CCC has insufficient cash on hand to pay claims.  
 
 (iv) Why are repayments applied to non-interest bearing notes first, as indicated at 
Note 8, p. 25 of Exhibit US-129?  
 
41. As noted in the previous responses, activit y with respect to non-interest bearing notes is 
wholly unrelated to the export credit guarantee programmes.   WT/DS267/R/Add.2 
Page I-672  
 
 
271. Note 8, p. 25 of Exhibit US-129 states that "In fiscal year 2003, CCC was fully reimbursed for its prior year net realized losses."  Please indicate the amounts of prior year net 
realized losses (annually, since 1992) for wh ich the CCC has been fully reimbursed.  
 42. As indicated in the responses to Questions  226 (22 December 2003) and 272 below, such 
reimbursement is unrelated and inapplicable to  the CCC export credit guarantee programmes since the 
inception of the Federal Credit Reform Act of 1990, which corresponds to fiscal year 1992.  The table 
comprising Exhibit US-152 displays CCC net realiz ed losses and all appropriations to restore those 
losses for fiscal years 1992 through 2003, but the Unite d States hastens to reiterate that these figures 
have no relation to the export credit guarantee progr ammes.  Such reimbursements for net realized 
losses do not include any portion attributable or a llocable to the export credit guarantee programmes. 
 
272. With respect to the US response to Qu estion No. 226, is the Panel correct in 
understanding that the reflection of write-offs as part of the operating loss of the CCC which in 
turn was replenished through the annual appropri ations process ended with the entry into force 
of the FCRA in fiscal year 1992?  If not, what amounts have been replenished through this process annually since fiscal year 1992?    
 
43. The Panel’s understanding is correct.   273. With respect to the US response to Quest ion No. 225, what criteria does the CCC apply 
to "independently determine" that a debt is unc ollectible?  For post-1992 cohorts, what are 
these uncollectible amounts (annually) and how, if  at all, are such "uncollectible amounts" 
shown in Exhibit US-128? 
 44. With respect to post-1992 cohorts, no am ounts have been determined uncollectible and 
therefore none are reflected in Exhibit US-128.  45. The determinations of uncollectability reflect ed in the response to Question No. 225, were 
based on the following facts.  In the Argentine case, two private sector banks entered Argentine 
insolvency proceedings and were subsequently li quidated.  CCC, after collecting a portion of the 
outstanding debt, received advice from the US Embassy that CCC would never receive further 
collection.  Accordingly, the outstanding debt was written off.   In the case of the Russian debt, 
certain debt of a private sector bank was not included  in Paris Club rescheduling of debt of the former 
Soviet Union.  The Russian Federation was therefor e not liable for this debt.  CCC received payments 
from the private sector bank but made an internal  error in properly accounting for these payments.  
Certain late interest was not paid as a result, and CCC opted to deem such amount uncollectible.  CCC 
has so far been unable to locate record s pertaining to the Nigerian write-off. 
 
274. The Panel notes the US statement in the US response to Question No. 81 that  "All 
rescheduled claims are currently performing " a nd that "all payments due up to this point 
under [rescheduling] agreements have been receiv ed".  However, the Panel also notes Exhibit 
US-129 (in particular, Note 5 on p. 22) and Br azil's reference thereto in Brazil's 28 January 
comments on the US response to Question  No. 222.   In this connection:  
  
(a) How does the US respond to Brazil's stat ement in Brazil's 28 January comments that 
Exhibit US-129 confirms that rescheduling of export credit guarantee receivables cover 
both principal and interest, thereby confirming that not all of the rescheduled debt 
performs and that additional interest charges were also rescheduled?  
 
46. The United States would first point out that the references to reschedulings in Note 5, p. 22, 
of Exhibit US-129 are not limited to rescheduli ngs associated with the export credit guarantee WT/DS267/R/Add.2 
Page I-673 
 
 
programmes, nor to post-1991 transactions.  The subs tantial majority of the amounts rescheduled by 
CCC pertain to activities related to the P. L. 480 foreign food assistance programme. 
 47. Brazil misinterprets Exhibit US-129, Note 5, p. 22.  Citing that reference, Brazil states:  
“Indeed, the CCC’s Financial Statement for FY 200 2 and 2003 confirm that rescheduling of export 
credit guarantee receivables covered both principle [ sic] and interest, thereby confirming that not all 
of the rescheduled debt performs and that add itional interest charges were also rescheduled.”
9  Brazil 
is presumably referring to the second full paragraph of that page 22, particularly its second sentence.  
The full paragraph reads as follows:    
Direct credit and credit guarantee principal receivables under rescheduling 
agreements as of 30 September 2003 and 2002, were $7,532 million and $7,494 
million, respectively.  During fiscal years 2003 and 2002, CCC entered into agreements with debtor countries to resche dule their delinquent debt owed to CCC.  
These reschedulings totalled $591 million in  delinquent principal and $196 million in 
delinquent interest during fiscal year 2003,  and $152 million in delinquent principal 
and $55 million in delinquent interest during fiscal year 2002. 
48. The second sentence refers primarily to deli nquent debt under original obligations, not under 
outstanding reschedulings.  All rescheduled expor t credit guarantee debt is currently performing. 
 
(b) In Note 5 on p. 22 of Exhibit US-129, what is the definition of "non-performing"?  What 
is the meaning of "delinquent"?  What is the current principal balance and amount of 
interest of the three CCC export credit guarantee programme "receivables"  in a non-performing status (individually and t ogether, for GSM 102, GSM 103 and SCGP))? 
What is the amount of interest on non-reporting "receivables"?   
 49. Page 4 of Note 1 (Significant Accounting Po licies) of Exhibit US-129 provides in relevant 
part under the paragraph entitled “Interest Income on Direct Credits and Credit Guarantees”:  “A non-
performing direct credit or credit guarantee receiv able is defined as a repayment schedule under a 
credit agreement, with an installment payment in arrears more than 90 days.”  “Delinquent” would 
apply to anything past due.  
50. With respect to post-1991 cohorts, the prin cipal balance of non-performing credit guarantee 
receivables as of 30 September 2003 is as follows:   GSM-102: $181 million  GSM-103: - 0 - 
 SCGP:    21 million 
  Total:  $202 million  With respect to pre-1992 cohorts:  
 GSM-102: $2,237 million 
 GSM-103:   11  SCGP:  -not applicable-   Total:  $2,248 million 
 
                                                     
 
9 Brazil’s Comments on US 22 December An swers (28 January 20 04), para. 135.   WT/DS267/R/Add.2 
Page I-674  
 
51. With respect to the last question, the United States assumes that the Panel intended to refer to 
“non-performing ‘receivables’, rather than “non-repor ting ‘receivables’”.   The interest receivable on 
“non-performing ‘receivables’ is $146 million and is entirely related to pre-1992 GSM-102 principal.  
 
(c) The Panel notes the US reference to the "Paris Club" in US response to Question No. 
225.  What is the P.L. 480 programme referred to in Note 5 on p. 22 of Exhibit US-129 
(including the Paris Club debt reduction pr ocess and the HIPC Initiative) ?  To what 
extent is the P.L. 480 programme and Paris Club process relevant to the export credit 
guarantee programmes at issue in this dispute?   Please identify and give the amounts of 
all CCC export credit guarantee debt subject to the P.L. 480 debt reduction (or other 
similar) process since 1992.   
 
52. The P.L. 480 programme is a foreign f ood-aid programme, under which assistance can be 
provided on either a grant or concessional financing basis.  That programme is wholly distinct from 
the export credit programmes at issue in this dis pute.  Consequently, no CCC export credit guarantee 
debt overlaps with debt subject to P.L. 480 debt redu ction.  As the United States has noted in its prior 
submissions, virtually all of the rescheduling of debt in connection with the CCC export credit guarantee programmes is done in concert with a mu ltilateral Paris Club debt rescheduling process.  In 
addition, some debt has also been forgiven unde r the HIPC initiative.  With reference to the 
United States’ response to Question 225, all of the debt in the table reflecting “debt forgiveness” in 
paragraph 114 was associated with the Paris Club (Poland, Former Yugoslavia) or HIPC (Honduras, 
Tanzania, Yemen). 
 
(d) Can the US explain the process referred to in the second column of Note 5 on p. 22  
("CCC is awaiting an apportionment from the Office of Management and Budget before the transaction can be completed.  Until su ch time, however, there is a 100% subsidy 
allowance established against the relevant de bt as of 30 September 2003.")   Please 
provide details of all such "apportionments" relating to the three export credit guarantee programmes in fiscal years 1992-2003.  
 
53. The transaction to which the cited referen ce applies involves an agreement between the 
United States and Pakistan to reduce debt incurred under the P.L. 480 programme, which is not within 
the scope of this dispute.  It involves only P.L. 480 direct credits and does not involve any of the 
export credit guarantee programmes.  It therefore does not involve transactions under federal credit 
reform provisions applicable to the export cred it guarantee programmes.  The cited reference is 
intended to note that although a debt reducti on agreement had been signed, the requisite 
documentation from the Office of Management a nd Budget authorizing such reduction on the books 
of CCC had not yet been received as of the statement date. 
 54. The procedure in the above P.L. 480 instance is  distinct from that which would apply in the 
case of export credit guarantee apportionments.  The response of the United States to Panel Question 225 indicated three cases of debt “write-off” and five cases of debt forgiveness.  Seven of those eight cases involved pre-1992 debt.  Under the Federal Credit Reform Act of 1990, an 
apportionment is ordinarily not necessary with respect to pre-1992 transactions.  In fact, only one such 
apportionment has ever occurred, and that was in fi scal year 1992 to establish the particular budgetary 
account (the “liquidating account”) under which th e budgetary accounting occurs for  all activity 
associated with pre-1992 transactions.  That apportio nment did not reflect any debt reduction or write 
off. 
 
55. The only other instance was the write-off of $13,000 owed from the Former Soviet 
Union/Russia.  This particular write-off did not involve a sufficiently large amount to require an 
apportionment.  The Office of Mana gement and Budget data base rounds to the nearest million dollars,  
 WT/DS267/R/Add.2 
Page I-675 
 
 
and therefore the write-off of $13,000 would not alte r the relevant entries in the database for the 
particular budgetary account (the  “financing account”) applicable to post-1991 cohort transactions. 
 
275. Please provide evidence (or cite relevant po rtions of the record) that the premium rates 
for the export credit guarantee programmes a re "reviewed annually" as stated in US 28 
January comments on response to Question No. 223 (see also US 22 December response to 
Question No. 107;  Brazil's 28 January 2004 co mments on responses to Question No. 223.). 
 
56. Exhibit US-150 is comprised of the two mo st recent  internal USDA documents entitled 
“Annual Review of Fees for USDA Credit Programm es,” dated 25 March 2003, and 8 April 2002, 
respectively.  In addition, Exhibit US-151 are Sec tions I and II of US Office of Management and 
Budget Circular No. A-129, dated November 2000,  entitled “Policies for Federal Credit Programmes 
and Non-Tax Receivables”. Section II. 2.b mandates such annual review.   WT/DS267/R/Add.2 
Page I-676  
 
List of Exhibits
 
64 Memorandum from Larry Mitchell, USDA Farm Se rvices Agency, to Various FSA Offices, 
Administrators, and Divisions on Release of Restricted Information under the Freedom of Information Act (18 September 1998) 
65 USDA Farm Services Agency, Notice INFO-16: Releasing Lists of Names and Addresses in 
Response to Requests Under FOIA (1 December 1998) 
66 Contents of 4 corrected data files submitted on 28 January 2004 
67 USDA, Commodity Credit Corporation, 58 Fe deral Register 15755-15756 (24 March 1993). 
68 Data in response to Panel Question 264(a): Exhibit US-128 on a Fiscal Year/ Cash Basis 
69 Data in response to Panel Question 264(d): Cl aim Payments/ Recoveries/ Reschedulings on 
a Fiscal Year/ Cash Basis 
70 United States Department of the Treasury Financial Manual I TFM 2-4600 
(December 2003) 
71 “Annual Review of Fees for USDA Credit Progr ammes”, 25 March 2003 and 8 April 2002. 
72 United States Office of Management and Budget Circular No. A-129 (November 2000), 
Table of Contents, General Informati on, Appendix A, Sections I and II. 
73 Commodity Credit Corporation Realized Losses and Appropriations to Restore Such Losses 
for Fiscal Years 1992-2003 
74 Summary of Principal Terms, Conditions, and Duration of Each Rescheduling Reflected in 
Column F of Exhibit US-128 
Partially Corrected Calculations Allocating Dec oupled Payments for Upland Cotton Base Acres to 
Upland Cotton Using Incomplete Annex IV Methodology WT/DS267/R/Add.2 
Page I-677 
 
 
ANNEX I-19 
  
COMMENTS OF THE UNITED STATES 
ON COMMENTS OF BRAZIL 
 
11 February 2004 
 
 
I.  Introduction  
 
1. The United States thanks the Panel for pr oviding a new deadline for comments on Brazil’s 
comments on the data submitted by the United States on 18 and 19 December 2003.1  The 48-page 
document filed by Brazil on 28 January 2004, goes far beyond a comment on that data or even its 
application to Brazil’s invented allocation methodol ogy for determining “support to” upland cotton.  
Instead, those “comments” on the US data present an  attack on the good faith of the United States in 
responding to Brazil’s requests for data, a lengthy attemp t to re-write the history of this dispute, an 
inaccurate explanation of US domestic law regardi ng privacy interests in planting data, a request for 
the Panel to draw “adverse inferences” despite the fact that Brazil could have requested aggregated 
data that would not have implicated privacy interest s, a rather circumspect application of its invented 
allocation methodology to the US data, and an inad equate application of the Annex IV allocation 
methodology2 to the US data.  Because Brazil has seen f it to raise and argue so many issues in its 
comments, the United States will necessarily address those in these comments.  In these comments, 
we proceed as follows. 
 
2. First , we put the issue of the use of the US data in its proper context.  Brazil has asserted that 
decoupled income support payments must be allo cated to upland cotton only for purposes of the Peace 
Clause and not for purposes of its serious prejudice claims.  However, the allocation of a subsidy benefit is only mentioned in the Subsidies Agreemen t.  The Agreement on Agri culture not only does 
not contain any allocation methodology, it also de fines a category of support (“non-product-specific 
support”) that consists of unallocated payments “t o producers in general” .  Thus, Brazil gets it 
completely backwards:  the text and context of  the Peace Clause demonstrate that support is not to be 
allocated for purposes of the Peace Clause test while the text and context of Articles 5 and 6 of the Subsidies Agreement demonstrate that subsidies not  tied to production of a given product (such as 
decoupled income support) are to be allocated to all of the products the recipient sells for purposes of 
serious prejudice claims.  3. Second
, we explain the implications of Brazil’s erroneous analysis and arguments, and in 
particular its express disavowal of any allocati on methodology for purposes of its serious prejudice 
claims on decoupled income support paym ents.  Brazil has failed to make a prima facie  case on these 
claims; therefore, no serious prejudice findings may be made with respect to these measures, and 
these payments may not be included in an analysis  of whether the effect of the challenged US 
subsidies has been serious prejudice to Brazil’s interests.  4. Third
, although the foregoing points should end the analysis, we nonetheless examine Brazil’s 
application of its invented methodology to the US-supplied data.  We recall that this Brazilian 
methodology has no basis in the text or context of the WTO agreements.  Neither does Brazil’s 
                                                      
1 Brazil’s Comments and Requests Regarding Data Provided by the United States on 
18/19 December 2003 and the US Refusal to Pr ovide Non-Scrambled Da ta on 20 January 2004 
(28 January 2004) (“Brazil’s Data Comments”). 
2 Agreement on Subsidies and Countervailing Measures , Annex IV, paras. 2-3 (“Subsidies 
Agreement”). WT/DS267/R/Add.2 
Page I-678  
 
methodology make economic sense.  It does, howev er, allow Brazil to allocate decoupled payments 
exclusively or nearly exclusively to upland cott on.  Thus, Brazil’s invented allocation methodology 
can be described as an attempt to inflate th e support to be allocated to upland cotton. 
 5. Fourth,
 the United States examines Brazil’s cursor y attempted application of the Annex IV 
methodology to the US-supplied data .  We recall that Brazil expressly disavowed the applicability of 
that methodology.  Brazil neither sought nor presen ted data to permit the Annex IV methodology to 
be applied.  In fact, Brazil requested data relevant  solely to its invented methodology, meaning there 
is no data before the Panel that would permit the Annex IV methodology to be applied.  Finally, the 
calculations presented by Brazil reflect a misunders tanding of the plain meaning of that methodology 
and contain a number of erroneous assumpti ons that bias Brazil’s results upwards. 
 6. Fifth
, we correct Brazil’s serious misrepresentations with respect to the data it requested and 
point out that the United States responded to that request as drafted and to the fullest extent 
permissible under US law.  Thus, there is no basis to  draw an inference, adve rse or otherwise, from 
the inability to provide certain information that is no t relevant to an analysis of Brazil’s legal claims. 
 
II. Brazil Misunderstands the Relevant Analy ses for the Peace Clause and for its Serious 
Prejudice Claims  
 
 A. Brazil’s Allocation Methodology is Inco nsistent with the Definition of Product-
Specific Support in the Agreement on Ag riculture and, Therefore, Cannot be 
Used for Peace Clause Analysis  
 
7. As has been evident since the parties’ fi rst submissions, Brazil and the United States have 
offered fundamentally differing inte rpretations of Article 13(b)(ii) of the Agreement on Agriculture 
and in particular the Peace Clause proviso which reads: “provided that such measures do not grant 
support to a specific commodity in excess of that decided during the 1992 marketing year.”  The 
differences between the parties’ approaches can be seen in the way they interpret the phrase “product-
specific support” and apply that interpreta tion to decoupled income support payments. 
 8. Brazil argues that decoupled income support pa yments are not “truly ‘decoupled’” since some 
recipients do produce programme crops, that “the  support from contract payments that can be 
allocated to upland cotton is product-specific s upport within the meaning of the Agreement on 
Agriculture,” and that Brazil’s approach – “to al locate contract payments to the programme crops 
covered” – is “reasonable”.
3  However, as the United States demonstrated in its comment on Brazil’s 
answer to question 258, Brazil points to no text  in the Peace Clause, the Agreement on Agriculture, 
nor any WTO agreement that supp orts its allocation methodology4, nor does that methodology make 
economic sense.5  Brazil may consider its approach to be  “reasonable”, but that does not make it 
based on any WTO provision.    9. As just one example, Brazil apparently would require that “decoupled support” discourage  
recipients from producing certain crops in order to  be “decoupled” while at the same time Brazil 
                                                     
 
3 Brazil’s Data Comments, para. 73.  Brazil also argu es:  “As the record demonstrates, none of four 
types of contract payments  is truly ‘decoupled,’ given the production of programme crops by the farms holding 
contract payment base.  To  the contrary, they are intended to  and, in fact, do provide support for the production 
of programme crops.”  Id.  Brazil has in fact provided  no evidence of such “intent” nor could it since the 
opposite is true.  These programmes are intended to be decoupled.  Moreover, under the Peace Clause, the 
“intent” of a payment is irrelevant; it is also irrelevant what a recipient decides to do  with a payment.  Rather, 
the issue is whether the payment as “decided” is “support to a specific commodity” or “support provided in 
favour of agricultural producers in general”. 
4 US Comments on Brazil’s Answers to Panel Qu estions Following the Second Panel Meeting, 
paras. 209-217 (28 January 2004) (“US January 28 Comments”). 
5 US 28 January Comments, paras. 218-23. WT/DS267/R/Add.2 
Page I-679 
 
 
complains that the payment restriction for planti ng fruits and vegetables means that the support is not 
“decoupled”.  Brazil cannot have it both ways.  If s upport is decoupled, then there is no requirement 
to produce any particular commodity.  If producers choose to exercise their flexibility and plant 
particular crops, that is perfectly consiste nt with the concept of decoupled support. 
 
10. The lack of grounding of Brazil’s methodology in the WTO agreements stems from its 
erroneous interpretation of “support to a specific commodity”.  Brazil has argued that any support that is not made “to producers in general” – which Brazil takes to mean “all” or “nearly all” – is not non-
product-specific and therefore must be “product-sp ecific”.  As the United States has pointed out 
before, not only does this reading of “in general” rely on an obsolete meaning
6, which therefore 
cannot be the ordinary meaning of the terms, but Br azil has consistently failed to read together the 
definitions of product-specific support and non-pr oduct-specific support in Article 1(a) of the 
Agreement on Agriculture.  Read in conjunction with one another, non-product-specific support 
(“support provided in favour of agricultural produ cers in general”) is a residual category of support 
that is not product-specific (“support . . . provide d for an agricultural product in favour of the 
producers of the basic agricultural product”). 
 11. Brazil’s statement in its 28 January comments that “the support from contract payments that 
can be allocated to upland cotton is product-specifi c support within the meaning of the Agreement on 
Agriculture”
7 is significant because it confirms that both parties interpret “support to a specific 
commodity” in the Peace Clause as meaning “product-specific support”.   Thus, the question for the 
Panel is whether decoupled income support me asures provide product-specific support or non-
product-specific support.  The definitions from Articl e 1(a) quoted above establish that support that is 
not “provided for a basic agricultural product in fa vour of the producers of the basic agricultural 
product” cannot be product-specific support.    
The very fact that Brazil must apply an allocation  methodology to these decoupled 
income support payments to attempt to determine the “support to upland cotton” 
demonstrates that they are not product-specific support.  Rather, they are support to whatever products  (if any) the recipients produce, rather than “support for a basic 
agricultural product.”  In addition, the reci pients are “producers in general” because 
they are not required to be “producers of the basic agricultural product” the support is 
“provided for”. 
12. While Brazil appears to be arguing that its allocation methodology conforms to the concepts 
of product-specific and non-product-specific support in the Agreement on Agriculture, in fact that 
methodology is flatly inconsistent with those concepts.
8  There is nothing in the Agreement that 
suggests that support may, at one and the same  time, be both product-specific and non-product-
specific.  For example: 
 
In Article 1(a), these two terms are define d disjunctively (that is, product-specific 
support “or” non-product-specific support).   
In Article 6.4(a), de minimis  levels of support not required to be included in a 
Member’s Current Total AMS are separate ly given for “product-specific domestic 
support” and  “non-product-specific domestic support.”   
Under Annex 3, paragraph 1, “an Aggregat e Measurement of Support (AMS) shall be 
calculated on a product-specific basis for each basic agricultural product”, and, 
                                                      
6 US Comments on Brazil’s Rebuttal Submission, para. 23 (noting that definition of “in general” as “in 
a body; universally; without exception” was marked “obsolete” in New Shorter Oxford English Dictionary ). 
7 Brazil’s Data Comments, para. 73. 
8 See US 28 January Comments, paras. 225-29. WT/DS267/R/Add.2 
Page I-680  
 
separately, “[s]upport which is non-product specific shall be totalled into one 
non-product-specific AMS in total monetary terms”.   
Despite the fact that product-specific and non-product-specific support are kept distinct in the 
Agreement on Agriculture, Brazil’s allocation me thodology necessarily collapses the two concepts. 
 
13. For example, under Brazil’s methodology decoupled income support “payments for other 
crops were primarily allocated as support for these crops  – up to the share of contract acreage planted 
to the respective crop”, but “[a]ny further paymen ts stemming from contract acreage not planted to 
the respective base crop were pooled and allocated as additional support to those contract crops whose 
aggregate planting exceeded th eir aggregated base acreage”.
9  Brazil states that in marketing year 
2001, cotton, “oats and sorghum were planted on more  acreage than their respective contract base 
(‘overplanted’), thus[] triggering additional payments  being allocated pursuant to the crop’s share of 
total acreage being ‘overplanted’”.10   
 
That is, decoupled income support payments  for base acreage with respect to other 
programme crops (other than upland cotton,  oats, and sorghum) would, under Brazil’s 
approach in this dispute, first be “p roduct-specific support” to each of those 
programme crops to the extent of planted acreage.   
Then, the payments on “excess” base acreage  would be “product-specific” support 
simultaneously to upland cotton, oats, and sorghum.   
Logically, then, such payments would be support to “four differe nt commodities” (whichever happen 
to be ‘underplanted’), not “support to a specific  commodity”.  Further, payments allegedly supporting 
four different commodities would not be “provided for a basic agricultural product  in favour of the 
producers of the basic agricultural product ”.  
 14. Thus, decoupled income support payments are support to “agricultural producers in general” 
– that is, support to recipients who may decide ( as Brazil has confirmed) to produce any of multiple 
commodities in general.  Because such payments are non-product-specific, they may not at the same 
time be deemed to be product-specific.  Brazil’s methodology for purposes of the Peace Clause would 
result in non-product-specific support being allocated to the specific products the recipients produce, contrary to the separation of these concepts in th e Agreement on Agriculture.  As Brazil concedes that 
“support to a specific commodity” refers to “pr oduct-specific support within the meaning of the 
Agreement on Agriculture”
11, it follows that decoupled income su pport payments must be deemed to 
be non-product-specific within the meaning of Ar ticle 1(a) of the Agreement on Agriculture and 
therefore not part of the Peace Clause test under Article 13(b)(ii).  
 B. Challenged US Measures do not Grant Support to a Specific Commodity in 
Excess of that Decided during the 1992 Marketing Year 
 
15. As Brazil has conceded that the Peace Clause proviso refers to “product-specific support”, the 
question for the Panel becomes: do challenged US measures grant product-specific support in excess 
of that decided during the 1992 marketing year?  The United States has previously demonstrated in exhaustive detail that, removing non-product-specifi c support(that is, decoupled income support 
measures and crop insurance payments) from the Peace Clause comparison, US measures do not.  We 
will not repeat the extensive arguments on this poin t, for example, relating to how the United States 
“decided” its support.  
                                                     
 
9 Brazil’s Data Comments, para. 80. 
10 Brazil’s Data Comments, para. 80 fn. 159. 
11 Brazil’s Data Comments, para. 73. WT/DS267/R/Add.2 
Page I-681 
 
 
16. We do recall, however, that as the United St ates by design shifted the support it provided to 
its agricultural sector from product-specific amber box support (in the form of deficiency payments) 
to green box support (production flexibility contr act payments and direct payments) and non-product-
specific support (market loss assistance payments and counter-cyclical payments), the result was that 
the product-specific support to upland cotton declined substantially.  The only way Brazil can 
overcome this fact is to argue that the only wa y to gauge “support to a specific commodity” is through 
budgetary outlays12, which in the case of marketing loan payments will reflect through high outlays 
the record low cotton prices in marketing years 200 1 and 2002 that the United States did not decide 
and could not control – as Brazil has conceded.13 
 
17. As the United States has shown,14 any measurement of the product-specific support for upland 
cotton that eliminates the effect of market pri ces and instead gauges the support “decided” by the 
United States demonstrates that upland cotton pro duct-specific support was higher in marketing year 
1992 than in any marketing year from 1999-2002.  That is, whether the analysis is (as the United States believes is compelled by the Peace Cl ause text) the rate of support as decided in US 
measures,
15 or the upland cotton AMS measured through a price-gap methodology16, or the “expected 
rate of per unit support” calculated by Brazil’s expert17, the result is the same: challenged US 
measures are not in breach of the Peace Clause.  
 C. Under the Subsidies Agreement, Alloca tion of a Non-Tied Subsidy is Necessary 
to Identify the Amount of Subsidy and the Subsidized Product  
 
18. Brazil seeks to allocate support not tied to  the production of a specific commodity for 
purposes of the Peace Clause, despite the fact that the Agreement on Agriculture explicitly 
distinguishes and keeps separate product-specifi c and non-product-specific support.  There is no 
mention of an allocation methodology in that Agre ement because there is no need to allocate support 
– in fact, allocation is contrary to the very struct ure of the agreement.  Ironically, Brazil then seeks not 
to allocate such a non-tied payment for purposes of its serious prejudice claims when there is an 
allocation methodology set out in Annex IV and when there is a need to identify the subsidized 
product as well as the subsidy amount.  Brazil’s appro ach ignores the text and context of Articles 5 
and 6 of the Subsidies Agreement.
18   
 
19. Brazil has argued that it “strongly disagrees that this [Annex IV methodology for allocating 
non-tied payments] is a required or appropriate me thodology under Part III of the SCM Agreement or 
                                                      
12 In making this argument, Brazil ignores the fact th at “support” does not mean “budgetary outlays”.  
In fact, Annex 3 recognizes that an “A ggregate Measurement of Support” for price-based support either shall or 
can be calculated using a price-gap methodology, which does not rely on budgetary outlays.  See, e.g. , 
Agreement on Agriculture, Annex 3, paragraph 8 (“Budgetary outlays made to maintain this gap, such as 
buying-in or storage costs, shall not be included in the AMS.”); id., para. 10. 
13 See Brazil’s Comments on US Answers, para. 66 fn. 49 (August 22, 2003) (“Brazil acknowledges 
that the United States could not possibl[y] determine its expenditures as they would depend to a certain extent 
on market prices that were also influenced by factors outside the control of the US Government.”). 
14 See, e.g. , US Rebuttal Submission, paras. 110-30. 
15 In marketing year 1992, 72.9 cents per pound; in marketing years 1999-2001, 51.92 cents per pound; 
in marketing year 2002: 52 cents per pound.  US Rebuttal Submission, paras. 110-13. 
16 In marketing year 1992, $1,079 million; in 1999, $717 million; in 2000, $484 million; in 2001, $264 
million; and in marketing year 2002 (as of the date of panel establishment, March 18, 2003), $205 million.  US 
Rebuttal Submission, paras. 114-17. 
17 In marketing year 1992, 60.05 cents per pound; in marketing year 1999, 53.79 cents per pound; in 
marketing year 2000, 55.09 cents per pound; in marketing year 2001, 52.82 cents per pound; and in marketing 
year 2002, 56.32 cents per pound.  US Rebuttal Submission, paras. 120-22.  Removing the 1999 and 2002 marketing year cottonseed payments the Panel has determined to be not within its terms of reference results in 
support of 52.82 cents per pound in marketing year 1999 and 55.71 cents per pound in marketing year 2002. 
18 US Comment to Brazil’s Answer to Question 258, paras. 209-17. WT/DS267/R/Add.2 
Page I-682  
 
under GATT Article XVI (or even under Article 13( b)(ii) of the Agreement on Agriculture)”.
19  
However, Brazil has not provided any basis to conclude  that the term “subsidy” can mean one thing in 
the context of Articles 5 and 6 and another in Artic le 1.1 (subsidy requires a “benefit” to recipient), 
Article 14 (“calculation of the amount of a subsidy in terms of the benefit to the recipient”) and 
Article 15.5 (causal link necessary between injury a nd the subsidized imports “through the effects of 
subsidies”), all of which suggest that an evaluati on of “the effect of the subsidy” requires an 
identification of the “benefit” the subsidy is allege d to provide.  Further, Brazil has not provided any 
basis to conclude that a “subsidized product” for purposes of Articles 6.3(c), 6.3(d), 6.4, and 6.5 can 
be read in isolation from the methodology for determ ining the “subsidization” of a “product” set out 
in Annex IV.  Therefore, the Subsidies Agreement – and Part III in particular – calls for an “allocation 
methodology” to determine the produc ts that benefit from a subsidy th at is not tied to production or 
sale of a given product.  20. Brazil denies the applicability to the Peace Clau se analysis of the Annex IV methodology for 
allocating non-tied payments across the value of th e recipients’ production.  However, even had 
Brazil suggested that the Annex IV methodology c ould be used for Peace Clause analysis, its 
interpretation would be plainly wrong.  First,  the phrase “support to a specific commodity” means 
“product-specific support” – as Brazil has conceded – and thus must be interpreted in light of the 
terms product-specific support and non-product-specifi c support in the Agreement on Agriculture (as 
set out above).  Second, the terms “support to a specific commodity” and “product-specific support” 
are not found in Part III of the Subsidies Agreement, nor in Article 1 or Annex IV.
20  Neither are the 
terms “subsidy,” “benefit,” or “subsidized product”  from the Subsidies Agreement found in the Peace 
Clause proviso or any supporting text.  Thus, the plain language of the Peace Clause and Articles 5 and 6 indicate that these provisions refer to who lly different approaches and suggest that the 
methodology for allocating non-tied (decoupled) paym ents under the Subsidies Agreement may not 
be relevant under the Agreement on Agriculture.  The definitions of pr oduct-specific support and non-
product-specific support in Article 1(a) of the Agr eement on Agriculture confirm that the Annex IV 
allocation methodology does not apply for purposes of the Peace Clause.  21. Thus, allocating a non-tied payment across the value of the recipient’s production is not 
pertinent for Peace Clause purposes but is necessary for th e Panel to be able to attempt to gauge “the 
effect of the subsidy” for purposes of Brazil’s seri ous prejudice claims.  We discuss Brazil’s failure to 
bring forward evidence and arguments relati ng to this issue in the next section. 
 
III. Because Brazil Expressly Disavows Any Allocation Methodology for Purposes of its 
Serious Prejudice Claims on Decoupled Income Support Payments, Brazil Has Failed to Make a Prima Facie  Case on these Claims   
 
 A   Brazil Has Presented No Evidence or Arguments Supporting the Annex IV 
Methodology to Allocate Decoupled Income Support Payments for Purposes of its Serious Prejudice Claims  
 
22. As we have noted, because Brazil has chosen to include subsidies that are not tied to the 
production or sale of a given product within its ser ious prejudice claims, the Annex IV methodology 
is necessary to determine the subsidized product and the amount of the challenged non-tied subsidy 
that benefits upland cotton.  Brazil recognizes that some  allocation methodology is necessary to 
identify the decoupled income support payments within  the scope of its panel request (“subsidies to 
producers, users, and/or exporters of upland cotton”)
21 but relies on its wholly invented methodology 
(allocating decoupled payments for crop base in “excess” of planted acreage of the respective crop 
                                                      
19 Brazil’s Data Comments, para. 85 n. 171. 
20 The term “support” appears in Article 1.1(a)(2 ) of the Subsidies Agreement, which gives one 
definition of “subsidy” as “any form of income or price support in the sense of Article XVI of GATT 1994.” 
21 WT/DS267/7, at 1. WT/DS267/R/Add.2 
Page I-683 
 
 
solely to those programme crops planted on less acr eage that their respective base acreage).  That 
methodology finds no support in the text or contex t of the Subsidies Agreement or any other WTO 
agreement.  23. The result is that Brazil has not provided the Panel with evidence or arguments sufficient to 
establish a prima facie  case that the effect of such decoupled payments is to cause serious prejudice to 
the interests of Brazil.  Brazil has never sought or  presented evidence and made arguments that would 
allow the Panel to evaluate properly “the effect of the subsidy” (decoupled income support payments) 
– for example, to identify the “subsidized pr oduct” through the Annex IV methodology and the 
“subsidy” in terms of the “benefit” to those recipi ents named in Brazil’s panel request.  Logically, if 
Brazil has not even identified the subsidized product with respect to such payments or the amount of 
the challenged subsidy, the Panel cannot evaluate “the effects”. 
 24. Indeed, Brazil expressly disavows any allocati on or even identification of the size of the 
subsidy for purposes of its serious prejudice claims: 
 
“Brazil maintains that no allocation met hodology is warranted under Part III of the 
SCM Agreement.  Rather, it is the effect of the subsidies that is the subject of scrutiny.”
22 
“Brazil strongly disagrees that this is a required or appropriate methodology under 
Part III of the SCM Agreement or under GATT Article XVI (or even under Article 
13(b)(ii) of the Agreement on Agriculture.”23 
“Again, Brazil notes that this allocation is  not required under Part III of the SCM 
Agreement and GATT Article XVI:3.  Both provisions deal with the effect of 
subsidies, and not their am ount or subsidization rate.”24 
25. Further, Brazil has never sought nor presented information relating to the total value of the 
recipients’ sales as would be necessary to apply the Annex IV methodology to decoupled income 
support payments.25  Brazil has only sought base and planted acreage information to support its own 
invented methodology (and only for Peace Clause purposes).26  
 26. In this dispute, then, Brazil cannot have made its prima facie  case with respect to the effect of 
decoupled income support payments.  To find otherwise would mean a complaining party in a serious 
prejudice case could satisfy its burden merely by asserting that some unidentified amount of payments 
are received by producers of the relevant product.  
 B.  The Japan – Agricultural Products  Appellate Body Report Confirms that in Such 
a Situation a Panel May not “Make the Case for a Complaining Party”  
 
27. Brazil includes a discussion of the Appellate Body report in Japan – Agricultural Products , 
suggesting that the report is “inapposite” and that Br azil has advanced relevant claims and arguments 
such that the Panel could in no event re lieve Brazil of its burden of establishing a prima facie  case of 
inconsistency with WTO obligations.  However, a careful reading of both Brazil’s arguments as well 
as that report reveals that, were the Panel to seek an d obtain data to apply, for purposes of its serious 
                                                     
 
22 Brazil’s Data Comments, para. 85 n. 168. 
23 Brazil’s Data Comments, para. 85 n. 171. 
24 Brazil’s Data Comments, para. 98 n. 199. 
25 Subsidies Agreement, Annex IV, paras. 2-3 (for a subsidy not tied to the production or sale of a 
given product, the subsidized product is “the total value of the recipient firm’s sales”). 
26 See Exhibit Bra-369; Brazil’s Data Comments, pa ra. 3 (“The purpose of Brazil’s request for contract 
acreage and planted acreage  for each farm producing upland cotton  was . . . .”) (italics added). WT/DS267/R/Add.2 
Page I-684  
 
prejudice analysis, the allocation methodology set out in Annex IV of the Subsidies Agreement to the challenged decoupled income support payments, the Panel would be making Brazil’s case for it. 
 28. We begin by examining Brazil’s artfully dr afted arguments.  Brazil alleges that the US 
argument is that the Japan – Agricultural Products  report “would have prevented the Panel from 
using the information the United States refused to  provide to calculate the amount of contract 
payments across the ‘total value of the recipient’s production.’”
27  Brazil’s assertion is wrong.  First, 
the US argument is that the Panel may not seek  and apply information to use the Annex IV 
methodology for decoupled income support payments  because (as set out in the bulleted quotes 
above) Brazil has expressly disavowed  any allocation or even identification of the size of the subsidy 
for purposes of its serious prejudice claims.  As Br azil has brought forward no evidence or arguments 
to support findings on decoupled payments, it has not made its prima facie  case. 
 29. Second, the United States has not “refused to provide” information to allocate decoupled 
payments according to the Annex IV methodology for the simple reason that Brazil never sought this 
information .  Brazil merely asked for planted acreage and base acreage (and yield) information.
28  
With respect to the farm-by-farm planted acreage data that the United States was unable under US law 
to provide in a format allowing matching with farm -specific base acreage data, that data is simply 
irrelevant for purposes of the Annex IV methodology.   Thus, while the Panel has the authority under 
DSU Article 13 to seek information “as the panel considers necessary and a ppropriate”, the inability 
of the United States to provide that data in the fa rm-by-farm format requested on 12 January 2004 is 
ultimately of no moment in this dispute since Br azil’s allocation methodology using planted and base 
acreage data finds no support in any WTO text.  Th e situation is quite different with respect to the 
Annex IV methodology that is found in the WTO ag reements but that has been disavowed by Brazil. 
 30. Thus, it is Brazil that errs when it s uggests that the Panel could seek and apply any 
information at all without making Brazil’s case for it  since Brazil has advanced relevant claims and 
arguments.
29  With respect to the allocation of non-tied (decoupled) payments across the total value of 
the recipients’ sales for purposes of identifying the am ount of the subsidy and the subsidized product, 
Brazil has not sought such information, has not made arguments to support use of that methodology, and has in fact argued that no allocation or iden tification of the subsidy amount is warranted under 
Part III of the Subsidies Agreement.  Thus, the Pa nel would in fact be making Brazil’s case for it were 
it to seek to apply the Annex IV methodology. 
 31. Appellate Body report.  There, the Appellate  Body reversed a panel finding of inconsistency 
with Article 5.6 of the Agreement on the Application of Sanitary and Phytosanitary Measures  (“SPS 
Agreement”) “because this finding was reached in a manner inconsiste nt with the rules on burden of 
proof”.
30  Specifically, the Appellate Body found that  “it was for the United States to establish a 
prima facie  case . . . of inconsistency with Article 5.6.  Since the United States did not even claim 
before the Panel that the ‘determination of sorption levels’ is an alternative measure which meets the 
three elements under Article 5.6, we are of the opinion that the United States did not establish a prima 
facie  case that the ‘determination of sorption levels’ is  an alternative measure within the meaning of 
Article 5.6”.31 
 
32. Brazil argues that this reversal was based on the fact that “the complaining party (the 
United States) did not ‘claim’ in its request for estab lishment of a panel that there was an alternative 
measure (determination of sorption levels) that was less trade restrictive”.32  However, in making this 
                                                      
27 Brazil’s Data Comments, para. 99. 
28 See Exhibit BRA-369. 
29 See Brazil’s Data Comments, para. 103-04. 
30 WT/DS76/AB/R, para. 130. 
31 WT/DS76/AB/R, para. 126. 
32 Brazil’s Data Comments, para. 100. WT/DS267/R/Add.2 
Page I-685 
 
 
argument, Brazil itself (as it later asserts of the United States) “reveals a profound misunderstanding of the difference between a ‘claim’ and an ‘argument’”.
33  The United States agrees with Brazil (and 
the Appellate Body report in EC – Hormones ) that “there is a distinction between legal claims 
reflected in a panel’s terms of reference, and ar guments used by a complainant to sustain its legal 
claims”.  There is no question, however,  that the United States advanced a legal claim  that Japan’s 
varietal testing measure was inconsistent  with Article 5.6 of the SPS Agreement.34  The issue was 
whether the United States had presented evidence a nd arguments relating to an alternative measure 
that satisfied its burden of making a prima facie  case with respect to its Article 5.6 claim.35  Thus, the 
Appellate Body concluded that “the Panel was corre ct to seek information and advice from experts to 
help it to understand and evaluate the evidence s ubmitted and arguments made by the United States 
and Japan with regard to the alleged violation of Article 5.6” but the panel erred “when it used that 
expert information and advice for a finding of inco nsistency with Article 5.6 since the United States 
did not establish a prima facie  case of inconsistency with Article 5.6 based on claims relating to the 
‘determination of sorption levels’”.36 
 
33. A similar situation would occur here were th e Panel to seek and appl y information to apply 
the Annex IV methodology to decoupled income support payments.37  Brazil has neither sought nor 
presented any evidence relating to the total value of th e recipient firms’ sales.  Brazil has also not only 
not argued that the Annex IV methodology is neces sary to identify the subsidized product and the 
subsidy benefit, Brazil has also continually argued against use of the Annex IV methodology since, in 
its view, no allocation of the payment or quantificati on of the benefit is warranted under Part III of the 
Subsidies Agreement.  Thus, it would appear th at Brazil has resisted making the necessary legal 
arguments and refused to submit any evidence re lating a proper analysis of its claims.   
 34. With respect to Brazil’s refusal to recogni ze the relevance of the Annex IV methodology for 
purposes of its serious prejudice claims, and its re sulting refusal to present evidence and arguments 
with respect to the application of that methodology to  its claims, the findings of  the Appellate Body in 
Japan – Agricultural Products  remain highly relevant: 
 
“Article 13 of the DSU . . . suggest that  panels have a significant investigative 
authority.  However, this authority cannot be  used by a panel to rule in favour of a 
complaining party which has not establishe d a prima facie case of inconsistency 
based on specific legal claims asserted by it.  A panel is entitled to seek information 
and advice from experts and from any other relevant source it chooses, pursuant to Article 13 of the DSU . . . to help it understand and evaluate the evidence submitted 
and the arguments made by the parties, but not to make the case for a complaining 
party .”
38 
In this case, Brazil has not submitted evidence and made  arguments sufficient to make its case that the 
effect of decoupled income support payments is to  cause serious prejudice to Brazil’s interests.  In 
fact, Brazil’s arguments have seemingly been desi gned to prevent the Pane l from ascertaining even 
what is the amount of the subsidy being challe nged.  In such a circumstance, Brazil has not 
                                                      
33 Brazil’s Data Comments, para. 103. 
34 See, e.g. , WT/DS76/AB/R, para. 123 (“In this dispute, the United States claimed that the varietal 
testing requirement is more trade restrictive than requir ed to achieve Japan’s appropriate level of protection and 
is, therefore, inconsistent with  Article 5.6.”);  Panel Report, Japan – Agricultural Products , WT/DS76/R, paras. 
1.2, 4.178, 8.64. 
35 WT/DS76/AB/R, para. 124 (“As noted above, the United States argued that ‘testing by product’ is an 
alternative measure which meet s the three cumulative elements under Article 5.6.”);  id., para. 125 (“We note 
that the Panel explicitly stated that the United States, as complaining party, did not specifically argue  that the 
‘determination of sorption levels’ met any of the three elements under Article 5.6”.). 
36 WT/DS76/AB/R, para. 130. 
37 See US Answer to Question 256 from the Panel, paras. 183-86 (22 December 2003). 
38 WT/DS76/AB/R, para. 129 (italics added). WT/DS267/R/Add.2 
Page I-686  
 
established a prima facie  case of inconsistency with Articles 5 and 6 of the Subsidies Agreement with 
respect to these payments, and the Panel cannot make findings of serious prejudice.  
IV. Brazil’s Invented Methodology Has No Basi s in the WTO Agreemen ts and Represents 
an Effort to Maximize the Paym ents Allocated to Upland Cotton  
 
35. The foregoing analysis suffices to de monstrate that Brazil has not made a prima facie  case 
under its serious prejudice claims with respect to decoupled income support measures.  Simply put, 
based on the evidence and arguments brought forward by Brazil, the Panel cannot make findings on those measures under Articles 5 and 6 of the Subsidies Agreement (as well as GATT 1994 
Article XVI) without making Brazil’s case for it.  In  this section of these comments,  we nonetheless 
examine Brazil’s application of its invent ed methodology to the US-supplied data.   
 36. The United States has previously explained, both in these comments and in its comments to 
Brazil’s answer to Question 258, th at the Brazilian allocation methodology has no basis in the text or 
context of the WTO agreements.
39  We do not repeat that detailed critique of Brazil’s invented 
methodology here, other than to note that Brazil seeks to apply  an allocation methodology for 
purposes of Peace Clause – despite the fact that  the definitions of product-specific support and non-
product-specific support (and their application in the Agreement on Agriculture) do not permit any 
such allocation – while at the same time Brazil seeks to deny  any allocation methodology for purposes 
of serious prejudice – despite the fact that an allocation methodology is set forth explicitly in Annex 
IV reflecting core Subsidies Agreement concepts relating to subsidy benefits and the subsidized 
product.  Thus, Brazil invites the Panel to adopt a le gally erroneous approach that does violence to the 
existing texts of the Agreement on Agri culture and the Subsidies Agreement. 
 37. We have also previously explained that Brazil’s invented allocation methodology does not 
make economic sense.  Decoupled payments by thei r nature provide income support not tied to the 
production or sale of any given commodity
40, therefore, there is no more reason to attribute $1 in 
income support to upland cotton production on a farm than there is to attribute that $1 in income 
support to production of any other product (soybeans,  corn, etc.).  Brazil’s approach, however, makes 
just such an arbitrary attribution, producing illogical results:  
The same crop (for example, upland cotton) produced on a farm could be deemed to 
be subsidized at different rates.  For exam ple, planted acres of upland cotton up to the 
amount of upland cotton base acres will be deemed to be subsidized at a rate corresponding to decoupled payments for upland cotton base acres.  Planted acres of upland cotton in excess of the amount of upl and cotton base acres will be deemed to 
be subsidized at a different rate – perhap s higher if sufficient payments corresponding 
to base acres for other crops are available, perhaps lower or even zero if few or no 
payments for “excess” base acres  are available.  From an economic perspective, there 
is no basis to say that some income support dollars are going to a certain portion of the crop but not others.
41 
In addition, because payments on all the “excess” base acreage are allocated to 
whatever programme crop has planted acr es in excess of base acreage, the 
subsidization of the “excess” planted acreage can be far higher than for other acres of that crop or for acreage of other crops that may be more heavily planted.  (For example, if a farm has 100 base acres of soy, 10 planted acres of soy, and 1 planted 
                                                     
 
39 See, e.g. , US Comments to Brazil’s An swer to Question 258 from the Panel, paras. 207-29 
(28 January 2004). 
40 See, e.g. , Brazil’s First Written Submission, para. 51 (u nder direct payment program, the “amount of 
payment is not dependent upon current production” of any particular commodity). 
41 See US Comment on Brazil’s Answer to Question 258, para. 221. WT/DS267/R/Add.2 
Page I-687 
 
 
acre of cotton, the 90 “excess” base acres of  soy will be allocated to the 1 acre of 
cotton, resulting in a cotton subsidy and subsid ization rate far higher than that for soy, 
despite the fact that soy plantings outstrip cotton plantings 10 to 1.)42 
Brazil’s approach simply ignores the exis tence of crops other than “programme 
crops”, much less other farming or non-farm economic activities the subsidy recipient 
may undertake.  Again, there is no economic reason to attribute income support 
payments to some (programme) crops but  not others and some (crop production) 
economic activities but not others.43 
38. Fundamentally, Brazil’s approach is in error because it assumes that there is a tie between the 
decoupled payments and current plantings.  Brazil attributes payments for base acres to currently 
planted crops by describing the current crop as “plant ed on” base acres.  The reality is that there are 
no physical “base acres” on a farm; crop base is an acc ounting concept that is limited by the farm’s 
cropland.  (For example, the farm may have 100 base acres of upland cotton, but if it currently plants 100 acres of cotton, that cotton may physically be “planted on” any land on the farm.)   But Brazil does not carry through its own concept of crops “planted on” base acres. 
 
For example, in the example given above of a farm with 100 base acres of soy and 
current plantings of 10 acres of soy and 1 acre of cotton, under Brazil’s approach, payments on the 90 “excess” base acres of soy are allocated to the 1 acre of upland cotton.  But 1 acre of upland cotton could only be “planted on” 1 base acre of soy.   
Thus, for planted acreage up to  the crop’s base acreage, Brazil uses the concept of a 
crop “planted on” base acreage.  But for planted acreage beyond  the crop’s base 
acreage, Brazil would allocate more than (or less than) one base acre per planted acre.  In the preceding example, the one acre of upland cotton could not be deemed to be “planted on” 90 acres of soy. 
Brazil’s allocation methodology thus is  not even internally consistent. 
 
39. Given that Brazil's invention allocation methodology has no basis in the text or context of the Peace Clause, much less in the S ubsidies Agreement or any other WTO agreement, given that its 
methodology does not make economic sense, and given that its methodology is internally inconsistent, 
one is left to wonder how Brazil arrived at its  methodology.  One answer may be that Brazil 
developed this methodology because it allows Br azil to allocate certain decoupled payments 
exclusively or nearly exclusively to upland cotton.   That is, Brazil’s invented allocation methodology 
can be described as an attempt to maximize the paym ents to be allocated to upland cotton, regardless 
of the legal or commonsense objections.  40. Consider the information set out in footnote 159 to paragraph 80 of Brazil’s Data Comments.  
Brazil notes that “[f]or MY 1999 and 2000, only upland cotton plantings exceeded the crop base 
acreage ; thus, all additional payments were a llocated to upland cotton  [italics added].  For MY 2001, 
also oats and sorghum were planted on more acreage than their respective contract base 
(‘overplanted’);  thus, triggering additional payments  being allocated pursuant to the crop’s share of 
the total acreage being ‘overplanted’”.  Restated, in marketing year 2001, all “excess” contract 
payments were allocated to upland cotton, oats, and sorghum, but the latter two crops accounted for 
only a small share of plantings on farms that planted upland cotton.
44   
                                                      
42 See US Comment on Brazil’s Answer to Question 258, para. 221. 
43 See US Comment on Brazil’s Answer to Question 258, para. 222. 
44 See US Letter to Panel (January 28, 2004) (file rP FCsum.xls: for farms planting upland cotton in 
MY2001 upland cotton planted acreage was 15.5 million acres, oats planted acreage was 0.19 million acres, and 
sorghum planted acreage was 2.4 million acres). WT/DS267/R/Add.2 
Page I-688  
 
 
Thus, for cotton plantings up to the amount of cotton base, Brazil would allocate payments on upland cotton base acres to cotton.   
For cotton plantings in excess of the amount of cotton base, Brazil’s allocation 
methodology results in all “excess” contr act payments for programme crops being 
allocated to upland cotton in marketing years 1999-2000 and almost all “excess” 
contract payments being allocated to upland cotton in marketing year 2001.   
In this way, Brazil seeks to maximize the payments being allocated to upland cotton, regardless of the 
illogic of its approach.  The Panel should reject  Brazil’s legally errone ous and economically unsound 
approach to allocation issues. 
 
41. Brazil attempts to apply its unsound met hodology to the summary data provided by the 
United States on 18 and 19 December 2003.  (We note th at Brazil did not request the summary data in 
Exhibit BRA-369.  The United States generated this su mmary in order to assist the Panel and Brazil in 
viewing the aggregated results.)  Brazil asserts th at “Using the US aggregate base acreage data and 
aggregate planting data to allocate contract payments  will most likely trigger distortions of the results 
due to the allocation problem”.
45  However, we note that Brazil does not explain to the Panel that the 
results using the aggregated data will likely be biased upwards, overstating the decoupled payments 
allocated to upland cotton.  42. In Brazil’s allocation methodology, a farm that plants less acreage of upland cotton than its 
cotton base acreage must always produce a drop in support because some payments on upland cotton 
base acres will not be allocated to cotton.  A farm that plants more cotton acreage than its cotton base 
acreage, on the other hand, may still enjoy support fo r the “excess” planted acres but only if there are 
also “excess” non-upland cotton base acres on the farm .  However, when all of the base acreage and 
planted acreage data are aggregated, Farm A’s co tton planted acreage in excess of upland cotton base 
acres may effectively be allocated support from  Farm B’s “excess base acreage” in another 
programme crop (or more than one).  Thus, while Br azil is correct that applying its methodology to 
the summary data will not necessarily produce the same  results as a farm-by-farm calculation, Brazil 
fails to recognize that the results presented by Brazil in paragraph 83 of its data comments applying its 
invented allocation methodology to the summary data are biased upwards.  
43. In sum, the United States has shown that Br azil’s allocation methodology is not based on any 
WTO agreement text, does not make economic sense, a nd is not internally consistent.  Based on the 
categorical US rejection of Brazil’s methodology,  the Panel should take Brazil’s statement that 
“Brazil's methodology is rather conservative comp ared to an allocation based on the US summary 
data, which the United States seems to endorse as a valid base for calculating support to upland 
cotton ”
46 as another gross distortion by Brazil.  Unlike Brazil, the United States has taken a consistent 
position in this dispute that “support to a specifi c commodity” means “product-specific support” and 
that such support must be gauged by looking at the support “decided” by a Member through its measures.   
V. Brazil’s Application of the Annex IV Me thodology to the US Data Is Inadequate and 
Flawed  
 
44. In this section, the United States examines Brazil’s cursory application of the Annex IV 
methodology to the US-supplied data.
47  We note that Brazil’s analysis is patently insufficient to carry 
Brazil’s burden with respect to decoupled income support payments.  First, Brazil has neither sought 
                                                      
45 Brazil’s Data Comments, para. 76. 
46 Brazil’s Data Comments, para. 84 (italics added). 
47 See Brazil’s Data Comments, § 10. WT/DS267/R/Add.2 
Page I-689 
 
 
nor presented relevant data.  Brazil requested data  relevant only to its invented methodology, and 
there is no data before the Panel that would permit the Annex IV methodology to be applied.  Brazil’s 
complaint that the United States has “refuse[d] to provide” the information that would permit the 
Panel to calculate the payments under the US methodology48 – while erroneous49 – is also misplaced.  
It is not the United States’ responsibility to make Brazil’s prima facie  case, and Brazil’s argument 
reflects an impermissible effort to shift the burden onto the responding party. 
 45. Brazil has also not presented arguments sufficien t to carry its burden.  Brazil has repeatedly 
and expressly disavowed the applicability of the Annex IV methodology for purposes of identifying 
the subsidized product or quantifying the subsidy benefit for non-tied (decoupled) payments.  Perhaps 
for that reason, the calculations presented by Brazil reflect a misunderstanding of the plain meaning of 
the Annex IV methodology and contain a number of erroneous assumptions th at bias Brazil’s results 
upwards.   46. Under the Annex IV methodology, a subsidy not tied to a particular product is allocated to all 
of the recipients’ sales.  That is, since money is fung ible, the subsidy benefit is deemed to inure to all 
of the products the recipient produces; a neutral way of  attributing the subsidy to particular products is 
according to their proportion of the firm’s sales.  Thus, allocating to upland cotton those Production 
Flexibility Contract (PFC) payments,  Market Lo ss Assistance (MLA) payments, Direct Payments 
(DP) and Counter-Cyclical Payments (CCP) for upland cotton base acres would be done as follows: 
 
 PFC payments for upland cotton base * (cotton gross sales/total sales)  
 MLA payments for upland cotton base * (cotton gross sales/total sales)  DP payments for upland cotton base * (cotton gross sales/total sales)  CCP payments for upland cotton base * (cotton gross sales/total sales)
50 
 
The “total value of the recipient firm’s sales” (Annex IV, para. 2) would include all economic 
activities by the firm (e.g., other farm and non-farm  related activities).  Thus, Brazil errs in limiting 
the denominator in its calculations to the estim ated value of crops produced by the payment 
recipients.51  Further, Brazil has presented no evidence relating to the total value of the recipient 
firm’s sales that would permit the Anne x IV methodology to be applied. 
 
47. In its calculated apportionment, Brazil makes se veral errors that result in an overestimate of 
the payment value allocated to cotton.  First, Brazil allocates decoupled payments for all crop base 
(e.g., wheat PFC payments, corn MLA payments) to upland cotton.  As the United States has explained
52, Brazil impermissibly seeks to bring within the scope of this dispute payments that Brazil 
did not identify and that have not been at issue throughout this dispute.  
 
48. In this regard, Brazil’s argument that th ese programmes are within the Panel’s terms of 
reference by virtue of the reference in Brazil’s pa nel request to “payments . . . providing direct or 
indirect support to the US upland cotton industry”53 is not sustainable.  Article 6.2 of the DSU 
requires that the panel request “identify the specific measures at issue”.  Brazil’s statement fails to 
meet this requirement; indeed, Brazil affirmativ ely emphasizes that its list of payments is 
                                                      
48 Brazil’s Data Comments, para. 87. 
49 For example, the United States has collected no information on “the recipient firm’s sales” for 
marketing years 1999-2002. 
50 Arguably, one could include all economic activities by the firm (e.g., other farm and non-farm 
related activities.) 
51 Brazil’s Data Comments, paras. 85-98. 
52 See US Comment on Brazil’s Answer to Question 204 from the Panel, paras. 34-42 
(28 January 2004). 
53  Para. 18. WT/DS267/R/Add.2 
Page I-690  
 
“unqualified”, and that it “is more than broad enough to encompass any type of payment”.
54  In other 
words, Brazil by its own admission has provide d virtually no information that would allow 
identification of the specific measures at issue.  49. Moreover, to the extent that Brazil in any way qualifies this list, it does so based on legal  
conclusions.  Rather than identifying the payment measures by describing their characteristics or by 
citing any specific provision of US law
55, Brazil seeks to draw into the scope of this dispute an 
uncircumscribed and unidentified list of  measures limited only by whether the legal conclusion may 
be drawn that the measure provides “direct or i ndirect support to the US upland cotton industry”.  
Brazil might just as well have stated that it was chal lenging, “any US law that is inconsistent with US 
WTO obligations.”  In neither case would the descrip tion allow an identification of which measure is 
subject to the case, and in neither case would it be possible to determine whether a measure is within 
the scope of the case until the legal issues in the di spute are fully adjudicated.  Indeed, the Appellate 
Body has criticized a panel for blurring the dis tinction between legal claims and measures when it 
read the term “measures” as synonymous with a lleged violations, and th ereby failed to require 
identification of the specific measure at issue.56 
 50. The DSU requirement to allow identification of the measures at issue is not a hollow one, and panels have not hesitated to conc lude that measures fall outside the scope of a dispute because they 
are not adequately described.
57  Brazil’s “unqualified” panel request does not bring non-cotton 
contract payments into the scope of this dispute. 
 
51. While decoupled payments for upland cott on base account for the majority of decoupled 
income support payments to farms that planted co tton, including total decoupled payments in the 
allocation overstates the value of decoupled payments to be allocated.  
 
Decoupled payments:  
1999
1  
20001  
20011  
2002 
 Payments on cotton base  
515,280,580  
482,302,565  
387,870,741  
1,520,701,136 
 Total payments  
695,912,510  
650,579,667  
520,230,908  
1,681,630,034 
 Cotton as per cent of total  
74.0%  
74.1%  
74.6%  
90.4% 
1 Does not include Market Loss Assistance payments. 
Source: Exhibit Bra-424; also provided electronically as “allocation calculations.xls” 
 
52. Second, in calculating crop values for purposes of the total value of the recipient firm’s 
sales58, Brazil calculates crop values based on plante d, not harvested, acreage.  For cotton, 
abandonment rates can be significant.  In the US response to Question 209 from the Panel, the 
United States demonstrated that harvested acreage differed significantly from planted acreage over the 
                                                      
54  Para. 19. 
55  Brazil’s reference to payment programs provided under the 2002 FSRI Act, the 1996 FAIR Act, and 
the 1998 -2001 Appropriations Acts in no way provides the required specificity.  These laws provided for a 
myriad of payment programmes, and it is impossible through these references to determine the payment programmes Brazil now seeks to include within the dispute. 
56 Report of the Appellate Body, Guatemala – Anti-Dumping Investigation Regarding Portland Cement 
from Mexico , WT/DS60/AB/R, adopted 25 November 1998, para. 69. 
57 See, e.g.,  Preliminary Ruling by the Panel, Canada – Measures Relating to Exports of Wheat and 
Treatment of Imported Grain , WT/DS276/12, circulated 21 July 2003, paras. 28, 32. 
58 See Subsidies Agreement, Annex IV, para. 2. WT/DS267/R/Add.2 
Page I-691 
 
 
period 1999-2002.  The use of the smaller harvested  acreage figure would lower the total value of 
cotton by as much as 16 per cent from what Brazil calculated.59 
 Planted and Harvested Upland Cotton Acres  (1,000 acres) 
 
Crop year  
Planted acres  
Harvested acres  
Abandoned acres  
Rate of 
abandonment 
1999  14,584  13,138  1,446  9.9% 
2000 15,347  12,884  2,463  16.0% 
2001 15,499  13,560  1,939  12.5% 
2002 13,714  12,184  1,530  11.2% 
Source: USDA, National Agricultural Statistics Service, Acreage, various issues. 
 53. Third, Brazil underestimates the value of crop sales on cotton farms.  To calculate the value 
of programme crops, Brazil multiplies acres planted to that crop (as provided electronically by the United States on December 18 and 19) times average crop yield times average farm price.  For 
cropland not planted to programme crops, Brazil “a ssumed that the value of the crops produced on 
this 20 per cent of farmland is the average per- acre value of production of non-programme crops in 
that marketing year in the entire United States, as reported by USDA”
60.  Brazil has claimed 
repeatedly that upland cotton production is “concentrated” in several US States61, but now that the 
issue matters, Brazil ignores its long-standing posit ion.  Under Brazil’s approach to the Annex IV 
methodology, it is the per-acre value of production in  cotton-producing states that would be relevant 
(rather than including, say, the per acre value of pr oduction of crops grown in Alaska in its average). 
 54. To calculate the average per-acre value of  non-programme crops, moreover, Brazil also 
excludes the value of all fruits, tree crops, vegetabl es and melons, arguing that their exclusion is 
justified on the basis that, if fruits or vegetables are grown, “contract payments are eliminated”.
62  
However, this argument ignores the fact that producers may grow such crops on any cropland on the farm in excess of the farm’s base acreage  without any effect on payments.
63  As previously noted by 
Brazil, non-programme base accounts for 20 per cent of total cropland on farms that planted cotton 
over the period or about 6 million acres.  Ignoring fr uits and vegetables thus  underestimates the value 
of non-programme crops and, as a consequence, overestimates the per cent of total crop value 
accounted for by cotton.64 
 55. Fifth, as Brazil concedes,
65 in estimating the total value of crop sales, Brazil excluded sales of 
(high value) livestock and livestock products.  We would also note that Brazil excluded any other 
farm-related income.  Brazil has put no data on th e record that would allow for these sales to be 
included in the Annex IV allocation. 
 
                                                      
59 Brazil inadvertently uses the all cotton crop yield in their calculations rather than the yield for upland 
cotton only. 
60 Brazil’s Data Comments, para. 90. 
61 See, e.g. , Brazil’s Answer to Question 125(2)(a) from the Panel, para. 13 (27 October 2003). 
62 See Brazil’s Data Comments, paras.  73, 92. 
63 See, e.g. , Brazil’s First Written Submission, para. 45 (PFC  payments are reduced or eliminated if 
fruits or vegetables are grown “on ‘bas e acreage’” but not on total cropland). 
64 Brazil also appears to have inadvertently copied the incorrect acreage numbers for cotton planted on 
farms with no cotton base for 2000 and 2001.  (The 1999 figure was copied to 2000 and 2001. From the 
spreadsheet “Raw Data 1999-2001" the correct numbers are: 
1999 1,033,617.7 2000 1,222,180.1 
2001 1,347,140.2 
65 Brazil’s Data Comments, fn. 173. WT/DS267/R/Add.2 
Page I-692  
 
56. Finally, Brazil fails to make any adjustme nt in the amount of payment to reflect the 
proportion of cotton planted acreage that is rented or owned.
66  However, those “subsidies” to cotton 
producers that are the subject of Brazil’s panel request must “benefit” producers.67  Brazil itself has 
conceded that land rental rates as of marketing year 1997 – that is, one year after introduction of the decoupled production flexibility contract payments – re flect the capture of more than one-third of the 
subsidy by landowners.
68  Thus, only those cotton producers w ho are also landowners of base acreage 
for which decoupled payments are made would benefit from those payments.69 
 57. The cumulative effect of these omissions and erroneous assumptions is to bias upwards 
Brazil’s allocation of decoupled payments to upla nd cotton.  In the following table, we have 
recalculated an estimated value of cotton production compared to the value of all crops produced on 
farms using corrected values for harvested acres,  upland cotton yields, and per-acre value of non-
programme crops.
70  Because Brazil has not put relevant data on the record, we have not been able to 
correct its calculations by including the value of all economic activities by the firm, for example, 
livestock and livestock products, ot her farm-related activities, and non-farm economic activities in the 
denominator.  However, even without those necessar y adjustments, the incomplete (undervalued) data 
show that cotton accounted for only about half of th e total value of crop production on recipient farms 
planting upland cotton over the period.  
Value of Upland Cotton as Per cent of A ll Crops on Farms Planting Upland Cotton   
 
  
1999  
2000  
2001  
2002 
 
Upland cotton  
$3,056,169,795  
$3,707,427,799  
$2,554,264,280  
$3,351,712,385 
 All crops  
$5,940,836,757  
$6,543,259,828  
$5,277,060,069  
$6,280,154,911 
 Per cent  
51.4%  
56.7%  
48.4%  
53.4% 
 58. In the table that follows, we present recal culated figures for decoupled payments on upland 
cotton base using the corrected value of upland cotton sales and per-acre value for non-programme 
crops in calculating the total value of crop sales to use in the denominator of the formula: decoupled 
payments received by recipient firms * (upland cott on gross sales / total crop sales).  Again, contrary 
to Annex IV, paragraph 2, this calculation does not include in the denominator the value of all 
economic activities by the recipient firms.  Nor have  we adjusted the value of the decoupled payments 
for upland cotton base acres downwards to reflect the fact that two-thirds of cotton acreage is rented, 
not owned, and that landowners will capture the benefit of those payments for base acres on farms 
worked by tenants.  
                                                     
 
66 See US Answer to Question 195 from the Pa nel, paras. 6-11 (22 December 2003). 
67 See Panel Report, United States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead 
and Bismuth Carbon Steel Products Originating in the United Kingdom , WT/DS138/R, adopted 7 June 2000, 
paras. 6.65 and 6.66 (quoting and agreeing with Canada – Aircraft  panel: “’A “benefit” does not exist in the 
abstract, but must be received and enjoyed by a beneficiary or a recipient.  Logically, a “benefit” can be said to 
arise only if a person . . . has in fact received something.’”). 
68 See, e.g. , Brazil’s Further Rebuttal Submission, para. 154 (“[S]ome portion of the contract payments 
do find their way into increased rent and cost of land”) (footnote omitted). 
69 Indeed, the 2002 Act implicitly recognized that decoupled income support payments ultimately 
benefit landowners by giving to the landowner the authority to choose whether to update his or her base acres on 
the farm.  See 2002 Act, § 1101(a)(1) (“For the purpose of making direct payments and counter-cyclical 
payments with respect to a farm, the S ecretary shall give an owner of the fa rm an opportunity to elect 1 of the 
following as the method by which the base acres of  all covered commodities on the farm are to be 
determined.”); see also id. , § 1101(b), 1101(c), 1101(e)(1), (3), (5) (Exhibit US-1). 
70 Further calculations are presented in Exhibit US-154.. WT/DS267/R/Add.2 
Page I-693 
 
 
59. Nonetheless, the table shows that the “14/16”  methodology proposed by Brazil, as well as the 
estimates purporting to apply the Annex IV met hodology provided in section 10 of Brazil’s data 
comments (reproduced below), are grossly inflated.   
Partially Corrected Results of Calculations A llocating Decoupled Paym ents for Upland Cotton 
Base Acres to Upland Cotton Using Incomplete Annex IV Methodology  
 
  
1999  
2000  
2001  
2002 
 PFC Payments  
265,077,970  
273,273,870  
187,741,729  
na 
 MLA Payments  
263,787,006  
290,909,042  
259,309,589  
na 
 
DP Payments  
na  
na  
na  
253,021,210 
 
CCP Payments  
na  
na  
na  
558,575,463 
  Total  
528,864,975  
564,182,912  
447,051,318  
811,596,673 
 Brazil’s Erroneous Calculations Allocating De coupled Payments for all Contract Base to 
Upland Cotton Using Incomplete Annex IV Methodology  (Brazil’s Data Comments, para. 96.) 
 
  
1999  
2000  
2001  
2002 
 
PFC Payments  
$477,692,236  
$473,744,959  
$333,295,919  
na 
 MLA Payments  
$475,365,813  
$504,317,125  
$460,349,591  
na 
 DP Payments  
na  
na  
na  
$416,216,862 
 CCP Payments  
na  
na  
na  
$714,424,543 
 
 Total  
$953,058,049  
$978,062,084  
$793,645,510  
$1,130,641,406 
 
Minimum Per 
cent Overstated  
80.2  
73.4  
77.5  
39.3 
 WT/DS267/R/Add.2 
Page I-694  
 
Brazil’s Allocation of Decoupled Payments for all Contract Base to Upland Cotton Using Its 
Erroneous 14/16 Methodology  (Brazil’s Data Comments, para. 97) 
 
  
1999  
2000  
2001  
2002 
 PFC Payments  
$547,800,000  
$541,300,000  
$453,000,000  
na 
 
MLA Payments  
$545,100,000  
$576,200,000  
$625,700,000  
na 
 
DP Payments  
na  
na  
na  
$454,500,000 
 CCP Payments  
na  
na  
na  
$935,600,000 
  Total  
$1,092,900,000  
$1,117,500,000  
$1,078,700,000  
$1,390,100,000 
 
Minimum Per 
cent Overstated   
106.7   
98.1  
141.3   
71.3 
 
That is, when the results of Brazil’s calculations  are compared to the results obtained by the 
United States correcting for certain but not all of Brazil’s errors and omissions, it appears that Brazil 
dramatically overstates the decoupled payments that would be allocated to upland cotton  by 39.3 to 
80.2 per cent for its incomplete Annex IV calculations  and by 71.3 to 141.3 per cent for its erroneous 
14/16 calculations.   
 
60. Had Brazil put other data on the record n ecessary to apply the Annex IV methodology, for 
example, the value of any livestock and livestock pr oducts, other farm-related activities, and non-farm 
economic activities of recipient firms, moreover, the decoupled payments allocated to upland cotton 
would be reduced even further .  Had Brazil further adjusted the va lue of the decoupled payments for 
upland cotton base acres downwards to reflect the cap ture of two-thirds of the benefit of those 
payments by landowners who are not cotton producers, the decoupled payments allocated to upland 
cotton would be reduced even further .  Rather than confront the fact that the Annex IV methodology 
and Subsidies Agreement concepts would dramati cally reduce the value of decoupled payments 
deemed to benefit upland cotton (and hence, woul d dramatically reduce the supposed “$12.9 billion” 
in support provided to upland cotton between market ing years 1999-2002), Brazil chose to argue that 
no allocation of non-tied payments is necessary and that no quantification of the subsidy benefit to 
upland cotton is necessary.  Brazil also chose not to seek or put on the record information relevant to 
this determination.  Thus, as explained earlier, Br azil has deliberately chosen a course of action that 
results in its failure to make a prima facie  case on its serious prejudice claims with respect to 
decoupled payments. 
 
VI.  Brazil Misrepresents Both the Scope of Its Own Requests for Data as well as the US 
Response  
 
61. Finally, in this portion of its comments, th e United States responds to inaccurate assertions by 
Brazil relating to what information it sought and wh at information the United States provided.  The 
United States also responds to Brazil’s arguments that certain “adverse inferences” should be drawn 
from its inaccurate portrayal of what was requested  and provided.  The United States notes that these 
issues are of relatively minor importance given th at Brazil’s allocation methodology, for which it 
sought farm-by-farm planted and base acreage data:  
 (1)  may not be applied for purposes of determining the product-specific support to upland 
cotton for purposes of the Peace Clause anal ysis because the methodology inappropriately 
conflates product-specific and non-product-specific support and  WT/DS267/R/Add.2 
Page I-695 
 
 
  (2)  may not be applied for purposes of dete rmining the subsidized product or the subsidy 
benefit for decoupled income support payments because that methodology has no basis in the WTO agreements and Brazil expressly disavows its use for purposes of its serious prejudice claims.   
 
Nonetheless, we undertake this review of Brazil’s ass ertions because Brazil grossly distorts the record 
of the dispute in an effort to make the United Stat es appear uncooperative (at best).  The truth is that 
the United States has expended an unprecedented amount  of time and resources in responding to the 
fullest extent under US law to the requests for inform ation made of it.  Given our experience in WTO 
dispute settlement to date, we question whether other Members would have responded so fully and 
promptly to similarly burdensome requests.  
 A.  Brazil Grossly Distorts the Record of This Dispute by Suggesting that the 
United States Has Failed to Cooperate  
 
62. Brazil make a number of spurious accusations re garding US participation in this dispute and 
simple misstatements of the record.  Although we regret the imposition on the Panel’s time and 
attention, we do feel it necessary to set the record straight.    63. Brazil First Asked for this Data  in December 2003, Not November 2002
:  First, Brazil asserts 
that it “first requested this information in November 2002”.71  “This information” refers to the request 
for information “set out in Exhibit BRA-369” for “c ontract acreage and planted acreage for each farm 
producing upland cotton”.72  Brazil’s claim is false.  There is  no request in Exhibit BRA-101 (Brazil’s 
consultation questions) for “contract acreage a nd planted acreage for each farm producing upland 
cotton”.  Further, there is no reference in Brazil’ s consultation questions to decoupled income support 
payments for non-upland cotton base acres.  For exam ple, Consultation Question 3.6 (not referenced 
by Brazil in footnote 2 of its data comments) was expressly directed at payments made “in connection 
with upland cotton for each of the marketing y ears 1992 through 2002”.  When the United States 
answered those questions by referring (where appropr iate) to payments made with respect to upland 
cotton base acres, Brazil at no point asserted that it sought information with respect to “other crop contract payments”. 
 
64. Brazil Misrepresents the Panel’s Request for Information
:  Second, Brazil asserts that the 
“Panel requested [this data] in August, October,  and December 2003, as well as in January 2004.”  
The Panel well knows what it has requested, but the Un ited States notes that the Panel’s questions too 
did not request contract and planted acreage information.  Question 67 bis in August 2003 requested 
information about annual amounts granted to upland cotton producers per pound and in total 
expenditures under each of the decoupled payment programmes, not information on planted or base 
acreage.  As previously explained, the United Stat es accurately answered that it does not maintain 
information on expenditures to upland cotton produc ers because the United States collects no farm-
specific production (harvesting) data.73  Question 125(9) in October 2003 requested, inter alia , 
information on any adjustments to make for dec oupled payments for upland cotton base acreage, not 
for information on planted and base acreage.  In its 8 December 2003, communication, the Panel did 
not request planted and base acreage information from the United States; rather, it stated that “the United States will be given until 18 December  to respond to Brazil's request made in Exhibit 
BRA-369”.
74  Finally, the 12 January 2004, communication from the Panel did request the planted 
                                                      
71 Brazil’s Data Comments, para. 4 (footnote referencing BRA-101 omitted). 
72 Brazil’s Data Comments, para. 3. 
73 See, e.g. , US Answer to Question 195 from the Panel, paras. 6-11 (22 December 2003). 
74 The United States notes but does not understand the reference in fn.3 to paragraph 4 of Brazil’s data 
comments to the “second bulleted point” in the Panel’s December 8 communication; that bullet point referred to 
“a communication from the Panel concerning the FAPRI model”. WT/DS267/R/Add.2 
Page I-696  
 
acreage and base acreage information as set out in  Exhibit BRA-369, and the United States explained 
that it was not able to provide this information fa rm-by-farm under the US Privacy Act.  Thus, Brazil 
misrepresents the facts when it asserts that th e Panel has requested “this data” four times. 
 65. Brazil Falsely Alleges that the United States Denied Having Certain Data
:  Brazil then 
accuses the United States of “falsely stat[ing] that it did not maintain contract and planted acreage 
information for each farm”.75  As just explained, the United States did not “falsely state” that it did not 
maintain that information because it was not asked for that information until the Panel on 
8 December 2003, invited it to respond to Brazil’s re quest made in Exhibit BRA-369.  In its 18 and 19 
December 2003, replies to that request, the United States explained that under US law it could not 
provide (as Brazil specifically requested and insisted  upon) planted acreage information together with 
base acreage and yield information and FSA farm numbers.    66. We also recall, as explained in the US comments on Brazil’s answers
76, that it was the 
United States itself at the second session of the first panel meeting (that is, before “late 
November 2003” and the presentation of Exhibit BRA -369 at the second panel meeting) that brought 
to the Panel’s and Brazil’s attention the acreage re porting requirement that was introduced by Section 
1105 of the 2002 Act (7 USC 7915).  We trust that the fact that the United States offered  this 
information to Brazil and the Panel will lay to rest  the unwarranted suggestion that the United States 
sought to obscure it instead.  
67. contract base acreage and yield informa tion.  The focus of the Panel’s question 67 bis and 
Brazil’s argumentation has naturally been on the am ount of decoupled income support payments to 
upland cotton producers.  The United States has expl ained that it does not track decoupled payments 
by recipients’ production and thus does not maintain  information on the payments made for upland 
cotton base acres (or any other base acres) to upland cotton producers .  The farm-by-farm planted 
acreage and base acreage and yield data sought by Br azil in Exhibit BRA-369 and by the Panel in its 
request of 12 January 2004, does not provide info rmation on the payments made to upland cotton 
producers .  Rather, putting aside issues of the appropriate methodology to identify the amount of the 
subsidy, this planted and base information would allow the calculation of the amount of decoupled 
payments made to farms that reported planting  upland cotton.  
 
68. Brazil Incorrectly Accuses the United States of Refusing to Provide Data on Non-Upland 
Cotton Base :  Brazil also argues that the United States “r efused to provide” farm-specific data on the 
amount of other contract base acreage on farms pr oducing upland cotton with no upland cotton base 
acreage.77  The omission of non-upland cotton base acreage from the data submitted by the 
United States in December 2003 w as inadvertent and the result of programming errors, as explained 
in the US letter of 28 January 2004 transmitting revised data files.  Thus, Brazil’s extensive 
protestations that the United States “withhe ld that information” are misplaced.  
 69. We do note, however, that the United States continues to believe that such decoupled 
payments for non-upland cotton base acreage are not w ithin the Panel’s terms of reference and that 
Brazil’s effort to include these payments at the end of this proceeding would deprive the United States 
of fundamental rights of due process.
78  That such payments for non-upland cotton base acreage was 
not even considered by Brazil earlier in this pro ceeding is nowhere more clear than in Brazil’s own 
words:   
                                                     
 
75 Brazil’s Data Comments, para. 4. 
76 US Comment on Brazil’s Answer to Question 196 from the Panel, paras. 15-18 (28 January 2004). 
77 Brazil’s Data Comments, para. 17. 
78 See US Comments on Brazil’s Answer to Question 204 from the Panel, paras. 34-42 
(28 January 2004). WT/DS267/R/Add.2 
Page I-697 
 
 
“Brazil requested the United States during the Annex V procedure to provide information on the total amount of upland cotton base acreage and yield  under the 
CCP (and DP) program.”
79 
Indeed, the accuracy of Brazil’s own description of its questions is amply supported by the text of 
those questions relating to “Deficiency Payments /Production Flexibility Contract Payments/Direct 
Payments”:80 
 
“Please state the number of US upland cotton farms updating their upland cotton base 
acreage  for the purposes of calculating Direct Payments under the 2002 FSRI Act.  
Please also provide the percentage of all US farmers producing upland cotton that 
updated their upland cotton base acreage .”  (Question 3.1 (italics added)) 
“Please state the annual amount of Defi ciency Payments made by the US 
Government in connection with upland cotton base  for each of the marketing years 
1992 through 1996.”  (Question 3.4 (italics added)) 
“Please state the annual amount of Production Flexibility Contract Payments made by 
the US Government in connection with upland cotton base  for each of the marketing 
years 1996 through 2002.”  (Question 3.6 (italics added)) 
"Please state the total amount of Direct Payments made by the US Government in 
connection with upland cotton base  in marketing year 2002.”  (Question 3.7 (italics 
added)) 
“Please state the amount of upland cotton base acreage  and the average upland 
cotton base yield  applicable on this acreage under the Deficiency Payment Program 
during each of the marketing years 1992 through 1996.”  (Question 3.8 (italics added)) 
“Please state the amount of upland cotton base acreage  and the average upland 
cotton base yield  applicable on this acreage under the Production Flexibility Contract 
Payment Program.”  (Question 3.9 (italics added))· “Please state the amount of 
upland cotton base acreage  and the average upland cotton base yield  applicable on 
this acreage for the Direct Payment Program.”  (Question 3.10 (italics added)) 
Thus, Brazil’s assertion that it has argued all along that decoupled payments for non-upland cotton 
base acres are challenged measures is flatly contradict ed by its own questions set out above.  Brazil 
sent these questions on 1 April 2003, a mere 14 days after the DSB established the panel to consider 
this matter.  If Brazil had considered that paymen ts for non-upland cotton base acreage were within 
the scope of this dispute, surely it would have requested information with respect to those payments as 
well.  The sheer number of references to upland cotton base acreage and yields demonstrates Brazil’s 
view, at the time of panel establishment, of th e scope of the decoupled payments it challenged.
81 
 
70. Market Loss Assistance Data W as Not Requested But Was Provided :  Brazil argues that the 
United States “has not provided the requested data  for market loss assistance payments received by 
                                                      
79 Brazil’s First Written Submission, para. 68 (emphasis added).  We note in passing that the DSB did 
not initiate the Annex V procedures and that Brazil’s stat ement that it asked the United States questions “during 
the Annex V procedure” is  therefore incorrect. 
80 See Exhibit BRA-49 (Brazil’s questions for purposes of the Annex V procedure). 
81 The United States has previously set out further evidence that decoupled payments for non-upland 
cotton base acres are not within the Panel’s terms of refe rence and that Brazil did not consider these payments to 
be measures within the Panel’s terms of reference.  See US Comments to Brazil’s Answer to Question 204 from 
the Panel, paras. 32-42 (28 January 2004). WT/DS267/R/Add.2 
Page I-698  
 
the farms listed for MY 1999-2001”.  Brazil’s ar gument is confused.  Exhibit BRA-369 requested 
planted acreage and base acreage (and yield) for marketing years 1999-2002, and the United States 
provided that, farm-by-farm.  The base acreage di d not differ for productio n flexibility contract 
payments and market loss assistance payments so there was no need to set out base data for market 
loss assistance payments separately.   
 
71. It is ironic that Brazil would accuse the Unite d States of failing to provide certain “data for 
market loss assistance payments”  since Exhibit BRA-369 did not even identify market loss assistance 
payments by name .  Instead, it defined “programme crop” as “any crop that was assigned base acreage 
and payment yields under the Production Flexib ility Contract (MY 1999-2001).  Brazil inserts a 
question mark for MLA payments in its table at paragraph 22 of its comments, arguing that “[t]he 
United States has not provided any specific information on market loss assistance payments,” but again Brazil ignores its own data request.  Nowh ere in Exhibit BRA-369 did Brazil request actual 
payment  amounts for any of the decoupled income s upport programmes, and in any event Brazil well 
knows that market loss assistance payments were calculated in the same proportion as the production 
flexibility contract payments.
82  
 72. Soybeans Were Not Within Brazil’s Data Request
:  Next, Brazil argues that “since market 
loss assistance payments were also made for soybea n base (that otherwise was not eligible to receive 
PFC payments), this allocation methodolog y [based on PFC payments] may significantly 
underestimate the amount of market loss assistan ce payments that constitute support to upland 
cotton”.83  The existence of soybeans market loss assistance payments is simply irrelevant to the data 
Brazil requested from the United States.  Exhi bit BRA-369 requested pl anted acreage and base 
acreage (and yield) information for “programme cr ops.”  Soybeans, however, were not a programme 
crop (or “contract commodity”) under the 1996 Act84, and no soybean base acreage was assigned to 
farms before marketing year 2002.  In fact, in the ve ry statutes that provided sections that provided for 
payments designated as marketing loss assistance, th ere were separate provi sions for payments for 
soybeans in marketing years 1999 and 2000; these payments were not designated as market loss 
assistance and were provided for current soybeans producers (and oilseed producers of all types).85  
Contrary to market loss assistance payments, so ybeans producers received payments not based on the 
farm history, but their own production history (as ex plained in the 8 June 2000 rule), no matter where 
they planted the soybeans.  Thus, no soybeans data  was included in the US response to Exhibit BRA-
369 because no soybeans data was requested.  Indeed , Brazil later implicitly concedes that soybeans 
data could not have been included in its request since soybeans were not a programme crop.86 
 73. Peanuts Were Not With in Brazil’s Data Request:
  Finally, Brazil argues that “the 
19 December 2003 US data concerning MY 2002 does not contain any information regarding the 
amount of direct and counter-cyclical payments made on peanut base”.  Brazil asserts that “the 
missing data on peanut contract payments fo r MY 2002 would cause lower aggregate payments 
                                                      
82 See Brazil’s First Written Submission, para. 60 (“ Between MY1998-2001, upland cotton producers 
thereby received an additional amount of money, which wa s calculated based on their respective share of total 
upland cotton base times the amount of budgetary outlays allocated for upland cotton.”). 
83 Brazil’s Data Comments, para. 20. 
84 See 1996 FAIR Act, § 102(5) (Exhibit BRA-28). 
85 The 1999 crop soybean program was provided for by  a statute, PL 106-78, en acted 22 October 1999.  
In fact, the USDA’s programme rules were not issued until 8 June 2000, at 65 FR 36550.  The amount provided 
in that statute was $475 million for all oilseeds, not just  soybeans.  As for the 2000 crop, the soybean payments 
were allowed by PL 106-224, in the amount  of $500 million for all oilseeds, w ith rules that did not issue until 65 
F.R. 5709 in November 2000.  The amount paid was amp lified for the 2000 crop by the addition of monies, long 
after, in PL 107-25, enacted in August of 2001.  It is worth noting that all of these payments occurred well after 
plantings, again contradicting the contention of Brazil th at non-upland cotton paymen ts cause farmers to plant 
cotton. 
86 See Brazil’s Data Comments, para. 90 fn. 177 (“The lower figures for MY 1999-2001 are explained 
by the fact that soybeans were not a contract programme crop.”). WT/DS267/R/Add.2 
Page I-699 
 
 
allocated as support to upland cotton”.87  Again, Brazil makes assertions  that do not follow from its 
own data request.  The marketing year 2002 data c ontains no peanut information because no farm had 
peanut base in marketing year 2002; it follows that  there were no payments made on any farm base.  
No peanut base existed for farms in marketing year  2002 because decoupled payments for peanut base 
acreage was brand new, and the base was not assigned by Section 1302 of the Farm Bill to a farm but 
to “historical peanuts producers”.  The statute did not require an assignment of the base acreage to a 
farm until the 2003 crop.  In fact, the United States expressly noted in Exhibits US-111 (describing contents of farm-by-farm DCP base and yield file ) and US-112 (describing contents of farm-by-farm 
DCP planted acres file) that “[p]eanut figures were not run as peanut bases were not farm-specific in 2002”.  Thus, the United States could not have pr ovided farm-specific planted acreage and base 
acreage information with respect to peanuts becau se there was no peanuts base acreage for farms in 
marketing year 2002.  Again, Brazil’ s complaints are without merit. 
 74. Conclusion:  Brazil’s Accusations Are Spuri ous and Complicate the Panel’s Task Needlessly
:  
In conclusion, the United States notes that not only has Brazil sought to put the United States in a 
difficult position through its overbro ad data request and unreasonable approach to privacy issues 
under US law, but the lack of clarity in Brazil’s a pproach has added considerable confusion to this 
proceeding.  For example, Brazil at one and the sa me time faults the United States for not providing 
the farm-specific information as requested in E xhibit BRA-369 but then also faults it for not 
producing the information using “a substitute number protecting the alleged confidentiality rights of 
farmers.”88  Despite refusing to consider any devia tion from BRA-369 at the second panel meeting, 
Brazil now asserts that the United States should have noticed a newfound flexibility in a passing 
reference within a Brazilian answer and on that basi s produced an entirely new set of data.  It was 
entirely reasonable for the United States to cons ider Exhibit BRA-369 as Brazil’s request since 
Brazil’s refusal to consider alternatives compelle d the United States to make tremendous efforts to 
produce that requested information while simultane ously preparing answers to more than 50 panel 
questions and comments on Brazil’s econometric evid ence.  (Further, as the United States explained 
in its 20 January 2004, letter to the Panel, the sheer number of fields involved in Brazil’s request 
would make possible identification of specific farms based on a unique combination of planted and base acreage, even with substitute farm numbers.)    75. As another example, Brazil’s request was so broad that (as set out a bove) Brazil itself appears 
not to have understood the precise scope of the in formation it requested.  This continual overbroad 
argumentation wastes the time and resources of the Un ited States and the Panel that would be better 
spent on issues actually pertinent to this dispute.   In addition, Brazil faults the United States for 
“misunderstanding [] Brazil’s allocation methodology,” when that methodology was not set out until Brazil filed its answer to Question 258 on 20 January  2004 – that is, more than one month after the 
United States provided the data requested in Exhi bit BRA-369 (to the extent permissible under US 
law) and more than eight months into this proceedi ng.  In this regard, Brazil’s litigation tactics have 
impacted the ability of the United States to addr ess Brazil’s claims, arguments, and evidence and have 
complicated this Panel’s task immensely and needlessly.
89 
                                                      
87 Brazil’s Data Comments, para. 21. 
88 See Brazil’s Data Comments, paras.  38-39 (referencing Brazil’s D ecember 22 Answers to Questions, 
para. 7). 
89 Indeed, the United States has cooperated in good faith in this dispute and expended extraordinary 
resources to do so, but Brazil put the United States in the position of violating US law or providing requested 
data.  Brazil now seeks to have the Panel draw adverse inferences when its own request for information was over-broad in that Brazil could simply have asked the United States to apply its methodology (which, as of 
3 December 2003, it had not yet disclosed, and wo uld not until forced to do so by the Panel on 
20 January 2004).  The Panel should consider that it wa s Brazil at the second panel meeting that refused to 
cooperate and consider alternative mean s to request information that could have protected US farmers’ privacy 
interests.  If there is an “adverse inference” to be draw n, it may be that Brazil withheld its methodology until the 
end of the proceeding because it knew it could not with stand a full analysis and review and because Brazil WT/DS267/R/Add.2 
Page I-700  
 
 
B. US Law Prohibits Disclosing Planted Acreage Information Without the Prior Consent of 
the Farmer  
 
76. The United States has explained in its lette rs dated 18 December  2003, 19 December 2003, 
and 20 January 2004, that under US law it may not disclose planting information in which a farmer 
has a privacy interest.  This has been consistent  US Department of Agriculture policy and is not 
contradicted by the Washington Post  district court decision referenced by Brazil (which dealt with 
disclosure of payment information – similarly, the United States has provided contract data on a farm-
by-farm basis).  The United States also explains these matters in more detail in its answer to 
Questions 259(a), (b), and (c). 
 77. Brazil’s views on how US law operates in the FOIA context are not relevant to the US Department of Agriculture’s statutory responsibility to  respect the privacy interests of US farmers in 
the planted acreage data.  However, Brazil’s di scussion of Washington Post v. United States 
Department of Agriculture , 943 F.Supp. 31 (D.D.C. 1996), does not support Brazil’s arguments that 
the United States need not protect this data.   78. The US position on the privacy interests in plantings is not post hoc  since, as we showed in 
the attachments to the US letter of 18 December 2003, the position on planted acres has been the same 
since at least 1997 – that is, after the Washington Post
 decision.  Brazil neglects to mention that all 
that was at issue in the Washington Post  case was crop payments , not farmer plantings.  Hence, that 
case fit within the FOIA precept of disclosure of the activities of the government, which was what was of concern to the court.   943 F. Supp. at 33, 36.  Plantings are quite a different matter, involving 
a farmer’s activities, not that of the government.  Moreover, such producer-supplied information, not 
government-generated, has long been recognized as having special privacy concerns.  See, e.g. , 7 
USC 1373 and  7 USC 1502.  Thus, under specific provision of the 1938 Act and provisions of the 
Crop Insurance Act, the US government has long cons idered plantings separate matters not subject to 
disclosure.  A similar outcome r esults from an analysis under the Privacy Act and to some degree the 
Trade Secrets Act.  79. Regarding the rice matter, Brazil argues that “USDA’s FOIA representatives necessarily must 
have determined that because the request did not fo cus on an individual producer’s farm, the interests 
of the public in understanding and evaluating th e operation of the contract payment schemes 
outweighed any privacy interests”.  However, the rice matter involved one office, and that disclosure 
was contrary to clearly established national policy.  We have explained fully what the problem was 
and what FSA policy is.  The concerns he re are much greater than in the Hill
 decision, moreover, 
because the privacy interests of 200,000 farmers are involved.  
 
C.   There Is No Basis to Draw Any In ference, Much Less an “Adverse Inference”  
 
80. Brazil has asked the Panel to draw certain a dverse inferences from the alleged failure of the 
United States to cooperate fully an d provide requested data.  As noted in the US letter of 20 January 
and explained above, the United States  did not have the authority to provide the farm-specific planting 
information in the format requested by the Panel’ s 12 January 2004.  However, the United States did 
provide both farm-specific and aggregated contract  data that would permit the Panel and Brazil to 
assess the total expenditures of decoupled payments to farms planting upland cotton.90  Brazil itself 
admits that “the data provided by the United Stat es appears to be complet e” with respect to both 
                                                                                                                                                                     
sought to distract from Brazil’s failure  to provide evidence and data necessa ry to support its arguments based on 
its methodology. 
90 The United States notes that it had no basis to provide any other aggregation of the data than that 
which it provided since it was not aware of Brazil’s a llocation methodology until Brazil filed its answer to 
Question 258 on 20 January 2004. WT/DS267/R/Add.2 
Page I-701 
 
 
contract acres and planted acres91 – therefore, the willingness of the United States to provide 
information within the limits set by US law cannot be questioned.  Further, the Panel on 3 February 
requested certain additional aggr egated information, which therefore does not implicate privacy 
interests of farmers and which the Un ited States is endeavouring to provide. 
 
81. The situation here is thus very different from the one in Canada - Aircraft  where the 
Appellate Body first opined that “a panel should be  willing expressly to remind parties – during the 
course of dispute settlement proceedings – that a refu sal to provide information requested by the panel 
may lead to inferences92 being drawn about the inculpatory ch aracter of the information withheld.”93  
There is no basis for an “inference” of any kind, adverse or otherwise. 
 
82. This is particularly so in this disp ute as the farm-specific planted and base acreage 
information was sought for purposes of Brazil’s allo cation methodology, which is without any textual 
basis in the WTO agreements.  For purposes of P eace Clause, Brazil’s methodology is inapplicable 
because Brazil concedes that “suppor t to a specific commodity” means “product-specific support” – 
and yet, Brazil’s allocation methodology would co ntradict the meaning of product-specific support 
and non-product-specific support set out in the Ag reement on Agriculture.  Further, Brazil’s 
methodology is inapplicable for purposes of its seri ous prejudice claims because  Brazil argues that no 
allocation of decoupled payments or identification of subsidy benefits or the subsidized product is 
necessary under Part III of the Subsidies Agreement.   Further, the only allocation methodology set out 
in the Subsidies Agreement is that of Annex IV, fo r which the farm-specific planted and base acreage 
information would be irrelevant.  Thus, there is no need to draw an inference of any sort in this 
dispute.  83. Brazil's proposed "adverse influences" also do not follow logically from the data before the 
Panel.  Brazil first suggests that farm-by-farm da ta would have resulted in payments higher than 
Brazil’s 14/16 methodology.  However, Brazil cannot escape the fact that it has not brought forward 
evidence and arguments to support findi ngs under the Annex IV methodology. 
 84. Second, Brazil suggests that the Annex IV methodology would have produced higher 
payments than Brazil’s 14/16 methodology.  The United States is not in exclusive possession of relevant information with respect to an Anne x IV methodology, but the incomplete data and 
calculations above demonstrate that in fact the Annex IV methodology would produce a far lower  
subsidy amount than Brazil’s 14/16 methodology.  85. Third, Brazil suggests that “the information withheld” by the United States “would have been 
detrimental” to US arguments that decoupled pa yments are non-product-specific support.  As set out 
previously, the farm-by-farm planted acreage data that the United States could not provide under US 
law is simply irrelevant to the issue whether decoupled payments are “product-specific support”. 
Brazil appears to overreach, moreover,  in suggesting that a “detrimental” inference be drawn since the 
Canada – Aircraft  report found that the inferences to be draw n were not punitive but factual in nature. 
 
                                                     
 
91 Brazil’s Data Comments, para. 27 fn. 55. 
92 The United States notes that in the same report  the Appellate Body was careful to distinguish 
“adverse” inferences from other “inferences”, remarkin g that: “We note, preliminarily, that the ‘adverse 
inference’ that Brazil believes the Panel should have draw n is not appropriately regarded as a punitive inference 
in the sense of a ‘punishment’ or ‘penalty’ for Canada’s withholding of information.  It is merely an inference 
which in certain circumstances could be logically or reasonably derived by a panel from the facts before it.”  Canada – Measures Affecting the Export of Civilian Aircraft , WT/DS70/AB/R, adopted 20 August 1999, 
para. 200 (“ Canada – Aircraft ”). 
93 Canada – Aircraft , WT/DS70/AB/R, para. 204. WT/DS267/R/Add.2 
Page I-702  
 
VII.   Conclusion  
 
86. Brazil has asserted that decoupled income support payments must be allocated to upland 
cotton only for purposes of the Peace Clause and not for purposes of its serious prejudice claims.  However, Brazil’s analysis is completely backwa rds:  the text and context of the Peace Clause 
demonstrate that support is not to be allocated for purposes of the Peace Clause test while the text and 
context of Articles 5 and 6 of the Subsidies Ag reement demonstrate that subsidies not tied to 
production of a given product (such as decoupled income support) are to be allocated to all of the 
products the recipient sells for purposes of serious prejudice claims.  
87. The implication of Brazil’s erroneous analysis  and arguments, and in particular its express 
disavowal of any allocation methodology for purpo ses of its serious prejudice claims on decoupled 
income support payments, is that Brazil has failed to make a prima facie  case on these claims.  As a 
result, no findings may be made with respect to  these measures, and these payments may not be 
included in an analysis of whether the effect of  the challenged US subsidies has been serious 
prejudice to Brazil’s interests WT/DS267/R/Add.2 
Page I-703 
 
 
List of Exhibits  
 
 143 Memorandum from Larry Mitchell, USDA Farm Services Agency, to Various FSA Offices, 
Administrators, and Divisions on Release of Restricted Information under the Freedom of 
Information Act (18 September 1998) 
 144 USDA Farm Services Agency, Notice INFO-16: Releasing Lists of Names and Addresses in 
Response to Requests Under FOIA (1 December 1998) 
 
145 Contents of 4 corrected data files submitted on 28 January 2004 
 146 USDA, Commodity Credit Corporation, 58 Federal Register 15755-15756 (24 March 1993). 
 147 Data in response to Panel Question 264(a):  Exhibit US-128 on a Fiscal Year/ Cash Basis 
 
148 Data in response to Panel Question 264(d): Claim Payments/ Recoveries/ Reschedulings on a 
Fiscal Year/ Cash Basis 
 149 United States Department of the Treasury  Financial Manual I TFM 2-4600 (December 2003) 
 
150 “Annual Review of Fees for USDA Credit Programs,” 25 March 2003 and 8 April 2002. 
 151 United States Office of Management and Budget Circular No. A-129 (November 2000), 
Table of Contents, General Informati on, Appendix A, Sections I and II. 
 
152 Commodity Credit Corporation Realized Lo sses and Appropriations to Restore Such Losses 
for Fiscal Years 1992-2003 
 153 Summary of Principal Terms, Conditions, a nd Duration of Each Rescheduling Reflected in 
Column F of Exhibit US-128 
 
154 Partially Corrected Calculations Alloca ting Decoupled Payments for Upland Cotton Base 
Acres to Upland Cotton Using In complete Annex IV Methodology WT/DS267/R/Add.2 
Page I-704  
 
ANNEX I-20 
 
 
BRAZIL'S COMMENTS  ON UNITED STATES 
11 FEBRUARY 2004 ANSWERS TO ADDITIONAL 
QUESTIONS FROM THE PANEL FOLLOWING 
THE SECOND MEETING  OF THE PANEL 
WITH THE PARTIES 
 
18 February 2004 
 
 
Table of Cases Cited 
 
Japan – Apples Appellate Body Report, Japan – Measures affecting the Importation of 
Apples, WT/DS245/AB/R, adopted 10 December 2003. 
 
     
List of Exhibits 
 
Dresser Industries v United States, 596 F.2d 1231 (5th Cir. 1979) Exhibit Bra-425
Center for Auto Safety v National Highway Traffic Safety 
Administration, 244 F.3d 144 (DC Cir 2001) Exhibit Bra-426
CNA Financial Corporation v Donovan, 830 F.2d 1132 (DC Cir 1987) Exhibit Bra-427
United States Department of Justice at al. v Reporters Committee for the 
Freedom of the Press et al., 489 US 749 (1989) Exhibit Bra-428
Metadure Croporation v United Stat es, 490 F. Supp. 1368 (S.D.N.Y. 
1990)  Exhibit Bra-429
Campaign for Family Farms v Glickman, 200 F.3d 1180 (8th Cir. 2000) Exhibit Bra-430
Comparison of US and Brazil's Cash-Basis Accounting Methodologies 
for Purposes of the Item (j) Analysis Exhibit Bra-431
Congressional Budget Office, Fact Sheet, row titled “Export Credit 
Guarantee Programme, Subsidy Account” Exhibit Bra-432
 WT/DS267/R/Add.2 
Page I-705 
 
 
 259. With respect to the Privacy Act of 1974, 5 U.S.C. 552a: 
 (a) Whose interests are protect ed under section 552a(b) in light of the definition of 
"individual" in section 552a(a)(2)?  Do all payment recipients, including corporations and organizations, have Privacy Act rights?  If  not, is the United States prevented by its 
domestic law from releasing such of the in formation requested on 12 January 2004 as 
relates to payment recipients without Privacy Act rights?  Please explain with references to case law. 
 
Brazil’s Comment: 
 
1. In its 11 February 2004 res ponse, the United States repeats its assertion that (many of) US 
upland cotton farms’ planting reports are protected by the US Privacy Act and cannot be produced to 
the Panel and Brazil, even unde r confidentiality arrangements.
1  As explained below, the 
United States is wrong.  But more fundamentally, as the United States has argued before other WTO 
panels, a WTO Member’s domestic la ws do not provide a basis for not complying with its obligation 
to cooperate in a WTO dispute settlement proceedi ng and to provide, if requested by a panel under 
DSU Article 13, any information – if neces sary using special confidentiality procedures.2  In sum, as 
Brazil established in its 28 January 2004 Comment s and Requests Regarding US Data, there is no 
basis for the United States, citing confidentiality  concerns, to withhold data from the Panel.3 
 
2. The US 11 February 2004 response to this  question confuses two fundamental questions.  
First, are there any Privacy Act rights of US upla nd cotton farms that would cover information about 
planted acreage that is gathered by the US government via mandatory or voluntary planting reports?  
And second, do these privacy rights prevail under the US Freedom of Information Act (“FIOA”)) over 
the interest of the public in understanding the opera tions or activities of the US government.  While 
the United States partly (yet falsely) addresses the first question, it ignores the second question. 
 3. The starting point for addressing these issues is the relationship of the Privacy Act and the FOIA.  The Privacy Act, codified as 5 U.S.C. § 552a
4, protects “records maintained on individuals” 
by the US government, and prevents disclosure “to any person, or to another agency”, with certain 
exceptions.5  One of the exceptions listed reads: “unless disclosure would be … (2) required under 
section 552 of this title”.6  5 U.S.C. § 552 is the place where the FOIA is codified.  It follows that the 
prohibition of disclosure of information on individuals  provided for by the Privacy Act is subject to 
the requirements of the FOIA.  4. Returning to the first step, the United States ad mits that corporations are not covered by the 
Privacy Act.
7  This is confirmed by the case law cited by the United States ( Dresser Industries v 
United States ).8  Yet, neither this case law, nor any other reference provided by United States, 
supports the United States’ distinction between “normal” corporations and “closely held 
corporations.”9  Even if “closely held corporations” we re covered by the Privacy Act – an assertion 
                                                      
1 US 11 February 2004 Answers to Additional Questions, paras. 1-5. 
2 See Brazil’s 28 January 2004 Comments and Requests Regarding US Data, para. 55. 
3 See Section 5 of Brazil’s 28 January 2004 Comments and Requests Regarding US Data. 
4 Exhibit US-107. 
5 Exhibit US-107 (5 U.S.C. § 552a(b)). 
6 Exhibit US-107 (5 U.S.C. § 552a(b)(2). 
7 US 11 February 2004 Answers to Additional Questions, para. 2. 
8 Exhibit Bra-425 (Dresser Industries v United States, 596 F.2d 1231 (5th Cir. 1979), p. 7 [**16]). 
9 US 11 February 2004 Answers to Additional Questions , para. 8.  As the party asserting this fact, the 
United States bears the burden of proving it.  See e.g. Appellate Body Report, Japan – Apples , 
WT/DS245/AB/R, para. 157  (“It is important to distinguish, on the one hand, the principle that the complainant WT/DS267/R/Add.2 
Page I-706  
 
for which the United States does not offer any proof – they would have the same status as private individuals, which are discussed below in Brazil’ s comment on the US 11 February 2004 response to 
Question 259(b).  5. The United States further refers to the Distri ct of Columbia Court of Appeals decision in 
Center for Auto Safety v National Hi ghway Traffic Safety Administration
10 for the proposition that 
information voluntarily submitted to the US government by corporations may not be released if that 
information would not customarily be released by the corporation to the public.11  However, the 
United States misquotes this decision.  In fact , the decision states that the information was  
 
exempt from disclosure because the information was voluntarily submitted and 
constituted confidential commercial inform ation that was not customarily disclosed .  
The … information at issue had been disclo sed in the past only when necessary, and 
always with a confidentiality agreement or protective order.12   
Thus, the restriction only applies to confidential commercial information.  While the United States 
asserts that “[t]his is the case with respect to plan tings”, the United States provides no evidence for 
this assertion.13  The United States’ assertion is simply wrong.   
 6. Planting information is always in the public domain – anyone can look at a field to determine to what crop it is planted.  Most US farmland is connected by paved roads and is easily accessible to the public.  Further, the Aerial Photography Field Office of USDA’s Farm Services Agency exists to 
provide detailed aerial photographs of cropland.
14  The Office maintains aerial photographs of every 
square kilometre of cropland in the United States and updates the photographs on a regular basis.15  
Any person can order any aerial photograph by including a legal description of the area of interest in township, range, and section number or latitude and longitude coordinates.
16  The Aerial Photography 
Field Office indicated that scaled enlargements of photographs are made using specialized rectifying 
enlargers which maintains an accuracy greater th an 99 per cent for most cropland in the United 
States.17  The final rectified aerial photograph is, in effect, a photographic map accurately representing 
ground features.  In fact, USDA’s local FSA offices  use the aerial photographs in verifying planting 
reports (FSA-578 forms) required un der various US farm programmes.18  No Privacy Act warnings 
are shown on the order form or on the web-s ite where these photographs can be purchased.   
 
7. By its very nature, planting information ca nnot be confidential commercial information that 
could always be protected by confidentiality arrangeme nts.  In that sense, planting information is very 
                                                                                                                                                                     
must establish a prima facie case of inconsistency with a provision of a covered agreement from, on the other 
hand, the principle that the party that asserts a fact is responsible for providing proof thereof.”). 
10 Exhibit Bra-426 (Center for Auto Safety v National Highway Traffic Safety Administration, 244 
F.3d 144 (DC Cir 2001)). 
11 US 11 February 2004 Answers to Additional Questions, para. 3. 
12 Exhibit Bra-426 (Center for Auto Safety v National Highway Traffic Safety Administration, 244 
F.3d 144 (DC Cir 2001), p. 4 [*147]) (emphasis added). 
13 As the party asserting this fact, the United States bears the burden of proving it.  See e.g. Appellate 
Body Report, Japan – Apples , WT/DS245/AB/R, para. 157  (“It is important to distinguish, on the one hand, the 
principle that the complainant must establish a prima facie case of inconsistency with a provision of a covered 
agreement from, on the other hand, the pr inciple that the party that asserts a fact is responsible for providing 
proof thereof.”). 
14 The Web-page of the Office is found at http://www.apfo.usda.gov . 
15 See http://www.apfo.usda.gov .   
16 See http://www.apfo.usda.gov . 
17 See http://www.apfo.usda.gov . 
18 See Brazil’s 18 November 2003 Further Rebuttal Submission, para. 36. WT/DS267/R/Add.2 
Page I-707 
 
 
 different from technical information about ai rbags used in cars, which was at issue in  Center for Auto 
Safety v National Highway Traffic Safety Administration .19 
8. This conclusion is supported by another appellate court decision in CNA Financial 
Corporation v Donovan , also cited by the United States.20  Referring to the Trade Secrets Act, the 
court defined the scope of the exception in 5 U.S.C. § 552(b)(4) as only prohibiting the disclosure of commercial or financial information if disclosur e “is likely to … cause substantial harm to the 
competitive position of the person from whom the information was obtained”, requiring “both a 
showing of actual competition and a lik elihood of substantial competitive harm”.
21  The United States 
has made no such showing with respect to planting information on upland cotton  farms.  Furthermore, 
the court held that “[t]o the extent that any da ta requested under FOIA is in the public domain, a 
submitter is unable to make any claim of confidentiality – a sine qua non  of [5 U.S.C. § 552(b)(4)]”.22  
None of the information requested by the Panel poses  a significant threat to “cause substantial harm to 
the competitive position of the person from whom th e information was obtained”, in particular 
because, as demonstrated above, the information is, in fact, by its very nature not information that can 
remain confidential, but is in the public domain, and, indeed, offered for sale by USDA.23  It follows 
that (non-closely held) upland cotton farms cannot invoke the Trade Secrets Act to prevent disclosure of planting information. 
9. Since the United States characterizes info rmation submitted to the US Government under 
mandatory terms to be releasable ( i.e., MY 2002 planting information),
24 and MY 1999-2001 planting 
information is not protected under the above rebutte d US theory, there is nothing in the Privacy Act 
that would prevent the United States from produci ng farm-specific planting information for corporate 
farms using farm serial numbers or  “dummy” numbers.  At best, there is some ambiguity in the US 
law that should be resolved by the United States in  favour of releasing the information, as required by 
its obligations under the DSU. 
10. Second, even for the “individuals” covered by the protection of the Privacy Act, there is no 
legal basis to preclude the release of planting info rmation.  As noted above, the protection of the 
Privacy Act is conditional on the FOIA disclosure rules, which necessitate a weighing process 
between the privacy interest of the group of individua ls and the public interest  in the operations of the 
US Government.  Under the applicable case law, this  weighing process would be resolved in favour of 
disclosing the information, as discussed in Brazil’ s comment on the US 11 February 2004 response to 
Question 259(b), below. 
11. In sum, none of the US Privacy Act arguments holds up to scrutiny.  And none is relevant in 
the first place, since the United States is under an obligation to provide – possibly subject to special 
confidentiality procedures – information requested by  the Panel under DSU Article 13, even if that 
information is confidential. 
                                                      
19 Exhibit Bra-426 (Center for Auto Safety v National Highway Traffic Safety Administration, 244 
F.3d 144 (DC Cir 2001), p. 3-4 [*146-*147]). 
20 Exhibit Bra-427 (CNA Financial Corporation v Donovan, 830 F.2d 1132 (DC Cir 1987)). 
21 Exhibit Bra-427 (CNA Financial Corporation v Donovan, 830 F.2d 1132 (DC Cir 1987), p. 23 
[*1152]). 
22 Exhibit Bra-427 (CNA Financial Corporation v Donovan, 830 F.2d 1132 (DC Cir 1987), p. 25 
[*1154]). 
23 The United States neither presents the legal prov isions of the Trade Secrets Act nor explains any 
other pertinent information with respect to that Act.  ( See U.S. 11 February 2004 Answers to Additional 
Questions, para. 3.)  Yet, as the party asserting this fact, the United States bears the burden of proving it.  See 
e.g. Appellate Body Report, Japan – Apples , WT/DS245/AB/R, para. 157  (“It is important to distinguish, on the 
one hand, the principle that th e complainant must establish a prima facie case of inconsistency with a provision 
of a covered agreement from, on the other hand, the principl e that the party that assert s a fact is responsible for 
providing proof thereof.”). 
24 US 11 February 2004 Answers to Additional Questions, para. 4. WT/DS267/R/Add.2 
Page I-708  
 
(b) The Panel notes that data concerning th e four relevant programmes, in particular, 
payment amounts, identified by specific farms,  is freely available on the internet.  Please 
explain why that data can be disclosed but the requested planted acreage data cannot.  Do individual recipients have Privacy Act rights with respect to their entrepreneurial activity?  Please explain with references to case law. 
 
Brazil’s Comment:  
 
12. In its 11 February 2004 response, the Unite d States asserts that “[i]nformation concerning 
planted acreage does not demonstrate anything regarding the government’s operation – it only 
demonstrates what a producer is doing”.
25  Brazil strongly disagrees.  Information about plantings of 
farms receiving contract payments provides important  information about the extent to which the US 
contract payments provide support to specific commodities.  US taxpayers, as in the Washington Post 
case, have a strong public interest in knowing how th eir tax dollars are being spent.  In particular, 
such information would shed light on the question of how much upland cotton is planted on upland 
cotton base acreage – information that is impor tant for the US public to assess whether the 
United States is in compliance with its obligat ions under the Agreement on Agriculture.  As the 
aggregate information provided by the United States  suggests, in MY 2002, 96 per cent of US upland 
cotton plantings took place on upland cotton base.26   
 13. If follows that the US citation to a US S upreme Court decision in paragraph 7 of the US 
11 February 2004 response misses the point.  Since planting information is a vital component for 
assessing the “the government’s operation”, it has to  be part of the balance between “the privacy 
interest of the individual with the ‘core purpose’ of FOIA”.
27  And the US district court decision in 
Washington Post v. United States Department of Agriculture confirms that in cases, where “the 
information is so generic that the im pact on privacy interests are so small”28, the information has to be 
disclosed.  This interpretation is, in fact, confirme d, rather then contradicted, by the US Supreme 
Court Decision in United States Department of Justice v Reporters Committee For Freedom of the 
Press  (“Reporters Committee”).29 
 14. The Reporters Committee decision concerns an individual pe rson’s FBI “rap sheet” that was 
requested under the FOIA.  The Supreme Court rej ected this request as outside the purpose of the 
FOIA, since it did not “contribut[e] significantly to the understanding of the operation or activities of 
the government ” (emphasis in original).
30  By contrast, planting information of farms clearly 
contributes to the understanding of the operation of th e US contract payments programmes.  Providing 
this information would, thus, not  only enhance the Panel’s ability to  make an objective assessment of 
the matter before it, but would also conform to “the basic purpose of the [FOIA,] to open agency 
action to the light of public scrutiny”.31 
 
                                                      
25 US 11 February 2004 Answers to Additional Questions, para. 8. 
26 See Brazil’s 18 February Comments on US Comments, Annex A, para. 11. 
27 US 11 February 2004 Answers to Additional Questions, para. 7. 
28 Exhibit Bra-418 (Washington Post v United States Department of Agriculture, 943 Supp. 31 
(D.D.C.) 1996, p. 3).  See Brazil’s 28 January Comments and Requests Regarding U.S. Data, paras. 31-34. 
29 Exhibit Bra-428 (United States Department of Justice at al. v Reporters Committee for the Freedom 
of the Press et al., 489 US 749 (1989)). 
30 Exhibit Bra-428 (United States Department of Justice at al. v Reporters Committee for the Freedom 
of the Press et al., 489 US 749 (1989), p. 15 [*775]). 
31 Exhibit Bra-428 (United States Department of Justice at al. v Reporters Committee for the Freedom 
of the Press et al., 489 US 749 (1989), p. 15 [*774]). WT/DS267/R/Add.2 
Page I-709 
 
 
 15. The US Supreme Court decision in Reporters Committee  states that “Congress exempted nine 
categories of documents from the FOIA ’s broad disclosure requirements”.32  These exemptions are 
codified at 5 U.S.C. § 552(b).33  In this case, disclosure of the information is neither prevented by 
other laws (5 U.S.C. § 552(b)(3)), i.e., the Trade Secrets Act (because the information does not 
constitute trade secrets as defined by US courts34), or the Privacy Act (which applies subject to the 
FOIA Act), nor by the separate exemption (5 U.S.C.  § 552(b)(4) for trade secrets and commercial or 
financial information).  Once again, since planti ng information could be collected from the public 
domain – or rather observed by any member of the public or, indeed, purchased from USDA – it cannot be deemed confidential.  In fact, as the appeals court in CNA Financial Corporation v 
Donovan  held, “[t]o the extent that any data requ ested under FOIA is in the public domain, a 
submitter is unable to make any claim of confidentiality – a sine qua non  of [5 U.S.C. § 552(b)(4)]”.
35 
16. Moreover, 5 U.S.C. § 552(b)(7)(C) exempts information “compiled for law enforcement 
purposes, but only to the extent that the production of such … information  would  … (C) … 
constitute an unwarranted in vasion of personal privacy.”36  While acreage reports are partly 
mandatory to enforce the requirements of various US domestic support programmes37, disclosure of 
planting information does not constitute an unwarrant ed invasion of personal privacy.  In fact, the 
information could be gathered by simply checki ng the fields of a farm or by purchasing aerial 
photographs from the Aerial Photography Fiel d Office of USDA’s Farm Services Agency, as 
discussed above.38  It is not difficult to determine the type of crop or the amount of acreage being 
planted to that crop from using high resolution colo ur aerial photographs.  If a farmer growing crops 
can purchase from USDA high resolution and detailed aerial photographs of his next-door neighbour’s farm to calculate that information, how can it be that this same farmer can claim a 
Privacy Act violation for his own planted acreage  data?  This evidence provides the common sense 
answer to the question whether acreage reports ar e, in fact, subject to the Privacy Act.  
17. Thus, from the perspective of its “public dom ain” character, acreage information is even less 
confidential than payment information, which the district court in Washington Post decided must be 
released under FOIA.
39  Since acreage information sheds light on the performance of USDA and its 
adherence to the WTO obligations of the United Stat es, any weighing of the limited privacy interests 
in planting information and the interest of the pu blic in evaluating the work of USDA must be 
resolved in favour of the latter. 
18. Finally, with respect to the “split of authorit y in US courts as to whether individuals have 
Privacy Rights with respect to their entrepreneurial activities”40, it is clear that even if a privacy 
interest protected under the Privacy Act should exist with respect to the entrepreneurial activity in 
question, the FOIA takes precedence over that inte rest, as explained in Brazil’s comment to the US 
11 February 2004 response to Question 259(a), and in the Washington Post and Reporters Committee 
precedent.  Concerning planted acreage information at issue between the parties, it is clear that the public interest in USDA’s performance, including USDA adherence to the US obligations under the 
WTO Agreement, takes precedence ove r the privacy interests of US farmers in information that is 
potentially always in the public domain.  Even assuming, arguendo , that there were some ambiguity 
                                                     
 
32 Exhibit Bra-428 (United States Department of Justice at al. v Reporters Committee for the Freedom 
of the Press et al., 489 US 749 (1989), p. 6 [*755]). 
33 Exhibit US-103. 
34 See above. 
35 Exhibit Bra-427 (CNA Financial Corporation v Donovan, 830 F.2d 1132, p. 25 [*1154]). 
36 Exhibit US-103. 
37 See Brazil’s 18 November 2003 Further Rebuttal Submission, Section 2.2. 
38 See also http://www.apfo.usda.gov . 
39 See Brazil’s 28 January 2004 Comments and Requests Regarding US Data, paras. 31-33. 
40 US 11 February 2004 Answers to Additional Questions, para. 9.  The cases cited by the United States 
are reproduced as Exhibits Bra-429 (Metadure Croporation v United States, 490 F. Supp. 1368 (S.D.N.Y. 1990)) 
and Bra-430 (Campaign for Family Farms v Glickman, 200 F.3d 1180 (8th Cir. 2000)). WT/DS267/R/Add.2 
Page I-710  
 
in the meaning of the US domestic law applicable to the question of confidentiality and the release of 
planted acreage information, the United States shoul d resolve the ambiguity in favour of releasing the 
information, as required by its obligations under the DSU.  
(c) Please provide any further available evidence of the USDA's long-standing policy that 
planted acreage information will not be released.   
 
Brazil’s Comment:  
 
19. Brazil notes that it is not USDA’s place to provide  an authoritative interpretation of US law, 
including the Freedom of Information Act.  An y “internal policy memorandum” cannot change the 
meaning of US law.  Interpreting US laws is left to the US courts, which have issued rulings that 
would compel release of the planting, payment and contract payment base information.  20. Further, both Exhibits US-134 and US-144 refer to individual acreage information in 
connection with names that cannot be released .  Brazil recalls that the Panel has requested farm-
specific information with farm serial numbers (rather than names)
41, or, alternatively, farm-specific 
information using “dummy” farm numbers.42  And Exhibit US-144 clarifies that “[a]creage, 
production data, and other producer-re lated information, without any personal identifier attached may 
be released”.  This language would certainly c over farm-specific information using “dummy” farm 
numbers. 
 
21. Finally, whether there is a long-standing practice by USDA of not releasing farm-specific 
acreage data to the public is irrelevant to a WTO dispute.  First, under DSU Article 13, the 
United States is required to provi de even confidential information.43  Second, any such information is 
not released to the public, and can – under WTO procedures – be protected as confidential 
information and be returned to the United States once this panel proceeding ends.  Confidentiality 
procedures either under DSU Articles 13.1 and 18.1 or special confidentiality procedures under the 
Panel’s working procedures can address any US concer n that Brazil could match data provided by the 
United States with data publicly available to unveil the names of specific farmers and their plantings.  
In addition, any such concern would not exist had the United States provided a single file containing 
both base acreage and yields as well as planting information.  Under these circumstances, no 
identification number, whether farm serial num ber or “dummy” number, would be necessary. 
 
260. On 27 August 2003, in it s response to Question No. 67 bis, the United States indicated 
that "it does not maintain information on the amount of expenditures made under the cited 
programmes to US upland cotton producers".  On 12 January 2004, the Panel requested the 
United States to provide information "to permit  an assessment of the total expenditures of PFC, 
MLA, CCP and direct payments by the US Fede ral Government to upland cotton producers in 
the relevant marketing years".  On 20 January 2004, the United States informed the Panel that "the data already provided by the United States to Brazil and the Panel would permit an assessment of total expenditures of decoupled pa yments to farms planting upland cotton."  Is 
the latest statement responsive to the Panel's re quest?  If so, how can it be reconciled with the 
first statement?  
Brazil’s Comment: 
 
22. The US 11 February 2004 response to th e Panel’s Question continues a pattern of 
misrepresentation that has tainted the US statem ents on this issue during this entire dispute.
44  In its 
                                                      
41 8 December 2003 Communication from the Panel. 
42 12 January 2004 Communication from the Panel. 
43 See Section 5 of Brazil’s 28 January 2004 Comments and Requests Regarding US Data. 
44 US 11 February 2004 Answers to Additional Questions, para. 13. WT/DS267/R/Add.2 
Page I-711 
 
 
 response, the United States draws the distinction be tween farms that plant upland cotton, for which 
the United States admits it has information, and farms that produce upland cotton, i.e., farms that 
harvest the planted upland cotton, for which the Un ited States asserts it does not have information.45  
Allegedly, this distinction between “planter s” and “producers” of upland cotton explains the 
discrepancy between the two US statements refe rred to in the Panel’s question.  It does not. 
 
23. In fact, the United States in its 11 February 2004 response engages in a play with words that 
hides its non-cooperation in this panel proceeding.  Contract payments made to “planters” of upland 
cotton support the production of upland cotton and are, thus, “support to” upland cotton.  This is true 
even if the planted upland cotton is in the end abandoned and not harvested.  Indeed, the 2002 FSRI 
Act defines a “producer” as someone who “ shares in the risk of producing a crop and is entitled to 
share in the crop available for marketing from the farm or would have shared had the crop been 
produced ”.46  Thus, a person remains a “producer” even if the chances were against him or her in a 
given year and a planted crop failed.   
24. In sum, the terms “producer” and “planter” of  a crop are synonyms for purposes of defining 
“support to” a specific commodity.  Any contract pa yments paid to producers/planters of upland 
cotton must be considered in allocating the “s upport to” upland cotton from contract payments – 
whether the crop planted on that farm was harvested or not.   
25. It follows that the two US statements  referred to in the Panel’s question are irreconcilable .47  
Unfortunately, Brazil has to note that the United Stat es continues its approach of trying to mislead the 
Panel and Brazil on the question of the amount of c ontract payments that constitute support to upland 
cotton.  In its 11 February 2004 Comments on Brazil’s 28 January 2004 Data Comments, the 
United States engages in a self-serving revisionist history.48  What is left after the US rhetoric is one 
clear fact:  that the United States has engaged in  a highly successful effort over sixteen months to 
deny Brazil and the Panel information giving a defi nitive amount of the four contract payments paid 
to and received by producers of upland cotton during MY 1999-2002.  Brazil and the Panel are still 
waiting for data that would allow a precise calcula tion of this support, either in a farm-specific 
manner, as requested by the Panel on 8 December 2003 and 12 January 2004, or in the aggregate manner as requested by the Panel on 3 February 20 04.  Brazil notes that the Panel has granted the 
United States an extension until 3 Marc h 2004 to provide this information.
49   
26. Brazil believes the Panel is well aware of the US refusal to provide payment information in 
the numerous forms in which that information has been requested.50  In an effort to assist the Panel 
with making factual findings in its report regarding this issue, Brazil sets forth a chronology of the 
facts relating to these various requests.  These facts need little, if any, commentary or argument from 
Brazil, as they speak for themselves:   
• 22 November 2002 :  Brazil files its First Set of Qu estions and Request for Production of 
Documents to the United States.51  Question 3.6 stated: “ What was the annual amount of  . . . 
(ii) production flexibility contract payments and (iii) direct payments (as relevant given the 
particular time period) made by the US Gove rnment in connection with upland cotton for 
each of the marketing years 1992 through 2002 .”  Question 11.1 stated: “ Please state the total 
                                                      
45 US 11 February 2004 Answers to Additional Questions, para. 13.  See also US 11 February 2004 
Comments para. 67 and US 28 January 2004 Comments, para. 16 making the same argument. 
46 Exhibit Bra-29 (Section 1000(12) of the 2002 FSRI Act)(emphasis added). 
47 See also Brazil’s 28 January 2004 Comments on Question 195, para. 6-9. 
48 US 11 February 2004 Comments, paras. 62-75. 
49 16 February 2004 Communication from the Panel. 
50 The US 11 February 2004 Comments, para. 69 incorrectly assert that “this information” refers to 
contract acreage 
51 Exhibit Bra-101 (Questions for Purposes of the Consultations).   WT/DS267/R/Add.2 
Page I-712  
 
amount of market loss assistance payments made to the US upland cotton industry in 
marketing years 1998 through 2001 .”
52 
 
• 3 December 2002:  During the consultations, the United States responded orally to Question 
3.6 by referring Brazil to the “Fact Sheet: Upland Cotton” (Exhibit Bra-4) and to 
www.fsa.usda.gov/dam/bud/bud1.htm .  In response to Question 11.1, the United States 
similarly referred Brazil to www.fsa.usda.gov/dam/bud/bud1.htm .  The data in these 
documents represented the total amount of paymen t data provided to holders of upland cotton 
base but did not provide any information about contract payments made to the US “upland 
cotton industry”, which Brazil defined in its consultation and panel requests as “US 
producers, users and/or exporters of upland cotton” .  Brazil used the data included in Exhibit 
Bra-4 and the above-referenced web-site as the ba sis for its tabulation of the contract payment 
amount included in Table 1 of its 24 June 2003 First Submission.  
 
• 1 April 2003:  Brazil filed a questionnaire with th e United States in the Annex V 
procedures.53  Question 11.1 states:  “ Please state the total amount of Market Loss Assistance 
payments made to the US upland cotton i ndustry in marketing ye ars 1998 through 2002. ”  
Question 13.1 states:  “ Please state the total amount of C ounter-Cyclical Payments made by 
the United States to US upland co tton farmers in marketing year 2002.”  The United States 
provided no information in response to these questions.   
 
• 24 June 2003:  Brazil’s 24 June 2003 First Submission states, at paragraph 214, that “ [i]n the 
absence of the requested information from the United States on actual DP and CCP payments 
related to the production of upland cotton  or to farms holding upland cotton base, Brazil has 
used conservative methodologies to estimate the amount of 2002 DP and CCP payments 
received by upland cotton producers”.  In addition, Brazil stated that it “reiterates its requests 
to the United States to provide it and the Panel with actual upland cotton base acreage for the DP and CCP programmes and will revise its est imates and levels of support for MY 2002 
based on updated data”.
54 
 
• 22 July 2003:  Brazil states in its 22 July 2003 Oral Statement at the first meeting with the 
Panel that “Brazil notes that it has presented th e best available information that it has access 
to and that is not exclusively within the control of the United States.”55  Brazil further stated 
that “the United States never provided any an swers to Brazil’s Annex V questions [and] 
[a]ccordingly, Brazil requests the Panel to ru le on questions of fact based on the best 
information available as submitted by Brazil”.56 
 
• 11 August 2003 :  Brazil provides an estimate of the total budgetary outlays of contract 
payment using its 14/16th methodology in its 11 August 2003 response to Question 60, as 
explained in paragraph 97 and notes 2-5 to the table accompanying paragraph 97.  Brazil 
further states in response to Question 83 that “The list of Annex V questions provided to the United States by Brazil is included in Exhibit Br a-49. …  [G]iven the United States’ failure to 
cooperate in the Annex V information gather ing process, Brazil has and will present its case 
regarding peace clause issues and serious prejudice claims based on evidence available to it.  
If there are gaps in the evidence provided to  the Panel by Brazil in support of its prima facie 
case, and those gaps are due to the United States’  failure to cooperate with and participate in 
                                                     
 
52 Brazil defined “upland cotton industry” as “producers, users and/or exporters of upland cotton”. 
53 Exhibit Bra-49 (Questions for Purposes of the Annex V Procedure).   
54 Brazil’s 24 June 2003 First Submission, note 415. 
55 Brazil’s 22 July 2003 Oral Statement, para. 4. 
56 Brazil’s 22 July 2003 Oral Statement, para. 4.   WT/DS267/R/Add.2 
Page I-713 
 
 
 the Annex V process, Annex V, paragraph 6 provid es that ‘the panel may complete the record 
as necessary relying on the best in formation otherwise available.’”57   
 
• 25 August 2003 :  The Panel requests the United States in Question 67bis to provide “the 
annual amount granted by the US Government in each of the 1999, 2000, 2001, and 2002 
marketing years (as applicable) to US upland co tton producers . . . in total expenditures, under 
each of the following programmes:  production fl exibility contract payments, market loss 
assistance payments, direct payments and counter-cyclical payments.”58 
 
• 27 August 2003 :  The United States provides a response to Question 67 bis which states, inter 
alia, that the United States “does not maintain  and cannot calculate this information”59 and 
that it “does not maintain information on the amount of expenditures made under the cited 
programmes to US upland cotton producers”.60  The United States stated in paragraph 21 of 
its 27 August 2003 response that “Thus, the Unite d States did not track total expenditures 
with respect to base acres of [1996 FAIR  Act covered commodities] under the expired 
production flexibility contract payments and market loss assistance payments and does not track total expenditure with r espect to base acres of [contract commodities] under the direct 
payments and counter-cyclical payments.”  Furt her, the United States stated in paragraph 28 
of its 27 August 2003 response that “we are unabl e to provide to the Panel the total outlays 
under the cited programmes with respect to upland cotton base acreage.” 
 
• 7 October 2003 :  The United States alleges that “Br azil has presented no evidence that the 
recipients of these decoupled payments on upland cotton base acres are, in fact, upland cotton 
producers”.
61  And the United States alleges that  Brazil’s methodology is “merely a guess 
because Brazil has failed to demonstrate that th e acres currently being used for upland cotton 
production are, in fact, upland cotton base acres.   That is, Brazil has presented no evidence 
that the recipients of these decoupled paym ents on upland cotton base acres are, in fact, 
upland cotton producers”.62  The United States further alleges that Brazil has not substantiated 
the amount of contract payments to US upland co tton producers (“[I]t is for Brazil to establish 
who are the recipients of the subsidies and that  the subsidies are properly attributed to upland 
cotton.”63 “Nor has [Brazil] demonstrated how much of the subsidy … should be allocated to 
other products produced by the reci pient, such as corn or soybeans.”64). 
  
• 8 October 2003:  The Panel orally asks the United Stat es whether it collects or maintains 
information concerning the amount of cont ract payments received by upland cotton 
producers.  The United States answered orally that it neither collected nor retained this 
information. 
 
• 9 October 2003:   Brazil stated in its closing statement that it had “requested this information 
[i.e., information concerning the amount of contra ct payments to upland cotton producers] 
more than a year ago in the consultation phase of this dispute but never received any 
information”.65  The United States, following its closi ng statement, informed the Panel and 
Brazil that the 2002 FSRI Act contained a reporting requirement for the United States to 
                                                      
57 Brazil’s 11 August 2003 Answers to Questions, para. 190. 
58 25 August 2003 Communication from the Panel. 
59 US 27 August 2003 Comments and Answers to Additional Question, para. 20. 
60 US 27 August 2003 Comments and Answers to Additional Question, para. 20. 
61 US 7 October 2003 Oral Statement, para. 14.   
62 US 7 October 2003 Oral Statement, para. 6. 
63 US 7 October 2003 Oral Statement, para. 10.   
64 US 7 October 2003 Oral Statement, para. 19.   
65 Brazil’s 9 October 2003 Closing Statement, para. 2. WT/DS267/R/Add.2 
Page I-714  
 
collect information on planted acreage, as a cond ition for recipients receiving direct payments 
and CCP payments.  
 
• 13 October 2003:  The Panel asks the United States in Question 125(9) how to calculate 
upland cotton contract paymen ts made to cotton producers and how to account for non-upland 
cotton contract payments made to producers of upland cotton.
66 
 
• 27 October 2003:  The United States responds to Question 125(9) by stating that it is for 
Brazil to prove the amount of contract payments (which the United States does not limit to upland cotton contract payments) that n eed to be allocated to upland cotton.
67  While referring 
to Annex IV, the United States declines to provide any data.68 
 
• 18 November 2003:   Brazil requested the Panel to request the United States to produce 
information that would permit the calculation of a very precise amount of contract payment support to current producers of upland cotton.
69  Brazil further set forth evidence that USDA 
collects and maintains in a centralized database base acreage data and planted acreage data for 
all farms for MY 2002 and for almost all farms for the period MY 1999-2001.70   
 
• 21 November 2003:   USDA’s Kansas City FOIA office de livered to a private US citizen a 
completed analysis of farm-specific contract acreage data and planted acreage data for MY 1996-2002 regarding rice.  The FOIA documentation indicates that the request was received on 30 October 2003, and that work wa s completed on 14 November 2003.  The rice 
data showed that between 99.52 and 99.90 per cent of the farms producing rice in MY 1999-
2002 completed planted acreage reports.  Th e rice data provided by USDA permitted the 
calculation of the exact amount of rice contr act acreage that was planted to rice during 
MY 1996-2002.
71   
 
• 2 December 2003:   Brazil requests the United States to provide farm-specific information as 
set out in Exhibit Bra-369.   
 
• 3 December 2003:  Brazil presented the results of the rice FOIA request to the Panel and 
provided a copy of the rice data to the Panel and the United States.72 
 
• 8 December 2003:  The Panel requests the United Stat es to provide the farm-specific 
information set out in Exhibit Bra-369.  In Question 195, the Panel asked whether “the United States wish to revise its response to the Panel's Question No. 67 bis, in particular, its 
statement that “the United States ... does not  maintain information on the amount of 
expenditures made under the cited progra mmes to US upland cotton producers?”
73   
 
• 18 December 2003:   The United States produced scrambled farm-specific information for 
MY 1999-2001, contrary to Brazil’s and the Pane l’s requested set out in Exhibit Bra-369.   
                                                      
66 13 October 2003 Communication from the Panel. 
67 US 27 October 2003 Answers to Questions, para. 23. 
68 US 27 October 2003 Answers to Questions, para. 24. 
69 Brazil’s 18 November 2003 Further Rebuttal Submission, para. 48.   
70 Brazil’s 18 November 2003 Further Rebuttal Submission, paras. 33-48.   
71 Exhibit Bra-368 (Second Statement of Christopher Campbell – Environmental Working Group, 1 
December 2003) and Exhibit Bra-369 as amended on 3 D ecember 2003 (Brazil’s Request  to the United States 
for Farm – Specific Planting and Base Acreage Data, 3 December 2003). 
72 See Exhibit Bra-368 (Second Statement of Christopher Campbell – Environmental Working Group, 
1 December 2003) and Exhibit Bra-369 as amended on 3 December 2003 (B razil’s Request to the United States 
for Farm – Specific Planting and Base Acreage Data, 3 December 2003). 
73 8 December 2003 Communication from the Panel. WT/DS267/R/Add.2 
Page I-715 
 
 
 • 19 December 2003:   The United States produced scrambled farm-specific information for 
MY 2002, contrary to Brazil’s and the Panel’s requested set out in Exhibit Bra-369.   
 
• 22 December 2003:   The United States responds to Question 195 but does not “state the 
annual amount granted by the US governme nt in each of the 1999, 2000, 2001 and 2002 
marketing years to upland cotton producers … in total expenditures under the [four contract 
payment programmes]”, as requested by the Panel on 25 August 2003 in Question 67 bis.  The 
United States reasoned that it “does not coll ect production data based on actual harvesting 
figures reported by farmers”.74  The United States response did not offer any information 
regarding the amount of contract payments received by upland cotton farmers who planted 
upland cotton.  Brazil indicated in its Answer to Question 196 that the scrambled information 
provided by the United States prevented it from calculating the amount of payments received 
by US upland cotton producers planting upl and cotton on contract base acreage.75   
 
• 12 January 2004:  The Panel requested farm-specific information from the United States 
indicating that “it considers it both necessary a nd appropriate to seek this information in a 
suitable format in order to undertake its mandate to assist the DSB in discharging its 
responsibilities under the DSU and the covered agreements”.76  The Panel further stated that 
“disclosure is sought to permit an assessment of the total expenditures of PFC, MLA, CCP, 
and direct payments by the US Federal Governme nt to upland cotton producers in the relevant 
marketing years”.  The Panel requested the United States to produce the information by 
20 January 2004.  
 
• 20 January 2004:   The United States filed a letter with the Panel stating it would not produce 
non-scrambled farm-specific data requ ested by the Panel on 12 January 2004.77  T h e  
United States did not provide total expenditure information for the four contract payments 
originally requested in Question 67 bis and did not otherwise provide information that would 
“permit an assessment of the total expenditu res” that constitute “support to” upland cotton 
under the four contract payments, as requested by the Panel on 12 January 2004.  Brazil files 
a detailed description of its methodology a llocating upland cotton and non-upland cotton 
contract payments as support to upland cotton.78 
 
• 28 January 2004:  Brazil filed a request that the Panel draw adverse inferences from the 
United States refusal during the period N ovember 2002 through January 2004 to produce 
information relating to the amount of contract payments received by upland cotton producers 
who planted upland cotton.79  The United States provided revised scrambled farm-specific 
data.80 
 
• 3 February 2004:   The Panel requested aggregated farm-specific information from the 
United States in a format similar to the rice FOIA  request set out Exhibit Bra-369, and further 
requested that the United States produce plante d information on crops on cropland covered by 
the acreage reports.  The Panel gave the Unite d States until 11 February 2004 to provide the 
requested data.81  This aggregate data would allow a precise calculation of the amount of 
support to upland cotton from the US contract  payments, whereas th e US summary data 
                                                      
74 US 22 December 2003 Answer s to Questions, para. 6. 
75 Brazil’s 22 December 2003 Answer to Question 196.   
76 12 January 2004 Communication from the Panel. 
77 US 20 January 2004 Letter to the Panel. 
78 Brazil’s 20 January 2004 Answers to Additional Questions, paras. 43-55. 
79 Brazil’s 28 January 2004 Comments and Requests Regarding US Data, Section 6. 
80 US 28 January 2004 Letter to the Panel. 
81 3 February 2004 Communication from the Panel. WT/DS267/R/Add.2 
Page I-716  
 
produced on 18/19 December 2003 and the revised US summary data produced on 28 January 2004 does not.
82  The Panel also asked the United States (Question 260) how it 
reconciled its 27 August 2003 response (that it did not maintain data on contract payments to 
upland cotton producers) with its 20 January 20 04 Letter to the Panel stating that it had 
provided such information.83 
 
• 11 February 2004:   The United States indicated it was not in a position to respond to the 
Panel’s 3 February 2004 request and stated that it needed an additional four weeks to provide 
the aggregated data.84   
 
• 13 February 2004:   Brazil requested the Panel to deny the United States any additional time 
to respond to the Panel’s 3 Fe bruary 2004 request, noting that this request represented the 
fifth time that the Panel had requested the United States to provide total expenditure 
information regarding the amount of contract  payments made to upland cotton producers.85    
 
• 16 February 2004:   The Panel extended the deadline for the United States to provide the data 
requested on 3 February 2004 and clarified its request.86 
 
• 3 March 2004:  The deadline for the United States to pr oduce the data requested by the Panel 
on 3 February 2004.87 
 27. Brazil hopes that the United States will fina lly live up to its obligation under the DSU and 
provide data that would permit the calculation of the support to upland cotton from the US contract payments.  In one form or another, these figures have been at issue in all stages of this dispute – from 
the first round of consultations until the latest subm issions to the Panel 16 months later.  During all 
this time, it has been clear to the United States th at what Brazil and the Panel sought was information 
that would enable a determination of the amount of  contract payments that actually benefit upland 
cotton production.  To be clear, that means suppor t that benefits farms th at plant upland cotton and 
support that can be allocated to this upland cotton planting/production.  
28. In case the United States should fail to pr oduce the information by 3 March 2004, Brazil 
maintains its 28 January 2004 request to the Panel to  draw adverse inferences from this failure of 
cooperation.  Drawing adverse inferences is clear ly warranted given the history of his dispute 
settlement proceeding.  261. Please confirm that each record in the actu al planting database relates to a specific farm 
(Filenames: rPFCplac and rDCPplac in Exhibits US-111 and US-112).  For example, in the data 
from rDCPplac:   First line : 
Field9;Field16;Field22;Field28;Field34;Field40;Field46;Field52;Field58;Field64;Field70;Field7
6;Field82;Field88;Field94;Field100 
 Second line : 
237.10;23059.80;5566.20;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00;0.00   
                                                     
 
82 Brazil’s 13 February 2004 Letter to the Panel.  See also Brazil’s 18 February 2004 Comments on US 
11 February 2004 Comments on Brazil’s 28 January 2004 Comments and Requests Regarding U.S. Data. 
83 3 February 2004 Communication from the Panel. 
84 Cover Letter to US 11 February 2004 Answers to Additional Questions. 
85 Brazil’s 13 February 2004 Letter to the Panel. 
86 16 February 2004 Communication from the Panel. 
87 16 February 2004 Communication from the Panel. WT/DS267/R/Add.2 
Page I-717 
 
 
 Does the second line represent data on  plantings by the same farm? 
262. The Panel has noted the two CD-ROMs delivered by the US in the evening of 
23 December 2003. They are marked "US-111" a nd "US-112" respectively, but the contents 
actually do not correspond to the indication. The Panel also takes note of the US letter dated 
28 January 2004 and the CD-ROM delivered together with it. For the record, please clarify the 
correct CD-ROMs and provide corresponding descriptions of their contents with exhibit 
numbers.  
   263. The Panel has noted that the United States' response to Question No. 214 refers 
to Exhibits US-117 and US-118. Are these the co rrect documents to which the United States 
intended to refer in that response?  If not, pl ease provide a copy of regulations regarding the 
marketing loan programme and loan deficiency  payments published at 58 Federal Register 
15755, dated 24 March 1993. 
 264. The Panel asks the United States to clarify certain aspects of Exhibit US-128: (a) Is the Panel correct in understanding that -- as Brazil asserts in footnotes 290 and 291 of 
Brazil's 28 January 2004 comments on US re sponses to questions -- Exhibit US-128, all 
data are presented on a cohort-specific basis?   If so, please also present the information 
originally requested by the Panel in another chart containing programme  (as opposed to 
cohort-specific) activity by fiscal year.   
Brazil’s Comment: 
29. In paragraph 21 of its 11 February 2004 r esponse, the United States suggests that Brazil’s 
cash-basis accounting methodology for making an assess ment under item (j), because it uses data 
included in the US budget, is “based on estimates  and re-estimates” under the Federal Credit Reform 
Act (“FCRA”).  This response is untruthful in the extreme. 
30. None – absolutely none – of the data u sed for Brazil’s cash-basis accounting methodology for 
making an assessment under item (j) is “based on estimates and re-estimates” generated for the 
purposes of the FCRA.  As is evident from the chart included in paragraph 165 of Brazil’s 
11 August 2003 Answers (reproduced in paragra ph 129 of its 28 January 2004 comments), Brazil’s 
cash-basis accounting methodology relies on data from the “actual”, prior year column of the US budget.  Moreover, the data input into Brazil’ s cash-basis accounting methodology is drawn from the 
“financing account” for the CCC programmes.
88  The US budget makes the following statement about 
the financing account: 
As required by the Federal Credit Re form Act of 1990, this non-budgetary  account 
records all cash flows  to and from the Government resulting from loan guarantees 
committed in 1992 and beyond.  The amounts in this account are a means of financing and are not
 included in the budget  totals.89 
31. Whether presented on a cohort-specific (Exhibit US-128) or a fiscal year (Exhibit US-147) 
basis, Brazil notes that none – absolutely none – of the data provided by the United States is 
                                                      
88 The only exception is administrative expenses, which Brazil takes from the “programme account” 
included in the U.S. Budget.  See, e.g., Exhibit Bra-127 (2004 US Budget, p. 107 (line 00.09)).  The US budget 
notes, however, that “administrative expenses are estimated on a cash basis”, rather than a present value basis.  
See, e.g., Exhibit Bra-127 (2004 US Budget, p. 108).  See also Brazil’s 22 July 2003 Oral Statement, para. 130 
(and citations included at footnote 168) .  In any event, the United States and Brazil use virtually identical figures 
for the administrative costs of the CCC programs.  See Exhibit Bra-431 (Columns 5(a) and 5(b)). 
89 See, e.g., Exhibit Bra-127 (2004 U.S. Budget, p. 109 (emphasis added)). WT/DS267/R/Add.2 
Page I-718  
 
verifiable.  The United States has provided no
 documentation (or even citations to documentation that 
could be independently collected and reviewed by th e Panel) to back up its data.  The Panel asked the 
United States for this supporting documentation in Ju ly 2003, in Question 78 to the United States.  
The United States has never provided the supporting documentation requested by the Panel.  In contrast, Brazil has provided US government documents  to back up each and every figure input into 
its cash-basis accounting methodology for making an assessment under item (j).
90   
 
(b) Does the US agree with the statement in paragraph 135 of Brazil's 28 January 2004 
comments on US responses to questions that  the difference between the $1,148 billion in 
the chart at para. 165 of Brazil's 11 August answers to questions and the $666 million 
amount in Exhibit US-128 ($1.75 billion) closely corresponds to the total "Claims 
rescheduled" figure reported by the US in Exhibit US-128 (column F)?   
 
Brazil’s Comment: 
 32. The United States has failed to answer the Pane l’s question, stating that it will instead do so 
on a timeline of its own choosing.
91  The United States did not request additional time from the Panel, 
either in its 11 February 2004 response or in the co ver letter to that response, but simply asserted in 
paragraph 23 of its response that it will  take whatever additional time it needs.92  In its letter to the 
Panel dated 13 February 2004, Brazil noted that th e United States had more than adequate time 
(8 days) to undertake the review necessary to answ er the Panel’s question.  After receiving the fiscal-
year cash-basis accounting data included in Exhibit US-147, it took Brazil one hour to prepare a 
spreadsheet – included as Exhibit Bra-431 – that zero es in on and identifies the reason that Brazil’s 
cash-basis accounting methodology concludes that th e operating costs and losses for the CCC export 
credit guarantee programmes have exceeded income  over the period 1993-2002  by $1.083 billion, 
while the United States’ cash-basi s accounting methodology conclud es that income for the CCC 
export credit guarantee programmes has exceeded operating costs and losses over the period 1993-
2002 by $536 million.  33. In its 16 February 2004 ruling, the Panel did not respond to Brazil’s request that it deny the 
United States’ efforts to decide at what pace it wishes to offer responses to the Panel’s questions.  
Brazil requests that if the United States, whenever it deems it convenient, eventually offers a response 
to Question 264(b), the Panel reject that response as  not timely filed.  If the Panel accepts the United 
States’ response, Brazil reserves the right to comment.  34. In any event, the spreadsheet included as Exhibit Bra-431 confirms the assertion Brazil made 
in paragraph 135 of its 28 January 2004 Comments, which is that the difference between the results 
arrived at using the Brazilian versus the US cash-b asis methodology (a differe nce of $1.6 billion) is 
largely due to the United States’ treatment of r escheduled claims (listed by the United States as 
$1.58 billion).  As confirmed by the United States in paragraph 24 of its 11 February 2004 response to 
Question 264(c), the United States’ methodology treats defaulted guarantees that have been 
rescheduled as 100 per cent recovered at the mome nt the terms of the rescheduling are agreed. 
 
35. Brazil, in contrast, treats rescheduled clai ms as receivables.  Under Brazil’s methodology, 
receivables resulting from rescheduling are treated  just like any other receivable – receivables 
resulting from rescheduling are only treated as recovere d incrementally, to the extent, in a given year, 
some increment of the rescheduled debt is actually  collected (in column 2(a) of Exhibit Bra-431).  
                                                     
 
90 See exhibits cited in Brazil’s 11 August 2003 Answers, para. 165 and Brazil’s 28 January 2004 
Comments, para. 129. 
91 US 11 February 2004 Answers, para. 23. 
92 In a letter to the Panel dated 16 February 2004 , the United States similarly declares that it “will 
provide any other data in response to Question 264(b) within the time indicated (and sooner if the data can be 
collected and examined  in less time).” WT/DS267/R/Add.2 
Page I-719 
 
 
 This fundamental difference in approach is the r eason that the “claims outstanding” recorded by the 
United States (in column 4(b) of Exhibit Bra-431)  and Brazil (in column 4(a) of Exhibit Bra-431) 
differ by $1.6 billion – the only significant difference revealed in the comparison included in Exhibit Bra-431. 
36. As Brazil has previously demonstrated, it is not actuarially appropria te to treat defaulted 
guarantees that have been rescheduled as 100 per cent recovered at the moment the terms of the 
rescheduling are agreed.
93  Brazil and the United States agree that  a default that has been rescheduled 
is properly treated as a receivable94, but as the CCC itself has acknowledged in its financial 
statements, not all receivables are considered collectible , let alone actually collected .95   
37. The United States’ methodology itself recogni zes that defaulted guarantees that have been 
rescheduled are only collected over time (if at a ll).  While the United States treats the principal  
amounts of rescheduled debt as an immediate, 100 per cent recovery that is passed through as a 
dollar-on-dollar reduction of the amount of clai ms outstanding in the year the terms of the 
rescheduling are agreed, it also tracks massiv e (and ever increasing) amounts of interest  collected on 
reschedulings (column M in Exhibit US-147).  Intere st is collected on the rescheduled debt because 
significant amounts of principal remain outstanding on that rescheduled debt.  It is not legitimate, 
therefore, for the United States to treat that r escheduled debt as recovered at the moment it is 
rescheduled, since it is not actually recovered at that moment.   
38. In fact, no evidence suggests that CCC will co llect the rescheduled principal that remains 
outstanding.  In column F of Exhibit US-147, the United States states that $1.64 billion of defaulted CCC guarantees have been rescheduled over the peri od 1992-2003.  Yet as of 30 November 2003, the 
United States reports in Exhibit US-153 that th e principal outstanding on these reschedulings amounts 
to $1.58 billion.  This means that over the pe riod 1992-2003, the CCC has only collected $60 million, 
or 3.6 per cent, of the $1.64 billion in defaulted CC C guarantees that have been rescheduled.  Over 
96 per cent of defaulted CCC guarantees that have been rescheduled over the period 1992-2003 
remain outstanding .   
39. This demonstrates precisely why it is not leg itimate for the United States to treat rescheduled 
debt as recovered at the moment it is rescheduled.  The record does not  suggest that the CCC will 
collect this rescheduled debt – in fact, the reco rd shows that the CCC hardly collects any of the 
principal on its rescheduled debt.  Rescheduled debt  is nothing more than a receivable, and should be 
treated as recovered only incrementally, as portions of th at debt are, in fact, recovered.  This is how 
Brazil has treated rescheduled debt in its own cash-basis accounting methodology for making an assessment under item (j) (column 2(a) of Exhibit Bra-431). 
40. Even if rescheduled debt could, as an actua rial matter, be considered 100 per cent recovered 
at the very moment the terms of the rescheduling ar e concluded but before the rescheduled debt is in 
actual fact collected, the United States appears to have triple-counted portions of the CCC 
reschedulings.  The Panel will recall that unde r the United States’ cash-basis accounting methodology 
for making an assessment under item (j), the entir e amount of the approximately $1.6 billion in 
                                                     
 
93 See Brazil’s 28 January 2004 Comments, paras. 135-137; Brazil’s 27 August 2003 Comments, para. 
64; Brazil’s 22 August 2003 Comments, para. 99; Brazil’s 11 August 2003 Answers, para. 162; Brazil’s 22 July 2003 Oral Statement, para. 122. 
94 See US 11 August 2003 Answers, para. 155. 
95 Exhibit Bra-158 (US Department of Agriculture, Office of Inspector General, Financial and IT 
Operations, Audit Report, Commodity Credit Corporation’s Financial Statements for Fiscal Year 2002 , Audit 
Report No. 06401-15-FM (December 2002), Notes to th e Financial Statements, p. 14); Exhibit US-129 (US 
Department of Agriculture, Office of Inspector General, Financial and IT Operations, Audit Report, Commodity 
Credit Corporation’s Financial Statements for Fiscal Years 2003 and 2002 , Audit Report No. 06401-16-FM 
(November 2003), Notes to the Financial Statements, p. 15). WT/DS267/R/Add.2 
Page I-720  
 
rescheduled debt (in column 3(b) of Exhibit Bra-431) is subtracted from the amount of claims outstanding (in column 4(b) of Exhibit Bra-431) in the year the terms of the rescheduling are agreed.  Over $636 million of the approximately $1.6 billion in reschedulings listed in Exhibit US-153 and column 3(b) of Exhibit Bra-431, however, appear s to have been “[p]reviously [r]escheduled” ( see the 
last two entries in Exhibit US-153, concerning CCC gu arantees to Russia).  It already is not legitimate 
for the United States to treat rescheduled debt as recovered at the moment it is rescheduled, since the 
record shows that the CCC has only collected 3.6 per cent of that rescheduled debt.  But to allow the 
United States to reduce claims outstanding multiple times for successive reschedulings of the very 
same underlying defaults is unacceptable. 
 
(c) Does the US agree that from the formula in column G (that is: (Column (D) minus (E) 
minus (F)), it follows that a rescheduled cl aim no longer constitutes an outstanding 
claim at the moment the terms of the re-sch eduling are agreed and that a rescheduling is 
treated as 100 per cent recovered, as Brazil st ates in footnote 292 of Brazil's 28 January 
2004 comments on US responses to questions? 
 
Brazil’s Comment: 
 
41. Brazil notes the United States acknowledgment, in paragraph 24 of its response, that under 
the US cash-basis accounting methodology for making an assessment under item (j), a rescheduled claim no longer constitutes an outstanding claim as of  the moment the terms of the rescheduling are 
agreed.  Please see Brazil’s co mment on the United States’ response to Question 264(b), which 
demonstrates that it is not legitimate for the United States to treat rescheduled debt as recovered at the 
moment it is rescheduled, since the record shows th at the CCC has only collected 3.6 per cent of that 
rescheduled debt.  
42. Additionally, Brazil notes the United States’ statement, at paragraph 24 of its 
11 February 2004 response, that “no principal paymen ts received under reschedulings are reflected in 
Exhibit US-128”.  It is hardly surprising that th e United States does not treat principal payments on 
rescheduled debt as recovered principal (under colu mn 2(b) of Exhibit Bra-431), incrementally and 
year-on-year as they are actually recovered, sin ce the United States already subtracts 100 per cent of 
rescheduled debt from claims outstanding (column 4(b) of Exhibit Bra-431) immediately, in the year 
the terms of the rescheduling are agreed. 
 
(d) Is the Panel correct in understanding that th e amount of $888,984,7 92.04 in column F in 
Exhibit US-128 under "ALL" for 1992 represents  the total continuing amount of 
unrecovered claims for the 1992 cohort, and that the amount of 387,692,219.39 
represents the total continuing amount of unrecovered claims for the 1993 cohort, etc?  
Please indicate and substantiate how much pr incipal and/or interest has actually been 
paid/recovered/rescheduled annually  1992-2003 in respect of each of the amounts shown 
in Columns D, E & F in the table.   
 
Brazil’s Comment: 
 
43. Please see Brazil’s comment on the United States’ response to Question 264(b), which 
demonstrates that it is not legitimate for the United States to treat rescheduled debt as recovered at the 
moment it is rescheduled, since the record shows th at the CCC has only collected 3.6 per cent of that 
rescheduled debt. 
 
44. As noted in Brazil’s comment on the US respon se to Question 264(c), it is evident that the US 
methodology does not “reflect payment perfo rmance under the reschedulings themselves”
96 (under 
column 2(b) of Exhibit Bra-431), since the United States already subtracts 100 per cent of rescheduled 
                                                      
96 US 11 February 2004 Answers, para. 25. WT/DS267/R/Add.2 
Page I-721 
 
 
 debt from claims outstanding (column 4(b) of Exhibi t Bra-431) immediately, in the year the terms of 
the rescheduling are agreed. 
 
265. In connection with the US response to Qu estion No. 225, please also provide amounts 
actually "written off" and "forgiven" annually for each post-1992 cohort, with annual details of 
country and amount (principal/interest).  
Brazil’s Comment: 
 
45. The United States notes, in paragraph 27 of its  response, that “CCC financial records indicate 
that no amounts have been ‘written off’ or ‘forgiv en’ with respect to any post-1992 cohort.”  Brazil 
makes two observations.  46. First, Brazil notes that the Federal Credit Re form Act took effect for the 1992 cohort.  Thus, 
the Panel’s question was likely meant to refer to “each post-1991
 cohort”.  Brazil hopes that the 
United States understood the Panel’s question to include the 1992 cohort. 
 47. Second, Brazil makes the obvious point that defa ults need not be “written off” or “forgiven” 
to constitute an operating cost or loss for the purpos es of item (j).  Defaults (or other operating costs 
and losses) that remain on the books are just as rele vant to an assessment under item (j) as they would 
be if they were “written off” or “forgiven”. 
 
266. What are the precise terms, conditions and duration of each rescheduling reflected in 
column F in Exhibit US-128? 
 
Brazil’s Comment: 
 
48. While the Panel asked for the “precise term s, conditions and durati on of each rescheduling”, 
the United States has provided “summarized” data
97, without any documentary evidence as support. 
 
267. Is the Panel correct in understanding that  "interest collected on reschedulings" in 
Column M in Exhibit US-128 refers not to amount s that have been actually collected by the 
CCC but rather to interest capitalized in conjuncti on with the rescheduling?  If so, what are the 
terms, conditions and duration of the a rrangements pertaining to these amounts? 
 
Brazil’s Comment: 
 49. Please see Brazil’s comment on the United States’ response to Question 264(b), which 
demonstrates that it is not legitimate for the United States to treat rescheduled debt as recovered at the 
moment it is rescheduled, since the record shows th at the CCC has only collected 3.6 per cent of that 
rescheduled debt.  50. As noted in Brazil’s comment on the US r esponses to Questions 264(c) and 264(d), it is 
hardly surprising that the US methodology does not “reflect … payment of original principal”
98 
(under column 2(b) of Exhibit Bra-431), since the United States already subtracts 100 per cent of rescheduled debt from claims outstanding (column 4(b) of Exhibit Bra-431) immediately, in the year the terms of the rescheduling are agreed. 
 
268. Concerning Column N in Exhibit US-128, please elaborate upon "Interest earned from 
US Treasury on uninvested funds".  What is the source and authority for these funds and for 
                                                     
 
97 US 11 February 2004 Answers, para. 28. 
98 US 11 February 2004 Answers, para. 29. WT/DS267/R/Add.2 
Page I-722  
 
the interest thereon to be part of the CCC total revenues?  What are the terms, conditions and 
duration of the arrangements pertaining to these amounts? 
  269. The Panel notes the table submitted by the US in its answer to Question No. 224 
(CCC Financing Account Payments of Interest  on Borrowings from Treasury and Interest 
Earned on Uninvested Funds).  Is the Panel cor rect in understanding that the figures in this 
table correspond to the "ALL" figures in Columns I and N of Exhibit US-128?   
  270. With respect to Column I in Exhibit US-128,  ("Interest paid on borrowing from US Treasury") and Note 8, p. 25 of Exhibit US-129: 
 
 (i) please provide the total annual amo unts (interest bearing and non-interest 
bearing) borrowed by the CCC from the US  Treasury (annually since 1992), as 
well as the terms, conditions, interest ra te (where applicable) and duration of 
such borrowing.   Please provide details of any other amount borrowed by the 
CCC from the US Treasury during this peri od that may not have formed part of 
the regular annual borrowings.  
 
Brazil’s Comment: 
 
51. The United States has not answered the Pane l’s question, which requested “the terms, 
conditions, interest rate (where applicable) and duration” of CCC borrowings from the US Treasury. 
 
 (ii) Please explain the nature of "CCC's permanent indefinite borrowing authority 
from Treasury" referred to in Note 8, p. 25 of Exhibit US-129. 
 
Brazil’s Comment: 
 
52. The United States’ response inaccurately imp lies that CCC’s authority to extend export credit 
guarantees is somehow limited by the budget appropr iations process.  As Brazil has frequently noted, 
US law expressly provides that the CCC export credit guarantee programmes are exempt from the 
requirement that they receive new Congressional budget authority before undertaking new guarantee 
commitments.
99  Moreover, any “subsidy” losses the programmes incur are funded “through a 
permanent, indefinite appropriati on and not by annual appropriation”.100 
 
 (iii) What determines the level of CCC ex port credit guarantee borrowing (interest-
bearing and non-interest-bearing)?  Is the interest-free borrowing up to the 
amount of unreimbursed realized losses?   
 
 (iv) Why are repayments applied to non-interest bearing notes first, as indicated at 
Note 8, p. 25 of Exhibit US-129? 
 
271. Note 8, p. 25 of Exhibit US-129 states that "In fiscal year 2003, CCC was fully 
reimbursed for its prior year net realized losses."  Please indicate the amounts of prior year net 
realized losses (annually, since 1992) for wh ich the CCC has been fully reimbursed.  
                                                      
99 See Exhibit Bra-117 (2 U.S.C. § 661(c)(2)); Exhibit Bra-185 (Congressional Budget Office Staff 
Memorandum, “An Explanation of the Budgetary Changes under Credit Reform,” April 1991, p. 7 and Table 2); Exhibit Bra-186 (Congressional Research Service Issue Brief for Congress, “Agriculture and the Budget,” 
IB95031 (16 February 1996), p. 3). 
 100 US House of Representatives, Report 105-178, Ag riculture, Rural Development, Food and Drug 
Administration, and Related Agencies Appropriations Bill, 1998, p. 90, available at:    
http://frwebgate.access.gpo.gov/cgi-
bin/getdoc.cgi?dbname=105_cong_reports&docid=f:hr178.105.pdf. WT/DS267/R/Add.2 
Page I-723 
 
 
 Brazil’s Comment: 
 
53. The United States’ response inaccurately imp lies that CCC’s authority to extend export credit 
guarantees is somehow limited by the budget appropr iations process.  As Brazil has frequently noted, 
US law expressly provides that the CCC export credit guarantee programmes are exempt from the 
requirement that they receive new Congressional budget authority before undertaking new guarantee 
commitments.101  Moreover, any “subsidy” losses the programmes incur are funded “through a 
permanent, indefinite appropriati on and not by annual appropriation”.102 
 
272. With respect to the US response to Qu estion No. 226, is the Panel correct in 
understanding that the reflection of write-offs as  part of the operating loss of the CCC which in 
turn was replenished through the annual appropri ations process ended with the entry into force 
of the FCRA in fiscal year 1992?  If not, what amounts have been replenished through this process annually since fiscal year 1992?    
 
Brazil’s Comment: 
 
54. Brazil notes that under US law, any “s ubsidy” losses the CCC export credit guarantee 
programmes incur are funded “through a permanent,  indefinite appropriation and not by annual 
appropriation”.
103 
 273. With respect to the US response to Quest ion No. 225, what criteria does the CCC apply 
to "independently determine" that a debt is uncollectible?  For post-1992 cohorts, what are 
these uncollectible amounts (annually) and how, if at all, are such "uncollectible amounts" 
shown in Exhibit US-128?     
 
Brazil’s Comment: 
 
55. The United States notes, in paragraph 44 of its  response, that “[w]ith respect to post-1992 
cohorts, no amounts have been dete rmined uncollectible . . .”  Brazil makes two observations. 
 56. First, Brazil notes that the Federal Credit Re form Act took effect for the 1992 cohort.  Thus, 
the Panel’s question was likely meant to refer to “each post-1991
 cohort”.  Brazil hopes that the 
United States understood the Panel’s question to include the 1992 cohort. 
 57. Second, Brazil notes that CCC’s financial st atements record a $1.16 billion “subsidy 
allowance” for all post-1991 cohorts.
104  Under the FCRA, the subsidy allowance is recorded on a net 
present value basis, which means that it represen ts the cost CCC considers it will incur on post-1991 
guarantee cohorts at the time those cohorts are closed.  In other words, at the time all outstanding 
                                                      
101 See Exhibit Bra-117 (2 U.S.C. § 661(c)(2)); Exhibit Bra-185 (Congressional Budget Office Staff 
Memorandum, “An Explanation of the Budgetary Changes under Credit Reform,” April 1991, p. 7 and Table 2); Exhibit Bra-186 (Congressional Research Service Issue Brief for Congress, “Agriculture and the Budget,” 
IB95031 (16 February 1996), p. 3). 
 
102 US House of Representatives, Report 105-178, Agriculture, Rural Development, Food and Drug 
Administration, and Related Agencies Appropriations Bill, 1998, p. 90, available at:  
http://frwebgate.access.gpo.gov/cgi- bin/getdoc.cgi?dbname=105_cong_r eports&docid=f:hr178.105.pdf. 
 103 US House of Representatives, Report 105-178, Agriculture, Rural Development, Food and Drug 
Administration, and Related Agencies Appropriations Bill, 1998, p. 90, available at:  
http://frwebgate.access.gpo.gov/cgi- bin/getdoc.cgi?dbname=105_cong_r eports&docid=f:hr178.105.pdf. 
104 Exhibit US-129 (US Department of Agriculture, Office of Inspector General, Financial and IT 
Operations, Audit Report, Commodity Credit Corporation’s Financial Statements for Fiscal Years 2003 and 
2002 , Audit Report No. 06401-16-FM (November 2003),  Notes to the Financial Statements, p. 15). WT/DS267/R/Add.2 
Page I-724  
 
post-1991 cohorts close, the CCC considers th at it will face $1.16 billion in uncollectible 
guarantees.
105 
 
274. The Panel notes the US statement in the US response to Question No. 81 that  "All 
rescheduled claims are currently performing " and that "all payments due up to this point 
under [rescheduling] agreements have been re ceived".  However, the Panel also notes 
Exhibit US-129 (in particular, Note 5 on p. 22) and Brazil's reference thereto in Brazil's 28 January comments on the US response to Quest ion No. 222.   In this connection:  
  (a) How does the US respond to Brazil's stat ement in Brazil's 28 January comments 
that Exhibit US-129 confirms that rescheduling of export credit guarantee receivables 
cover both principal and interest, thereby co nfirming that not all of the rescheduled 
debt performs and that additional interest charges were also rescheduled?  
 
Brazil’s Comment: 
 
58. The United States has offered no documentary support for its assertion that the “substantial 
majority” of the reschedulings referred to in Note 5, p. 22 of Exhibit US-1 29 “pertain to activities 
related to the P.L. 480 foreign food assistance programme”.
106 
 59. Moreover, the United States has never offered any
 support for its repeated assertion that “[a]ll 
rescheduled export credit guarantee debt is currently performing.”107  In fact, in its comment on the 
US response to Question 264(b), Brazil demonstrated  that CCC is not collecting over 96 per cent of 
the rescheduled principal that remains outstanding.108  In column F of Exhibit US-147, the 
United States states that $1.64 billion of defa ulted CCC guarantees have been rescheduled over the 
period 1992-2003.  Yet as of 30 November 2003, the United States reports in Exhibit US-153 that the 
principal outstanding on these reschedulings amounts to $1.58 billion.  This means that over the 
period 1992-2003, the CCC has only collected $60 milli on, or 3.6 per cent, of the $1.64 billion in 
                                                      
105 The Congressional Budget Office agrees, projecting positive subsidy estimates for every cohort 
during the period 2002-2013.  Exhibit Bra-432 (Congressional Budget Office, Fact Sheet, row titled “Export 
Credit Guarantee Program, Subsidy Account,” available at http://www. cbo.gov/factsheet s/CCC&FCIC.pdf). 
106 US 11 February 2004 Answers, para. 46.  As the party asserting this fact, the United States bears the 
burden of proving it.  See e.g. Appellate Body Report, Japan – Apples , WT/DS245/AB/R, para. 157  (“It is 
important to distinguish, on the one hand, the principle that the complainant must establish a prima facie case of 
inconsistency with a provision of a covered agreement from, on the other hand, the principle that the party that asserts a fact is responsible for providing proof thereof.”). 
107 US 11 February 2004 Answers, para. 48.  See also  U.S. 11 August 2003 Answers, para. 155.  As the 
party asserting this fact, the United States bears the burden of proving it.  See e.g. Appellate Body Report, Japan 
– Apples , WT/DS245/AB/R, para. 157  (“It is important to distinguish, on the one hand, the principle that the 
complainant must establish a prima facie case of inconsistency with a provision of a covered agreement from, 
on the other hand, the principle that the party that asserts a fact is responsible for providing proof thereof.”). 
108 Moreover, the United States has never responded to reports by the U.S. General Accounting Office 
and testimony by GAO officials, submitted by Brazil, demonstrating that CCC rescheduling has historically 
been in arrears.  See Brazil’s 28 January 2004 Comments, para. 136; Brazil’s 22 August 2003 Comments, 
para. 99.  See also Exhibit Bra-181 (US General Accounting Office,  Report to the Ranking Minority 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), p. 50-52 and Table 2.6 
(noting that in 1995 defaults on Russian and Former Soviet Union guarantees reached $2 billion by the end of 
1993, and that despite repeated rescheduling agreements, those debts were not being repaid.); Exhibit Bra-152 (GAO, Statement of Allan I. Mendelowitz, Director, Trade, Energy and Finance Issues, National Security and 
International Affairs Division, before the Task Force on Ur gent Fiscal Issues of the Committee on Budget of the 
US House of Representatives, Status Report on GAO’s Reviews of the Targeted Export Assistance Programme, 
the Export Enhancement Program, and the GSM-102/103 Export Credit Guarantee Programs , GAO/T-NSIAD-
90-53, 28 June 1990, p. 14 (noting that historically, the majority of GSM support that is rescheduled is “in 
arrears.”). WT/DS267/R/Add.2 
Page I-725 
 
 
 defaulted CCC guarantees that have been reschedul ed.  Over 96 per cent of defaulted CCC guarantees 
that have been rescheduled over the period 1992-2003 remains outstanding. 
 
(b) In Note 5 on p. 22 of Exhibit US-129, what is the definition of "non-performing"?  What 
is the meaning of "delinquent"?  What is the current principal balance and amount of interest of the three CCC export credit guarantee programme "receivables"  in a non-performing status (individually and together, for GSM 102, GSM 103 and SCGP))? What is the amount of interest on non-reporting "receivables"?   
(c) The Panel notes the US reference to the "Paris Club" in US response to Question 
No. 225.  What is the P.L. 480 programme referred to in Note 5 on p. 22 of Exhibit US-129 (including the Paris Club debt reduction process and the HIPC Initiative) ?  To what extent is the P.L. 480 programme a nd Paris Club process relevant to the export 
credit guarantee programmes at issue in this dispute?  Please identify and give the 
amounts of all CCC export credit guarantee debt subject to the P.L. 480 debt reduction (or other similar) process since 1992.   
(d) Can the US explain the process referred to in the second column of Note 5 on p. 22  
("CCC is awaiting an apportionment from the Office of Management and Budget before the 
transaction can be completed.  Until such ti me, however, there is a 100% subsidy allowance 
established against the relevant debt as of September 30, 2003.")   Please provide details of all such "apportionments" relating to the three expo rt credit guarantee programmes in fiscal years 
1992-2003.  
Brazil’s Comment: 60. Although the United States asserts that the re ference in the Panel’s question is to a single 
transaction related to the P.L. 480 food aid programme
109, and further asserts that the “apportionment” 
procedure cited in the Panel’s question does not apply to the CCC export credit guarantee 
programmes110, the United States offers no  support for these assertions.111 
61. In any event, Brazil makes the obvious point that defaults need not be “written off” to 
constitute an operating cost or loss for the purposes of  item (j).  Defaults (or other operating costs and 
losses) that remain on the books are just as relevant  to an assessment under item (j) as they would be 
if they were “written off”. 
275. Please provide evidence (or cite relevant po rtions of the record) that the premium rates 
for the export credit guarantee programmes are "reviewed annually" as stated in US 
28 January comments on response to Question No. 223 (see also US 22 December response to 
Question No. 107;  Brazil's 28 January 2004 co mments on responses to Question No. 223.). 
Brazil’s Comment: 62. Even if the CCC does undertake the annua l premium rate review asserted by the 
United States, the US Department of Agriculture’s Inspector General noted in 2000 and 2001 that “the 
fees CCC charges for its GSM-102 and GSM-103 expor t credit guarantee programmes have not been 
                                                     
 
109 US 11 February 2004 Answers, para. 53. 
110 US 11 February 2004 Answers, para. 54. 
111 As the party asserting this fact, the United States bears the burden of proving it.  See e.g. Appellate 
Body Report, Japan – Apples , WT/DS245/AB/R, para. 157  (“It is important to distinguish, on the one hand, the 
principle that the complainant must establish a prima facie case of inconsistency with a provision of a covered 
agreement from, on the other hand, the pr inciple that the party that asserts a fact is responsible for providing 
proof thereof.”). WT/DS267/R/Add.2 
Page I-726  
 
changed in 7 years and may not be reflecting current costs”.
112  Brazil has demonstrated that since 
1993, only two changes have in fact been made to the GSM 102 fee schedule.113 
 63. Brazil makes several observations regardi ng Exhibit US-150, which purports to include 
memoranda concerning the 2003 and 20 02 annual reviews of fees for the CCC export credit guarantee 
programmes. 
 64. First, page 2 of the 2003 memorandum show s that “offsetting fees” for GSM 102, GSM 103 
and SCGP, both “historical[ly]” and for FY 2004, do not cover the “subsidy”, within the meaning of 
the FCRA.  As the Panel will recall, under the ne t present value accounting methodology endorsed by 
the US Congress and the President in the FCRA, a positive subsidy indicates a judgment that when 
the cohorts close, the CCC programmes will “lose money.”
114  At page 3 of the memorandum, a major 
heading reinforces the point that the progra mmes are losing money, reading as follows:  
“JUSTIFICATION FOR NOT COVERING THE SUBSIDY COST OF THE PROGRAMME.”  
65. Second, Exhibit US-150 reinforces Brazil’s claim that the CCC progra mmes confer “benefits” 
per se , within the meaning of Article 1.1(b) of the SC M Agreement, and therefore that they constitute 
per se export subsidies for the purposes of Article 10.1.
115  With other evidence ( e.g., the regulations 
for the CCC programmes, and a comparison to non-ma rket benchmarks estab lished by the US Export-
Import Bank)116, Brazil has made this per se  showing by demonstrating that CCC export credit 
guarantees are unique financing instruments for ag ricultural commodity transactions that are not 
available on the commercial market for terms longe r than the marketing cycles of the eligible 
commodities.117  Pages 3-4 of the 2003 memorandum included in Exhibit US-150 reinforce Brazil’s 
claim, by stating that fees for the CCC programme s are set not according to market benchmarks, but 
are instead set according to policy considerati ons.  According to page 3 of the memorandum, 
“[s]etting prices is a policy matter, sometimes govern ed by statutory provisions and regulations, and 
other times by managerial or public policies”.  While  it is fundamental that pricing for market-based 
financial instruments takes account  of the risks involved in a tran saction, the memorandum notes, at 
page 4, that “current fees for GSM-102, GSM-103, and SCGP are not risk-based”, and that “[i]f the fees were changed to a risk-based system, this w ould most likely exceed [the statutory fee cap of] 
1 per cent . . .”
118 
                                                      
112 Exhibit Bra-153 (US Department of Agriculture Office of Inspector General Financial and IT 
Operations Audit Report of the Commodity Credit Corporation’s Financial Statements for Fiscal Year 2000, 
Audit Report No. 06401-14-FM (June 2001), p. 31).  See also  Exhibit Bra-154 (US Department of Agriculture 
Office of Inspector General Great Plains Region Audit Re port of the Commodity Credit Corporation’s Financial 
Statements for Fiscal Year 2001, Audit Report No. 06401-4-KC (February 2002), p. 49 (“[T]he fees CCC 
charged for its GSM-102 and GSM-103 export credit guarantee programs have not been changed for many years and may not be reflecting current costs.”). 
113 See Brazil’s 11 August 2003 Answers, para. 167 (second bullet point). 
114 Exhibit Bra-121 (US General Accounting Office (“GAO”), Report to Congressional Committees, 
“Credit Reform:  US Needs Better Method for Esti mating Cost of Foreign Loans and Guarantees,” 
GAO/NSIAD/GGD-95-31, December 1994, p. 20) (“GAO/NSIAD/GGD-95-31”)). 
115 See, e.g., Brazil’s 28 January 2004 Comments, para. 253; Brazil’s 18 November 2003 Further 
Rebuttal Submission, paras. 233-241. 
116 This evidence is summarized at paragraphs 231-241 of Brazil’s 18 November 2003 Further Rebuttal 
Submission. 
117 See Brazil’s 24 June 2003 First Submission, paras. 289-292; Brazil’s 22 July 2003 Oral Statement, 
para. 116; Brazil’s 11 August 2003 Answers to Questions, paras. 139-140, 152-157, 183-187; Brazil’s 22 August 2003 Rebuttal Submission, paras. 103-105; Brazil’s 22 August 2003 Comments, paras. 92-93, 109-
113; Brazil’s 27 August 2003 Comments on US Rebuttal Submission, paras. 68-80; Brazil’s 7 October 2003 
Oral Statement, para. 72; Brazil’s 18 November 2003 Further Rebuttal Submission, paras. 230-242; Brazil’s 2 December 2003 Oral Statement, para. 79. 
118 Regarding the statutory one-per cent fee cap, see US 11 August 2003 Answers, para. 180.  See also 
Exhibit US-150 (Annual Review of Fees for USDA Credit Programmes, March 25, 2003, p. 4 (“Section WT/DS267/R/Add.2 
Page I-727 
 
 
  
276. The Panel notes the parties' responses and comments relating to Question No. 252 
concerning the time period within which any prohibited measure must be withdrawn within the 
meaning of Article 4.7 of the SCM Agreement .   Please supplement your original response, 
taking into account the particular nature of each  alleged prohibited subsidy measure  (i.e. "Step 
2" payments under Section 1207(a) of the 2002 FS RI Act, export credit guarantee programmes 
and the ETI Act) and the functioning of the US legal and regulatory system in respect of these 
measures.  
                                                                                                                                                                     
211(b)(2) of the Agricultural Trade Act of 1978, as amended, caps the current fees at 1 per cent for . . . GSM-
102 and SCGP.”)).