WT/DS267/R/Add.2 
Page I-1 
 
 
 
ANNEX I 
  
ANSWERS OF PARTIES TO THE PANEL'S QUESTIONS AND 
OTHER COMMENTS A ND DOCUMENTS RECEIVED FROM PARTIES 
 
 
Contents Page 
Annex I-1 Answers of Brazil to the Panel's Questions Posed Following the 
 First Session of the First Subs tantive Meeting (11 August 2003) I-3 
Annex I-2 Answers of the United States to the Panel's Questions Posed 
 Following the First Session of the First Substantive Meeting  (11 August 2003) I-77 
Annex I-3 Comments of Brazil to Answers to Questions Posed by the Panel 
 Following the First Substantive Meeting of the Panel  
 (22 August 2003) I-132 
Annex I-4 Answer of the United Stat es to the Additional Question from the 
 Panel (27 August 2003) I-169 
Annex I-5 Answers of Brazil to the Panel's Questions Posed Following the 
 Resumed Session of the First Substantive Meeting  (27 October 2003) I-170 
Annex I-6 Answers of United States to the Panel's Questions Posed Following 
 the Resumed Session of the First Substantive Meeting  (27 October 2003) I-235 
Annex I-7 Answers of Brazil to the Panel's Questions Posed Following the 
 Second Substantive Meeting (22 December 2003) I-275 
Annex I-8 Answers of United States to the Panel's Questions Posed Following 
the Second Substantive Meeting (22 December 2003) I-344 
Annex I-9 Comments of the United States of America Concerning Brazil's 
 Econometric Model  (22 December 2003)   I-396 
Annex I-10 Answers of Brazil to the Pa nel's Additional Questions Posed on 
23 December 2003 and 12 January 2004 (20 January 2004) I-419 
Annex I-11 Answers of United States of  America to the Panel's Additional 
 Questions Posed on 23 December 2003 (20 January 2004) I-437 
Annex I-12 Brazil's Comments on the 22 December US Comments 
 Concerning Brazil's Econometri c Model  (20 January 2004) I-440 
Annex I-13 Brazil's Comments on the US Answers to Questions Posed by the 
 Panel Following the Second Substantive Meeting of the Panel 
 (28 January 2004) I-467 
Annex I-14 Comments of the United States of America on the Answers of 
 Brazil to Further Questions from the Panel to the Parties following 
 the Second Panel Meeting  (28 January 2004) I-552 
Annex I-15  Brazil's Comments and Requ ests Regarding Data Provided by the 
 United  States on 18/19 December 2003 and the US Refusal to  Provide Non-Scrambled Data on 20 January 2004  (28 January 2004) I-612 
Annex I-16 Comments of the United States of America on Comments by Brazil 
 on US Comments Concerning Brazil's Econometric Model  (28 January 2004) I-648 WT/DS267/R/Add.2 
Page I-2  
 
Contents Page 
Annex I-17 Brazil's Answers to the Pa nel's Additional Questions Posed on 
 3 February (11 February 2004) I-660 
Annex I-18 Answers of the United States of America to the Panel's Additional 
 Questions Posed on 3 February (11 February 2003) I-664 
Annex I-19 Comments of the United States of America on the Comments of 
 Brazil to US Data Submitted on 18 and 19 December 2003 
 (11 February 2004) I-677 
Annex I-20 Brazil's Comments on US 11 Fe bruary 2004 Answers to the Panel's 
 Additional Questions (18 February 2004) I-704 
Annex I-21 Comments of the United States of America to the 
 11 February 2004, Answers of  Brazil to Panel Question 276 
 (18 February 2004) I-728 
Annex I-22 Brazil's Comments on US 11 February Comments on Brazil's 
 28 January "Comments and Requests Regarding Data Provided by  the United States on 18/19 December 2003 and the US Refusal to  Provide Non-Scrambled Data on 20 January"  (18 February 2004) I-734 
Annex I-23 Comments of the United States of America on the 
 February 18, 2004, Comments of Brazil (3 March 2004) I-796 
Annex I-24 Responses of the United States of America to the Panel's 
 February 3, 2004 Data Request, As Clarified on February 16, 2004 
 (3 March 2004) I-819 
Annex I-25 Answers of the United States of America to Question 264(b) Dated 
 February 3, 2004, from the Panel to the Parties Following the 
 Second Panel Meeting (3 March 2004)    I-825 
Annex I-26 Brazil's Comments on US 3 March 2004 Data (10 March 2004) I-827 
Annex I-27 Brazil's Comment on US 3 March 2004 Answer to Question 264(b) 
 (10 March 2004) I-843 
Annex I-28 Comments of the United States of America on the 10 March 2004, 
 Comments of Brazil on the US Data Submitted on 3 March 2004 
 (15 March 2004)   I-845 
 WT/DS267/R/Add.2 
Page I-3 
 
 
ANNEX I-1 
 
ANSWERS OF BRAZIL TO QUESTIONS 
POSED BY THE PANEL FOLLOWING THE 
FIRST SUBSTANTIVE ME ETING OF THE PANEL 
 
11 August 2003 
 
 
TABLE OF CONTENTS 
   
Page
 
 
A. UPLAND COTTON ............................................................................................................... ............... 8 
B. PRELIMINA RY ISSUES .......................................................................................................... ............ 8 
1. Product scope of Panel's terms of reference relating to Brazil's export credit  
 guarantee claims .............................................................................................................. ...... 8 
2. Expired measures............................................................................................................ ..... 10 
3. Agricultural Assistance Act of 2003 ................................................................................... 10 
C. MEASURES AT ISSUE ........................................................................................................... ........... 12 
D. ARTICLE 13(B): DOMEST IC SUPPORT MEASURES.................................................................... 14 
1. "exempt from actions" ....................................................................................................... . 14 
2. "such measures" and Annex 2 of the Agreement on Agriculture ................................... 14 
3. "do not grant support to a specific commodity"............................................................... 21 
4. "in excess of that decided during the 1992 marketing year"........................................... 29 
E. EXPORT CREDIT GUARA NTEE PROGRAMMES......................................................................... 47 
F. STEP 2 PAYMENTS ............................................................................................................. .............. 68 
G. ETI ACT..................................................................................................................... .......................... 75 WT/DS267/R/Add.2 
Page I-4  
 
TABLE OF CASES CITED 
 
  
Short Title Full Case and Citation 
Brazil - Aircraft Appellate Body Report, Brazil – Export Financing Programme for 
Aircraft , WT/DS46/AB/R, adopted 20 August 1999 
Brazil – Aircraft (21.5) Panel Report, Brazil – Export Financing Programme for Aircraft . 
Recourse by Canada to Article 21.5 of the DSU , WT/DS46/RW, , adopted 
4 August 2000 
Brazil – Aircraft (21.5) Appellate Body Report, Brazil – Export Financing Programme for 
Aircraft . Recourse by Canada to Article 21.5 of the DSU , 
WT/DS46/AB/RW, adopted 4 August 2000 
US – Shrimp (21.5) Panel Report, United States – Import Prohibition of Certain Shrimp and  
Shrimp Products . Recourse to Article 21.5 by Malaysia, WT/DS58/RW, 
adopted 21 November 2001 
Canada – Aircraft (21.5) Panel Report, Canada – Measures Affecti ng the Export of Civilian 
Aircraft , Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/RW, 
adopted 20 August 1999 
Canada - Aircraft Appellate Body Report, Canada – Measures Affecting the Export of 
Civilian Aircraft , WT/DS70/AB/R, adopted 20 August 1999 
India – Patents (EC) Panel Report, India – Patent Protection for Pharmaceutical and 
Agricultural Products , WT/DS/79R, adopted 2 October 1998 
Canada – Dairy Appellate Body Report, Canada – Measures Affecting the Importation of 
Milk and the Exportation of Dairy Products , WT/DS103/AB/R and 
WT/DS113/AB/R, adopted 27 October 1999.  
US - FSC Appellate Body Report, United States – Tax Treatment for “Foreign 
Sales Corporation”, WT/DS108/AB/R, adopted 20 March 2000. 
US – FSC (21.5) Appellate Body Report, United States – Tax Treatment for “Foreign 
Sales Corporation”. Recourse to Article  21.5 of the DSU by the European 
Communities, WT/DS108/AB/RW, adopted 29 January 2002. 
EC – Bed Linen (21.5) Appellate Body Report, European Communities – Anti-Dumping Duties 
on Imports of Cotton – Type Bed Linen from India. Recourse to Article 
21.5 of the DSU by India , WT/DS141/AB/RW, adopted 24 April 2003 
Chile – Agricultural 
Products (Price Band)  Appellate Body, Chile – Price Band System and Safeguard Measures 
Relating to Certain Agricultural Products, WT/DS207/AB/R, adopted 23 
October 2002. 
Canada – Aircraft II Panel Report, Canada – Export Credits and Loan Guarantees for 
Regional Aircraft, WT/DS222/R, adopted 19 February 2002. 
 WT/DS267/R/Add.2 
Page I-5 
 
 
LIST OF EXHIBITS 
  
Agricultural Assistance Act of 2003, in P.L. 108-7 Exhibit Bra-135 
P.L. 106-113 Exhibit Bra-136 
P.L. 106-224 Exhibit Bra-137 
P.L. 107-25 Exhibit Bra-138 68 Federal Register 20331, 20331-20332 Exhibit Bra-139 Pindyck, Robert S. and Rubinfeld, Daniel L., Microeconomics, 5 Edition 
(2002), Prentice hall, New Jersey. Exhibit Bra-140 
7 U.S.C. 5622 Exhibit Bra-141 
Agricultural Outlook, USDA, May 2002 Exhibit Bra-142 Agricultural Statistics 2003, USDA Exhibit Bra-143 G/AG/R/31 Exhibit Bra-144 US and State Farm Income Data , (United States and States 1997-2001), 
USDA Exhibit Bra-145 
Acreage, NASS, 28 June 2002 Exhibit Bra-146 
Estimate of Support Granted by Commodity via Counter-Cyclical 
Payments. Agricultural Prices Exhibit Bra-147 
Statement of Administrative Action Exhibit Bra-148 
Agricultural Outlook, USDA, August 2002 Exhibit Bra-149 
G/AG/N/USA/10 Exhibit Bra-150 
“US Export Credit Guarantee Programs: What Every Importer Should 
Know About the GSM-102 and GSM-103 Programs”, USDA, November 1996. Exhibit Bra-151 
GAO, Statement of Allan I. Mendelowitz, Director, Trade, Energy and 
Finance Issues, National security and International Affairs Division, 
before the Task Force on Urgent Fiscal Issues of the Committee on Budget of the US House of Representatives, “Status Report on GAO’s Reviews of the Targeted Expor t Assistance Program, the Export 
Enhancement Program, and the GSM 102/103 Export Credit Guarantee 
Programs,” GAO/T-NSIAD-90-53, 28 June 1990. Exhibit Bra-152 WT/DS267/R/Add.2 
Page I-6  
 
 
US Department of Agriculture Office  of Inspector General Financial and 
IT Operations Audit Report of the Commodity Credit Corporation’s Financial Statements for Fiscal Y ear 2000, Audit Report N° 06401-14-
FM, June 2001 Exhibit Bra-153 
US Department of Agriculture Office  of Inspector General Great Plains 
Region Audit Report of the Commodity Credit Corporation’s Financial Statements for Fiscal Year 2001, Audit Report N° 06401-4-KC, February 2002. Exhibit Bra-154 
US Department of Agriculture Forei gn Agricultural Service, “Notice to 
GSM – 102 and GSM – 103 Programme Participants”, 24 September 
2002 Exhibit Bra-155 
US Export-Import Bank, “Comparison of Major Features of Programs 
Offered by Ex-Im Bank and Commodity Credit Corporation for Support of Bulk Agricultural Commodities” Exhibit Bra-156 
US General Accounting Office, Report to the Chairman, Task Force on 
Urgent Fiscal Issues, Committee on the Budget, House of Representatives, “International Trade: Iraq’s Participation in US Agricultural Export Programs”, GAO/NSIAD-91-76, November 1990 Exhibit Bra-157 
US Department of Agriculture, Office  of Inspector General, Financial 
and IT Operations Audit Report, “Commodity Credit Corporation’s  
Financial Statement for Fiscal Year 2002”, Audit Report N° 06401-15-FM, December 2002 Exhibit Bra-158 
US General Accounting Office, Report to Congressional Requesters, 
“Loan Guarantees: Export Credit Guarantees Programs’ Costs are High”, GAO/GGD-93-45, December 1992 Exhibit Bra-159 
US Department of Agriculture, Offi ce of the Chief Financial Officer, 
Credit, Travel, and Accounting Division, “Agriculture Financial Standards Manual (May 2003)   Exhibit Bra-160 
US Federal Accounting Standards A dvisory Board, Federal Financial 
Accounting and Auditing Technical Re lease 3, “Preparing and Auditing 
Direct Loan and Loan Guarantee Subsidies under the Federal Credit 
Reform Act”, 31 July 1999.    Exhibit Bra-161 
Government – Wide Audited Financia l Statements Task Force on Credit 
Reform, “Issue Paper, Model Credit Programme Methods and 
Documentation for Estimating Subsidy Rates and the Model Information 
Store”, 96-CR-7, 1 May 1996  Exhibit Bra-162 
Office of Management and Budget Annual Training, Introduction to 
Federal Credit Budgeting, 24 June 2002 Exhibit Bra-163 
US Department of Agriculture, Fore ign Agricultural Service, “Revised 
FY 2001 and FY 2002 Annual Performance Plan”.  Exhibit Bra-164 WT/DS267/R/Add.2 
Page I-7 
 
 
 
US Department of Agriculture, Fore ign Agricultural Service, “Revised 
FY 2000 and FY 2001 Annual Performance Plan”. Exhibit Bra-165 
US Department of Agriculture Fo reign Agricultural Service, News 
Releases regarding extension of GSM 102 and GSM 103 guarantees to 
Dominican Republic, Morocco, Ghana, South Korea, Vietnam and 
Algeria Exhibit Bra-166 
12 Steps to Participating in the USDA Supplier Credit Guarantee 
Program, Step 5. Exhibit Bra-167 
US Department of Agriculture Fo reign Agricultural Service, News 
Releases regarding extension of SCGP guarantees to Tunisia, 
Azerbaijan, Vietnam, South Korea, Japan and Nigeria Exhibit Bra-168 
 WT/DS267/R/Add.2 
Page I-8  
 
A. UPLAND COTTON 
 
1. Please confirm that all information and data that you have provided to the Panel 
relating to "cotton" in fact relat es to upland cotton only. BRA, USA  
 Brazil's answer
: 
 1. Brazil can confirm that, except as explicitly stated  otherwise, all the data and references made 
by Brazil to “cotton” relate and will relate to “upland cotton” only.  
 
B. PRELIMINARY ISSUES 
 Note to parties:  As indicated in the cover note, the Panel has expressed its views in respect of the 
three United States requests for preliminary rulings .  The Panel's questions reflected in this 
compilation relating to the requested preliminary rulings on which the Panel has expressed its views 
are those that were posed in the c ourse of the first session of the first Panel meeting.  This is to give 
an opportunity for the parties to transpo se into writing their oral responses.   
 1. Product scope of Panel's terms of reference relating to Brazil's export credit guarantee 
claims 
 2. Is Brazil's claim in relation to export cred it guarantees against the measures said to 
constitute the GSM-102, GSM-103 and SCGP programmes in their entire application, or against the measures said to constitute the GSM-102, GSM-103 and SCGP programmes in their 
application to upland cotton, or both?  BRA 
 Brazil's answer
: 
 2. Brazil confirms that its claims agai nst GSM 102, GSM 103 and SCGP concern the 
programmes in their entirety and are not limited to their application to upland cotton.  
 3. If the request for consultations in this di spute omitted certain products in relation to 
export credit guarantees, on what basis is it ar gued that it failed to identify the measures at 
issue in accordance with Article 4.4 of the DSU?  USA  
4. Is it argued that the export credit gu arantee programmes concerning upland cotton are 
each a separate or independent measure, in  that they operate independently?  USA 
 5. Is there a specification in any legislation or regulation (or any other official government document) which limit or restrict the export cred it guarantee programmes at issue exclusively 
to upland cotton?  USA 
 
6. For the purposes of the Panel's examinatio n of Brazil's claims relating to GSM-102, 
GSM-103 and SCGP under the Agreement on Agricu lture and the SCM Agreement, is accurate 
data and information available with respect to  these export credit guarantee programmes 
concerning upland cotton alone (e.g. with respect to "long-term operating costs and losses")?  In 
this respect, the Panel also directs the parties' attention to the specific questions below relating 
to the programmes.   USA    7. Are commitments with respect to export  subsidies under the Agreement on Agriculture 
commodity-specific?  How, if at all, is this relevant? BRA, USA  
 WT/DS267/R/Add.2 
Page I-9 
 
 
Brazil's answer : 
 3. Under Articles 3.3 and 8 of the Agreement on Agriculture, a Member can only grant export 
subsidies for agricultural products if that Member has an export subsidy reduction commitment for the 
agricultural product in question.  The commodity sp ecific aspect becomes relevant in Step 2 and ETI 
export subsidies because the United States scheduled  no reduction commitments for upland cotton.  In 
the case of the export credit guarantee programs chal lenged by Brazil, the commodity specific aspect 
becomes relevant only after the Panel has found that export credit guarantees are export subsidies 
within the meaning of the Agreement on Agriculture .  At that stage, the Panel needs to examine 
whether (a) for the group of unscheduled  commodities, which includes upl and cotton, and (b) for each 
of scheduled  commodities, there is a threat of circum vention of the US e xport subsidy reduction 
commitments.  Brazil has set forth its arguments that GSM 102, GSM 103 and SCGP violate Article 10.1 of the Agreement on Agriculture for both scheduled and unscheduled commodities in 
paragraphs 295-305 of its First Submission. 
 
4. The commodity-specific nature of expor t subsidy reduction commitments is, however, 
irrelevant for determining whethe r GSM 102, GSM 103 and SCGP in their application to all eligible 
products are within the Panel’s terms of reference.  8. Does the United States confirm that the qu estions referred to by Brazil in paragraph 92 
of Brazil's oral statement were posed to the United States in the consultations? USA  9. How does the United States respond to pa ragraph 94 of Brazil's oral statement? USA 
 
10. What actual prejudice, if any,  has the United States suffered as a result of the alleged omission of products other than upland cotto n from the request for consultations?  USA 
 11. Does the United States agree that Brazil's request for establishment of the Panel can be understood to indicate that Brazil's export credit guarantee claims relatesto products other than 
upland cotton?  How, if at all, is this relevant?  USA 
 12. Please address issues and submit eviden ce regarding the three export credit guarantee 
programmes concerned relating to upland cotton a nd other eligible agricultural commodities in 
your answers to questions and rebuttal submissions.  BRA, USA  
 Brazil's answer
: 
 5. Brazil has presented its arguments and eviden ce concerning the three export credit guarantee 
programmes always with respect to all eligible agricultural commodities
1 and will continue to do so in 
its answers to these questions and in future submissions to the Panel. 
 
13. Please include any argumentation and evidence to support your statement during the Panel meeting that the inclusion of such oth er eligible agricultural commodities would create 
additional "work" for the Panel with respect to  each of these commodities under Article 13 of 
the Agreement on Agriculture.   USA 
 
                                                     
 
 1 See paragraphs 252-314 of the First Submission of Brazil and paragraphs 116-133 of the Oral 
Statement of Brazil. WT/DS267/R/Add.2 
Page I-10  
 
2. Expired measures 
 
14. Please submit evidence regarding th e programmes under the 1996 FAIR Act, in 
particular, production flexibility contract paymen ts and market loss assistance payments, to the 
extent that they would be relevant to the Panel's determination under Article 13 of the 
Agreement on Agriculture in your answers to questions and rebuttal submission.  USA 
 15. Do the parties agree that it is beyond a Panel's power to recommend a remedy for an 
expired measure?  Could  the Panel could be req uired to examine "expired measures" in order 
to conduct its assessment of the matter before it?  How, if at all, is Article 7.8 of the SCM 
Agreement relevant to these matters?  BRA, USA  
 
Brazil's answer
: 
 6. The Panel must examine any continuing effect s of subsidies provided by expired measures, 
and it can recommend a remedy for any such continuing effects.  Brazil has set forth its arguments in 
that respect in paragraphs 4-7 of its Closing Stat ement at the First Substantive Meeting of the Panel 
with the Parties, as well as in paragraphs 141-144 of its Oral Statement at  the same meeting.  
Subsidies provided under expired subsidy measures can  be the source of present adverse effects.  
Preventing a panel from examining expired measures in its assessment of the matter before it would render the adverse effects provisions of the SCM Agreement a nullity, as a Member would be freed 
from any responsibility for the effects of its subsidi es by, for example, simply letting the legislation 
expire and renewing it every year (or in even shorte r periods).  The Panel is, thus, required to analyze 
the effects of subsidies provided by production flex ibility contract (“PFC”) payments and market loss 
assistance payments in its assessment of Brazil’s adverse effects claims.  Disregarding those payments would not enable the Panel to conduct “an objective assessment of the matter before it”, as it would 
disregard a source of present adverse effects.
2   
 7. Article 7.8 of the SCM Agreement offers th e Panel the possibility to recommend a remedy for 
the adverse effects from subsidies provided by ex pired measures.  Under Article 7.8, a Panel can 
recommend that a Member withdraw the adverse effects of the expired measures.  By virtue of DSU Appendix 2, Article 7.8, not DSU Article 19, provi des the basis for remedies involving claims under 
Articles 5 and 6 of the SCM Agreement.  In maki ng recommendations under such claims, the Panel is 
not limited to a recommendation that a Member bring its measures into conformity with a covered agreement.  Rather, a Panel finding adverse effects caused by a Member’s actionable subsidies must recommend that the Member withdraw the subsidy or remove the adverse effects.  
8. In sum, the Panel is required to objectively assess the present effects of PFC and market loss 
assistance payments on US production, US exports and prices of upland cotton.  If it finds that these 
subsidies cause adverse effects within the meaning of Articles 5 and 6 of the SCM Agreement – as 
Brazil believes the Panel will find based on the argum ents and evidence to be presented by Brazil on 
9 September 2003 – the Panel should recommend that the United States remove the adverse effects 
pursuant to ASCM Article 7.8.  3. Agricultural Assistance Act of 2003  16. What, if any, prejudice in terms of the presentation of its case does the United States allege, should the Panel proceed to consider th e measures constituting the cottonseed payments 
under the Agricultural Assistance Act of 2003? USA   
                                                     
 
 2 The analysis in this paragraph is relevant to  the first paragraph of Brazil’s Answer to Panel 
Question 19.   WT/DS267/R/Add.2 
Page I-11 
 
 
17. (a) What is the relationship of the Ag ricultural Assistance Act of 2003 to other 
legislation in the request for establishment of the Panel?  BRA, USA     (b) Do the legal instruments follow directly one after another, or are there temporal 
gaps?  Are payments authorized under a broad legislative authority or are they specific 
to each legal instrument?  BRA, USA 
  (c) Please provide any implementing regulations.  Do these implementing 
regulations resemble those relating to p revious programmes or payments?  Are 
payments made retrospectively?  How if at all is this relevant? BRA, USA 
 
Brazil's answer
: 
 9. Cottonseed payments for MY 2002, as with the previous cottonseed payments in MY 1999 
and 2000, were authorized by a nnual appropriations acts involving a variety of other legislative 
provisions that do not relate to cottonseed payments.
3  Public Law 106-113, inter alia, appropriated 
funds otherwise unused for assistance to produ cers or first-handlers of the MY 1999 crop of 
cottonseed.4  The United States indicated in consultations that $79 million had in fact been used for 
that purpose.  Public Law 106-224, inter alia, appropriates $100 million for assistance to producers 
and first-handlers of the MY 2000 crop of cottonseed.5  Public Law 107-25, inter alia, added an 
appropriation of $84.7 million for assistance to producers and first-handlers of the same MY 2000 
crop of cottonseed.6  No cottonseed payments were author ized for MY 2001.  The Agricultural 
Assistance Act of 2003, inter alia, appropriated co ttonseed payments for the 2002 crop in the amount 
of $50 million.7   
 10. None of these statutory pr ovisions contains any guidance on how USDA was to implement 
the cottonseed payments.  Eligibility, administration,  application and payment rates and details are all 
provided for in regulations.  Brazil has provided in Exhibit Bra-32 the regulations applicable to the 
MY 2000 crop of cottonseed.  Regulations governin g payments for the MY 2002 crop of cottonseed 
were issued on 25 April 2003 and are set forth in Exhibit Bra-139.  Comparing these regulations with 
the regulations that implement 2002 cottonseed payments
8 demonstrates that both regulations are 
almost identical.  In f act, the preamble to the 2002-crop regulations provides that “[p]revious 1999-
crop and 2000-crop cottonseed programs were codified in 7 CFR part 1427.  This rule follows the 
model set by those preceding programs.”9  Additionally the preamble to the regulations states: 
 
Presumably, Congress expected the old programme to serve as the model for the new programme provided for in the new legisl ation as no dissatisfaction was expressed.
10 
 
11. This evidence demonstrates that the Co ttonseed Payment Programme in MY 2002 was a 
continuation of the Cottonseed Payment Program me with respect to MY 1999 and 2000.  The 
Agricultural Assistance Act of 2003 appropriated ne w funds for the MY 2002 crop to the existing 
programme (after no such appropriations took place  for MY 2001).  The 2002 cottonseed payments 
provided for in the Agricultural Assistance Act of 2003 are “future measures implementing”11 the 
                                                      
 3 Exhibit Bra-135 (Agricultural Assistance Act of 2003, in P.L. 108-7), Exhibit Bra-136 (P.L. 106-
113), Exhibit Bra-137 (P.L. 106-224) and P.L. Exhibit Bra-138 (107-25). 
 4 Exhibit Bra-136 (Section 104 of P.L. 106-113). 
 5 Exhibit Bra-137 (Section 204(e) of P.L. 106-224). 
 6 Exhibit Bra-138 (Section 6 of P.L. 107-25). 
 7 Exhibit Bra-135 (Section 206 of P.L. 108-7). 
 8 Exhibit Bra-139 (68 Federal Register 20331). 
 9 Exhibit Bra-139 (68 Federal Register 20331, p. 20331). 
 10 Exhibit Bra-139 (68 Federal Register 20331, p. 20332). 
 11 Brazil’s Request For the Establishment of a Panel, WT/DS267/7, p. 2.  See Appellate Body Report, 
Chile – Agricultural Products (Price Band) , WT/DS207/AB/R, paras. 135-136 and 144. WT/DS267/R/Add.2 
Page I-12  
 
existing (but unfunded) Cottonseed Payment Progr am, which formed part of the request for 
consultations and which has been  consulted upon.  The MY 2002 cottonseed payments are therefore 
within the terms of reference of this Panel and Brazil is entitled to challenge the adverse effects 
caused by these payments.  
12. Finally, the Agricultural Assistance Act of 2003 appropriated $50 million in cottonseed 
payments expressly for the MY 2002 crop.  Paym ents will be made after the United States has 
received all applications and has calculated the payment rate.
12  Since, payments are made after the 
2002 crop has been harvested, payments can be cons idered to be made retrospectively.  Yet, 
irrespectively of when the payments are made and irrespective of the Panel’s decision whether they 
form part of the Panel’s te rms of reference, they are made in respect of MY 200213 and, therefore, 
these payments should be included in the calcula tion of the MY 2002 support to upland cotton for 
purposes of the test under Article 13(b)(ii) of the Agreement on Agriculture.  
18. If the Panel is correct in understanding that cottonseed payments are divided between 
processors and producers, how is this ref lected in Brazil's calculations?  BRA 
 
Brazil’s answer
: 
 13. Brazil has included the full amount of cottonseed payments in its peace clause calculations for 
MY 1999, 2000 and 2002 because cottonseed payments  constitute support to upland cotton.  This 
approach is consistent with the United States’ notifications of these payments as product-specific 
support to upland cotton in its notifi cation of domestic support for MY 1999.
14     
 14. Brazil furthermore notes that the full amount of  cottonseed payments is available to stimulate 
production and distort trade.  Including the full amount of cottonseed payments is also consistent with 
basic principles of microeconomics that the inciden ce of a tax or subsidy does not depend on where in 
the processing chain the tax or subsidy is applied.  The production or consumption effects of a tax or 
subsidy depends on supply and demand elasticities and market c onditions, but these market impacts 
do not depend on whether government checks are written in the name of farmers or initial 
processors.
15  
 
C. MEASURES AT ISSUE 
 
19. The Panel notes that Brazil's panel request refers, inter alia, to alleged "subsidies" and 
"domestic support" "provided" in various contexts .  Please specify the measures, in particular, 
the legislative and regulatory provisions, by num ber and letter, in respect of which Brazil seeks 
relief and indicate where each is referred to in the panel request.   BRA  
Brazil’s answer
: 
 15. Brazil’s Request for Establishment of a Pa nel (“Panel Request”) ch allenges two types of 
domestic support “measures” provided to upland cotton and various different types of export subsidy 
measures.  The first type of domestic support “measure” is the payment of subsidies for the 
production and use of upland cotton.  These payments  were and continue to be made between MY 
1999 to the present (and will be made through MY 2007)  through the various statutory and regulatory 
instruments listed on pages 2-3 of Brazil’s Panel Request.   Brazil referred to these payments at 
pages 2-3 of the Panel Request as “subsidies and domestic support provided u nder” or “mandated to 
                                                     
 
 12 Exhibit Bra-139 (7 CFR 1427.1107-1110 as provided in 68 Federal Register 20331, p. 20333). 
 13 See Brazil’s answer to Question 34. 
 14 See Exhibit Bra-47 (G/AG/N/USA/43, p. 20). 
 15 Exhibit Bra-140 (Pindyck, Robert S. and Rubinfeld, Daniel L. , Microeconomics , 5th edition (2002), 
Prentice Hall, New Jersey, p. 313-317). WT/DS267/R/Add.2 
Page I-13 
 
 
be provided” under the various liste d statutory and regulatory instruments.  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.  Brazil’s “Furth er Submission” on 9 September 2003 will provide 
considerable detail concerning the effects of the subsidies provided and manda ted to be provided by 
the United States.  It is these effects in respect of  which Brazil seeks relief with respect to the first 
type of domestic support measures. 
 16. A second type of domestic support “measure” challenged by Brazil are legal instruments as such.  The “legislative and regulatory provisions, by  number and letter, in respect of which Brazil 
seeks relief” are those involving the 2002 FSRI Ac t and the 2000 Agricultural Risk Protection Act 
and in particular the following:
16     
 
• Marketing loan/loan deficiency payments:  Sections 1201(a)-(b), 1202(a)(6), 
1202(b)(6), 1204(b), 1205(a)(1), 1205(b), 1205(c)(1), 1608 of the 2002 FSRI Act and 7 U.S.C. 7286 (Section 166 of the 1996 FAIR  Act as amended) and 7 CFR 1427.22 to 
the extent that these provisions require th e provision of marketing loan and loan 
deficiency payments for all production of upland cotton.   
 
• Counter-cyclical payments:  Section 1104(a)-(f)(1) of the 2002 FSRI Act and 7 
CFR 1412.503.  
 
• Direct payments:  Section 1103(a)-(d)(1) of the 2002 FSRI Act and 7 CFR 
1412.502.   
 
• Step 2 Domestic Payments:  Section 1207(a) of the 2002 FRSI Act and 7 CFR 
1427.103, 7 CFR 1427.104(a)(1), 7 CFR 1427.105(a), 7 CFR 1427.108(d) requiring cotton user marketing certificate (“Step 2”) payments to be made to domestic users of US upland cotton. 
 
• Crop Insurance payments:  Section 508(a)(8), 508(b)(1), 508(b)(2)(A)(ii), 
508(b)(3), 508(e) and 508(k) of the 2000 ARP Act
17 mandating the provision or crop 
insurance policies to farmers, premium s ubsidies to farmers and reinsurance to 
insurance providers to the extent that these provisions apply to upland cotton.  
Section 516 providing for unlimited funding of the crop insurance programme to the extent that these funds are available to upland cotton producers  
 
17. Finally, Brazil challenges three types of e xport subsidies provided by the United States.  
Regarding Step 2 export subsidies, the measure Br azil challenges is Section 1207(a) of the FSRI Act, 
and 7 CFR 1427.103, 7 CFR 1427.104(a)(2), 7 CFR 1427.105(a), and 7 CFR 1427.108(d) requiring cotton user marketing certificate (“Step 2”) payments  to be made to exporters of US upland cotton.
18  
Brazil also challenges as a “measure” subsidies provi ded by Step 2 export programme as actionable 
subsidies.   
 18. Regarding Brazil’s ETI Act claim, the measur e challenged by Brazil is the FSC Repeal and 
Extraterritorial Exclusion Act of 2000, Public La w 106-519, 114 Stat. 2423 (2000), and in particular, 
Section 3 (entitled “Treatment of Extraterritorial Income”), which amends the US Internal Revenue 
                                                     
 
 16 These Acts are referenced on page 2 of Brazil’s Panel Request (WT/DS267/7), and Brazil’s per se 
claim regarding these Acts and the regulations is referenced at page 4 of Brazil’s Panel Request.   
 17 Page 2 of Brazil’s Panel Request (WT/DS267/7) identifies the Agricultural Risk Protection Act of 
2000. 
 18 Page 2 of Brazil’s Panel Request (WT/DS267/7) identifies the 2002 FSRI and the regulations in 
relation to Step 2 payments.    WT/DS267/R/Add.2 
Page I-14  
 
Code (IRC) by inserting into it a new Section 114, as well as a new Subpart E, which is in turn composed of new IRC Sections 941, 942 and 943.
19  
 19. With respect to Brazil’s export credit guaran tee claims, the measures challenged by Brazil are 
the GSM 102, GSM 103 and SCGP programs as esta blished and maintained by 7 U.S.C. 5622
20 and 7 
CFR 1493.21  Brazil challenges 7 U.S.C. 5622(a)(1) and (b),22 which provide for the extension of 
export credit guarantees on terms better than those available on the marketplace.  Furthermore, Brazil challenges the maintenance of the GSM 102, GSM 103 and SCGP programs at premium rates that are 
inadequate to cover the long-term operating costs and losses of the programs.  Additionally, Brazil 
challenges the failure of 7 U.S.C. 5622 and 7 CFR 1493 to prevent circumvention (or the threat of 
circumvention) of the US export subsidy commit ments under the Agreement on Agriculture.  Brazil 
also challenges as a “measure” GSM 102, GSM 103 and SCGP export credit guarantees facilitating 
the production and export of US upland cotton as act ionable subsidies and thereby causing adverse 
effects to the interests of Brazil.  
D. ARTICLE 13(B): DOMESTIC SUPPORT MEASURES 
 
1. "exempt from actions"     
 
20. In paragraph 8 of its initial brief (dated 5 June, 2003), the United States argued that the 
word "actions" as used in the phrase "exempt from actions" in Article 13 of the Agreement on 
Agriculture includes the "bringing of a case" and consultations.  In paragraph 36 of its first 
written submission (dated 11 July, 2003), the United States stated as follows:   "[P]rior to this point in the process, the DSU rules did not afford the United States any 
opportunity to prevent the dispute from proceeding through consultations and panel 
establishment automatically, regardless of the US insistence that its measures conform to the Peace Clause." 
 Is it the United States' understanding that the drafters used the phrase "exempt from actions" 
knowing that under the DSU it would not be possib le fully to exempt "actions", as the United 
States interprets that term? USA 
 21. In US - FSC and US - FSC (21.5) the Appellate Body made findings under the SCM Agreement relating to export subsidies in resp ect of agricultural products without making a 
finding in respect of Article 13 of the Agreement on Agriculture.  How is this relevant to the 
United States' interpretation of the phrase "exempt from actions" as used in Article 13? USA  
 
2. "such measures" and Annex 2 of the Agreement on Agriculture 
 
22. Please explain the difference, if any, between the meaning of "defined" and the meaning 
of "fixed" in the phrase "a defined and fixed ba se period" in paragraph 6(a) of Annex 2 of the 
Agreement on Agriculture. BRA, USA  
                                                     
 
 19 Page 2 of Brazil’s Panel Request (WT/ DS267/7) identifies the ETI Act.   
 20 Exhibit Bra-141 (7 U.S.C. 5622) codifies the rele vant provisions of the 1978 Agricultural Trade Act 
as amended, identified on page 2 of Brazil’s Panel Request (WT/DS267/7). 
 21 See Exhibit Bra-38 (7 CFR 1493). Pages 2 and 5 of Brazil’s Panel Request (WT/DS267/7) identifies 
GSM 102, GSM 103, and SCGP programs. 
 22 Exhibit Bra-141 (7 U.S.C. 5622) codifies the rele vant provisions of the 1978 Agricultural Trade Act 
as amended, identified on page 2 of Brazil’s Panel Request (WT/DS267/7). WT/DS267/R/Add.2 
Page I-15 
 
 
Brazil’s answer :   
 20. The meaning of the term “defined” in relati on to “base period” is the period of time used to 
define the parameters (“indicate the extent”
23) of the base period.  The word “period” is defined as “a 
course or extent of time”.24  For example, the “defined” “base period” to determine the amount of 
upland cotton base acreage for the PFC (and market  loss assistance) payments was the average 
planted and considered planted acreage during MY 1993-95.25  The term “fixed” in relation to “base 
period” means that the “defined” base period cannot ch ange or be updated.  This is confirmed by the 
dictionary meaning of the term “fixed,” which is “definitely and permanently placed or assigned; 
stationary or unchanging in relative pos ition; definite, permanent, lasting.”26   In sum, a base period is 
first “defined” in terms of a period of time, and th en that period remains definitely and permanently 
assigned.     
23. Please explain the meaning of "a" in "a defined and fixed base period" in paragraph 
6(a) of Annex 2 of the Agreement on Agriculture,  the meaning of "the" in "the base period" in 
paragraphs 6(b), (c) and (d), and the difference between these and the phrase "based on the 
years 1986-88" in Annex 3.  BRA, USA 
 
Brazil’s answer:
 
 21. Paragraph 6(a) requires Members to establis h clearly defined eligibility criteria for a de-
coupled direct payment measure.  These eligibility cr iteria must be taken from “a” defined and fixed 
base period of time.  Paragraph 5 of Annex 2 makes it clear that all of the subparagraphs of paragraph 
6 apply to the same type of de-coupled income support.  Thus, a de-coupled income support measure 
with “a” “fixed base period” must also comply with Annex 2, paragraphs 6(b) , (c) and (d).  These sub-
paragraphs use the phrase “after the base period.”  Because Article 6(a) establishes that there can only 
be “a” (single) “fixed” base period for a particular  de-coupled domestic support measure, the use of 
the term “the” in 6(b)-(d) refers back to “a” “fixed” base period established in Article 6(a).  Thus, a 
de-coupled income support measure can have only one “fixed” base period. 
 22. The Panel is faced with the question whethe r a Member can make minor adjustments to a 
decoupled support measure, label it a new decoupl ed support measure and then update the base 
period.  Guidance for this question is provided by th e first part of Annex 2, paragraph 6(a), which sets 
out a transparency requirement that eligibility cr iteria for decoupled support measures be determined 
by “clearly-defined criteria”.  In assessing whet her one decoupled income support measure is 
essentially the same as a replacement decoupled in come support measure, the Panel could examine 
the eligibility criteria for each set of measures.  If th e structure, design, and eligibility criteria have not 
significantly changed between the original measur e (containing the “fixed base period”) and its 
replacement, then there is no basis for any updating of the “fixed base period”.    
 23. The factual question the Panel must address in  this case is whether the “direct payment” 
programme in the 2002 FSRI Act contains similar design, structure, and eligibility criteria as the 
“production-flexibility contract payments” for uplan d cotton in the 1996 FAIR Act.  The clearest 
evidence that the direct payment pr ogramme is the direct successor to production flexibility contracts 
is found in Section 1107(b) of the 2002 FSRI Act.  It provides as follows:   
 
If a producer receives all or any portion of the payment authorized for fiscal year 
2002 under a production flexibility contract, the Secretary shall reduce the amount of 
                                                     
 
 23 The New Shorter Oxford English Dictionary, 1993 edition, p. 618 (definition of “define”).  
 24 The New Shorter Oxford English Dictionary, 1993 edition, p. 2163.   
 25 See First Submission of Brazil, para. 46.  See also Exhibit Bra-31 (7 CFR 1412.103) in connection 
with Exhibit US-3 (7 CFR 1413.7(c)).  
 26 The New Shorter Oxford English Dictionary, 1993 edition, p. 962.  WT/DS267/R/Add.2 
Page I-16  
 
the direct payment otherwise due the producer for the 2002 crop year under section 1103 by the amount of fiscal year 2002 payment received by the producer under the production flexibility contract.
27  
24. Trading PFC dollars for direct payment do llars makes perfect sense given the very close 
similarities in the eligibility criteria between PFC and direct payments reflected in the statutes and 
regulations governing each.  This is best  illustrated in the following table:    
 
Similarities of Production Flexibility Contract and Direct Payments 
 
Eligibility Criteria Production Flexibility 
Contracts Direct Payments 
Payment contract 
 Annual fiscal payment based 
on 7 year contract28 
 Annual payment based on 
annual contract29 
Eligible Recipients 
 “Producers” who assume all 
or part of the risk of producing a crop
30 Same31 
Contract Acreage 
(Base Acreage)  MY 1993-9532 MY 1993-95 or MY 1998-
200133 
Programme crops 7 Crops34 
 Same plus soybeans, other 
oilseeds, and peanuts35 
Planting Flexibility and Restrictions Limitations on fruits and 
vegetables (wild rice added in 2000).
36 Same.37 
 
Payment Yield Base yield same as 
deficiency payment base 
average MY 1981-8538 Same.39 
 
Cotton Payment Payment on 85% of base 
acres times base yield times 
7.07 cents per pound40 on 
average between 1999-2001 for upland cotton
41 Payment on 85% of base 
acres times base yield times 
6.67 cents per pound for upland cotton
42 
Compliance conditions Abide by conservation 
compliance requirements43 Same. 44 
 
                                                      
 27 Exhibit Bra-29 (Section 1107(b) of the 2002 FSRI Act).   
 28 Exhibit Bra-31 (7 CFR 1412.101 and 1412.103) 
 29 Exhibit Bra-35 (7 CFR  1412.401) 
 30 Exhibit Bra-31  (7 CFR 1412.202) 
 31 Exhibit Bra-35 (7 CFR 1412.402) 
 32 Exhibit Bra-31  (7 CFR 1412.103) 
 33 Exhibit Bra-35  (7 CFR 1412.201) 
 34 Exhibit Bra-31  (7 CFR 1412) 
 35 Exhibit Bra-35  (7 CFR 1412.103) 
 36 Exhibit Bra-31 (7 CFR 1412.206) 
 37 Exhibit Bra-35 (7 CFR 1412.407) 
 38 Exhibit Bra-31 (7 CFR 1412.103) 
 39 Exhibit Bra-35 (7 CFR 1412.301 and 1412.302) 
 40 Exhibit Bra-142 (Agricultural Outlook, May 2002, p. 50).  Brazil notes that these payment rates were 
not statutory rates but resulted from the allocation of a fixed amount of budgetary outlays to holders of upland 
cotton base under the PFC programme in MY 1999-2001.  
41 Exhibit Bra-31 (7 CFR  1412.103) 
 42 Exhibit Bra-35 (7 CFR 1412.502(e)) 
 43 Exhibit Bra-31 (7 CFR 1410.20) WT/DS267/R/Add.2 
Page I-17 
 
 
 
25. For an upland cotton producer with upland cotton base in MY 2001 and MY 2002, the direct 
payments available in MY 2002  were based on the following four elements:  (1) yield (the average of 
the farm for MY 1981-85), (2) base acreage for the farm (resulting from either MY 1993-95 or MY 
1998-2001 production), (3) only 85 percent of base acres could receive payment, and (4) the payment 
rate of $0.0677 cents per pound (applied to base ac reage x yield x .85).  The production flexibility 
contract payment for that same upland cotton farmer in MY 2001  would have been based on (1) yield 
(the average for MY 1981-85), (2) base acreage  resulting from MY 1993-95 production, (3) only 
85 percent of base acres could receive payment, and (4) 5.99 cents per pound.45  Thus, with the 
exception of the per pound payment rate – which increased under the 2002 FSRI Act – and the ability 
in 2002 to update base acreage, the payment formula was the same under both programmes.  
 26. In addition to these payment formula similariti es, the eligibility criteria for an upland cotton 
producer in MY 2001 and MY 2002 are either identical  or very similar under both programmes.  For 
example, eligible recipients under both programm es are “producers,” defined in each programme as 
“an owner, operator, landlord, tenant, or sharecr opper that shares in the risk of producing a crop”.
46  
The “producer” under each programme could not pl ant fruits, vegetables, tree nuts or wild rice 
without either a forfeiture of all pa yments or a reduction of payments.47  And each “producer” under 
both programmes had to maintain the land in agricultural use and adhere to conservation 
requirements.48   
 
27. In addition to the possibilit y to update the base acreage, a nother difference between the PFC 
and direct payment is the addition of three add itional programme crops for purposes of the direct 
payment programme – soybeans, other oilseeds, and peanuts.49  Further, instead of a single seven-year 
contract, annual contacts are entered into between  USDA and “producers” who must demonstrate that 
they are eligible for payments based, inter alia, on demonstrating that they “share in the risk of 
producing a crop and are entitled to share in the crop available for marketing from the farm”.50  The 
final difference was to set fixed amounts of paym ents per pound that did not decrease over the six-
year term of the 2002 FSRI Act.  The 1996 FA IR Act based the payment rate on annual budgeted 
amounts and as the budgeted amounts declined, the payment rate declined.    28. None of these changes to the direct paymen t programme in any way changed the eligibility 
criteria, the design, or the structure of the prod uction flexibility programme as it applied to upland 
cotton producers.  For the typical upland cotton producer farming on upland cotton base acreage, the only thing that changed was that the producer received the option to increase payments by updating 
base acreage and obtained an increased  payment rate.  Given the identical nature of most aspects of 
the production flexibility contract payments and dir ect payments, there was no basis to change the 
“fixed base period” of marketing years 1993-1995 for the calculation of these direct payments.  
 
29. In light of this evidence, the Panel is not f aced in this case with the situation where a Member 
significantly changes the structure, design, and eligib ility criteria of an older measure.  For example, if 
a Member replaces an amber box domestic support meas ure with a green box measure, the structure 
                                                                                                                                                                    
 
 44 Exhibit Bra-35 (7 CFR 1412.203) 
 45 Exhibit Bra-142 (Agricultural Outlook, May 2002, p.  50).  Brazil notes that this payment rate was 
not a statutory rate but resulted from the allocation of a fixed amount of budgetary outlays to holders of upland 
cotton base under the PFC programme in MY 2001. 
 46 Exhibit Bra-29 (7 CFR 1001(1) of the 2002 FSRI Act), Exhibit Bra-28 (Section 102(12) of the 1996 
FAIR Act)   
47 Exhibit Bra-28 (Section 118 b(1) of the 1996 FAIR Act), Exhibit Bra-29 (Section 1106 b(3) of the 
2002 FSRI Act). 
 48 Exhibit Bra-31 (7 CFR 1410.20) and Exhibit Bra-35 (7 CFR 1412.203) 
 49 Exhibit Bra-29 (Section 1101-1103 of the 2002 FSRI Act), Exhibit Bra-27 (“Side by Side 
Comparison of the 1996 and 2002 Farm Act, USDA).  
 50 Exhibit Bra-29 (Section 1001(1) of the 2002 FSRI Act). WT/DS267/R/Add.2 
Page I-18  
 
and eligibility criteria is likely to be sufficiently di fferent to permit the establishment of a new “fixed” 
base period for the new measure.  But replacing an older green box measure with a new alleged green box measure, which basically only updates the base pe riod and thereby results in increased payments, 
violates the requirement of “a” “fixed” base period in Article 6(a).
51         
 
30. Finally, Brazil believes that Annex 3, paragr aphs 9 and 11 provide contextual support for the 
requirement that “a” “fixed” base period for essentially  the same measure should not be changed.  For 
the purposes of calculating total AMS, Annex 3 establishes “a” “fixed” base period – 1986-1988 – for 
determining the reference price that serves as a basi s for the formula approach to calculating AMS for 
price support measures.  This base period could no t be changed without eliminating the basis for 
calculating the total AMS and the required reductions in domestic support.  Simi larly, paragraphs 6(a) 
and 6(b) of Annex 2 require a fi xed base period and prevent an updating of a base period for “green 
box” domestic support measures that remain  essentially the same programme.     
 
24. How often can a Member define and fix a base period in accordance with paragraph 6 
of Annex 2 of the Agreement on Agriculture? BRA, USA 
 
Brazil’s answer:   
 
31. As set out in Brazil’s Answer to Panel Question 23, the answer is never if the replacement de-
coupled direct payment measure has a comparable st ructure, design and eligibility criteria as the older 
de-coupled direct payment measure.   
 
25. Does the United States consider that there is any ambiguity in the term "type of production" as used in paragraph 6(b) of A nnex 2 of the Agreement on Agriculture? USA 
 
26. Can the United States confirm Brazil's asse rtions in paragraph 174 of its first written 
submission that the implementing regulations for direct payments prohibit or limit payments if 
base acreage is used for the production of certain crops?  If so, can the United States clarify the 
statement in paragraph 56 of its first written submission that direct payments are made regardless of what is currently produced on th ose acres?  Can the United States confirm the 
same point in relation to production flexibility contracts?  USA 
 
27. Does Brazil argue that any United States measure that does not comply with the fundamental requirement of paragraph 1 of A nnex 2 of the Agreement on Agriculture is 
actionable independently of any failure of that  measure to comply with the basic or policy-
specific criteria in Annex 2?  BRA  
 Brazil’s Answer:
   
 
32. Yes.  A domestic support measure that does not meet the “fundamental requirement”  of the 
first sentence of Annex 2, paragra ph 1, cannot be considered to be properly in the “green box”.  In 
addition to the arguments at paragraphs 163-17 2 of Brazil’s First Submission, Brazil provides 
additional rationale for this argument below.   
 
33. The use of the words “fundamental requireme nt” in the first sentence of paragraph 1, 
Annex 2, demonstrates that the obligation contained in the sentence is separate and distinct from the 
obligation to meet the basic and policy-specific requirements set forth in Annex 2.  The ordinary meaning of those words, in that context and in light of the object and purpose of the Agreement in 
Agriculture, support this interpretation. 
 
                                                     
 
 51 See First Submission of Brazil, paras. 177-181. WT/DS267/R/Add.2 
Page I-19 
 
 
34. The ordinary meaning of “requirement” is “a thing required or needed, a want, a need; something called for or demanded; a co nditions which must be complied with”.
52  Interpreted in the 
context of paragraph 1, Annex 2, it means that havi ng no, or at most minimal, trade-distorting effects 
or effects on production is a condition for a domestic  support measure, which must be complied with, 
for exempting this domestic support measu re from the reduction commitments.   
 
35. The word “fundamental” qualifies the word “re quirement”.  The ordinary meaning of the term 
“fundamental” is “going to the root of the matte r; serving as the base or foundation; essential or 
indispensable”.53  The use of this adjective emphasizes a nd underscores that the requirement that a 
measure does not have trade-distorting effects or effects on production is essential and indispensable 
for a domestic support measure to be exempted from reduction commitments.   
 36. In sum, the ordinary meaning of a “f undamental requirement” is an “essential and 
indispensable condition that must be complied with”.  It follows that the fundamental requirement in 
the first sentence of Annex 2, paragraph 1 must be read as a stand-alone obligation and that it is 
untenable to relegate the obligation in the first sen tence of Annex 2, paragraph 1 to a policy objective 
role that merely informs the rest of the Annex.  In stead, it is a condition of central importance that all 
domestic support measures must meet in order to be exempted from reduction commitments.  Its importance is such that it serves as the premise on which the basic and policy-specific criteria are 
predicated.  
37. The principle of effective interpretation ( l'effet utile ), recognized by panels and the Appellate 
Body, requires that a treaty be interpreted to give m eaning and effect to all the terms of the treaty.  
The first sentence of Annex 2, paragraph 1 of the Agreement on Agriculture, which imposes an obligation in clear and unequivocal terms, has to be accorded full meaning.  Nothing suggests that 
recognizing the fundamental requirement as a sta nd-alone obligation would undermine or render 
inutile the obligation to conform to the basic and po licy-specific criteria.  To interpret the fundamental 
requirement as a policy objective that merely info rms the rest of Annex 2 would detract from the 
unambiguous obligation that domestic support measures have no, or at most minimal, trade-distorting 
effects or effects on production. 
 
38. The obligation to meet the fundamental require ment set forth in Annex 2, paragraph 1 is the 
overriding principle that determines whether a me asure can be exempt from reduction commitments.  
The purpose of the disciplines on domestic support in the Agreement on Agriculture, made effective 
in part through the reduction commitments, is to el iminate trade and production-distorting effects of 
domestic support measures or permit these measures to only have at most minimal trade or production-distorting effects.  Where a measure does not create trade-distorting effects or effects on 
production, the rationale for limiting the use of that  support measure disappears.  Conversely, where a 
measure does have trade-distorting effects or effects on production, it must be subject to reduction 
commitments, regardless of whether it complies with certain other basic or policy-specific criteria.  
To exempt a measure because a Member alleges th at it is classified as a green box measure, despite 
having trade-distorting effects or effects on production, would be to accept a circular reasoning and 
would undoubtedly undermine the disc iplines on domestic support measures. 
 
39. Brazil has set forth the evidence demonstrating that production flexibility contracts and direct 
payments have more than a minimal effect on production and thus are inconsistent with the 
fundamental requirement of the firs t sentence of Annex 2, paragraph 1.54  These production effects are 
not surprising given the fact that both PFC and direct payments limit payments based on the type of 
                                                      
 52 The New Shorter Oxford English Dictionary, 1993 edition, p. 2557. 
 53 The New Shorter Oxford English Dictionary, 1993 edition, p. 1042. 
 54 First Submission of Brazil, paras. 163-172; 183-191; First Oral Statement of Brazil, paras 50-54, 57-
61; Exhibit Bra-105 (Statement of Professor Daniel Sumner at the First Meeting of the Panel 22 July 2003, 
paras. 20-28). WT/DS267/R/Add.2 
Page I-20  
 
production.  Further, the updating of the base acrea ge for the direct payment programme (which one 
third of all eligible US farms took advantage of to  increase their base acres eligible to receive direct 
payments), created further production enhancing eff ects today (as well as in the future) as detailed by 
Professor Sumner in paragraphs 20-29 of his Statement at the First Meeting of the Panel on 22 July 2003.
55   
 
40. Brazil finally notes that if follows from the first sentence of Annex 2, paragraph 1 that any domestic support measures not complying with one of the basic or policy-specific criteria in Annex 2 is to be presumed to violate the fundamental require ment that it have no, or at most minimal, trade-
distorting effects or effects on production.  This conclusion holds regardless of the finding of the 
Panel on the character of the first sentence of Annex 2, paragraph 1 as a stand-alone obligation.
56    
 
28. Please explain the meaning of the word "criteria" in Articles 6.1 and 7.1.  What effect, if 
any, does the use of the word "Accordingly" in paragraph 1 of Annex 2 of the Agreement on Agriculture have on the meaning of the preceding sentence?  BRA  
 
Brazil’s Answer
:  
 41. Articles 6.1 and 7.1 reference “criteria” in general, without a specific mention of “basic 
criteria”, or “policy-specific” criteria.  To give meaning to the “fundamental requirement” of Annex 2, paragraph 1, the use of the word “criteria” must en compass all the rules, standards, or requirements 
established by Annex 2 as conditions for determin ing whether a domestic support measure can be 
exempted from reduction commitments.  There is no basis, therefore, on which to exclude the 
fundamental requirement in Annex 2, paragraph 1 from the criteria that a domestic support measure 
must meet to be exempted from the reduction commitments.    42. Brazil further notes that, while Article 6.1 refers  to “criteria set out in this Article”, nowhere 
in the subsequent sub-paragraphs of Article 6 can the word “criteria” be found.  This suggests that the 
term “criteria” as used in the Agreement on Agricult ure cannot be interpreted in such a way as to limit 
its coverage to “basic criteria” or “policy-specific criteria” in Annex 2.  The word “criterion” means 
“a principle, standard or test by which a thing is judged, assessed or identified”.
57  It follows that the 
term “criteria” encompasses all standards and tests set up by the provisions in the Agreement on Agriculture and its Annexes to which Article 6.1 and 7.1 refer.  This standa rds and tests include the 
fundamental requirement in the first sentence of Annex 2, paragraph 1. 
 
43. The word “accordingly” does not (and cannot  be read to) emasculate a “fundamental 
requirement”.  It introduces the related but distin ct obligation to conform to the basic and policy-
specific criteria.  “Accordingly” is defined as “in accordance with the logical premise”.  It is also 
defined as “harmoniously, agreeably,” or “in natural sequence,”58 or “appropriate, fitting”.59  The 
word “accordingly” indicates that the “basic cr iteria” are derivative of the more fundamental 
obligation in the first sentence of that same paragra ph.  “Accordingly” simply explains that because it 
is a fundamental requirement that domestic support measures have no, or at most minimal, trade-
distorting effects or effects on production, it is necessary that the measures also meet certain basic criteria.  Thus, the “fundamental requirement” is  a premise, and the “basic criteria” in the second 
sentence of Annex 2, paragraph 1 are in accordance – i.e., not contrary – to that fundamental 
requirement.  Because the first is a premise of the second, it is incorrect, indeed illogical, to say that 
the second sentence takes precedence, subsumes or  subordinates the first more fundamental 
obligation.  
                                                     
 
 55 See Exhibit Bra-105 (Statement of Professor Daniel  Sumner at the First Meeting of the Panel). 
 56 See First Oral Statement of Brazil, para. 21. 
 57 The New Shorter Oxford English Dictionary, 1993 edition, p. 551. 
 58 The New Shorter Oxford English Dictionary, 1993 edition, p. 15. 
 59 The New Shorter Oxford English Dictionary, 1993 edition, p. 15 . WT/DS267/R/Add.2 
Page I-21 
 
 
 
29. Please explain the meaning of the words "the fundamental requirement" as used in 
paragraph 1 of Annex 2 of the Agreement on Agriculture.  USA  30. Do the parties consider that direct p ayments and production flexibility contract 
payments meet or met the basic criteria referred to in paragraph 1 of Annex 2 of the Agreement 
on Agriculture?  BRA, USA  
 
Brazil’s Answer
:   
 
44. The direct payments and production flexibility co ntract payments meet the first basic criteria 
in paragraph 1(a) of Annex 2.  With respect to the second basic criteria, Brazil is not alleging that 
either of these two types of payments “have the e ffect of providing price support to producers”.  
 
31. If the first sentence of paragraph 1 of Annex 2 is not a stand-alone obligation, then must 
new, non- or minimally trade-distorting measures  that do not conform to the criteria listed in 
Annex 2 be classified as non-Green Box?  BRA, USA  
Brazil’s Answer:
 
 45. Yes.  As explained in answer to Question 27 above, any domestic support measures that do 
not comply with the basic or policy-specific criteria in Annex 2 shall be presumed to violate the 
fundamental requirement in the first sentence of paragraph 1 of Annex 2 and must, therefore, be 
considered non green-box domestic support measures.  This is true regardless whether the Panel 
concludes that the first sentence of paragra ph 1 of Annex 2 is a stand-alone obligation. 
 
32. If the first sentence of paragraph 1 of Annex 2 expresses a general principle which 
informs the interpretation of the criteria in Annex 2, please explain how this affects the assessment of the direct payments programme's compliance with paragraph 6 of Annex 2.  USA   
 
3. "do not grant support to a specific commodity" 
 
33. According to the United States' interpretat ion of the word "grant", when can a Member 
claim that a measure is not exempt from action  under Article 13(b)?  What if the measure is 
enacted annually?  Can the Member obtain a remedy in respect of that measure under the DSU?  USA 
 
(34) Does Brazil interpret the word "grant" as used in Article 13(b)(ii) of the Agreement on Agriculture to mean payment made in a specific year or payment made in respect of a specific 
year?  BRA  
Brazil’s Answer:
   
 
46. Brazil interprets the word “grant” to mean “payment made in respect of a specific year”.60  
 
35. Does a failure by a Member to comply in a given year with either the chapeau of 
Article 13(b) or the proviso in subparagraph (ii) of  Article 13(b) impact its entitlement to benefit 
in an earlier or a later year from the exempt ion from action provided by Article 13(b)? BRA, 
USA 
                                                      
 60 See First Oral Statement of Brazil, para. 31 (“Thus , the neutral term ‘decision’ must be read 
consistently with ‘grant.’  In sum, a harmonious interpre tation of ’decided’ exists wh ere the ‘decision ’ is to fund 
marketing year 1992 non-‘green-box’ e xpenditures for a specific commodity.”). WT/DS267/R/Add.2 
Page I-22  
 
 
Brazil’s Answer:  
 
 
47. Yes.  A failure of a Member’s measures to m eet in any given year the conditions of the peace 
clause lifts the entitlement to p eace clause protection for the whole implementation period for all 
measures found to fail meeting the conditions of the peace clause.  This conclusion applies to 
domestic support measures as well as export subsidies. 
 48. At the outset, Brazil would like to recall that the peace clause provides Members only limited protection from actionable and prohibited subs idy claims under the SCM Agreement and GATT 
Article XVI.  Domestic support measures are only exempt from action under Articles 5 and 6 of the 
SCM Agreement and under GATT Article XVI:1, if the domestic support measures do not violate the 
Total AMS reduction commitments of a Member a nd if they do not grant support to a specific 
commodity in excess of that decided during the 1992 marketing year.  Export subsidies are only exempt from actions under Articles 3, 5 and 6 of th e SCM Agreement and GATT Article XVI, if they 
conform fully to the provisions of Part V of the Agreement on Agriculture. 
 49. The peace clause does not impose any positive obliga tions and can, thus, not be violated.  It 
constitutes a right and defence of a Member th at this Member may or may invoke.  The US – FSC and 
US – FSC (21.5) dispute are examples of disputes, in whic h a Member has chosen not to invoke the 
peace clause defence.  Brazil has demonstrated before , that the peace clause is in the nature of an 
affirmative defence.
61  Accordingly, a complaining party does not bear the burden of proof that the 
measures at issue do not meet the conditions of the peace clause.  50. Nothing in the text of Article 13 suggests that a Member, which foregoes its peace clause 
exemption for particular measures in one year durin g the implementations period, shall be entitled to 
claim peace clause exemption for those measures for ot her – earlier or later – years.  Article 13 offers 
peace clause exemption for measures that “fully confor m” to Article 6 and that do not “grant support” 
“in excess of” that decided during the 1992 marketi ng year, as well as for measures that “fully 
conform” to Part V of the Agreement on Agriculture .  If measures fail to meet one of the relevant 
conditions in any year – be it the current year or  an earlier year during the implementation period – 
those measures can no longer be considered to “ful ly conform” or to not “grant support” “in excess 
of”.  Consequently, those measures are not exempt from action. 
 51. Finally, Brazil notes that the Panel need not d ecide this issue due to the circumstances of the 
present case.  Brazil has demonstrated that the Un ited States’ domestic support measures at issue in 
this dispute do not meet the conditions of the peace clause in any marketing year from MY 1999 to 
the present and that the US export subsidies also do not conform fully to Part V of the Agreement on 
Agriculture.  Thus, none of the subsidies at issue in this dispute is entitled to exemption from actions 
pursuant to the peace clause.  
36. Does a failure by a Member to comply wi th Article 13(b) in respect of a specific 
commodity impact its entitlement to benefit in respect of other agricultural products from the 
exemption from action provided by Article 13(b)? BRA, USA 
 
Brazil’s Answer:
   
 
52. No.  In fact, this is one of the purposes of the word “specific” in Article 13(b)(ii) – to 
differentiate a specific commodity whose amount of support was greater than the amount of support in 
marketing year 1992 from other specific commoditie s whose support may not have exceeded the 1992 
marketing year level.    
                                                     
 
 61 See First Submission of Brazil, para. 110-121, and First Oral Statement of Brazil, para. 5-11. WT/DS267/R/Add.2 
Page I-23 
 
 
37. In the United States' view, why did the drafters not use the exact term "product-
specific" in Article 13(b)(ii)? USA  38. Given the fact that subsidies available for more than one product could have various effects on production, how does the United Stat es demarcate between product-specific support 
and non-product specific support ? USA 
 39. If "such measures" in Article 13(b)(ii) refers to all those in the chapeau of Article 13(b), why are they not all included in the potential comparisons with 1992?  In what circumstances 
can measures which grant non-product specific  support lose exemption from action under 
Articles 5 and 6 of the SCM Agreement and Article XVI of GATT 1994? USA 
 40. In relation to which other provisions in th e Agreement on Agriculture is it relevant to 
disaggregate non-product specific support in terms of specific commodities?  BRA  
 Brazil’s Answer:  
 
 53. The Panel’s question uses the phrase “non-pr oduct specific support”, which is not defined 
explicitly in the Agreement on Agriculture.  Therefor e, before responding to this question, Brazil will 
set forth its understanding of what this term means and which measures at issue in this dispute fall 
within that definition.   
 
54. “Aggregate Measurement of Support” and “AMS ” are defined in Article 1(a) as the “annual 
level of support, expressed in mone tary terms” (a) “in favour of the producers of the basic agricultural 
product” or (b) “non-product-specific support provided in favour of agricultural producers in general . 
. .” (emphasis added).  Brazil notes that the ordinary meaning of the word “general” is “including, 
involving, or affecting all or nearly all the parts of a (specified or implied) whole.”
62  The “whole” in 
the case of Article 1(a) of the Agriculture Agreement refers to agricultural producers of all or nearly 
all basic agricultural products covered by the Ag reement on Agriculture.  Because the universe of 
domestic support measures includes either “pr oduct-specific” or “non-product-specific” domestic 
support measures, it follows that any domestic suppor t that is not provided “in favour of agricultural 
producers in general” is deemed to  be “in favour of the producers of the basic agricultural product”.  
Accordingly, the test for determining whether a domestic support measure is “non-product specific” 
for the purpose of calculating AMS is whether, as a factual matter, the measure provides support to 
“agricultural producers in general”.      55. The United States has argued that Article 1(a) is  useful context for interpreting the meaning of 
“support to a specific commodity”.
63  However, the United States latches on to only the first part of 
Article 1(a), and ignores the “in general” qualifi cation in the second part, which provides the essential 
meaning as to the scope of what is and is not “product-specific”.  Brazil notes that none of the measures it used to calculate the levels of s upport for purposes of Article 13(b)(ii) for MY 1992 or 
MY 1999-2002 could properly be deemed to be “non-product-specific” support as defined in 
Article 1(a) of the Agreement on Agriculture.  A nd, as Brazil has previously argued, all of these 
measures are “support to” upland cotton within the meaning of Article 13(b)(ii).   
 56. With that introduction, the answer to the Pane l’s question is that Brazil is not aware of any 
provision of the Agreement on Agriculture requiring th e dis-aggregation of support that is “provided 
in favour of agricultural producers in general”, as discussed above.  However, Brazil notes that 
Article 13(b)(ii) is a sui generis provision of th e Agreement on Agriculture that does not use the 
phrases “AMS”,  “non-product specific” or “product-specific” support.  Contrary to all of the other 
                                                     
 
 62 The New Shorter Oxford English Dictionary, 1993 edition, p. 1073.   
 63 First Submission of the United States, para. 78; See also Closing Statement of the United States, 
para. 18 (ignoring “in general” language).  WT/DS267/R/Add.2 
Page I-24  
 
provisions of the Agreement on Agriculture, Artic le 13(b)(ii) alone addresses the process for 
disciplining domestic support provided to a specific commodity under Articles 5 and 6 of the SCM Agreement and Article XVI:1 of GATT 1994.    
41. What is the position of Brazil with regard to certain other domestic support measures 
not cited by Brazil that were notified by the United States as non-product-specific 
(e.g. G/AG/N/USA/43), some of which presumabl y deliver support to upland cotton (e.g. state 
credit programmes, irrigation subsidies etc).   Why have budgetary outlays for such measures 
related to upland cotton not been included in the comparison of support with 1992?  BRA 
 Brazil’s Answer:  
 
 57. Brazil did not include any other types of domestic support measures for MY 1992 or MY 1999-2002 in calculating peace clause amounts because no other measures appeared to meet the test 
of being non-green box “support to” upland cotton in Article 13(b)(ii).  Similarly, these measures 
appear to meet the test of being provided “in favour  of agricultural producers in general”.  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 insu rance policies or any other specific upland cotton 
provisions.  Further, the United States has not in dicated in any documents that these state credit 
programmes, irrigation subsidies, etc. were not made  available “in favour of agricultural producers in 
general”.  If the United States is able to provide such  information, then it would be appropriate for the 
Panel to allocate such support to, inter alia, upla nd cotton.  As detailed in Brazil’s answer to 
Question 40, the United States was obligated to notif y to the Committee on Agriculture and to allocate 
as “product-specific support” to upland cotton any domestic measure that did not provide support “in favour of agricultural producers in general. . .”.    
 
58. The only US domestic support measures that Brazi l is aware of that would meet the test of 
being “support to upland cotton” are those that it lis ted for purposes of calculating the level of peace 
clause support in its First Written Submission.
64  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).    
 
42. If the word "specific" were deleted from Article 13(b)(ii), would this change the 
meaning of the subparagraph?  BRA   
 
Brazil’s Answer:  
 
 
59. Brazil believes that the meaning would change .  The deletion of the word “specific” would 
create some ambiguity.  The ordinary meaning of the phrase “a commodity” is “a thing that is an 
object of trade, esp. a raw material or agricultural crop”.  Therefore, the meaning of a commodity is 
rather broad and could for instance refer to “grains”.65  While the term “grains” may refer to “a 
commodity,” it cannot connate “a specific commodity”.   Specific commodities that make up the 
commodity “grains” would be wheat, barley, oats, ri ce etc.  Thus, the use of the term “specific 
commodity” clarifies that the subject of Article 13( b)(ii) is support to specific, i.e., individual, 
commodities and that this provisions does not deal with groups of individual commodities such as 
grains.  
                                                     
 
 64 First Submission of Brazil , paras. 144, 148, 149.   
 65 Also Annex 1 of the Agreement on Agriculture refers to some broad commodity categories such as 
“animal hair” and “essential oils.”  These would cover several specific commodities such as specific types of 
animal hair, or specific essential oils like jasmin oil or peppermint oil. WT/DS267/R/Add.2 
Page I-25 
 
 
60. Further, the phrase “a specific commodity” al so makes it clearer that the “commodity” at 
issue is equivalent to the “like product” as defined, inter alia, in the SCM Agre ement.  This parallel 
construction of the term “specific commodity” and “lik e product” is consistent with the fact that the 
peace clause provides a conditional exemption from Articles 5 and 6 of the SCM Agreement and 
Article XVI:1 of GATT 1994 – which require the ex amination of effects of subsidies on products 
“like” those receiving the subsidies.   
 
43. What are the precise differences between deficiency payments and counter-cyclical 
payments that lead you to classify the former as product-specific and the latter as non-product 
specific?  How do you classify ma rket loss assistance payments?  USA 
 
44. Do you allege that counter-cyclical paym ents could be considered product-specific?  
BRA  
 
Brazil’s Answer:  
 
61. Brazil notes its discussion of “non-product sp ecific” and “product-specific” support in its 
Answers to Questions 40-41.  For the purpose of ca lculating AMS, counter-cyclical payments (CCP) 
are “product-specific” support for two main reasons:  (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).  Indeed, when the US 2002 FSRI Act was 
examined by the WTO Committee on Agriculture, the European Communities agreed with Brazil that 
CCP payments could not be consid ered “non-product-specific” support.66  New Zealand has taken a 
similar view in its Third Party Submission in this dispute.67   
 62. Brazil has provided extensive facts that upl and cotton producers receive CCP payments as 
support to upland cotton and that such payments are support to upland cotton for the purposes of 
Article 13(b)(ii).  These facts also support a finding that CCP payments are “product-specific” support.  Further, Brazil notes the following facts de monstrating that counter-cyclical payments (and 
direct payments) are not provided “in favour of ag ricultural producers in general”, but are instead 
provided to only a fraction of US agricultural production:    
• CCP payments are made to holders of up land cotton base acreage when US upland cotton 
prices fall below 65.73 cents per pound.  Produ cers/holders of all other farm acreage in 
the United States do not receive CCP payments when US upland cotton prices received by US producers fall.  In MY 2001, (non- updated) upland cotton base acreage represented 
1.7 percent of total US farmland.
68  
 
• CCP payments for upland cotton (and direct payments) are received by holders of upland 
cotton base acreage, i.e. for land that grew  upland cotton between  1998-2001 or between 
                                                      
 66 Exhibit Bra-144 (G/AG/R/31, para. 30) (“Braz il would not accept [CCP] classification as ‘non-
product-specific payment’.”); para 31  (“The EC also shared Brazil’s an alysis on how the counter-cyclical 
payments should be classified and pointed to US insu rance programmes as not bei ng properly classified at 
present”).  
 67 Third Party Submission of New Zealand, para. 2.24 (“Accordingly, New Zealand considers that the 
United States incorrectly categorizes CCP paymen ts as non-product specific support.”).    
 68 In MY 2001, total US farmland was 959.163 million acres  ( See Exhibit Bra-143 (Agricultural 
Statistics 2003, USDA, Table 9.6).  Average US upland cotton base acreage for MY 1997-2001 was 16.3 million acres ( See Exhibit Bra-142 (Agricultural Outlook, US DA, May 2002, Table 19).  Brazil has 
requested the United States to prov ide information on updated base acr eage for the CCP and direct payment 
programme in questions during consultations and in the Annex V proceedings.  Brazil has not received that information and, therefore, uses 16.3 million acreage as a proxy for the direct paym ent base acreage noting that 
USDA reports that more than 99 percent of eligib le acreage signed up for the CCP and direct payment 
programme (Exhibit Bra-44 (“Direct Payment and CCP Enrollment Report,” USDA, 19 June 2003).   WT/DS267/R/Add.2 
Page I-26  
 
1993-1995.  USDA reported in 2001 that the 1997 census showed there were 31,500 upland cotton farms.  Assuming no increase in the number of US upland cotton farms 
since 1997, this represents 1.46 percent of all farms in the United States.
69 
 
• Upland cotton cash receipts as a percentage of total cash receipts from all agricultural 
commodities was 2.5 percent in MY 1999, 2.35 percent in MY 2000, and 3.05 percent in 
MY 2001.70  
 
• The 10 “programme” crops in the CCP (and di rect payment) programme represented only 
23.49 per cent of total farm cash receipts  from all agricultural commodities on average 
between MY 1997-2001.71    
 
• The base acreage of the 10 “programme” crops in the CCP (and direct payment) 
programme represented only 30  percent of total US farm acreage in MY 2001.72  
 
• In MY 2002, CCP payments to holders of upland cotton base acreage represented 
approximately 80 percent – or  $1.143 billion – of total CCP payments ($1.420 billion) for 
the ten eligible programme crops.73  
 
• In MY 2002, no CCP payments were made to holders of 8 of the 10 eligible crops.  In 
particular, holders of base acreage for barley , corn, grain sorghum, oats, soybeans, other 
oilseeds, and wheat received no CCP payments.74    
 
• CCP base acreage receiving CCP payments in MY 2002 (upland cotton and rice base 
acreage) represented only 2.2  percent of total US farmland.75   
 
• 90 percent of US acreage eligible to r eceive upland cotton CCP payments for upland 
cotton is located in only 10 out of 50 US st ates, with the top 5 US  States accounting for 
66 percent of US upland cotton production.76   Thus, upland cotton CCP payments are 
focused on farms in a limited number of US States (i.e., the “cotton belt”). 
   
                                                      
 69 Exhibit Bra-143 (Agricultural Sta tistics 2003, USDA, Table 9-9).  There were 2.155 million farms in 
the United States in 2001.  USDA reported that in 1997, there were 31,500 farms that grew cotton.  Exhibit Bra-
46 (“Cotton: Background and Issues for Farm Legislation,” USDA, July 2001, p. 2).   
 70 Exhibit Bra-142 (Agricultural Outlook, USDA, May 2 002, p. 59). The calculations cited above were 
derived from comparing upland cotton cash receipts co mpared to total commodity cash receipts net of 
government payments.  
 71 Exhibit Bra-145 (US and State Farm Income Data  (United States and States 1997-2001), USDA, 
Table 5).    
72 Brazil does not have access to actual CCP base acreag e figures.  Therefore, Brazil has used MY 2001 
figures as a proxy and relies on MY 2001 PFC base acreage for the 7 crops covered by PFC payments (Exhibit 
Bra-142 (Agricultural Outlook, USDA, May 2002, p. 50) and has added MY 2001 soybean, peanut and other oilseed acreage (Exhibit Bra-146 (Acrea ge, NASS, 28 June 2002, p. 14, 15 and 17) (286.8 million acres).  Total 
US farmland in 2001 was 959,163,331 million acres (E xhibit Bra-143 (Agricultura l Statistics 2003, USDA, 
Table 9.6). 
 
73 Exhibit Bra-147 (“Estimate of Support Grante d by Commodity via Counter-Cyclical Payments”).  
 74 Exhibit Bra-147 (“Estimate of Support Grante d by Commodity via Counter-Cyclical Payments”). 
 75 Upland cotton and rice PFC base acreage represen ted 16.2 and 4.1 million acres (Exhibit Bra-142 
(Agricultural Outlook, USDA, May 2002, p. 50)).  Brazil does not have any information on the effects of the 
base acreage update and, therefore, uses the PFC base  acreage as a proxy for CCP  base acreage.  Total US 
farmland in 2001 was 959,163,331 million acres (Exhibit Bra-143 (Agricultural Statistics 2003, USDA, 
Table 9.6). 
 76 Exhibit Bra-107 (“US and State Farm Income Data , Farm Cash Receipts,” ERS, USDA, June 2003).  WT/DS267/R/Add.2 
Page I-27 
 
 
63. This evidence demonstrates that CCP (and direct  payments) are provided to only a fraction of 
the producers of agricultural commodities in the Un ited States and that payments are focused to 
producers of a limited number agricultural products.  In view of these facts – particularly that upland cotton has its own “target price” of 72.4 cents per pound and accounted for 80 percent of all CCP 
payments in MY 2002 – it is appropriate for the Pa nel to consider only upland cotton statistics to 
conclude that these payments are “support to cotton” and are also “product-specific”.   
 64. But even if the Panel relie s on data regarding all 10 CCP pr ogramme crops, the evidence still 
demonstrates that CCP and direct payments ar e “support to cotton” and “product-specific” support 
because they are not provided to producers of US agricultural commodities “in general”.  Only around 
30 percent of the farm acreage in the United States is farmed by producers with the possibility of 
receiving CCP payments.
77  In MY 2002, only 2.2 percent of tota l US farmland was eligible to receive 
CCP payments.78  In light of these facts, it is not surprisi ng that the EC correctly recognized in June 
2002 that the US CCP programme does not repr esent a domestic support programme “provided in 
favour of agricultural producers in general”.79    
 
45. If the Panel considered that Step 2 paymen ts paid to exporters were an export subsidy, 
would the United States count them as domest ic support measures for the purposes of Article 
13(b)?  Please verify Brazil's separate data for Step 2 export payments and Step 2 domestic 
payments in Exhibit BRA-69 or provide separate data. BRA, USA 
 Brazil’s Answer:
 
 65. Brazil can verify that the Step 2 informati on its representatives received and that is tabulated 
in Exhibit Bra-69 was obtained from Wayne Bjorlie ( wayne_bjorlie@wdc.usda.gov
) in the Kansas 
City Commodity Office (KCCO) upon request for such data in December 2002.   
 
46. What is the relevance, if any, of the concept of "specificity" in Article 2 of the SCM 
Agreement and references to "a product" or "sub sidized product" in certain provisions of the 
SCM Agreement to the meaning of "support to a specific commodity" in Article 13(b)(ii) 
Agreement on Agriculture? BRA, USA 
 Brazil’s Answer:  
 
 66. The concept of “specificity” in Article 2 of the SCM Agreement is useful context in 
interpreting the meaning of “support to a specific commodity” in Article 13(b)(ii).  As the United States recognized at the First Meeting of the Panel with the parties, the word “support” as used 
in the Agreement on Agriculture  is a synonym for “subsidy”.
80  The term “support to a specific 
commodity” has a similar meaning as “subsidized product, ” as used in, inter alia, Article 6.3(c) of the 
                                                      
 77 Brazil does not have access to actual CCP base acreag e figures.  Therefore, Brazil has used MY 2001 
figures as a proxy and relies on MY 2001 PFC base acreage for the 7 crops covered by PFC payments (Exhibit 
Bra-142 (Agricultural Outlook, USDA, May 2002, p. 50) and has added MY 2001 soybean, peanut and other 
oilseed acreage (Exhibit Bra-146 (Acrea ge, NASS, 28 June 2002, p. 14, 15 and 17) (286.8 million acres).  Total 
US farmland in 2001 was 959,163,331 million acres (E xhibit Bra-143 (Agricultura l Statistics 2003, USDA, 
Table 9.6). 
 78 Upland cotton and rice PFC base acreage represen ted 16.2 and 4.1 million acres (Exhibit Bra-142 
(Agricultural Outlook, USDA, May 2002, p. 50)).  Brazil does not have any information on the effects of the 
base acreage update and, therefore, uses the PFC base  acreage as a proxy for CCP  base acreage.  Total US 
farmland in 2001 was 959,163,331 million acres (Exhibit Bra-143 (Agricultural Statistics 2003, USDA, 
Table 9.6). 
 79 Exhibit Bra-144 (G/AG/R/31, paras. 30-31). 
 80 Brazil does not mean to imply that in the second phase of this proceeding it will not have the burden 
of demonstrating that each of the domestic support pr ograms are “subsidies” within the meaning of the SCM 
Agreement.     WT/DS267/R/Add.2 
Page I-28  
 
SCM Agreement.  Given the textual similarities between “subsidized product” and “support to a 
specific commodity”, assessment of whether “support to  a specific product” exists could be examined 
with at least some reference to the specificity criteri a of Article 2 of the SCM Agreement.  Article 2 of 
the SCM Agreement provides, in relevant part:   
 2.1 In order to determine whether a subsidy,  as defined in paragraph 1 of Article 1, is 
specific to an enterprise or industry or group of enterprises or industries (referred to in this Agreement as “certain enterprises”)  within the jurisdiction of the granting 
authority, the following principles shall apply: 
 
  (a) Where the granting authority, or the legislation pursuant to which the granting 
authority operates, explicitly limits access to  a subsidy to certain enterprises, such 
subsidy shall be specific.. . .   
   (c) If, notwithstanding any appearance s of non-specificity resulting from the 
application of the principles laid down in subparagraphs (a) and (b), there are 
reasons to believe that the subsidy may in fact be specific, other factors may be considered.  Such factors are:  use of the subsidy programme by a limited number 
of certain enterprises, predominant use by certain enterprises, the granting of 
disproportionally large amounts of subsidy to certain enterprises . . . 
 
 2.2 A subsidy which is limited to certain enterprises within a de signated geographical 
region within the jurisdiction of the gr anting authority shall be specific.  
 67. The US Statement of Administrative Acti on (“SAA”) describes in some detail how the 
United States intends to administer the specificity  provisions, suggesting that the US Department of 
Commerce applies a low threshold for finding both “de jure” and “de facto” specificity: 
 
The Administration intends to apply the specific ity test in light of its original purpose, 
which is to function as an initial screeni ng mechanism to winnow out only those 
foreign subsidies which truly are broadly available and widely used throughout an 
economy.
81   
Brazil agrees with this statement that the “origi nal purpose” of the specificity criterion is to make 
subsidies non-specific only when they are broadly available and widely used throughout an economy.    68. The ordinary meaning of the plural term “cer tain enterprises,” as set out in the chapeau to 
ASCM Article 2.1, underscores that a subsidy can be specific even if it applies to a “group of  . . . 
industries.”  The term “industry” is defined as “a  particular form or branch of productive labour; a 
trade, a manufacture”.
82  Thus, the text of the chapeau supports the notion that for a subsidy to be 
specific under the SCM Agreement it must be limited to a certain number of industries that may be involved in different trades or manufacturing processes.      69. The object and purpose of the specificity require ment in Article 2.1(a) of the SCM Agreement 
is consistent with a broad scope for specificity.  One key purpose for the specificity requirement is to 
avoid the countervailability of those subsidies widely available in an economy, while at the same time 
ensuring that those subsidies that benefit some groups of industries or enterprises more than others are 
covered.  As the United States noted in the SAA:   
The specificity test was intended to function as a rule of reason and to avoid the 
imposition of countervailing duties in situa tions where, because of the widespread 
                                                     
 
 81See Exhibit Bra-148 (“Statement of Administrative Action,” p. 929) (emphasis added).   
 82 The New Shorter Oxford English Dictionary, 1993 edition, p. 1356.   WT/DS267/R/Add.2 
Page I-29 
 
 
availability and use of a subsidy, the benef it of the subsidy is spread throughout an 
economy.  Conversely, the specificity test was not intended to function as a loophole through which narrowly focused subsidies pr ovided to or used by discrete segments 
of an economy could escape the purview of the CVD law.
83 
70. Therefore, the ordinary meaning, context a nd object and purpose of Article 2.1(a) of the SCM 
Agreement confirm that subsidies that are availabl e to discrete segments of an economy or to only 
particular industries are specific.  Under these standards, each of the subsidies challenged by Brazil in this dispute (and listed as support for the purposes of the peace clause analys is) are provided to 
“discrete segments” of the US economy.  Indeed, th ey are provided to discrete segments of the sub-
section of the US economy known as “agriculture”.  T hus, if the Panel were to apply the specificity 
standard set out in Article 2 of the SCM Agre ement to Article 13(b)(ii) of the Agreement on 
Agriculture, the identified domestic support subs idies would be considered “specific”.   
 71. Brazil notes that further support for the use of  specificity concepts from the SCM Agreement 
in interpreting Article 13(b)(ii) of the Agriculture  Agreement is found in the definition of “AMS” in 
Article 1(a) of the Agriculture Agreement.  Th e definition of “non-product specific” support (“support 
provided in favour of agricultural producers in genera l”) illustrates that the c oncept of specificity in 
the context of the SCM Agreement and of AMS in the Agreement on Agriculture are similar.  Both 
would require a finding of specificity unless support is  provided to an economy generally, in the case 
of the SCM Agreement, or to “producers” of ag ricultural commodities “in general,” in the case of 
AMS under the Agriculture Agreement.   
 
72. In contrast, the United States seeks to apply an  extremely restricted concept of specificity to 
the peace clause that begins and ends with the ques tion whether production of a specific commodity is 
required to receive the payment.  This is one of th e “policy-specific” criteria of a “green box” test in 
Annex 2, paragraph 6, but not the test of “support to a specific commodity” required by 
Article 13(b)(ii).  Further, as demonstrated above , this narrow US interpretation finds no support in 
the provisions of the SCM Agreement and the Agreemen t on Agriculture that speak to specificity.     
 
4. "in excess of that decided during the 1992 marketing year" 
 47. Where does Article 13(b)(ii) require a year-on-year comparison?  BRA, USA 
 
Brazil’s Answer:  
 
 73. The text of Article 13(b)(ii) sets up a co mparison between the “support” “grant[ed]“ during 
the implementation period with support “decided”  during the 1992 marketing year.  Brazil cannot 
conceive of a methodology in which all support gr anted during the entire implementation period could 
be compared with the support decided during marketi ng year 1992.  In order to generate an “apples to 
apples” (“support to support”) comparison, it is necessary to compare the support granted in any 
marketing year during the implementation period with the support decided during marketing year 
1992.  No other reading of Article 13(b)( ii) would permit the required comparison.  
 
74. Additionally, Brazil notes that the second co ndition for domestic support measures to be 
exempted from actions under the SCM Agreement is that a Member’s domestic support measures 
conform fully to Article 6, and, thus, grant suppor t within the limits of that Member’s Total AMS 
reduction commitments.  These Total AMS reduction commitments are made on a yearly basis.  The nature of the reduction commitment and the ma nner, in which compliance with Article 6 is 
determined, demonstrates that Article 13(b)(ii) – read in accordance with its chapeau and the 
reference to Article 6 therein – requires a year-b y-year comparison.  The context of the chapeau 
provides support for Brazil’s argument made above th at the relevant comparison for Article 13(b)(ii) 
                                                     
 
 83 Exhibit Bra-148 (Statement of Administrative Action, p. 930).  WT/DS267/R/Add.2 
Page I-30  
 
involves a comparison of support granted in any of the marketing years during the implementation period with support decided in MY 1992.  75. Similarly, Article 13(c) provides furt her context to support the conclusion that 
Article 13(b)(ii) requires a year-by-year comparison.   Brazil notes in its answer to Question 7, that 
export subsidy reduction commitments under th e Agreement on Agriculture are made on a 
commodity-specific basis.  Brazil has also pointed ou t in its answer to Question 79 that a violation of 
Part V of the Agreement on Agriculture, and the r esulting loss of peace clause exemption, must also 
be assessed on a yearly basis.    48. Does Article 13(b)(ii) require a comparison of  support granted with support decided?   
How could such a comparison be made?  BRA, USA  
 
Brazil’s Answer:  
 
 
76. The answer to the first question is yes, the text of Article 13(b)(ii) requires a comparison 
between the “support granted” for marketing year s between 1995-2003 with the “support decided” in 
marketing year 1992.  Brazil has explained in detail in  its First Oral Statement the basis for this legal 
conclusion.84   
 77. The second question asks how the comparison must  be made.  Brazil is of the view that a 
harmonious interpretation of “support decided” with “support granted” requires an examination of the 
expenditures incurred for all of the support relate d to the 1992 marketing year and each of the 
marketing years during the implementation period en ding 1 January 2004.  This expenditure approach 
permits an objective, easily verifiable approach to compare the support for each of the two time 
periods.  That is particularly important when, as in  this case, there are a wide variety of programmes 
that do not provide support on a “cents per pound” b asis to all production.  Brazil does not consider 
that a comparison based on a “rate of support” appro ach as suggested by the Un ited States allows the 
same objective and easily verifiable comparison.  Professor Sumner explained the difficulty of comparing, on a “cents per pound” basis, deficiency payments, Step 2, marketing loans, and crop insurance provided in marketing year 1992 with the marketing year 1999-2002 measures that replaced 
or changed the 1992 measures.
85  Nevertheless, Professor Sumner was able, through a relatively 
complex methodology, to calculate and compare a level of support on a per pound basis between 
marketing year 1992 and marketing years 1999-2002.    78. Another methodology is the ra te of support taking into account  expenditures, as detailed in 
Brazil’s answer to Question 60 infra.  Brazil would not e that a last methodology that would have been 
possible, had the text of Article 13(b)(ii) include d the term “AMS,” would be to calculate support 
based on the criteria set forth in Annex 3 of the Agri culture Agreement.  The results of this calculation 
are set forth in Brazil’s answer to Question 67 infra .   
 
49. Brazil claims that the terms "grant" and "d ecided" in Article 13(b)(ii) have broadly the 
same meaning.  If so, why did the drafters not use the same term?  BRA 
 
                                                     
 
 84 First Oral Statement of Brazil, para. 31.   
 85 Exhibit Bra-105 (Statement of Professor Sumner at the First Meeting of the Panel). WT/DS267/R/Add.2 
Page I-31 
 
 
Brazil’s Answer:   
 79. Brazil set forth its interpre tation of the terms “grant” and “decided” in its First Oral 
Statement.
86  Brazil concluded that the text, context, and object and purpose of Article 13(b)(ii) meant 
that the MY 1992 “decision” must be related to “support granted” in order to make possible the 
comparison between MY 1992 and marketing years dur ing the implementation period.  Yet, Brazil 
does not believe that the “decision” in marketing y ear 1992 means that all of the support had to be 
“granted” (i.e., paid) during the 12-month period of that single marketing year.  Rather, the decision had to authorize payment in respect of a specific marketing year, including MY 1992.
87  However, a 
Member could have decided during the 1992 marketi ng year to budget a certain amount of support to 
specific commodities for the next several marketing years, including MY 1995 et seq.  In that case, 
the relevant peace clause comparison would invo lve comparing the support granted to a specific 
commodity in any marketing year during the implementation period to what was decided during the 1992 marketing year to be provided for that later marketing year.  
80. Brazil has cited the negotiating history of Article 13(b)(ii), which indicates that the EC 
insisted on the use of the word “decided” to obtain  a safe harbour for the total quantity of its domestic 
support subsidies that it had already budgeted in  marketing year 1992 for marketing year 1995 and 
thereafter.
88  Brazil will comment further, as required, on the intentions of the “drafters” following 
receipt of the answers of the European  Communities and the United States.    
 50. Please provide any written drafting history which could shed light on why the proviso was added to what is now Article 13(b)(ii) a nd, in particular, why both words "grant" and 
"decided" were used.  USA  51. Could the United States please comment on the interpretation advanced by the EC, in 
paragraphs 16 and 18 of its oral statement, of the words "decided during the 1992 marketing 
year"? USA  52. Please comment on an interpretation of the words "decided during" in Article 13(b)(ii) that would read them as synonymous with the words "authorized during".  BRA, USA  
 Brazil’s Answer:  
 
 81. Brazil agrees that in its proper context, th e term “decided during” in Article 13(b)(ii) is 
synonymous with the words “authorized during”.  Brazil has set forth the reasoning and citations supporting this conclusion in its Answers to Ques tion 49 supra and Question 58 infra, as well as in its 
First Oral Statement at paragraph 31. 
 
53. Assume, for arguments sake, that the only "decision" made in the United States in 1992 
was the target price. How would Brazil make the comparison vis-à-vis, for example, the year 
2001? BRA 
 Brazil’s Answer:  
 
 82. Brazil maintains that the relevant compar ison under Article 13(b)(ii) is to compare 
expenditures incurred relating to MY 1992 with ex penditures incurred relating to marketing years 
during the implementation period.  Only this methodology allows for a comparison irrespective of the 
nature and characteristics of the domestic s upport measures provided and does not suffer from the 
                                                     
 
 86 First Oral Statement of Brazil, paras. 27-34 
 87 Brazil and the United States appear to agree th at MY 1992 is the relevant marketing year for 
purposes of this dispute. 
 88 First Submission of Brazil, para. 140.   WT/DS267/R/Add.2 
Page I-32  
 
shortcomings of other approaches, on which Braz il will comment below.  In particular only an 
expenditure incurred approach allows for an effec tive comparison in the following situation:  Assume, 
a Member introduces a payment that is made at a fixed rate per pound and is paid for each pound of 
actual upland cotton production.  In this situati on, it would be difficult to compare this domestic 
support measure, which is completely unrelated to  market prices to a domestic support measure 
decided by a Member in MY 1992 and which sets a target price and provides price support. 
 83. With this qualification in mind, Brazil’s unde rstanding of this question is that the assumed 
single “decision” was the establishment of a target price of 72.9 cents per pound for eligible US upland cotton production during MY 1992.  The assumed single “decision” on a target price of 72.9 
cents per pound comprised of many other s ub-decisions on the mandatory acreage reduction 
programme, on the operation of the 50/92-programme  option, and on optional flex acres, among 
others.
89  Professor Sumner has analyzed in detail th e process through which such a target price of 
support could be compared to the support provided in MY 1999-2002.90  For MY 1992, he found that 
the estimated per unit support rates for all progr ams was 60.41 cents per pound.  For MY 2001, he 
found the per unit support rates for all programme s was 66.51 cents per pound.  Brazil refers to 
Professor Sumner’s detailed description of the me thodology he used to make these calculations.91 
 84. The irrationality of the simplistic “72.9 is great er than 51.92” approach by the United States is 
revealed by comparing it with the results of Professor Sumner taking into account in the calculation of the “rate of support” eligibility criteria and the cost s imposed by participation in the US upland cotton 
support programs.   It is also demonstrated by comparing the expenditures in MY 1992 ($1.9 billion) 
with the expenditures in MY 2001 ($4 billion).  
54. Please identify all United States legal a nd regulatory and administrative instruments 
decided during the marketing year 1992, with th e respective dates of decision, that decided 
support for upland cotton. BRA, USA  
Brazil’s Answer
: 
 85. Brazil will comment further upon receipt of the answer provided by the United States to this 
question.  The United States obviously has access to r ecords related to all the decisions taken by the 
United States concerning its support programs for MY 1992.  However, Brazil notes that given its 
understanding of the operation of the US support programmes, the United States took a number of 
decisions with respect to the upland cotton support programmes for MY 1992.  86. Many of the US support programmes for MY 1992 were decided by Title V of the Food, 
Agriculture, Conservation and Trade (FACT) Act of  1990 (P.L. 101-624), which established US farm 
policy for the 5 crop years 1991/92-1995/96, and by the Omnibus Budget Reconciliation Act (OBRA) 
of 1990 (P.L. 101-508), which established several  programme provisions in order to reduce 
programme costs.  Brazil considers that among the de cisions taken by the United States in relation to 
MY 1992 upland cotton support programmes were the following:  
• Continuation of the upland cotton target pr ice under the deficiency payment programme 
at the 1990 level of 72.9 cents per pound set by the 1990 FACT Act.  The OBRA limited the maximum payment acreage at 85 percent of the crop acreage minus the acreage reduction programme requirement, which was set  annually.  Therefore, the United States 
had to take a decision with respect to the MY 1992 percentage of deficiency programme 
                                                     
 
 89 For a more thorough discussion of the decisions Brazil understands the United States has taken with 
respect to MY 1992, see Brazil’s answer to Question 54. 
 90 See Exhibit Bra-105 (Statement of Professor Daniel  Sumner at the First Meeting of the Panel). 
 91 Annex 2 to Exhibit Bra-105 (Statement of Professor Daniel Sumner at the First Meeting of the 
Panel). WT/DS267/R/Add.2 
Page I-33 
 
 
base acreage that would be required to be set aside under the acreage reduction programme. 
 
• In connection with the former, the United States also took a decision allowing producers 
to plant up to 25 percent of upland cotton acr eage base, the so-called “flex acreage,” to 
any commodity except fruits and vegetables and mung beans. 
 
• Furthermore, the United States had to deci de on how to implement the 50/92-programme 
option under the deficiency payment program.  
 
• The United States also needed to determin e the upland cotton acreage base for purposes 
of the deficiency payment programme, which for MY 1992 represents the previous three-year average of planted and considered planted upland cotton acreage.  
 
• Concerning the deficiency payment program, the United States finally had to decide on 
the payment rate for upland cotton. 
 
• Concerning the marketing loan programme, the United States had to take a decision 
setting the marketing loan rate for upland cotton. 
 
• Furthermore, the United States had to establis h a weekly “adjusted world price” and, thus, 
the repayment rate for marketing loans determ ining the rate of marketing loan gains or 
loan deficiency payments.   
 
• Furthermore, the United States took a weekly decision in MY 1992 with respect to the 
Step 2 payment rate applicable for that week.  
 
• Regarding crop insurance, the Federal Crop Insurance Act of 1980 was the authorizing 
legislation, but it was necessary to adopt d ecisions concerning individual insurance 
policies that would apply to upland cotton an d to set the respective rates of premium 
subsidies. 
 87. While Brazil does not consider this list to be  exhaustive, it gives the Panel an overview on the 
variety of decisions the United States had to take  to make the support programme to upland cotton 
operational.  Brazil looks forward to the answer provided by the United States and reserves its right to comment as appropriate.   
55. Please provide a copy of the instrument in  which the rate of support for upland cotton 
during the marketing year 1992 was decided, indicating the date of the decision.  USA 
 
56. Could the United States please explain how support granted under legislation that dates back to 1990 can have been support "deci ded during the marketing year 1992"?  USA 
 57. If the United States decided on a rate of support for MY1992, does that not mean that it 
decided on whatever budgetary outlay was required to meet that rate of support, even if the 
exact amount was not known at that time?  USA  58. Please comment on the argument advanced by the EC, in paragraph 17 of its oral statement that: "Had WTO Members intended a lim itation to the support provided or granted 
in 1992 the word 'for' would have been used in place of 'during'." BRA  
 WT/DS267/R/Add.2 
Page I-34  
 
Brazil’s Answer:  
 
 88. Brazil agrees with the EC that the word “duri ng” does not mean that all of the support need be 
provided or granted within the 12-month period of marketing year 1992.  Rather, the decision must 
have been related to the amount of support to be granted in respect of marketing year 1992.  This 
interpretation is consistent with  an expenditure methodology that compares expenditures for upland 
cotton in respect of MY 1992 with expenditures for upland cotton in MY 1995-2003, and thereby permits a comparison of 1992 levels of support with levels of support in marketing years 1995-2003.  
 89. The negotiating history cited by Brazil in its First Submission indicates that the EC is in a 
special situation vis-à-vis the peace clause.
92  It apparently made the decision in marketing year 1992 
to budget an amount of support for commodities fo r marketing years 1995-2000 in its CAP reform.  
Brazil agrees with the EC that Article 13(b)(ii) was “intended to set up as a benchmark an amount of support adopted by some form of decision (be it po litical, legislative or administrative) in which 
support for a specific product is decided . . .”  But the EC qualifies this assertion with the notion that 
that decision can only be “allocated for future years.”
93  This qualification would appear to be 
compelled by the EC’s particular situation.  But that  situation does not justify the EC’s conclusion that 
its “future years” concept means that Article 13(b)(ii) “clearly is not intended to set up a comparison between domestic support granted in 1992 and domestic support granted in a more recent period.”  
 90. The notion of a “decision” suggests that i ndividual Members each made some sort of a 
decision with respect to the peac e clause.  The United States and Brazil agree that the decision made 
by the United States – whatever it may have been – related to the level of  support provided to upland 
cotton in MY 1992.  Brazil’s argumen t with the United States concer ns the type of decision and the 
methodology that can be used to account for the le vel of support decided during MY 1992.        
 59. Should the rate of support as indicated in Ar ticle 13(b)(ii) include the market price?  If 
so, why is it appropriate to include it in the comparison under Article 13(b)(ii)?  BRA, USA 
 
Brazil’s Answer:  
 
 91. The most natural measure of support is budge tary expenditures, and these implicitly include 
market price in the sense that, fo r several US upland cotton programs, higher market prices lead to 
lower budgetary outlays.  The US Government paym ents under the marketing loan, deficiency and 
counter-cyclical programs all decline with increasi ng market prices, as they cover the difference 
between the loan rate or the target price and the ma rket price.  Step 2 payments are also related to 
market prices in that they cover the difference between the A-Index and the lowest-priced US quote 
for upland cotton and, therefore, vary with market prices.
94  Incorporating the different degrees to 
which the market price influences the support provid ed by the US Government to its upland cotton 
farmers is best achieved by looking at the results in  terms of budgetary outlays for the programs.  This 
measure of support is straightforward to apply a nd allows a ready and accurate comparison between 
1992 and subsequent marketing years.  
92. Under the US approach and Professor Sumner’s adaptation of the US approach, market prices 
enter the calculation of the “rate of support” in the sense that the expected rate of support from the 
loan rate and the target price per eligible unit of  production includes revenue expected to be received 
from the market (expected market price) and revenue  expected from the US Government (subsidies).  
The market price enters inversely in  the sense that the outlay is inver sely related to the market price, 
as for instance the loan rate benefits make up the difference between the loan  rate and the adjusted 
                                                     
 
 92 First Submission of Brazil, para. 140.  
 93 Oral Statement of the European Communities, 24 July, para. 18.  
 94 Brazil notes, however, that the relationship between market price and level of Step 2 payments by the 
US Government is not as straightforward and positively correlated as for the other price-based programmes.  WT/DS267/R/Add.2 
Page I-35 
 
 
world price for the eligible share of production.95  The higher the market price, the higher the resulting 
budgetary outlays.   93. Additionally, there is one further im portant reason why the notion of support in 
Article 13(b)(ii) should include the market price.  Without reference to the market price, it is 
impossible to say what the rate of support means to farmers.  It may be that the support is completely 
irrelevant, because market prices are much higher than the loan rate or the target prices set by the US 
Government.  For instance, the loan rate was i rrelevant for US upland cotton producers in MY 1994-
1996,
96 because market prices were so high that no payments occurred.  However, under essentially 
the same program, market loan benefits amounted to 26.6 cents per pound in MY 2001.97  Thus, 
without taking market prices into account, it is impossible to translate a “rate of support” into actual 
support provided and to give m eaning to the term “support.” 
 
60. Can you provide information on support decided in 1992 and the years with which you 
believe it should be compared, on a per suppo rt programme / per unit of production / per 
annum basis?  If possible, please specify how, if  at all, budget outlays may be transposed into 
units of production, and which units of production are best to use.  BRA, USA 
 
Brazil’s Answer:   
 94. Brazil maintains that the appropriate measu re of support decided during MY 1992 is total 
actual expenditures resulting from any decisions regard ing support to upland cotton.  This must then 
be compared to total actual expenditures for supp ort to upland cotton for MY 1999, 2000, 2001 and 
2002.  Presenting expenditures as a “rate of suppor t” per pound of upland cotton disguises the fact 
that US expenditures for upland cotton have increase d considerably since MY 1992.  This is due to 
the fact that the increased US expenditures are now  spread over an also increased US production.  
Therefore, a “rate of support” based on budgetary ou tlays or expenditure understates the real increase 
in US support to upland cotton.  However, even disregarding the underestimation of the amount spent for upland cotton by presenting the budgetary outlays  in the form of support per pound of actual 
upland cotton production, the data pr esented below show that also th is measurement demonstrates that 
the US support in MY 1999-2002 is higher  in each year than it was in MY 1992. 
 
95. In answering this question, and responding to the Panel’s requests, Brazil presents the support 
provided by the various US support programmes for a given marketing year on a per pound of actual 
upland cotton production basis.  This approach ta kes into account market prices.  Thus, the “support 
level” from deficiency payments, from the marke ting loan programme and from counter-cyclical and 
Step 2 payments no longer reflects the “target pr ice” approach favoured by the United States, but 
reflects actual payments made per unit of actual production.  
 96. Brazil believes that the unit of production that should be used is a pound of upland cotton actually produced in the United States for that marketing year in question.  US support programmes provide support based on actual production (mar keting loan programme, Step 2 and cottonseed 
payments), actual acres planted (crop insurance) , updated historical produc tion and current prices 
(deficiency payments and counter-cyclical paymen ts), historical production (PFC, market loss 
assistance), and finally, updated historical production (direct payments).  The most natural comparison on a per unit basis is to use actual production.  The US National Cotton Council also calculates the support provided by all of these pr ogrammes to its upland cotton producer members in 
“cents per pound” of actual production.
98  This reflects the reality that an upland cotton farmer 
                                                      
 95 Brazil notes that budgetary outlays have not been part of Professor Sumner’s calculation of the rate 
of support provided by the marketing loan, deficiency payment and CCP payment program. 
 96 Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 5-6). 
 97 See Brazil’s answer to question 60. 
 98Exhibit Bra-109; Exhibit Bra-111; Exhibit Bra-112.  WT/DS267/R/Add.2 
Page I-36  
 
seeking to remain in business must calculate whethe r the amount of government support plus market 
revenue compensates for the cost of production incurred by producing a pound of upland cotton.    97. Brazil arrives at the figures presented in the following table by dividing the total annual amount of budgetary outlays to upland cotton fro m a US support programme by the total amount of 
production of upland cotton in the relevant marketing year. 
 
Support Per Pound Of Upland Cotton By Year And Support Programme 
1992 1999 2000 2001 2002 
Year  
Programme ----- cents/pound ----- 
Deficiency 
Payments1 13.49 none none none none 
PFC 
Payments2 none 7.00 6.71 4.81 none 
Market Loss 
Assistance Payments
3 none 6.97              7.15 6.65 none 
Direct 
Payments4 none none none none 6.04 
Counter-
cyclical 
Payments5 none none none none 12.43 
Marketing loan 
(Loan gains and LDP)
6 9.86 19.75 6.72 26.63 11.85 
Step 2 
Payment7 2.74 5.39 2.93 2.09 3.95 
Crop 
Insurance8 0.35 2.17 2.00 2.79 2.42 
Cottonseed 
Payment9 none 1.01 2.29 none 0.62 
Total 26.44 42.29 27.8 42.97 37.31 
Notes 
_______________________ 
1 Deficiency payment per pound of actual production = deficien cy payment expenditure / (total production [bales] * 480 
[pounds/per bale]).  Total deficiency payments in MY 1992 were $1.0174 billion, while tota l production was 15,71 million 
bales (Exhibit Bra-4 (“Fact Sheet: Upland Cotton”, USDA, January 2003, p. 4-6)).   One bale equals 480 pound of upland 
cotton.   
2 PFC payment per pound of actual production = PFC payment expe nditure for upland cotton base * (actual upland cotton 
acreage / PFC upland cotton base acreage) / (total producti on [bales] * 480 [pounds/per bale]).  Total PFC payments to 
upland cotton are taken from Exhibit Bra-4 (“Fact Sheet: Upla nd Cotton,” USDA, January 2003, p. 6).  This amount has 
been adjusted by the ratio of upland cotton acres actually planted (Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, 
January 2003, p. 4)) to upland cotton base acres in the PFC  programme (Exhibit Bra-142 (Agricultural Outlook, May 2002, 
p. 50)).  This adjustment is necessary because only the portion of upland cotton PFC payments that actually benefits acres 
planted to upland cotton can be considered support to upland cotton.  Because the latter figure is higher than the former, this  
leads to a reduction in the payment rate reflecting actual production in each year. Total production is taken from Exhibit Bra-
4 (“Fact Sheet: Upland Cotton, ” USDA, January 2003, p. 4). 
3 Market loss assistance payment per pound of  actual production = Market  loss assistance expenditure  for upland cotton base 
*  (actual upland cotton acreage / PFC upland cotton base acreag e) / (total production [bales] * 480 [pounds/per bale]).  Total  
market loss assistance payments to upland cotton are take n from Exhibit Bra-4 (“Fact Sheet: Upland Cotton”, USDA, 
January 2003, p. 6).  This amount has been adjusted by the ratio of upland cotton acre s actually planted (Exhibit Bra-4 (“Fact 
Sheet: Upland Cotton,” USDA, January 2003, p. 4)) to upland cotton base acres in the PFC  programme (Exhibit Bra-142 
(Agricultural Outlook, May 2002, p. 50)).  This adjustment is necessary because only the portion of upland cotton market 
loss assistance payments that actually bene fits acres planted to upland cotton can be  considered support to upland cotton.   
Because the latter figure is higher than the former, this leads to a reduction in the payment rate.  Total production is taken 
from Exhibit Bra-4 (“Fact Sheet: Upla nd Cotton”, USDA, January 2003, p. 4). WT/DS267/R/Add.2 
Page I-37 
 
 
4 Direct payments per pound actuall y produced = total direct pa yment expenditure for upland cotton base * (actual upland 
cotton acreage/direct payment upland cotton base acreage) / (tot al production [bales] * 480 [pounds /per bale]).  Total direct 
payments for MY 2002 have been re-estimated from the figure presented by Br azil in its First Submission, para. 59.  The 
new figure is based on the statutory payment rate of 6.67 cents per pound of upland cotton base multiplied by the direct 
payment upland cotton base acreage of 16.3 million acres (Braz il has assumed it to be the previous 5-year average as 
reported by USDA in Exhibit Bra-142 (Agricultural Outlook, Ma y 2002, p. 50)) multiplied by the direct payment yield of 
604 pounds per acre (Brazil has assumed it to be the previous 5-year average as reported by USDA in Exhibit Bra-142 
(Agricultural Outlook, May 2002, p. 50)).  Payments are made on 85 percent of base acres.  This  translates into a total of 
$558.17 million.  This amount has been adjusted by the ratio of upland cotton acres actually planted Exhibit Bra-4 (“Fact 
Sheet: Upland Cotton,” USDA, January 2003, p.  4) to upland cotton base acres in th e direct payment program.  Because the 
latter figure is higher than the former, this leads to a reductio n in the direct payment rate.  This adjustment is necessary 
because only the portion of upland cotton market loss assistance payments that actually benefits acres planted to upland 
cotton can be considered support to upland cotton.  Total pr oduction is taken from Exhibit Bra-4 (“Fact Sheet: Upland 
Cotton”, USDA, January 2003, p. 4).   
5 Counter-cyclical payments per pound actuall y produced = total counter-cyclical pa yment expenditure for upland cotton 
base * (actual upland cotton acreage / c ounter-cyclical pa yment upland cotton base acreage) / (total production [bales] * 480 
[pounds/per bale]).  Total counter-cyclica l payments for MY 2002 have been re-es timated from the fi gure presented by 
Brazil in its First Submission, para. 69.   The new figure is based on the MY 2002  payment rate of 13.73 cents per pound of 
upland cotton base multiplied by the counter-cyclical payment upland cotton base acreage of 16.3 million acres (Brazil has 
assumed it to be the previous 5-year average as reporte d by USDA in Exhibit Bra-142 (Agricultural Outlook, May 2002, 
p. 50)) multiplied by the counter-cyclical payment yield of 604 pounds per acre (Brazil has assumed it to be the previous 5-
year average as reported by USDA in Exhibit Bra-142 (Agric ultural Outlook, May 2002, p. 50)  Brazil notes that this 
underestimates the payments , as it disregards the yield update for purposes of  the counter-cyclical payments).  Payments are 
made on 85 percent of base acres.  This translates into a to tal of $1,148.98 million.  This amount has been adjusted by the 
ratio of upland cotton acres actually planted Exhibit Bra-4 (“ Fact Sheet: Upland Cotton,” USDA, January 2003, p. 4) to 
upland cotton base acres in the counter-cycli cal payment programme.  Because the latter  figure is higher than the former, this 
leads to a reduction in the direct payment rate.  This adju stment is necessary because only the portion of upland cotton 
market loss assistance payments that actu ally benefits acres planted to upland co tton can be considered support to upland 
cotton.  Total production is taken from Exhibit Bra-4 (“ Fact Sheet: Upland Cotton”, USDA, January 2003, p. 4). 
6 Marketing loan benefit per pound of actual production = total marketing loan expenditures / (total production [bales] * 480 
[pounds/per bale]).  Total marketing loan payments (marketing loan gains plus loan  deficiency payments) are taken para. 
144, 148-149 of the First Submission of Brazil.  Total production  is taken from Exhibit Bra-4 (“Fact Sheet: Upland Cotton”, 
USDA, January 2003, p. 4). 
7 Step 2 payments per pound of actual production = total Step  2 expenditures/(total production [bales] * 480 [pounds/per 
bale]).  Total Step 2 payments are cont ained in Exhibit Bra-4 (“Fact Sheet: Upla nd Cotton”, USDA, January 2003, p. 6).  
Brazil has estimated the MY 2002 amount at  note 335 in its First Submission to be  $317 million.  The amount of production 
has been taken from Exhibit Bra-4 (“Fact Sheet: Upland Co tton”, USDA, January 2003, p. 4).  Brazil notes that the 
difference between 3.95 cents per pound re sulting from this calculation and 4 cent s per pound – which was the basis for 
Brazil to calculate the total Step 2 paymen t for MY 2002 – is due to rounding effects. 
8 Crop insurance payments per pound of actual production = total crop insurance expenditures / (total production [bales] * 
480 [pounds/per bale]).   Total crop insuranc e payments are taken from Exhibit Bra-57 (“Crop Year Statistics”, Federal Crop 
Insurance Corporation).  Total production is taken from Exhi bit Bra-4 (“Fact Sheet: Upla nd Cotton,” USDA, January 2003, 
p. 4). 
9 Cottonseed payment per pound of actual upla nd cotton production = total cottonseed expenditures/(total production [bales] 
* 480 [pounds/per bale]).  Total cottonseed payments are liste d in Brazil’s answer to question 17 (see para. 9).  Total 
production is taken from Exhibit Bra-4 (“Fact Shee t: Upland Cotton”, USDA, January 2003, p. 4).  
 
98. Brazil notes that also under this approach, the total US support to upland cotton in MY 1999-
2002 surpasses the support decided by the United Stat es in MY 1992.  Brazil furthermore notes that 
even considering the support program s (and their respective replacements)99 individually, nearly all of 
them provide higher support in MY  1999-2002 than they (or their predecessors) did in MY 1992 (with 
the exception of Step 2 and PFC / market loss assistance in MY 2001). 
 
61. Does the United States consider that Article 13(b)(ii) permits a comparison on any basis 
other than a per pound basis? USA   62. According to Prof. Sumner's calculat ion, the per pound support increased by 
approximately 24 % from 1992 to 2002. On the other hand, the Panel  understands that the 
                                                     
 
 99 The deficiency payments were replaced by PFC and market loss assistance payments in MY 1999-
2001 and by direct and counter-cyclical payments in MY 2002. WT/DS267/R/Add.2 
Page I-38  
 
total budget outlay, according to Brazil, increased more than that. What, in Brazil's  view, is the 
reason for this difference in the rate of increase?  BRA  
 
Brazil’s Answer:  
 
 
99. US budgetary outlays for upland cotton are a func tion of the level of price, income and other 
support provided by the US support programmes.  Ever ything being equal, an increase in the “rate of 
support” as interpreted by the United States wo uld translate one-to-one into an increase of 
expenditure.  However, the “rate of support” is not the only determinant of budgetary outlays, as two 
important qualifications apply.  First, the most  important US subsidy programmes for upland cotton 
are price-based.100  For instance the marketing loan paym ent in MY 2002 guarantees a return of 52 
cents per pound.  With lower market prices, the ga p between the adjusted world price and the loan 
rate, i.e., the basis for the calculation of the mark eting loan benefit, widens and payments per pound 
increase.  During the period MY 1992-2001, prices for upland cotton fell drastically.101  For example, 
average upland cotton prices received by farmers in the United States were 53.7 cents per pound in 
MY 1992 and dropped to a low of 29.8 cents per pound in MY 2001.102  Therefore, even for an 
identical set of programs providing an identical “rate of support,” budgetary outlays would have 
vastly increased due to the drop in prices.    100. Second, the United States increased the production of upland cotton between MY 1992 and 
MY 1999-2002 from 15.7 million bales in MY 1992 to 16.3 million bales in MY 1999, 16.8 million 
bales in MY 2000, 19.6 million bales in MY 2001 and 16.7 million bales in MY 2002.
103  Thus, the 
increased “rate of support” was applicable to  an increased production of upland cotton.   
 101. In sum, budgetary outlays for upland co tton increased between MY 1992 and MY 2002 for 
three main reasons:  first, the United States incr eased its “rate of support”, second, lower upland 
cotton prices led to higher budgetary outlays per pound of upland cotton produced; and third, at times 
of falling market prices, the United States expanded its upland cotton productio n so that more upland 
cotton was eligible to receive the increased rate of support.  All of this resulted in an increase of 
budgetary outlays for upland cotton that is relativel y bigger than the increa se in the US “rate of 
support”.  
102. Lastly, Brazil notes that none of the figures presented by Professor Sumner
104 represent actual 
payments or actual rates of support.  Rather, those figures represent average or expected rates of support in any given marketing year.  They  are not based on actual production or prices,
105 but solely 
on expected production and prices.  Therefore, they  cannot easily be compared to actual payments 
made by the United States in support of upland co tton.  Professor Sumner chose the expected support 
approach in order to match the approach suggested  by the United States as closely as possible, while 
correcting for its simplistic reliance on the target price that disregarded the eligibility criteria and 
other features of the programmes.    
63. In relation to Prof. Sumner's presentation at the first session of the first substantive 
meeting, please elaborate on the reasons behind the increase in the figures (from 1992 to 2002) 
concerning Loan Support and Step 2 payments.  BRA 
                                                     
 
 100 These include the marke ting loan program, the deficiency payment program, the counter-cyclical 
payment programme and the Step 2 programs. 
 101 See First Submission of Brazil, para. 28. 
 102 Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 5). 
 103 Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 4). 
 104 See Exhibit Bra-105 (Statement of Professor Daniel  Sumner at the First Meeting of the Panel). 
 105 Which would only be important for the rate of Step 2 payments, as only this programme depends on 
actual prices for purposes of a rate of support.  The other programs reduce Government payments with 
increasing prices, so that the total rate of support remains basically the same, or are not price-related. WT/DS267/R/Add.2 
Page I-39 
 
 
 Brazil’s Answer:
 
 103. The support rate from the marketing loan programme calculated by Professor Sumner 
represents the expected support rate from the mark eting loan programme.  Concerning the marketing 
loan programme, Brazil notes that the statutory lo an rate, indeed, fell from 52.35 cents per pound in 
MY 1992 to 51.92 cents per pound in MY 1999-2001
106 before being slightly increased in MY 2002 
to 52 cents per pound.107  However, the somewhat higher loan rate in MY 1992 was accompanied by 
strict eligibility criteria.108  In MY 1992, only production on farmland that participated in the upland 
cotton deficiency payment programme was eligible for marketing loan benefits, which restricted 
eligibility to 84.7 percent of production.109  In MY 1999-2001, only upland cotton produced on 
farmland that participated in the PFC programme was eligible.  Professor Sumner has conservatively 
used 97 percent of upland cotton production in MY  1999-2001 as the participation rate of upland 
cotton.110  Finally, in MY 2002, all US production of up land cotton was eligible to receive marketing 
loan benefits.111  Thus, taking into account the eligibility criteria for benefiting from the marketing 
loan programme, the slightly higher loan rate in  MY 1992 provided less support to total expected US 
upland cotton production than the slightly lower loan rates in later years.   104. Concerning the difference between the expected Step 2 rate of support in MY 1992-2001 and MY 2002, this difference stems from the fact that  the United States eliminated the 1.25 cents per 
pound threshold for Step 2 payments in the 2002 FSR I Act.  Before MY 2002, Step 2 payments were 
made in the amount of the difference between the A-Index and the lowest priced US quote for upland 
cotton minus a 1.25 cents per pound threshold.  Section 1207(a)(4) of the 2002 FSRI Act postpones 
the application of this threshold until 1 August 2006.
112  Thus, expected Step 2 payments for MY 
2002 (and through MY 2005)  will be 1.25 cents per pound higher than under the 1990  and 1996 Farm 
Acts, which both applied the threshold.113 
 
64. Do the figures cited in Prof. Sumner's presentation at the first session of the first 
substantive meeting indicate amount available or  amount spent? Can the Panel derive amount 
spent from these figures?  If Article 13(b)(ii) re quires a rate of support comparison, is the rate 
of support the "rate" of support available or the "rate" at which the support was spent?  BRA 
 Brazil’s Answer:  
 
 105. The figures in Professor Sumner’s calculation do not indicate amounts spent, but were an attempt to approximate the expected rate of  support for an expected pound of upland cotton 
production under the specific rules in place for each support programme in that year.  The figures 
attempt to represent the normal result that would have been expected by policy makers and farmers as 
a result of the programme decisions taken by th e United States.  They do not represent actual 
expenditures per unit for any programme in any y ear because, in every year, the actual programme 
payments per pound of actual production deviates fro m the expected or normal payments, because the 
actual production will not exactly e qual the expected production.   
 
                                                     
 
 106 Exhibit Bra-4 (“Fact Sheet: Upland Cotton”, USDA, January 2003, p. 5).  
 107 Exhibit Bra-29 (Section 1202(a)(6) and 1202(b)(6) of the 2002 FSRI Act). 
 108 See Exhibit US-3 (7 CFR 1427.4(a)(3) an d 7 CFR 1413 (1992 edition)).   
 109 Annex 2 to Exhibit Bra-105 (Statement of Professor Daniel Sumner at the First Meeting of the 
Panel, p. 3).  
110 Annex 2 to Exhibit Bra-105 (Statement of Professor Daniel Sumner at the First Meeting of the 
Panel, p. 4). 
 111 Exhibit Bra-29 (Section 1201(b) of the 2002 FSRI Act). 
 112 Exhibit Bra-29 (Section 1207(a)(4) of the 2002 FSRI Act). 
 113 See Exhibit Bra-12 (“Cotton: Background for 1995 Farm Legislation”, USDA, April 1995, p. 16) 
and Exhibit Bra-46 (“Cotton: Background and Issues for Farm Legislation,” USDA, July 2001, p. 9). WT/DS267/R/Add.2 
Page I-40  
 
106. For some of the US support programs, the support indicated can be considered – within 
certain limits – as support available per pound.  Howe ver, there is not a complete identity between the 
“expected rate of support“ and the “support availa ble to a pound of actual upland cotton production,” 
because – as noted above – expected and actual production will vary from each other.   
 
 
107. For marketing loan benefits, the loan rate can be considered the maximum support available 
to eligible production in case the market price would fall to zero.  Similarly, for deficiency and counter-cyclical payments, the difference between the lo an rate and the target price can be considered 
the maximum support available, albeit again only fo r the eligible production.  The expected support 
differs from that, as it takes into account that not a ll of the expected production will benefit from those 
subsidies.  The actual support differs again, as expe cted and actual production may not be identical.  
Finally, actual US Government paym ents depend on market prices.   
 108. For PFC, market loss assistance, direct and cottonseed payments and crop insurance 
subsidies, the “expected rates of support” represe nt expected expenditures per unit of expected 
production.  This has been calculated by usin g average budget expenditures over an appropriate 
period as expected support, and by using average pr oduction as the expected production.  Thus, these 
payments are not maximum available “rates of support”.  For example, under the crop insurance 
programme the US Government pays premium subs idies.  Higher per unit support would have been 
available had all farms joined the programme at th e maximum subsidized rates.  However, this was 
not an expected or normal occurrence.  Especially  in MY 1992, when subsidy rates were relatively 
low, many upland cotton farms were expected to  forgo participation in the programme.  Both 
maximum available crop insurance subsidies as well  as expected or normal crop insurance subsidies 
increased for MY 1999 through 2002, as premium subsidies rose and more cotton acreage found the programme attractive.  For crop insurance, but al so for PFC and direct payments as well as market 
loss assistance, the actual support per pound of upla nd cotton production will vary with the actual 
production undertaken and actual yields achieved.    109. The actual “rate of support” from the Step 2 payments depends on the actual price differential 
between the A-Index and the lowest-prices US quote.   While it varies from the expected “rate of 
support” with the actual realization of the price gap, it is not expected to be systematically correlated 
to the actual level of prices.   
 110. In sum, it is not possible to derive the amount spent from the “expected rate of support” calculated by Professor Sumner without adding additi onal information on the level of market prices 
and the actual US upland cotton acreage, yield and production, among other variables.  Following the 
US approach, Professor Sumner has calculated an exp ected rate of support that could be characterized 
as an expected guaranteed revenue.  This approach is distinct from an approach looking into actual 
expenditures, as favoured and advocated by Brazil.   In fact, Professor Sumner applied the US 
approach to a rate of support that would abst ract in as far as possible from actual expenditures. 
 111. Brazil refers the Panel to its answers to qu estions 60 and 67 for actual expenditures by year, 
by programme – both per pounds of upland cotto n production and as total expenditures for upland 
cotton.  112. Should the Panel decide that the required test  under Article 13(b)(ii) is a “rate of support”, 
Brazil submits that the relevant rate of support is  “expenditures per pound of production”, and thus the 
“’rate’ at which support was spent”, as discu ssed in Brazil’s answer to Question 60. 
 
65. Does Brazil consider that adjustment for inflation is relevant in the context of the 
comparison under Article 13 (b)(ii) ? BRA 
 WT/DS267/R/Add.2 
Page I-41 
 
 
Brazil’s Answer:   
 113. Brazil does not believe that an adjustment fo r inflation is relevant in the context of the 
comparison under Article 13(b)(ii).  First, there is noth ing in the text of Article 13(b)(ii) that provides 
for such an adjustment.  Second, the only provi sion of the Agreement on Agriculture addressing 
inflation is Article 18.4, which provides:  “I n the review process Members should give due 
consideration to the influence of excessive rates of  inflation on the ability of any Member to abide by 
its domestic support commitments.”  The “revie w process” is the revi ew by the Committee on 
Agriculture of the progress of implementation of  commitments as set out in Article 18 of the 
Agreement on Agriculture.  The fact that negotiators  explicitly opened the possibility of “giving due 
consideration to the influence of excessive rates of inflation” in the review process, but not for 
purposes of Article 13(b)(ii), is evidence that this omission was intentional.    114. Furthermore, at no time during the review pr ocess has the United States ever stated or made 
any notifications that “excessive rates of inflation”  in the US economy have negatively impacted “the 
ability of [the United States] to abide by its do mestic support commitments”.  Even, if it had, 
Article 18.4 has no relevance for the purposes of the comparison required by Article 13(b)(ii), as it 
refers to the review process only, and not to the p eace clause.  Accordingly, there is no basis for the 
Panel to apply any adjustment to the US level of support to upland cotton in marketing year 1992.    
 115. Nevertheless, if the Panel s hould decide to use such an adju stment, Brazil submits that the 
appropriate index to be used is the applicable US agricultural price index.  Three alternative indexes 
could be used.  The first and most direct is the index of prices received for cotton.  Other indexes that may be considered are the index of prices received for crops and the index of prices received for all 
farm products.         2000 2001 2002 
 
Index of prices received for cotton    82  65  49 Index of prices received for all crops    96  99 103 Index of prices received for all farm products   96  102  99 
 
1990 to 1992 average = 100
114 
 116. Thus, under none of the applicable indices is there any significant inflation to be taken into 
account.  To the contrary, the cotton price index fell by 51 percent, while price indices for crops and all farm products have been stable if comp ared to the 1990-1992 base used by USDA.  
 
66. Could you please comment on the relative m erits of each of the following calculation 
methods for the purposes of the comparison of  support to upland cotton with 1992, irrespective 
of whether a particular measure should be included or excluded:   (a) Total budgetary outlays (Brazil's approach).  USA 
 
 (b) Budgetary outlays per unit of upland cotton:   Could you please calculate and 
provide an estimate for the marketing years 1992 and 1999-2002, respectively, and draw attention to any factors/qualificat ions that the Panel would need to be 
aware of.  BRA, USA 
 
                                                     
 
 114 Exhibit Bra-149 (Agricultural Outlook, August 2002, p. 38)  WT/DS267/R/Add.2 
Page I-42  
 
Brazil’s Answer:  
 
 117. Brazil has presented figures for budgetary outlays  by unit of actual production in its answer to 
Question 60.  However, Brazil would like to add so me further considerations  on the shortcomings of 
this approach. 
 
118. A significant issue in using these per unit figures to represent support rather than total 
budgetary outlays is that a per-unit approach discounts the fact that some of the change in production 
is itself caused by changes in the rate of support or subsidy.  If support is calculated by dividing 
budgetary outlays by total production, the result neglects this effect.  As support rises in the 
numerator, production rises in the denominator and th e ratio or per unit of an increased support rate 
rises by less than total support (and may even decline).    119. The perverse effect is that the more pr oduction is stimulated by the US domestic support 
programmes and, thus, the more those programmes distort trade, the smaller the per unit measure 
effect of the increased subsidy.  For this reason,  a subsidy rate per unit of actual production should be 
avoided or used with extreme caution.   
 (c) Per unit rate of support (United States approach):  How should changes in 
acreage, eligibility and payment limitations  per farm(s) (commodity certificate 
programmes) be factored into this approach?  BRA 
 
Brazil’s Answer
:   
 120. The approach of the United States was simply  to assert that the target price represented the 
rate of support per unit in MY 1992 and the loan ra te alone represented the rate of support per unit in 
MY 2002.  This approach rests on several fundamental errors. 
 121. First, the approach left out major support progr ams in each year.  For 1992, the approach left 
out the Step 2 programme and crop insurance, both of which provided support to upland cotton in that 
year.  For 2002, the approach of the United States left out support provided by the direct payment 
programme, the counter-cyclical payment programme  and the cottonseed payment programme as well 
as the Step 2 and crop insurance programmes. 
 122. Second, the United States did not account for an y factors that limited eligibility for support or 
imposed costs of participation as a mandatory condition of receiving support from the US support programmes.  The failure to account for these factors in each year completely ignores the true nature 
of the US support programmes for upland cotton and seriously distorts the rate of support. 
 123. Lastly, these two per pound numbers cannot simp ly be added together because the eligibility 
criteria differ between them and, in particular, th e support from the upland cotton deficiency payment 
programme was expected to apply to an even sm aller share of actual production than the support from 
the marketing loan programme.   
 
124. Professor Sumner’s calculation attempted to correct the US presentation for these serious 
flaws in the implementation of the US approach.  Professor Sumner added back the programmes that 
provide support to upland cotton, but that have been left out by the United States.  He also corrected 
the rate of support for eligibility restrictions and th e cost of participation, and presented the rate of 
support on the basis of expected production in orde r to be able to sum up the various “rates of 
support.”  At the same time, Profes sor Sumner has attempted to remain  true to the approach of the 
United States by avoiding the use of actual pr oduction or actual payments, and instead relying on 
expected programme support per unit and expected or  normal production to arrive  at per unit support.  
Professor Sumner’s approach also deals in detail with the question of how to account for eligibility WT/DS267/R/Add.2 
Page I-43 
 
 
restrictions and costs of participation.  Brazil refe rs the Panel to Annex 2 to Exhibit Bra-105 for the 
details of Professor Sumner’s methodology.  125. In addition to eligibility, the Panel’s question refers specifically to pa yment limits.  Payment 
limits are applied on the basis of persons, including  corporations, partners hips, producers and other 
persons actively engaged in agriculture.
115  Typically, for larger farms, there is more than one person 
actively engaged in agriculture, including spouses, and landlords on a share rental basis.  In addition, 
there is typically more than one legal entity per farm and under the three entity rule, a person may 
receive programme payments from three entities and up to double the payment limit for that person 
for one entity.116 
 
126. Payment limits for deficiency payments in MY 1992 were $50,000.117   Payment limits for 
PFC (in MY 1999-2001)118 were $40,000,119 as is the case for direct payments (in MY 2002).120  
Payment limits for counter-cyclical  payments are $65,000 (in MY 2002).121  For the marketing loan 
programme, a payment limitation of $75,000 per pers on applied in MY 1992.  In the 1996 FAIR Act, 
the payment limits for the marketing loan pr ogramme was also $75,000, but was increased to 
$150,000 for MY 1999-2001 by supplemental legislation.122  The 2002 FSRI Act limits the amount of 
marketing loan gains and loan deficiency paym ents to a total of $75,000 for each producer.123  
However, the key change between MY 1992 and MY 1999-2002 was the establishment of the 
certificate programme in MY 1999,124 which effectively eliminated any payment limit for the 
marketing loan programme.125 
 
127. Brazil has no data that would allow it to factor  payment limitations into the calculation of an 
expected rate of support.  However, Brazil notes th at with the inception of the commodity certificate 
programme in MY 1999, the limitations  imposed by payment limits have – if anything – been relaxed.  
Additionally, Brazil notes that its approach to Artic le 13(b)(ii), by comparing total budgetary outlays, 
takes the budgetary effects of payment limitations in to account.  For farmers that have reached their 
payment limit, the US Government incurs no furt her expenditures, and consequently, the amount of 
expenditures is lower than it would be absent the payment limit.  In that sense, actual expenditures 
reflect the effects of payment limits.  128. Finally, Brazil notes that Professor Sumner’s calculations also do not account for the increase 
in production or acreage devoted to upland cotton be tween MY 1992 and MY 2002.  Taking this into 
account by indexing the “expected rate of suppor t” to the level of MY 1992 production – as one 
                                                     
 
 115 Exhibit Bra-33 (7 CFR 1400.1 et seq.). 
 116 Exhibit Bra-33 (7 CFR 1400.1 et seq.). 
 117 Exhibit Bra-12 (“Cotton: Background for 1995 Farm Legislation,” USDA, April 1995, p. 14). 
 118 Additional market loss assistance payments were made that did not count towards the PFC payment 
limit. 
 119 Professor Sumner has stated in his statement at the fi rst meeting of the Panel that a typical cotton 
farm with 3000 acres r eceived about $300,0 00 in PFC payments per year ( see Exhibit Bra-105 (Statement of 
Professor Daniel Sumner at the First Meeting of the Panel, p. 22).  This amount results both from the fact that 
several persons on a farm may be eligible for payment and from the fact that the three-entity rule doubled the payment limit amount a single person could legally recei ve (for an explanation on the three-entity rule see 
paragraphs 74-76 of the First Submission of Brazil). 
 
120 Exhibit Bra-27 (Side by Side Comparison of the 1996 and 2002 Farm Act, USDA, p. 12). 
 121 Exhibit Bra-27 (Side by Side Comparison of the 1996 and 2002 Farm Act, USDA, p. 12). 
 122 Exhibit Bra-27 (Side by Side Comparison of the 1996 and 2002 Farm Act, USDA, p. 12). 
 123 Exhibit Bra-42 (The 2002 Farm Act, Provisions and Implications for Commodity Markets,” USDA, 
November 2002, p. 7).  
 124 Exhibit Bra-42 (The 2002 Farm Act, Provisions and Implications for Commodity Markets,” USDA, 
November 2002, p. 8); Exhibit Bra-29 (Section 1603 of the 2002 FSRI Act).   
 125 The certificate programme is described in detail in paragraphs 75-76 of the First Submission of 
Brazil.   WT/DS267/R/Add.2 
Page I-44  
 
possible approach to account for the increase in production – would increase the “expected rate of 
support” for later marketing years, as the am ount of US production of upland cotton increased.
126  The 
result of the comparison of MY 1992 and MY 1999- 2002 support will, however, be the same:  The 
United States’ support to upland cotton in MY 1999-2002 exceeded the support to upland cotton decided in MY 1992 and the US domestic suppor t measures fail to meet the condition in 
Article 13(b)(ii) for exemption from actions under Articles 5 and 6 of the SCM Agreement and GATT 
Article XVI:1.  
 (d) Per unit rate of support for upland co tton (Prof. Sumner's approach at the first 
session of the first substantive meeting ).  USA 
 
(67) The Panel requests the parties to calculat e and submit estimates of  the AMS for upland 
cotton  for marketing years 1992, 1999, 2000, 2001 and 2002.  For this purpose the parties are each requested to submit AMS calculations for upland cotton (using the budgetary-outlay/non-
price gap  methodology employed by the United States in  respect of cotton in its DS 
Notifications (e.g., G/AG/N/USA/43) and using the formats and supporting tables in document 
G/AG/2) on the same basis as would be the case  in calculating a product specific AMS for the 
purposes of the calculation of the "Total Current AMS" in any year in accordance with the relevant provisions, including as appropriate Article 1(a), (b) and (h), Article 6 and Annex 3 to the Agreement.  BRA, USA  
 Brazil’s Answer:   
 
 129. Brazil sets forth the following table that summarizes the AMS calculation for upland cotton 
for marketing years 1992 and 1999-2002.  Using the definition of non-product specific support 
detailed in Brazil’s answer to the Panel’s Question 40, all of the programmes listed constitute non-
exempt direct payments, within the meaning of G/AG/2, providing product-specific support to upland 
cotton.  The table includes all support programs that  should have been included in “Supporting Table 
DS:6”, within the meaning of G/AG/2.  To th e best of Brazil’s knowledge, no other “product-
specific” support to upland cotton has been provided by the US Government.  130. Brazil notes that the United States has notified the deficiency payments using the price gap 
methodology provided for in Annex 3.
127  Brazil considers it appropriate to follow the US decision 
and will, therefore, calculate the amount of s upport to upland cotton provided by the deficiency 
payment programme by using the “price gap” approach  detailed in Annex 3, paragraph 10 and 11.  
Brazil notes that US budgetary expenditures for MY 1992 for the deficiency programme were $1,017.4 million.
128  
 
                                                      
 126 Exhibit Bra-4 (“Fact Sheet, Upland Cotton,” USDA, January 2003, p. 4) 
 127 Exhibit Bra-150 (G/AG/N/USA/10) 
 128 Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 6).  WT/DS267/R/Add.2 
Page I-45 
 
 
AMS For Upland Cotton By Year And Support Programme 
1992 1999 2000 2001 2002 Year  
Programme ----- $ million ----- 
Deficiency 
Payments1 812.1 none none none none 
PFC 
Payments2 none 547.8 541.3 453 none 
Market Loss 
Assistance Payments
3 none 545.1 576.2 625.7 none 
Direct 
Payments4 none none none none 485.1 
Counter-
cyclical Payments
5 none none none none 998.6 
Marketing loan 
(Loan gains 
and LDP)6 743.8 1,545 542 2,506 952 
Step 2 
Payment7 206.7 421.6 236.1 196.3 317 
Crop 
Insurance8 26.6 169.6 161.7 262.9 194.1 
Cottonseed 
Payment9 none 79 184.7 none 50 
Total 1,789.2 3,308.1 2,242.0 4,043.9 2,996.8 
Notes 
_______________________ 
1 This calculation is based on the price gap formula set forth in  para. 10 and 11 of AoA Annex 3.  In its notification of 
marketing year 1995 support (Exhibit Bra-150 (G/AG/N/USA/10, p.  18), the United States that the applied administered 
price for upland cotton under the deficiency payment programme is $1,607.169 per ton.  The applied administered price (or 
target price) has been the same in MY 1992 and MY  1995 (Exhibit Bra-4 (“Fact Sheet: Upland Cotton”, USDA, 
January 2003, p. 5).  Therefore, Brazil uses  that figure.  The external reference pr ice has been notified by the United States to 
be $1,275.741 per ton.  Paragraph 11 of AoA Annex 3 specifies that the extern al reference price is based on 1986-1988 
averages that have not changed between MY 1992 and MY 1995.  Thus, Brazil bases the price- related direct payments from 
the deficiency payment programme in MY 1992 on the difference between $1,607.169 per ton and $1,275.741 per ton 
($331.428 per ton) multiplied by the eligible production, whic h results from multiplying the eligible upland cotton base 
acreage and the payment yield.  Professor Sumner has calcula ted the eligible upland cotton ba se acreage for MY 1992 to be 
10.17 million acres, while the payment yield is 531 pounds per acres (Exhibit Bra-105 (Annex 2 to Statement of Professor 
Daniel Sumner at the First Meeting of the Panel, p. 5-6) .  Thus, the eligible production is 5,400,270,000 pounds or 2,450,213 
metric tons (2204 pounds equal one metric ton).   Thus, the amount  of deficiency payments in that enters the calculation of 
total AMS for MY 1992 is 2,450,213 metric tons * $331.428 per ton = $812.069 million. 
2 PFC payment expenditure for upland cotton = total PFC paym ent expenditure for upland co tton base * (actual upland 
cotton acreage / PFC upland cotton base acreage).  Total PFC payment expenditure for upland cotton is taken from Exhibit 
Bra-4 (“Fact Sheet: Upland Cotton,” USDA,  January 2003, p. 6).  This amount has been adjusted by the ratio of upland 
cotton acres actually planted (Exhibit Bra- 4 (“Fact Sheet: Upland Cotton,” USDA, Ja nuary 2003, p. 4)) to upland cotton base 
acres in the PFC programme (Exhibit Bra-142 (Agricultural Ou tlook, May 2002, p. 50)).  This adjustment is necessary 
because only the portion of upland cotton PFC payments that actually benefits acres planted to upland cotton can be 
considered support to upland cotton.    
3 Market loss assistance expenditure for upland cotton = total market loss assistance expenditure for upland cotton base * 
(actual upland cotton acreage / market loss assistance (i.e., PFC) upland cotton base acreage).  Total market loss assistance 
expenditures for upland cotton is taken fro m Exhibit Bra-4 (“Fact Sheet: Upland Cott on,” USDA, January 2003, p. 6).  This 
amount has been adjusted by the ratio of upland cotton acres actually planted (Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” 
USDA, January 2003, p. 4)) to upland cotto n base acres in the market loss assist ance (i.e., PFC) programme (Exhibit Bra-
142 (Agricultural Outlook, May 2002, p. 50)).  This adjustment is necessary because only the portion of upland cotton 
market loss assistance payments that actu ally benefits acres planted to upland co tton can be considered support to upland 
cotton.   
4 Direct payments = total direct payment expenditure for upla nd cotton base * (actual upland cotton acreage / direct payment 
upland cotton base acreage).  Total direct  payments for MY 2002 have been re-est imated from the figure presented by Brazil 
in its First Submission, para. 59.  The new figure is based on the statutory paymen t rate of 6.67 cents per pound of upland WT/DS267/R/Add.2 
Page I-46  
 
cotton base multiplied by the direct payment upland cotton base acreage of 16.3 million acres (Brazil has assumed it to be 
the previous 5-year average as reported by USDA in Exhibit Bra-142 (Agricultura l Outlook, May 2002, p. 50)) multiplied by 
the direct payment yield of 604 pounds per acre (Brazil has assu med it to be the previous 5-year average as reported by 
USDA in Exhibit Bra-142 (Agricultural Outlook, May 2002, p. 50)).  Payments are made on 85 percent of base acres.  This 
translates into a total of $558.17 million.  This amount has been  adjusted by the ratio of upland cotton acres actually planted  
Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 4) to upland co tton base acres in the direct payment 
program.  This adjustment is necessary because only the portion of upland cotton market loss assistance payments that 
actually benefits acres planted to upland cotto n can be considered support to upland cotton. 
5 Counter-cyclical payments = total count er-cyclical payment expenditure for upl and cotton base * (actual upland cotton 
acreage / counter-cyclical paymen t upland cotton base acreage).  Total counter-c yclical payments for MY 2002 have been re-
estimated from the figure presented by Br azil in its First Submission, para. 69.  The new figure is based on the MY 2002 
payment rate of 13.73 cents per pound of upland cotton base mu ltiplied by the counter-cyclica l payment upland cotton base 
acreage of 16.3 million acres (Brazil has assumed it to be the previous 5-year average as reported by USDA in Exhibit Bra-
142 (Agricultural Outlook, May 2002, p. 50)) multiplied by the counter-cyclical payment yield of 604 pounds per acre 
(Brazil has assumed it to be the previous 5-year average as  reported by USDA in Exhibit Bra-142 (Agricultural Outlook, 
May 2002, p. 50)  Brazil notes that this underestimates the pa yments, as it disregards the yield update for purposes of the 
counter-cyclical payments).  Payments are made on 85 percent of base acres.  This tr anslates into a total of $1148.98 million.  
This amount has been adjusted by the ratio of upland cotton acres actually planted Exhibit Bra-4 (“Fact Sheet: Upland 
Cotton,” USDA, January 2003, p. 4) to upla nd cotton base acres in the counter-cycli cal payment program.  This adjustment 
is necessary because only the portion of upland cotton market loss  assistance payments that actually benefits acres planted to 
upland cotton can be considered support to upland cotton. 
6 Total marketing loan payments (marketing loan gains plus loan deficiency payments) are taken para. 144, 148-149 of the 
First Submission of Brazil.   
7 Total Step 2 payments are contained in Exhibit Bra-4 (“Fact Sheet: Upland Cotton, ” USDA, January 2003, p. 6).  Brazil has 
estimated the MY 2002 amount at note 335 in it s First Submission to be $317 million.   
8 Total crop insurance payments are taken from Exhibit Br a-57 (“Crop Year Statistics,”  Federal Crop Insurance 
Corporation).  
9 Total cottonseed payments are listed in Braz il’s answer to question 17 (see para. 9).   
 
131. The figures presented above indicate that, usi ng the AMS approach, the US level of support 
for MY 1992 is lower than in each of th e marketing years between 1999 and 2002.   
 132. Brazil also notes that – as explained in the notes on the sources and methodology for arriving at the reported figures – the AMS figures for MY 1999-2002 reflect revised amounts of budgetary expenditures that should replace those listed in Brazil’s First Submission at paragraphs 148-149.
129  
These revised (and somewhat smaller) expenditures reflect new information collected by Brazil and 
more accurately tabulate support to upland cotton in  MY 1999-2002.   Brazil notes that none of these 
revisions results in any significant change to the total support to upland cotton, and that expenditures 
decided in MY 1992 are still well below expe nditures related to MY 1999-2002.    
 
68. Could you please clarify the result of the calc ulations of, and the meaning of the title, in 
Appendix Table 1 "Estimated per unit Subsidy Ra tes by Programme and Year" in Annex 2 to 
Exhibit BRA-105, page 12.   Why are the numbers  calculated for marketing loans considered to 
be subsidies?   Could the Panel, for example, read the "total level of support" (bottom line of 
the table) as the effective support price for upl and cotton or the maximum rate of support for 
upland cotton? BRA, USA 
 Brazil’s Answer:  
 
 133. The Appendix Table 1 in Annex 2 to Exhibit Bra-105 should have been titled, “Estimated per 
unit Support Rates by Programme and Year”.  Brazil apologizes for any confusion caused by mis-titling this table. 
 
134. The marketing loan programme support listed in  Table 1 of Annex 2 to Exhibit Bra-105 is a 
“support rate” and not an actual loan deficiency paym ent or marketing loan gain.  It does not represent 
a subsidy amount.  The loan deficiency payment or marketing loan gain is calculated as the difference 
between the loan rate and the adju sted world price (AWP).  When th e AWP falls, the loan benefit per 
                                                     
 
 129 No such revision is necessary for MY 1992. WT/DS267/R/Add.2 
Page I-47 
 
 
unit of eligible production rises to offset the fa ll in the AWP.  In the US “rate of support” 
methodology, because the AWP is expected to be pos itively related to the price received by individual 
farmers in the United States, the loan rate of 52.35  cents per pound in MY 1992 can be considered an 
approximate rate of support per un it of eligible production.   
 
135. The deficiency payment rate of support is si milar to the marketing lo an rate of support and 
represents the maximum rate of support per eligible unit, where eligibility is measured by the rules 
applicable in 1992.  By contrast, actual support payments under Brazil’s expenditure methodology are 
calculated as the difference between the higher of th e average price received by farmers and the loan 
rate.   
 
136. The other programmes listed in Table 1 provi de support per unit of eligible production to 
upland cotton in addition to the loan rate and deficiency payment target price.  These other 
programmes are calculated as the estimated expect ed support rates.  These rates are not maximum 
rates of support but rather normal or expected ra tes of support. The other domestic support measures 
are not equivalent in overall effect to a price support, but they are calculated on a per unit basis and 
are added across programmes to give a total support rate.    137. The production and trade distorting effects of these subsidies are each different and are also 
different from a support price.
130  Brazil will discuss the adverse effects caused by each of those 
subsidies in its Further Submission, scheduled for 9 September 2003.  The variety of the support 
programmes employed by the United States precludes interpreting the sum of the various support 
contributions as a “support price.”  However, their su m can be read as an expected guaranteed income 
that results from market revenue and US Government  payments.  Marketing loan benefits, deficiency 
payments and counter-cyclical payments will incr ease with falling market prices.  Other support 
programs are relatively decoupled from market prices, and provide an expected rate of support, that 
can be added to the loan rate and target price est ablished by the marketing loan, the deficiency and 
counter-cyclical payments.    
69. Can the United States confirm that the "mar keting year" for upland cotton is 1 August  
to 31 July ?  Can the United States confirm th e Panel's understanding that USDA data for the 
"crop year" corresponds to the "marketing year"? USA 
 
E. EXPORT CREDIT GUA RANTEE PROGRAMMES 
 
70. How does Brazil respond to the United States'  assertion that Brazil is trying to realize 
through litigation what it could not achieve in past negotiations? BRA 
 
Brazil’s Answer:   
 138. In WTO dispute settlement, there is only one  way to determine what was achieved in past 
negotiations – to interpret those provisions actually  concluded according to the customary rules of 
interpretation included in the Vienna Convention.  In paragraphs 100-115 of Brazil’s Statement at the 
First Panel Meeting, Brazil demonstrated that it is not in fact attempting “to realize through litigation 
what it could not achieve in past negotiations.”  In those paragraphs, Brazil demonstrated that under 
the ordinary meaning of Article 10.2 of the Agreemen t on Agriculture, in its context and according to 
the object and purpose of Article 10 and the Ag reement on Agriculture overall, export credit 
guarantees are subject to the general export subsid y disciplines in the Agreement on Agriculture.  
Brazil will not repeat those arguments here, but si mply notes that by ignoring an interpretation of 
Article 10.2 according to the Vienna Convention rules,  it is the United States that is trying to escape 
what was in fact achieved in the Uruguay Round  negotiations.  Other participants in those 
                                                     
 
 130 See Exhibit Bra-105 (Statement by Professor Daniel Sumner at the First Meeting of the Panel, paras 
20-39) for a summary of the economic impacts of these various support programs.   WT/DS267/R/Add.2 
Page I-48  
 
negotiations who are third parties in this dispute and who in fact use export credits – Canada, the 
European Communities and New Zealand – agree with Brazil.  
71. (a) Is an export credit guarantee a financia l contribution in the form of a "potential 
direct transfer of funds or liabilities (e.g. loan guarantee)" within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement? Why or why not? Does it confer a 
benefit within the meaning of Article 1.1(b)? Why or why not? If so, to whom? USA 
 
Brazil’s Comment:
 
 
139. In paragraphs 287-289 of its First Submission, and again at paragraph 116 of its Statement at 
the First Panel Meeting, Brazil demonstrated th at CCC export credit guarantees are expressly included 
as “financial contributions” within the meaning of  Article 1.1(a)(1)(i) of the SCM Agreement.  
Although export credit guarantees do not automatically  confer benefits, CCC export credit guarantees 
confer “benefits” within the meaning of Article 1.1( b) because they are extended at premium rates and 
on repayment terms that are not available and in fact  do not exist on the market.  In its comments and 
answers to Questions 75 and 82 below, Brazil discusses passages from the GSM 102, GSM 103 and 
SCGP regulations and materials from USDA’s Fore ign Agricultural Service (FAS) concerning the 
programmes, which demonstrate that GSM 102, GSM 103 and SCGP confer “benefits”.  
140. Brazil notes that a number of agents benef it from the subsidy provided by the guarantees.  
The US financial institutions and the foreign bank  enter into lucrative contracts they would not 
otherwise have, the importer also gets financing th at would not otherwise have be available in the 
market, but the US Government ultimately designed the programs to provide a benefit to US farmers 
and exporters.  On the FAS website “What Ever y Exporter Should Know About The GSM-102 and 
GSM-103 Programmes” it stated that  the “USDA will consider announcing, for a specific country or 
region, the availability of guarantees for any US co mmercial commodity, if the market for US exports 
will be expanded or maintained as a result” (emphasis added).
131  Brazil also notes that it is the US 
exporter who applies for the guarantee and who trig gers the process of obtaining coverage for each 
particular transaction.   (b) How, if at all, would these elements be  relevant to the claims of Brazil, and the 
United States response thereto?  BRA, USA 
 
Brazil’s Answer:
 
 
141. Brazil notes that because CCC export credit guarantees constitute subsidies per se , and 
because they are, further, de jure contingent on export, the GSM 102, GSM 103 and SCGP programmes constitute export subsidies within the mean ing of Article 3.1(a) of the SCM Agreement.  
According to the reasoning of the Appellate Body in US – FSC,
132 this means that those programs are 
also export subsidies within the meaning of the Ag reement on Agriculture.  In paragraphs 295-304 of 
its First Submission, Brazil then demonstrated that those programs threaten to lead to circumvention 
of the United States’ export subsidy commitments (both with respect to scheduled and unscheduled 
commodities), in violation of Article 10.1 of the Ag reement on Agriculture and, as a consequence, of 
Article 8 of that Agreement.  Having established a vi olation of Part V of the Agriculture Agreement, 
Brazil’s claims under Article 3.1(a) of the SCM Agreement against the CCC export credit guarantee 
programmes are not exempt from action by Article 13(c)(ii) of the Agreement on Agriculture.   
 
                                                      
 131 Exhibit Bra-151 (“US Export Cr edit Guarantee Programs: What Every Exporter Should Know 
About The GSM-102 and GSM-103 Programmes”, USDA, November 1996). 
 132 Appellate Body Report, US – FSC , WT/DS108/AB/R. para. 139-141. WT/DS267/R/Add.2 
Page I-49 
 
 
142. Articles 1.1(a)(1)(i) and 1.1(b) of the SCM Ag reement are relevant fo r a number of reasons, 
including for the purposes of Article 10.3 of the Agreement on Agriculture.  As demonstrated in 
paragraphs 263-268 of Brazil’s First Submission, the United States has surpassed its export quantity 
commitment levels for commod ities eligible for GSM 102, GSM 103 and SCGP support.  Under 
Article 10.3, the burden now lies with the United Stat es to prove that its exports in excess of these 
commitments did not benefit from export subsidies, including export credit guarantees.  United States 
will, inter alia, have to prove that those progr ams do not grant “benefits” within the meaning of 
Article 1.1(b) of the SCM Agreement.133   
 
72. Could Brazil expand on why, as indicated in paragraph 118 of its oral statement, it does 
"not agree" with the United States arguments relating to the viability of an a contrario 
interpretation of item (j) of the Illustrative List of Export Subsidies in Annex 1 of the SCM Agreement? BRA 
 
Brazil’s Answer
: 
 
143. As the Panel is aware, Brazil was earlier i nvolved in a dispute (Brazil – Aircraft) that 
addressed the question whether certain items in the I llustrative List of Export Subsidies admit of an a 
contrario defense.  Although, as the United States not es, Brazil argued in that dispute that a contrario 
interpretations of certain items included in the Illu strative List (in particular the first paragraph of 
item (k)) are enabled by footnote 5 to the SCM Agreement, the panel disagreed.   
 
144. Footnote 5 provides that “Measures referred to  in Annex I as not constituting export subsidies 
shall not be prohibited under this or any other provision of this Agreement.”  The first Article 21.5 
panel in Brazil – Aircraft concluded as follows with respect to footnote 5:134 
 
6.36 In its ordinary meaning, footnote 5 relates to situations where a measure is 
referred to as not constituting an export s ubsidy.  Thus, one example of a measure 
that clearly falls within the scope of fo otnote 5 involves export credit practices that 
are in conformity with the interest rate provisions of the Arrangement on Guidelines 
for Officially Supported Export Credits (“ Arrangement”).  The second paragraph of 
item (k) provides that such measures “shall not be considered an export subsidy 
prohibited by this Agreement”.  Arguably, f ootnote 5 in its ordinary meaning could 
extend more broadly to cover cases where the Illustrative List contains some other form of affirmative statement that a measure is not subject to the Article 3.1(a) prohibition, that it is not prohibited, or that it is allowed, such as, for example, the first and last sentences of footnote 59
34 and the proviso clauses of items (h)35 and (i)36 
of the Illustrative List.37 
6.37 The first paragraph of item (k), however, does not contain any affirmative 
statement that a measure is not an export subsidy nor that measures not satisfying the 
conditions of that item are not prohibited.  To the contrary, the first paragraph of item 
(k) on its face simply identifies measures that are prohibited export subsidies.  Thus, the first paragraph of item (k) on its face do es not in our view fall within the scope of 
footnote 5 read in conformity with its ordinary meaning. 
______________ 
34  The first sentence of footnote 59 provides that “Mem bers recognize that deferral need not amount to 
an export subsidy where, for example, appropriate in terest charges are collecte d.”  The last sentence 
states that “[p]aragraph (e) is not intended to li mit a Member from taking measures to avoid the double 
taxation of foreign-source income ea rned by its enterprises or the enterprises of another Member.” 
                                                      
 133 The United States will also have to prove that th e programmes are not inconsistent with item (j) of 
the Illustrative List of export subsidies. 
 134 Panel Report, Brazil – Aircraft (21.5) , WT/DS46/RW, paras. 6.36-6.37. WT/DS267/R/Add.2 
Page I-50  
 
35  “. . . provided, however, that prior-stage cumula tive indirect taxes may be exempted, remitted or 
deferred on exported products even when not exempted,  remitted or deferred on like products sold for 
domestic consumption, if the prior stage cumulative i ndirect taxes are levied on inputs that are consumed 
in the production of the exported product . . . .” (e mphasis added). 
36  “. . . provided, however, that in particular ca ses a firm may use a quant ity of home market inputs 
equal to, and having the same quality and characteris tics as, the imported inputs as a substitute for them . 
. . .” 
37  In any event, such measures may well fall within the scope of footnote 1, and thus not represent 
subsidies at all, whether prohibited or otherwise. 
 
145. Reflecting on footnote 5, the panel recalled and rejected the US argument that “‘[t]he 
Illustrative List does not deal with all possible fina ncial contributions, but for those it does deal with, 
it establishes, by virtue of footnote 5, a dispositiv e legal standard insofar as prohibited subsidies are 
concerned’”.135  While the panel agreed that “an illustrativ e list could in principle operate in such a 
manner”, it concluded that because of footnote 5, the Illustrative List of Export Subsidies annexed to 
the SCM Agreement did not operate in that manner.136  According to the panel, “if the drafters had 
intended the meaning which the United States attributes to footnote 5, they could certainly have found 
appropriate language to do so”.137   
 146. The panel noted that the first paragraph of item (k) has effect even if it does not admit of an a contrario interpretation.  The pane l likened the Illustrative List to “a list of per se violations”.
138  
According to the panel, even if a measure does not  fulfill the elements of one of the items in the 
Illustrative List and therefore does not constitute a per se violation, it could still be deemed prohibited 
if the complaining party demonstrates that it fulf ills the elements of Articles 1 and 3 of the SCM 
Agreement.139 
 
147. In dicta, the Appellate Body suggested that the first paragraph of item (k) may indeed admit 
of an a contrario interpretation.140  In Brazil’s view, however, this suggestion is limited to the first 
paragraph of item (k), and at least does not exte nd to item (j).  Although the Appellate Body 
emphasized in the initial appeal in Brazil – Aircraft that the term “material advantage” in item (k) had 
to be given meaning independent of the term “benefit” in Article 1.1(b)141, it found that the difference 
between the two terms is the qualification in item (k) that the advantage conferred relative to the 
market must additionally be “material”.142  In other words, proving “material advantage” includes a 
showing that a “benefit” is conferred, but also  requires something more.  While disproving the 
existence of a “material advantage” may mean th at, in some narrow circumstances, a benefit may 
nevertheless still exist, the first paragraph of item (k) at least still relies on an analysis whether a 
“material advantage” is conferred to the recipient, as compared to some market benchmark.  This “to 
the recipient” standard does not undercut and in  fact complements the market benchmark “to the 
recipient” standard included in Article 1.1(b).  An  a contrario reading of item (k), therefore, does not 
read out the market benchmark “to the recipient” st andard from the test applicable to export credits, 
but simply gives it a particular meaning in the context of export credits.  
                                                     
 
 135 Panel Report, Brazil – Aircraft (21.5) , WT/DS46/RW, paras. 6.32, 6.38. 
 136 Panel Report, Brazil – Aircraft (21.5) , WT/DS46/RW, para. 6.38. 
 137 Panel Report, Brazil – Aircraft (21.5) , WT/DS46/RW, para. 6.38. 
 138 Panel Report, Brazil – Aircraft (21.5), WT/DS46/RW, para. 6.42.  
 139 Panel Report, Brazil – Aircraft (21.5) , WT/DS46/RW, para. 6.42. 
 140 Appellate Body Report, Brazil – Aircraft (21.5) , WT/DS46/AB/RW (adopted 4 August 2000), 
para. 80 (“If Brazil had demonstrated that the paymen ts made under the revised PROEX were not ‘used to 
secure a material advantage in the field of export cred it terms’, and that such payments were ‘payments’ by 
Brazil of ‘all or part of the costs incurred by exporters or financial institutions in obtaining credits’, then we 
would have been prepared to find that the payments made under the revised PROEX are justified under item (k) of the Illustrative List.”). 
 
141 Appellate Body Report, Brazil – Aircraft , WT/DS46/AB/R, para. 179. 
 142 Appellate Body Report, Brazil – Aircraft , WT/DS46/AB/R, para. 177. WT/DS267/R/Add.2 
Page I-51 
 
 
148. In contrast, the evidence required to meet the elements of item (j) are completely unrelated to the evidence necessary to establish th at a guarantee programme confers a benefit “to the recipient” of 
a loan guarantee.  Whether the premia collected under an export credit guarantee programme meet the 
long-term operating costs and losses of the progra mme is completely irrelevant to the question 
whether a benefit “to the recipient” of the expor t credit guarantee is conferred.  Consequently, 
allowing an a contrario reading of item (j) that pr ovides, as the United States argues, “a dispositive 
legal standard”
143 for determining whether guarantees are pr ohibited, would suggest that the “to the 
recipient” market benchmark standard does not a pply to guarantees.  This cannot be true, since 
guarantees are expressly included in Article 1.1 (and Article 14(c)) as “financial contributions” that 
can confer “benefits” to a recipient relative to a market benchmark. 
 
149. The conclusion that item (j) does not admit of an a contrario defense is relevant for a number 
of reasons, including for the purposes of Article  10.3 of the Agreement on Agriculture.  As 
demonstrated in paragraphs 263-268 of Brazil’s Fi rst Submission, the United States has surpassed its 
export quantity commitment levels for commod ities eligible for GSM 102, GSM 103 and SCGP 
support.  Under Article 10.3, the burden now lies with  the United States to prove that its exports in 
excess of these commitments did not benefit from export subsidies, including export credit guarantees.  Even if the United States is able to demonstrate that premia for the GSM 102, GSM 103 
and SCGP programs meet long-term operating costs a nd losses, it will also have to prove that those 
programs do not grant “benefits” within the meaning of Article 1.1(b) of the SCM Agreement.  Since item (j) does not admit of an a contrario interpretatio n, disproving the elements of item (j) will not be 
sufficient to remove the programs from the definition of “export subsidy.” 
 
73. The Panel could arguably take the view that Articles 1 and 3 of the SCM Agreement 
were relevant in assessing the WTO-consistency of United States export credit guarantees.  The 
United States has yet to submit any evidence or argumentation on this point, either as potential 
context for interpretation of the terms in Arti cle 10 of the Agreement on Agriculture or in 
relation to Brazil's claims under the SCM Agreement.   The Panel would therefore appreciate United States views in respect of this situation, and invites the United States to submit relevant argumentation and evidence. USA 
 
74. If the Panel decides to refer to provisi ons of the SCM Agreement for contextual 
guidance in the interpretation of the terms in Article 10 of the Agreement on Agriculture, 
should the Panel refer to item (j) or Articles 1 and 3 of the SCM Agreement or both? BRA, USA 
 
Brazil’s Answer:
 
 
150. In determining what constitutes an export subs idy within the meaning of Article 10.1 of the 
Agreement on Agriculture, Brazil considers that the Panel should refer to contextual guidance 
included in Articles 1 and 3 of the SCM Agreement, a nd in item (j) of the Illustrative List of Export 
Subsidies annexed to the SCM Agreement.  As discussed in paragraphs 258-261 of Brazil’s First 
Submission, this is consistent with th e Appellate Body’s decisions in US – FSC144 and Canada – 
Dairy.145  As a factual matter, Brazil has demons trated that the GSM 102, GSM 103 and SCGP 
programmes constitute export subsid ies under Articles 1.1 and 3.1(a) of the SCM Agreement, and 
under item (j) of the Illustrative Li st (as well as under Articles 1(e) and 10.1 of the Agreement on 
Agriculture.  
75. The Panel's attention has been drawn to Ar ticle 14(c) of the SCM Agreement (see e.g. 
written third party submission of Canada) and to the panel report in DS 222 Canada- Export 
Credits and Loan Guarantees.  How and to what extent are Article 14(c) of the SCM 
                                                     
 
 143 Panel Report, Brazil – Aircraft (21.5) , WT/DS46/RW, para. 6.32 
 144 Appellate Body Report, US – FSC , WT/DS108/AB/R, para. 136-140. 
 145 Appellate Body Report, Canada – Dairy , WT/DS103/AB/R and WT/DS113/AB/R, para. 87-90. WT/DS267/R/Add.2 
Page I-52  
 
Agreement, and the cited panel report, relevant to the issue of whether or not the United States 
export credit guarantee programmes confer a "b enefit"?  What would be the appropriate 
market benchmark to use for any comparison?  Please cite any other relevant material. BRA, USA 
 Brazil’s Answer:
 
 151. As one way of demonstrating that the GSM 102, GSM 103 and SCGP programs constitute 
export subsidies within the meaning of Article 10.1 of the Agreement on Agriculture, Brazil has 
demonstrated that those programmes constitute financ ial contributions that confer benefits and that 
are contingent on export, within the meaning of Articles 1.1 and 3.1(a) of the SCM Agreement.  
Brazil recalls that as discussed above in response to Question 72, Article 10.3 of the Agreement on 
Agriculture in fact places the burden on the United States to prove that export quantities in excess of 
its export commitments have not bene fited from export subsidies.   
 
152. In any event, Brazil has demonstrated th at the CCC guarantee programs confer “benefits” 
within the meaning of Article 1.1(b) because they are extended at premium rates and on repayment terms that are not available on the market.  In fact, the CCC programmes are unique financing vehicles for agricultural commodity transactions th at are not available on the commercial market. 
 153. Brazil notes that the United States has argued in  Canada – Aircraft II that where there is no 
comparable financial product on the market, a pr ogramme confers benefits per se.  It stated: 
 
If the commercial market does not offer a pa rticular borrower the exact terms offered 
by a government, then the government is providing a benefit to the recipient whenever those terms are more favorable th an the terms that are available in the 
market.  A government entity “operating on commercial principles” is still a 
government entity.  It is not the commercial market.
146  
154. Brazil agrees with the United States.  This interpretation is, in fact, consistent with the 
benchmark established by Article 14( c) of the SCM Agreement.  In relevant part, Article 14 provides 
as follows:  
For the purposes of Part V, any method u sed by the investigating authority to 
calculate the benefit to the recipient … shall be transparent and ade quately explained.  
Furthermore, any such method shall be c onsistent with the following guidelines: 
 …  
 
(c) a loan guarantee by a government shall not be considered as 
conferring a benefit, unless there is a difference between the amount that the firm receiving the guarantee pays on a loan guaranteed by the government and the amount that the firm would pay on a comparable commercial loan absent the government guarantee.  In this case the benefit shall be the difference between these two amounts adjusted 
for any differences in fees. 
155. Brazil first draws the Panel’s attention to the fact that Article 14 was specifically conceived 
for the purposes of Part V of the SCM Agreement only.  It should be referred to exclusively as context 
to determine whether a benefit exists when a par ticular transaction is backed by a government export 
credit guarantee.  Secondly, Brazil observes that  subparagraph (c) of Article 14 is simply a 
                                                     
 
 146 Panel Report, Canada – Aircraft II , WT/DS222/R, Annex C-2 (para. 7). WT/DS267/R/Add.2 
Page I-53 
 
 
“guideline”, not the sole method of calculating the be nefit to the recipient.  Other methods may be 
applied as long as they are “consistent” with  the guideline set out in subparagraph (c). 
 156. There is no market benchmark in the case of the GSM 102, GSM 103 and SCGP programmes, since there are no financial products available on the market on the terms provided by 
the programmes.  As discussed in response to Qu estion 82, the regulations regarding the GSM 102 
and GSM 103 programmes, as well as regarding th e SCGP programme note that “[t]he programs 
operate in cases where credit is necessa ry to increase or maintain US exports to a foreign market and 
where US financial institutions would be unwilli ng to provide financing without CCC’s guarantee”.
147  
Moreover, the regulations state that “[t]he progr ams are targeted towards those countries where the 
guarantee is necessary to secure financing of the e xport but which have sufficient financial strength so 
that foreign exchange will be available for scheduled payments.”148  These passages prove that 
without a CCC guarantee, a borrower would not be able  to secure financing at all – not just financing 
on less attractive terms than could be secured with the CCC guarantee (or on terms that would constitute a benefit under Article 14(c) of the SC M Agreement) – but no financing at all.  The 
regulations also emphasize that the CCC guarantee is necessary – a commercial guarantee would not 
be sufficient.  157. Moreover, as the FAS website e xplains, “[t]he reduction of risk to financial institutions in the 
United States … may make possible financing that would otherwise be unavailable”.
149  The FAS 
further clarifies that “a CCC guarantee can encour age extension of credit in cases where financial 
institutions might otherwise be unwilli ng to finance export on credit terms”.150  In addition, the FAS 
points out that such guarantees would “facilitate cr edit to foreign banks in larger amounts and on 
more favorable commercial terms than would otherwise be available”.151  Whatever the meaning of 
Article 14(c), the provision by CCC of guarantees that  do not exist on the market  entails the provision 
of a benefit per se.  The benefit to the recipient,  under the benchmark established by Article 14(c), 
would be the total amount of the loan backed by the guarantee, since there would be no “comparable 
commercial loan absent the government guarantee”.  
76. How does the United States respond to Braz il's statement that :  "...export credit 
guarantees for exports of agricultural exports [sic] are not available on the marketplace by 
commercial lenders"?  USA 
 
77. How does the United States interpretation of  "long term operating costs and losses" in 
item (j) as claims paid give meaning to both "costs" and "losses"?  Do claims paid represent 
"losses" or "costs" or both?  If claims paid is represented by "losses", what would go into the 
"cost" element of item (j)?  Could the United States expand on why it disagrees with the items 
which Brazil identifies for inclusion in the examination to be conducted under item (j)?  USA  
 
Brazil’s Comment:
 
 158. Brazil may wish to comment in its rebutta l submission on the response the United States 
ultimately provides to this question.  In the me antime, however, Brazil would like to comment on US 
criticisms of the initial formula Brazil constructed to determine whether the GSM 102, GSM 103 and 
SCGP programmes fail to meet their long-term ope rating costs and losses, within the meaning of 
                                                     
 
 147 Exhibit Bra-38 (7 CFR 1493.10(a)(2)) and Exhibit Bra-38 (7 CFR 1493.400(a)(2)). 
 148 Exhibit Bra-38 (7 CFR 1493.10(a)(2)) and Exhibit Bra-38 (7 CFR 1493.400(a)(2)). 
 149 Exhibit Bra-151 (“US Export Cr edit Guarantee Programs: What Every Exporter Should Know 
About The GSM-102 and GSM-103 Programs,” USDA, November 1996). 
 150 Exhibit Bra-151 (“US Export Cr edit Guarantee Programs: What Every Exporter Should Know 
About The GSM-102 and GSM-103 Programs,” USDA, November 1996). 
 151 Exhibit Bra-151 (“US Export Cr edit Guarantee Programs: What Every Exporter Should Know 
About The GSM-102 and GSM-103 Programs,” USDA, November 1996). WT/DS267/R/Add.2 
Page I-54  
 
item (j).  The Panel will recall that Brazil’s initial formula, which was included in paragraph 281 and 
Figure 20 of its First Submission, can be stated as follows:   Premiums collected – (Administrative expe nses + Default claims + Interest expenses) 
 
159. Where this formula yields a negative num ber over a period constituting the “long term”, 
Brazil argued that loan guarantees are provided “at premium rates which are inadequate to cover the 
long-term operating costs and losses of the programme”, within the meaning of item (j).
152  Applying 
this formula to data for the period 1994-2003, Braz il demonstrated that premiums collected for the 
CCC guarantee programmes were indeed inadequate  to cover operating costs and losses for the 
programmes. 
 160. To correct for alleged errors in Brazil’s in itial constructed formula, which was included in 
paragraph 281 and Figure 20 of its First Submissi on, the United States adopted its own alternative 
formula, in paragraph 173 of its First Su bmission, which can be stated as follows: 
 
(Fees + Claims recovered + Claims rescheduled) – Claims paid 
 161. Where this formula yields a positive number over a period constituting the “long term,” the 
United States asserts that loan guarantees are provided at premium rates that are adequate to cover the 
long-term operating costs and losses of the program, within the meaning of item (j). 
 
162. Brazil made several criticisms of the US form ula.  In paragraph 123 of its Statement at the 
First Panel Meeting, Brazil demonstrated that the fa ilure to account for interest paid by the CCC to the 
Treasury Department leads to artificially low accounti ng of operating costs.  In paragraph 122, Brazil 
additionally demonstrated that it is incorrect to treat rescheduled debt as a recovery of a default claim.  
Brazil notes that rescheduling can in fact have the effect of increasing the costs incurred by the 
government, rather than reducing those costs.  In its budget documents, the US Government treats 
Paris Club rescheduling of imminent defaults as “work-outs.”
153  According to the US Office of 
Management and Budget (“OMB”), work-outs can eith er have a negative or a positive effect on cash 
flow.154  The U. General Accounting Office (“GAO”) has in  fact stated that historically, the majority 
of GSM support that is rescheduled is “in arrears.”155  If anything, this increases CCC’s cost. 
 
                                                      
 152 Revenue for “premiums collected ” is recorded in the “Financi ng Account” section of the CCC 
budget, in the row titled “Loan or igination fee” ( line 88.40).  See the US budget document s included as Exhibits 
Bra-88 to Bra-95.  “Administrative expenses” are reco rded in the “Programme Account” section of the CCC 
budget, in the row titled “Administr ative expenses” (line 00.09).  See the US budget documents included as 
Exhibits Bra-88 to Bra-95.  Expenses for “default clai ms” are recorded in the “Financing Account” section of 
the CCC budget, in the row titled “Default claims” (line 00.01).  See the US budget documents included as 
Exhibits Bra-88 to Bra-95.  “Inter est expenses” are recorded in the “F inancing Account” section of the CCC 
budget, in the row titled “Interest on debt to Treasury” (line 00.02).  See the US budget documents included as 
Exhibits Bra-88 to Bra-95. 
 153 Exhibit Bra-121 (US General Accounting Office (“GAO”), Report to Congressional Committees, 
Credit Reform:  US Needs Better Method for Estimating Cost of Foreign Loans and Guarantees , 
GAO/NSIAD/GGD-95-31, December 1994, p. 63) (“GAO/NSIAD/GGD-95-31”). 
 154 Exhibit Bra-116 (Executive Office of the Presiden t, Office of Management and Budget, Circular 
No. A-11, Part 5, Federal Credit Programs  (June 2002), p. 185-13) (“OMB Circular A-11”)).   
 155 Exhibit Bra-152 (GAO, Statement of Allan I. Mendelowitz, Director, Trade, Energy and Finance 
Issues, National Security and International Affairs Divisi on, before the Task Force on Urgent Fiscal Issues of 
the Committee on Budget of th e US House of Representatives, Status Report on GAO’s Reviews of the Targeted 
Export Assistance Program, the Export Enhancement Programme, and the GSM-102/103 Export Credit 
Guarantee Programmes , GAO/T-NSIAD-90-53, 28 June 1990, p. 14). WT/DS267/R/Add.2 
Page I-55 
 
 
163. The United States’ formula did correct for one shortcoming of Braz il’s initial constructed 
formula, however.  The United States is correct that Brazil’s formula did not include recoveries.156  
Brazil therefore introduces a revised constructed form ula that accounts for recoveries and interest on 
those recoveries, as recorded in the “Princip al collections” and “Interest collections” rows157 of the US 
budget.  It also accounts for the interest accruing to  the CCC on balances maintained in its so-called 
“financing account” for the purposes of potential claims,158 as recorded in the “Interest on uninvested 
funds” row of the US budget documents.159  Brazil’s revised constructed formula can be stated as 
follows (including references to the specific budget lines involved):  
(Premiums collected + Recovered principal and interest  (Line 88.40) + Interest revenue (Line 88.25)) –  
(Administrative expenses (Line 00.09) + Default clai ms (Line 00.01) + Interest expense (Line 00.02)) 
 
164. Brazil emphasizes that it does not  intend for this revised constructed formula to replace  the 
formula used by the US government itself to track  the costs of the CCC guarantee programs, pursuant 
to the US Federal Credit Reform Act (“FCRA”).  In paragraphs 124-133 of its Statement at the First 
Panel Meeting, Brazil discussed the FCRA cost formul a in considerable detail.  The chart included at 
paragraph 132 of Brazil’s Statement demonstrates that under the FCRA cost formula, CCC’s export 
credit guarantee programs are offered at premium rat es that are inadequate to cover their long-term 
operating costs and losses.  Brazil believes that the FCRA cost formula is one very useful way to 
determine the performance of the CCC guarantee programs relative to the elements of item (j).  
However, if the Panel would like to confirm the resu lts of the FCRA cost formula, or refer to an 
alternative formula, Brazil offers its re vised constructed formula for these purposes. 
 165. Where Brazil’s revised constructed formula i ndicates a net cost over a period constituting the 
“long term”, export credit guarantees are provided “at premium rates which are inadequate to cover 
the long-term operating costs and losses of the pr ogramme”, within the meaning of item (j).  The 
following chart demonstrates that during the ten-year period FY 1993-2002, premiums for GSM 102, GSM 103 and SCGP export credit guarantees have been inadequate to c over long-term operating 
costs and losses.  Net costs for the programmes duri ng this period total more than $1 billion as set 
forth below: 
 
Fiscal 
year Premiums collected (88.40) + Recovered 
principal and interest (88.40) + Interest revenue (88.25) Admin. expenses (00.09) + Default claims 
(00.01) + Interest expense (00.02) 
1993 $27,608,000 + $12,793,000 + 
$15,672,000160 = $56,073,000 $3.320,000161 + $570,000,000162+ $0163 = 
$573,320,000 
1994 $20,893,000 + $458,954,000 + $0164 = 
$479,847,000 $3,381,000165 + $422,363,000166 + $0167 = 
$425,744,000 
                                                      
 156 First Submission of the United States, para. 173. 
 157 In combination with loan origination fees, these rows are collectiv ely recorded as line 88.40 in the 
US budget documents. 
 158 Exhibit Bra-116 (OMB Circular A-11, p. 185-51).  See also Exhibit Bra-118 (Federal Accounting 
Standards Advisory Board, Statement of Federal Financial Accounting Standards No. 19, Technical 
Amendments to Accounting Standards for Direct Loans and Loan Guarantees in S TATEMENT OF FEDERAL 
FINANCIAL ACCOUNTING STANDARDS NO. 2, March 2001, p. 16 (para. 37)). 
 159 This row is recorded as line 88.25 in the US budget documents.  The payment of interest to an 
agency for uninvested balances in financing accounts is addressed in Ex hibit Bra-117 (2 U. S.C. § 661d(c)). 
 160 Exhibit Bra-126 (US budget for FY 1995, p. 156). 
 161 Exhibit Bra-126 (US budget for FY 1995, p. 156). 
 162 Exhibit Bra-126 (US budget for FY 1995, p. 156). 
 163 No budget line Exhibit Bra-126 (US budget for FY 1995, p. 156). 
 164 Exhibit Bra-95 (US budget for FY 1996, p. 162). 
 165 Exhibit Bra-95 (US budget for FY 1996, p. 161). 
 166 Exhibit Bra-95 (US budget for FY 1996, p. 162). WT/DS267/R/Add.2 
Page I-56  
 
1995 $18,000,000 + $62,000,000 + $0
168 = 
$80,000,000 $3,000,000 + $551,000,000 + 
$10,000,000169 = $564,000,000 
1996 $20,000,000 + $68,000,000 + 
$26,000,000170 = $114,000,000 $3,000,000171 + $202,000,000172 + 
$61,000,000173 = $266,000,000 
1997 $14,000,000 + $104,000,000 + 
$26,000,000174 = $144,000,000 $4,000,000175 + $11,000,000176 + 
$62,000,000177 = $77,000,000 
1998 $17,000,000 + $81,000,000 + 
$54,000,000178 = $152,000,000 $4,000,000179 + $72,000,000180 + 
$62,000,000181 = $138,000,000 
1999 $14,000,000 + $58,000,000 + $0182 = 
$72,000,000 $4,000,000183 + $244,000,000 + 
$62,000,000184 = $310,000,000 
2000 $16,000,000 + $100,000,000 + 
$99,000,000185 = $215,000,000 $4,000,000186 + $208,000,000187 + 
$62,000,000188 = $274,000,000 
2001 $18,000,000 + $149,000,000 + 
$125,000,000189 = $292,000,000 $4,000,000190 + $52,000,000191 + 
$104,000,000192 = $160,000,000 
2002 $21,000,000 + $155,000,000 + 
$61,000,000193 = $237,000,000 $4,000,000194 + $40,000,000195 + 
$93,000,000196 = $137,000,000 
Total $1,841,920,000 $2,925,064,000 
Long-term Net Cost    $1,083,144,000 
 
166. To arrive at this result, Brazil notes that it did not rely on “estimates” of the programmes’ 
costs.197  The annual US budget documents upon which Brazil relied track CCC data for three 
consecutive years – the prior year, the current  year and the budget year.  The 2004 budget, for 
example, which is completed in 2003, includes da ta for 2002, 2003 and 2004.  Budget year data is 
                                                                                                                                                                     
 167 Exhibit Bra-95 (US budget for FY 1996, p. 162). 
 168 Exhibit Bra-94 (US budget for FY 1997, p. 176). 
 169 Exhibit Bra-94 (US budget for FY 1997, p. 175). 
 170 Exhibit Bra-93 (US budget for FY 1998, p. 175). 
 171 Exhibit Bra-93 (US budget for FY 1998, p. 174). 
 172 Exhibit Bra-93 (US budget for FY 1998, p. 175). 
 173 Exhibit Bra-93 (US budget for FY 1998, p. 175). 
 174 Exhibit Bra-92 (US budget for FY 1999, p. 106). 
 175 Exhibit Bra-92 (US budget for FY 1999, p. 105). 
 176 Exhibit Bra-92 (US budget for FY 1999, p. 106). 
 177 Exhibit Bra-92 (US budget for FY 1999, p. 106). 
 178 Exhibit Bra-91 (US budget for FY 2000, p. 112). 
 179 Exhibit Bra-91 (US budget for FY 2000, p. 111). 
 180 Exhibit Bra-91 (US budget for FY 2000, p. 112). 
 181 Exhibit Bra-91 (US budget for FY 2000, p. 112). 
 182 Exhibit Bra-90 (US budget for FY 2001, p. 112). 
 183 Exhibit Bra-90 (US budget for FY 2001, p. 110). 
 184 Exhibit Bra-90 (US budget for FY 2001, p. 111). 
 185 Exhibit Bra-89 (US budget for FY 2002, p. 118). 
 186 Exhibit Bra-89 (US budget for FY 2002, p. 116). 
 187 Exhibit Bra-89 (US budget for FY 2002, p. 117). 
 188 Exhibit Bra-89 (US budget for FY 2002, p. 117). 
 189 Exhibit Bra-88 (US budget for FY 2003, p. 120). 
 190 Exhibit Bra-88 (US budget for FY 2003, p. 118). 
 191 Exhibit Bra-88 (US budget for FY 2003, p. 119). 
 192 Exhibit Bra-88 (US budget for FY 2003, p. 120). 
 193 Exhibit Bra-127 (US budget for FY 2004, p. 109). 
 194 Exhibit Bra-127 (US budget for FY 2004, p. 107). 
 195 Exhibit Bra-127 (US budget for FY 2004, p. 108). 
 196 Exhibit Bra-127 (US budget for FY 2004, p. 108). 
 197 First Submission of the United States, paras. 175-178. WT/DS267/R/Add.2 
Page I-57 
 
 
indeed based on estimates.  Current year data is revised to account for any change to the cost or 
revenue item at issue.  Since the current year is not  yet complete when the b udget is issued, however, 
current year data remains, at least in part, based on estimates.  Prior year data, however, is based on actual costs and revenues.  In applying its formula, Brazil used the data in the prior year column, and 
therefore used actual costs and revenues, rather than estimates.
198 
 
167. Several other factors corroborate the fact that the CCC export guarantee programmes do not 
charge premia that allow them to meet their long-term operating costs and losses.  
• First, in audit reports of the CCC’s fiscal year  2000 and 2001 financial statements, the US 
Department of Agriculture’s Office of the Inspect or General noted that “the fees CCC charges for 
its GSM-102 and GSM-103 export credit guarantee pr ograms have not been changed in 7 years 
and may not be reflecting current costs.”
199  While Brazil does not have fee schedules for the 
entire period 1993-2002, it provides for the Pane l’s review fee schedules for GSM 102 and GSM 
103 from November 1994, 4 September 2001 and 24 September 2002.200  According to CCC’s 
website, the latter is the fee schedule that is curre ntly in force.  The Panel will note that between 
November 1994 and 23 September 2002, CCC made onl y one change in its fee schedule for GSM 
102:  while the fee for a 12-month guarantee w ith semi-annual repayment intervals was $0.209 
per $100 of coverage in November 1994, by 4 Se ptember 2001 it had changed to $0.229 per $100 
of coverage.  On 24 September 2002, one additio nal change was made:  borrowers were offered 
the additional option of 30 and 60 day guarantees, at the same fee charged for 90-day and 4-, 6- and 7-month guarantees. 
 
• Second, US Department of Agriculture Under Secr etary August Schumacher testified to Congress 
in 1998 that the GSM 102 programme suffered ne arly $2 billion in losses as a result of Iraqi 
defaults, and an additional nearly $2  billion resulting from Polish defaults.
201  GAO stated that 
liabilities on the Iraqi debt accrued over the period  1990-1997, as the guara nteed Iraqi borrowings 
came due.202  As noted by Brazil in pa ragraph 284 of its First Submission, however, the maximum 
in GSM 102 premiums the United States could ha ve generated from all export credit guarantees 
provided during the lifetime of the programmes up to 1998 – had it applied the highest possible 
                                                      
 198 Of the 1994-2003 period tracked in Figure 20 to Brazil’s First Submission, the only figures that 
reflected estimates were those for the year 2003, since actua l data is not yet available for that year.  To correct 
this, and to ensure that the data is still sufficient to reveal whether the CCC export credit guarantee programmes 
incur “long term” operating costs and losses, the chart above tracks CCC guarantees for the period 1993-2002. 
 199 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 programmes have not been changed for many 
years and may not be reflecting current costs.”).  
200 Exhibit Bra-155 (US Department of Agriculture Foreign Agricultural Service, Notice to GSM-102 
and GSM-103 Programme Participants , 24 September 2002); Exhibit Bra-98 (US Department of Agriculture 
Foreign Agricultural Service, Notice to GSM-102 & GSM-103 Programme Participants , 4 September 2001); 
Exhibit Bra-156 (US Export-Import Bank, Comparison of Major Features of Programmes Offered by Ex-Im 
Bank and Commodity Credit Corporation for Support of Bulk Agricultural Commodities , available at 
http://www.exim.gov/pub /ins/pdf/eib99-13.pdf ).  Brazil was unable to locate from public sources other fee 
schedules from the period 1993-2002. 
 201 Exhibit Bra-87 (“Testimony of August Schumacher Jr., Under Secretary, Farm and Foreign 
Agricultural Service, USDA, before the Subcommittee on General Farm Commodities, Hearing on the Asian 
Financial Crisis, 4 February 1998”, p. 10-11).  
 202 Exhibit Bra-157 (US General Accounting Office, R EPORT TO THE CHAIRMAN , TASK FORCE ON 
URGENT FISCAL ISSUES , COMMITTEE ON THE BUDGET , HOUSE OF REPRESENTATIVES , International Trade:  
Iraq’s Participation in US Agricultural Export Programs , GAO/NSIAD-91-76 (November 1990), p. 27 
(Table IV.2)). WT/DS267/R/Add.2 
Page I-58  
 
premium rate to all guarantees – is $358.54 million.
203  The total amount of received applications 
for GSM 102 export credit guarantees for the pe riod 1999-2002 was $11.77 billion, resulting in a 
theoretical additional maximum premium of $78.08 million for that period.204  Thus, the highest 
amount of premiums the United States could ha ve generated under this programme from its 
inception through 2002 would amount to $436.62 million.205  This does not come close to 
covering the programme’s losses from th e Iraqi and Polish defaults alone. 
 
• Third, CCC financial statements for fiscal y ear 2002 report that uncollectible amounts on post-
1991 CCC guarantees total $770 million.206  As noted in the chart above at paragraph 165, CCC 
collected premiums of $222.641 million for GS M 102, GSM 103 and SCGP during the period 
1992-2002.207  Thus, even without accounting for other operating costs, or for receivables that 
CCC hopes to collect but may not, losses for the CCC export credit guarantee programmes 
outpace premiums during the period 1992-2002 by nearly $550 million.   
 
• Fourth, CCC’s 2002 financials also report uncoll ectible amounts on pre-1992 CCC guarantees of 
$2.567 billion.208  While actual data concerning premiu ms during the period 1981-1991 (from the 
first year GSM 102 was available until the last y ear before credit reform was introduced with the 
Federal Credit Reform Act) is not publicly ava ilable, Brazil has applied a proxy based on the 
average annual fees collected during the period 1992-2002 ($20.24 million).  Multiplying $20.24 
million by the 11 years included in the 1981-1991 peri od results in total fees of $222.64 million.  
Thus, even without accounting for other operating costs, or for receivables that CCC hopes to collect but does not, losses for the CCC expor t credit guarantee programs outpace premiums 
during the period 1981-1991 by more than $2.3 billion. 
 
• Finally, the US General Accounting Office (“ GAO”) estimated in 1992 that if GSM 102 and 
GSM 103 continued until 2007, costs for the programs would reach $7.6 billion.
209  Premium fees 
                                                      
 203 See Exhibit Bra-73 (“Summary of Export Credit Gu arantee Programme Activity”, USDA, covering 
GSM 102, GSM 103 and SCGP for US fiscal years 1999-2003) for the total amounts of allocations.  These have 
been multiplied by 0.663 percent to obtain the theoretical maximum premium.  
204 Exhibit Bra-73 (“Summary of Export Credit Guarantee Programme Activ ity”, USDA, covering 
GSM 102, GSM 103 and SCGP for US fiscal years 1999-2003). 
 205 This amount is a substantial overstatement, as premiums for periods of coverage shorter than 3 years 
will yield substantially lower premiums of as low as 15.3 cents per $100 as compared to 66.3 cents for a 3-year 
coverage. Exhibit Bra-98 (“Guarantee Fee Rate Schedule Under GSM 102 and GSM 103”).  
 206 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 the Financial Statements, p. 14).  This figure theoretically 
includes not only uncollectible amounts for the GSM 102, GSM 103 and SCGP programs, but also uncollectible amounts for CCC’s Facility Guarantee Programme (“FGP”).  Brazil has not challenged the FGP in this dispute.  
Brazil notes, however, that in fiscal years 1999-2003 (for which programme activity data is available on CCC’s 
website, at http://www.fas.usda.gov/excredits/Monthly/ecg.html
), exporter applications were only received for a 
total of $4.8 million in coverage under the FGP.  Thus, defaults on FGP guarantees, if any, would contribute 
only negligibly to the $770 million figure discussed above. 
 207 The chart in paragraph 165 does not include premiums for 1992.  Those premiums totalled $36.14 
million.  See Exhibit Bra-125 (US budget for FY 1994, p. 383).  According to US budget documents, premiums 
for the FGP are included in the budget line item for fees on the GSM and SCGP programs.   
 208 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 the Fi nancial Statements, p. 14).  The FGP did not exist 
during this period, and thus is not a factor.   
 209 Exhibit Bra-159 (US General Accounting Office, R EPORT TO CONGRESSIONAL REQUESTERS , Loan 
Guarantees:  Export Credit Guarantee Programmes’ Costs are High , GAO/GGD-93-45 (Decem ber 1992), p.4).  
See also Exhibit Bra-115 (US General Accounting Office, Report to the Chairman, Subcommittee on Criminal 
Justice, US House of Representativ es Committee on the Judiciary, “Loan Guarantees: Export Credit Guarantee 
Programmes’ Long Run Costs are High,” GAO/NSIAD-91-180, 19 April 1991, p. 2-3) (“We estimate that the WT/DS267/R/Add.2 
Page I-59 
 
 
for the period 1992-2007 (assuming current rates) would only reach $323.84,210 demonstrating 
that fees for the programme do not meet costs. 
 In sum, CCC financials state that during the pe riod 1981-2002, costs and losses for CCC export credit 
guarantee programmes exceeded premiums collected. 
 
78. Can the United States provide supporting documentation for data used relating to 
"costs and losses" in paragraph 173?  Could the United States confirm that the figures cited in 
paragraph 173 of its first written submission relate to the SCGP? Why did the United States cite these figures after stating that it is not po ssible to make any assessment of the long-term 
operating costs and losses of this programme?  USA 
 79. In respect of what time periods does Arti cle 13(c) require an assessment of conformity 
with Part V of the Agreement on Agriculture?  Ho w does this affect, if at all, your interpretation 
of Article 13(b)? BRA, USA  
 
Brazil’s Answer:  
 
 168. Part V of the Agreement on Agriculture re quires that Members grant export subsidies in 
conformity with that agreement and with that  Member’s export subsidy reduction commitments.  
These commitments are made on a commodity specific basis.
211  The relevant section of the US 
Schedule of Concessions (Part IV, Section II) clarifies that the US export subsidy commitments are to 
be assessed on a US fiscal year basis.212  A Member’s export subsidy reduction commitments cover 
annual budgetary outlays and quantita tive reduction commitments – in the US case on a fiscal year 
basis.213  It follows that the US compliance with its  export subsidy reduction commitments must be 
assessed on the basis of specific agricu ltural products and fiscal years. 
 
169. Thus, similar to domestic support measures, th e conformity of a Member’s export subsidies 
with Part V of the Agreement on Agriculture mu st be assessed by comparing the amounts actually 
granted (both in term of budgetary outlays as well as in terms of quantities of specific agricultural 
products benefiting from export subsidies) with a be nchmark, i.e., with a Member’s export subsidy 
reduction commitments. 
 
170. According to Article 3.3 of the Agreemen t on Agriculture, for agricultural products not 
included in Part IV, Section II of a Member’s Sche dule (i.e. unscheduled products) any export subsidy 
granted leads to a violation of Part V of the Agreem ent on Agriculture.  Brazil’s claims against Step 2 
export subsidies and against ETI Ac t subsidies benefiting upland cotton fall in this category, as the 
United States does not have an export s ubsidy reduction commitment for upland cotton.214  
Furthermore, Brazil’s claims con cerning export credit guarantee programs fall in this category, in as 
far as export credit guarantees are available for unscheduled agricultural products. 
 
                                                                                                                                                                     
GSM programmes will cost the Corporation about $6.7 billion in the long run . . . This estimate assumes that the 
outstanding loans and guarantees remain at the same level for about 16 years and that their average risk remains 
unchanged as new guarantees replace old ones). 
 210 This has been calculated based on actual fees fo r 1992-2002 and using average 1992-2002 fees as 
expected fees for the remainder of the time period (2003-2007). 
 211 See Brazil’s answer to Question 7.  
 212 Exhibit Bra-83 (Schedule XX of  the United States of America, Part IV, Section II entitled Export 
Subsidies: Budgetary Outlays and Quantitative Reduction Commitments). 
 213 Exhibit Bra-83 (Schedule XX of  the United States of America, Part IV, Section II entitled Export 
Subsidies: Budgetary Outlays and Quantitative Reduction Commitments). 
 214 Exhibit Bra-83 (Schedule XX of the United States of America, Part  IV, Section II entitled Export 
Subsidies: Budgetary Outlays and Quantitative Reduction Commitments). WT/DS267/R/Add.2 
Page I-60  
 
171. For scheduled agricultural products, the Pa nel needs to determine whether the export 
subsidies for a particular scheduled agricultural pr oduct are in excess of the export subsidy reduction 
commitment levels for that agricultural product in th e year in question, or whether the application of 
the export subsidies threatens to l ead to circumvention of the expo rt subsidy reduction commitments.  
More specifically, in this dispute, the Panel need s to assess whether the CCC  export credit guarantee 
programmes threaten to circumvent the export s ubsidy reduction commitments of the United States 
for scheduled agricultural products.  
80. In Brazil's view, why did the drafters of the Agreement on Agriculture not include 
export credit guarantees in Article 9.1? BRA 
 
Brazil’s Answer:
 
 172. The negotiating history of the Agreement on Ag riculture does not reveal why the drafters did 
not include export credits guarantees in Article 9.1, just as it does not reveal why the drafters did not 
include well-known and widely-used export subsid ies like the United States’ FSC regime in 
Article 9.1.  Yet, the Appellate Body concluded that the FSC regime  constitutes an export subsidy and 
is subject to the general export subsidy discip lines in the Agreement on Agriculture, including 
Article 10.1 thereto.  As Brazil has previously noted, Article 1(e) defines export subsidies as 
“including” those listed in Article 9.1 of the Agr eement on Agriculture, and Article 10.1 refers to a 
universe of export subsidies “not listed in” Article 9. 1.  As the Appellate Body’s report in US – FSC 
illustrates, if a measure meets the definition of “expo rt subsidy”, it is subject to Article 10.1, even 
though it is not included in Article 9.1.  173. Under the Vienna Convention rules, Articl es 9.1 and 10.1, as well as Article 10.2 of the 
Agreement on Agriculture, are to be interpreted accordi ng to their ordinary meaning, in their context, 
and according to the object and purpose of the Ag reement on Agriculture.  Brazil has demonstrated 
that the CCC export credit guarantee programs fulf ill the definition of “export subsidy” in the 
Agreement on Agriculture and the SCM Agreement,  and that export credit guarantees are not, under a 
Vienna Convention interpretation of Article 10.2, excluded from the general export subsidy 
disciplines in Article 10.1.  81. How does the United States respond to th e following in Brazil's oral statement: USA 
 (a) paragraph 122 (rescheduled guarantees) (b) paragraph 123 (interest on debt to Treasury) (c) paragraphs 125 ff. (guaranteed loan subsidy) 
(d) paragraphs 127-129 (re-estimates, etc.)  
(e) Exhibits BRA-125-127  (f) the chart on page 53 of Brazil's oral statement at the first session of the first Panel 
meeting relating to "Guaranteed Loan Subsidy and Administrative Expenses of US Export Credit Guarantee Programs GSM-102 GSM 103 and SCGP"? 
(g) In respect of (a)-(f) above, how and to wh at extent do the information and data 
presented for the export guarantee programmes concerning "program" and 
"financing", "summary of loan levels", "subsidy budget authority", "outlay levels", 
etc., in particular in Exhibits BRA-125-127, reflect "actual costs and losses" of the GSM-102, GSM-102 and SCGP export credit guarantee programmes(see e.g. Brazil's closing oral statement at the first session of the first substantive meeting, 
paragraph 24)? USA  
 WT/DS267/R/Add.2 
Page I-61 
 
 
Brazil’s Comment on Question 81(g):  
 174. Brazil may wish to comment in its rebutta l submission on the response the United States 
ultimately provides to this and the other sub-parts of question 81.  In the meantime, however, Brazil 
would like to comment on the distinction be tween actual and estimated costs and losses. 
 
175. As noted above in comments on Question 77, Br azil has used data from the prior year column 
of the US budget.  This column is titled “actual,” sin ce it reflects reconciled data for a full fiscal year.  
Data reported in the prior year column of the “g uaranteed loan subsidy” row of the US budget is 
“actual” in this sense.  Brazil explained in paragr aph 127 of its Statement at the First Panel Meeting 
that the FCRA calls for the CCC to make annual “reest imates” to the cost calculation and thus to the 
“guaranteed loan subsidy” line in the budget.  Rees timates “take into account all factors that may have 
affected the estimate of each component of th e cash flows, including prepayments, defaults, 
delinquencies, and recoveries,”
215 to the extent that those factors have changed since the initial 
estimate was made for purposes of the budget year column of the budget.   
 
176. The results of the reestimate process are cap tured in the US budget and in CCC’s financial 
statements.216  Reestimates made in a given fiscal year ar e netted and recorded in the “reestimates of 
subsidy” (line 00.07) and “interest on reestimate” (line 00.08) lines of the US budget.  In the 2002 
column of the 2004 budget, for example, “reestimat es of subsidy” were recorded in the amount of 
$118 million, and “interest on reestimate” was recorded as $8 million.217  In the 2002 column of the 
2004 budget, the United States in fact aggregates  these two amounts with the “guaranteed loan 
subsidy” amount of $97 million and the “administrative expenses” of $4 million to arrive at a total 
subsidy of $227 million (which is in turn deducted from the budgetary  resources available to the CCC 
in line 23.95 of the budget).218  While Brazil could have followed this same convention to accentuate 
the amount by which the CCC guarantee programmes’ costs and losses outstrip revenue by even more 
than that listed in the chart included in paragraph 132 of Brazil’s Statement to the First Panel Meeting, 
it chose to be conservative and did not do so.    177. The results of the reestimate process are also captured in a cumulative, “running tally” of the 
FCRA subsidy figure included in CCC’s annual financial statements.  CCC’s fiscal year 2002 
financial statements track the “credit guarantee li ability” for post-1991 guarantees disbursed under the 
CCC export guarantee programmes.  “Credit guarantee liability” is defined in the CCC financials as 
representing “the estimated net cash outflows (loss)  of the guarantees on a net present value basis.”
219  
The Panel will recall that the “guaranteed loan subs idy” line in the US budget similarly tracks the net 
present value of payments to and from the govern ment for CCC export guarantees, although only with 
respect to guarantees disbursed in one particul ar year.  The 2002 financial statement provides a 
cumulative subsidy figure for all post-1991 guara ntees under the CCC programmes.  The analysis 
included in the 2002 financial statement begins with  the credit guarantee liability included in the 2001 
                                                      
 215 Exhibit Bra-118 (Federal Accounting Standards Advisory Board, “Statement of Federal Financial 
Accounting Standards No. 19, Technical Amendments to Accounting Standards for Direct Loans and Loan 
Guarantees” in S TATEMENT OF FEDERAL FINANCING ACCOUNTING STANDARDS NO. 2, March 2001, p. 15 (para. 
32)).  See also Exhibit Bra-160 (US Department of Agriculture, Office of the Chief Financial Officer, Credit, 
Travel, and Accounting Division, Agriculture Financial Standards Manual  (May 2003), p. 80, 117, 199); 
Exhibit Bra-161 (US Federal Accounting Standards Advisory Board, F EDERAL FINANCIAL ACCOUNTING AND 
AUDITING TECHNICAL RELEASE 3, Preparing and Auditing Direct Loan and Loan Guarantee Subsidies under 
the Federal Credit Reform Act  (31 July 1999), p. 17-21). 
 216 According to OMB, reestimates ar e to be recorded in the budget.  Exhibit Bra-116 (OMB Circular 
A-11, p. 185-4).   
 217 Exhibit Bra-127 (US budget for FY 2004, p. 107).   
 218 Exhibit Bra-127 (US budget for FY 2004, p. 107).   
 219 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 the Financial Statements, p. 4).   WT/DS267/R/Add.2 
Page I-62  
 
financial statement, makes adjustme nts for defaults, fees and reestimates undertaken in fiscal year 
2002 with respect to all post-1991 guarantees, and resu lts in a new subsidy figure of $411 million for 
those post-1991 guarantees.
220  This positive net present value means that CCC has “los[t] money” 
during the period 1992-2002.221 
 
178. While Brazil has demonstrated that the r eestimation process applied to the FCRA formula 
does in fact track actual data and does in fact  account for actual performance of CCC export credit 
guarantees, Brazil notes that a certain degree of estimated data would be perfectly acceptable in an analysis of the costs and losses of guarantee progr ams under item (j).  The purpose of the FCRA and 
its cost formula was, after all, “to measure more accurately the costs of Federal credit programmes,” 
including contingent liabilities like export credit guarantees.
222  As the United States evidently agrees, 
accounting for the costs of contingent liabilities like guarantees on a cash basis is not appropriate, 
since it masks the real costs of those guarantees.  Ev en if the FCRA cost formula does entail the use of 
some estimated data, the US Congress and the President consider that that formula is the most accurate way of tracking costs. 
 
179. Brazil notes, finally, that it is not entirely accura te to call the data used to arrive at initial 
estimates of the “guaranteed loan subsidy” figur e “estimated” data.  The US Federal Accounting 
Standards Advisory Board, the Government-Wide A udited Financial Statemen ts Task Force on Credit 
Reform, the Office of Management and Budget a nd the Department of Agriculture itself have 
emphasized that “[m]ethods of estimating future cash flows for existing credit programs need to take 
account of past experience,”
223 that “[a]ctual historical experience of the performance of a risk 
category is a primary factor upon which an estimation of default cost is based”,224 and that the 
technical assumptions underlying subsidy calculati ons reflect “historical cash reports and loan 
performance”.225  This demonstrates that “estimates” of  the subsidy cost of CCC guarantees are 
informed by actual historical experience with borrowers.   
 
180. Brazil also notes that a number of factors involved in setting the FCRA subsidy cost are “explicit” and not “forecast”.  The Office of Management and Budget identifies contract terms such as maturity, borrower’s interest rate, fees and grace periods as “explicit,” and therefore not “estimated”.
226  Moreover, as the Panel is well aware, none of the “reestimates” at issue is Brazil’s.  
They are all estimates by official agencies of the United States.  
                                                     
 
 220 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 the Financial Statements, p. 19).  As noted above in 
Brazil’s comments on Question 77, while this figure  theoretically includes CCC’s Facility Guarantee 
Programme (“FGP”), activity under that programme is virtually non-existent. 
 221 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).  
222 Exhibit Bra-117 (2 U.S.C. § 661(1)). 
 223 Exhibit Bra-162 (Government-Wide Audited Financial Statements Task Force on Credit Reform, 
ISSUE PAPER , Model Credit Programme methods and Documentation for Estimating Subsidy Rates and the 
Model Information Store , 96-CR-7 (1 May 1996), p. 2). 
 224 Exhibit Bra-118 (Federal Accounting Standards Advisory Board, S TATEMENT OF FEDERAL 
FINANCIAL ACCOUNTING STANDARDS NO. 19, Technical Amendments to Accoun ting Standards for Direct Loans 
and Loan Guarantees in Statement of Federal Financial Accounting Standards No. 2  (March 2001), p. 16 (para. 
36)).  See also Exhibit Bra-160 (US Department of Agriculture, Office of the Chief Financial Officer, Credit, 
Travel, and Accounting Division, Agriculture Financial Standards Manual  (May 2003), p. 120 (“In estimating 
default costs, the following risk factors are considered:  (1) loan performance experience; . . .”)). 
 225 Exhibit Bra-163 (Office of Management and Budget Annual Training, Introduction to Federal 
Credit Budgeting, 24 June 2002, p. 9). 
 226 Exhibit Bra-163 (Office of Management and Budget Annual Training, Introduction to Federal 
Credit Budgeting, 24 June 2002, p. 9). WT/DS267/R/Add.2 
Page I-63 
 
 
82. Please explain each of the following statemen ts and any possible significance it may have 
in respect of Brazil's claims about GSM-102 and GSM-103 (7 CFR 1493.10(a)(2), Exhibit BRA-38): BRA, USA 
 
Brazil’s Answer:
 
 
181. As discussed below, these passages corrobor ate evidence provided by Brazil to demonstrate 
that the CCC guarantee programmes constitute export subsidies within the meaning of Articles 1.1 
and 3.1(a) of the SCM Agriculture, and thus within the meaning of Articles 1(e), 10.1 and 8 of the Agreement on Agriculture. 
 
 (a) "The programmes operate in cases where credit is necessary to increase or 
maintain US exports to a foreign mark et and where US financial institutions 
would be unwilling to provide financing without CCC's guarantee.  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
Brazil’s Answer:
 
 182. The passage cited by the Panel provides co rroborating evidence that CCC guarantees provide 
“benefits”, within the meaning of Article 1.1(b)  of the SCM Agreement.  Specifically, the passage 
states that the CCC programmes “operate in cases . . . where US financial institutions would be 
unwilling to provide financing without CCC’s guarantee”.   This demonstrates at least two things.  
First, it establishes that the CCC guarantee programs are used in situations where, without a CCC 
guarantee, a borrower could not secure financing at all – not just financing on less attractive terms 
than could be secured with the CCC guarantee (o r on terms that would constitute a benefit under 
Article 14(c) of the SCM Agreement), but no financ ing at all.  Second, it establishes that financing 
could not be secured without a CCC guarantee – a commercial guarantee would not do.  This 
corroborates Brazil’s assertion that CCC provides something that has no equivalent on the commercial 
market.  183. Brazil notes that the regulations for the SCGP programme contain an identical provision, in 7 CFR 1493.400(a)(2).  That section states that “[t] he SCGP operates in cases where credit is necessary 
to increase or maintain US exports to a foreign market and where private US exporters would be 
unwilling to provide financing without CCC’s guarantee”.
227 
 184. Moreover, in its Annual Performance Plans for fiscal years 2000, 2001 and 2002, the US Department of Agriculture’s Foreign Agricultural Se rvice similarly stated that the SCGP programme 
“was created to expand high-value  product exports by facilitating credit for such purchases in foreign 
markets lacking sufficient liquidity to  purchase openly on the commercial market”.
228  T h i s  
demonstrates that the SCGP programme extends “ben efits,” since it facilitate s credit for the purchase 
of US agricultural commodities in ci rcumstances where credit would not otherwise be available at all. 
 
 (b) "The programmes are operated in a manner intended not to interfere with 
markets for cash sales.  The programs are targeted toward those countries 
where the guarantee is necessary to secu re financing of the exports but which 
have sufficient financial strength so that foreign exchange will be available for scheduled payments."  (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
                                                     
 
 227 Exhibit Bra-38 (7 CFR 1493.400 et seq .). 
 228 Exhibit Bra-164 (US Department of Agriculture, Foreign Agricultural Service, Revised FY 2001 and 
FY 2002 Annual Performance Plan , p. 11); Exhibit Bra-165 (US Department of Agriculture, Foreign 
Agricultural Service, Revised FY 2000 and FY 2001 Annual Performance Plan , p. 17). WT/DS267/R/Add.2 
Page I-64  
 
Brazil’s Answer:
 
 185. This passage also demonstrates that CCC gua rantees confer “benefits”.  Specifically, the 
passage states that “[t]he programmes are target ed toward those countries where the guarantee is 
necessary to secure financing of the exports . . .”.  Like the passage included in 82(a), this passage 
establishes at least two things.  First, that wit hout a CCC guarantee, a borrower would not be able to 
secure financing at all – not just financing on less a ttractive terms than could be secured with the CCC 
guarantee (or on terms that would constitute a benef it under Article 14(c) of the SCM Agreement), but 
no financing at all.  Second, that the CCC guara ntee is necessary – a commercial guarantee would not 
be sufficient. 
 
186. Brazil notes that the regulations for the SCGP programme contain an identical provision, in 7 CFR 1493.400(a)(2).  That section states that “The pr ogramme is operated in a manner intended not to 
interfere with markets for cash sales.  The progra mme is targeted toward those countries where the 
guarantees are necessary to secure financing of th e exports but which have sufficient financial 
strength so that foreign exchange will be available for scheduled payments.”
229 
 
 (c) "In providing this credit guaran tee facility, CCC seeks to expand market 
opportunities for US agricultural expo rters and assist long-term market 
development for US agricultural commodities." (7 CFR 1493.10(a)(2) Exhibit BRA-38) 
 
Brazil’s Answer: 
 
187. This passage demonstrates that the CCC gua rantee programmes are contingent on export, 
within the meaning of Article 3.1(a) of the SCM Ag reement.  Specifically, the passage establishes that 
the CCC guarantee programs are for use by “US agricultu ral exporters”.  It also confirms that the 
programmes operate to the benefit of  US exporters, who with the help of the programmes are able to 
expand their market share.  188. Brazil notes that the regulations for the SCGP programme contain an identical provision, in 7 CFR 1493.400(a)(2).  That section states that “[i] n providing this credit guarantee facility, CCC seeks 
to expand market opportunities for US agricultural e xporters and assist long-te rm market development 
for US agricultural commodities.”
230 
 
83. Could Brazil explain how the procedure in Annex V of the SCM Agreement would be 
relevant to its claims concerning agricultural export subsidies, prohibited subsidies and 
agricultural domestic support? (e.g. note 301 in Brazil's first submission and paragraph 4 of 
Brazil's oral statement at the first session  of the first substantive meeting). BRA 
 
Brazil’s Answer:  
 189. The United States failed to respond to Braz il’s questions and document requests during the 
Annex V procedures.  Indeed, the United States refu sed to participate in any way in the Annex V 
procedures mandated by Brazil’s invocation of Annex V in  its request for establishment of this Panel.  
This refusal to participate has consequences under th e express terms of Annex V.  The list of Annex V 
questions provided to the United States by Brazil is included in Exhibit Bra-49.   As directed by 
paragraph 6 of Annex V, given the United States’ failure to cooperate in the Annex V information-
gathering 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 th e evidence provided to the 
Panel by Brazil in support of its prima facie case, and those gaps are due to the United States’ failure 
                                                     
 
 229 Exhibit Bra-38 (7 CFR 1493.400 et seq .). 
 230 Exhibit Bra-38 (7 CFR 1493.400 et seq .). WT/DS267/R/Add.2 
Page I-65 
 
 
to cooperate with and participat e in the Annex V process, Annex V, paragraph 6 provides that “the 
panel may complete the record as necessary relying on best information otherwise available”.   
 190. As a final note, Brazil’s Annex V questions to the United States included questions concerning US agricultural export subsidies and do mestic content subsidi es because these are also 
“actionable” subsidies that cause serious prejudice to Brazil’s interests. 
 
84. Is the Panel correct in understanding that, under the GSM-102 and GSM-103 
programmes, the exporter pays a fee calculated on the dollar amount guaranteed, based on a 
schedule of rates applicable to different credit pe riods?  How and on what basis are the fee rates 
fixed?  Do the fee rates ever change?  If so, how and for what reason?  Would it be necessary to 
amend the legislation and/or regulations in order to adjust the fee rates?  USA  
Brazil’s Comment:
 
 
191. The Panel is correct in stating that fees for GSM 102 and GSM 103 guarantees vary only 
according to the dollar value of the transaction a nd the length of the guarantee.  GSM 102 and GSM 
103 fees do not otherwise vary and are charged according to a fee schedule that does not account for the country risk involved or the credit rating of th e borrower.  Brazil attaches news releases from the 
US Department of Agriculture’s Foreign Agri cultural Service announcing GSM 102 and GSM 103 
guarantees to Dominican Republic, Morocco, Gh ana, South Korea, Vietnam and Algeria.
231  T h e  
Panel will note that the fees do not vary, and ar e based on the standard GSM 102 and GSM 103 fee 
schedule included as Exhibit Bra-155.232 
 192. As noted above in Brazil’s comment on Ques tion 77, the US Department of Agriculture’s 
Office of the Inspector General has noted in June  2001 that “the fees CCC charges for its GSM-102 
and GSM-103 export credit guarantee programmes have not been changed in 7 years and may not be 
reflecting current costs”.
233  It repeated this statement in February 2002.234  Thus, GSM 102 and GSM 
103 fees remained virtually unchanged from at le ast 1994 until February 2002.  The current fee 
schedule demonstrates that this trend continues to the present.235   
 193. In reviewing the historical fee schedules available from public sources,
236 Brazil notes that 
from at least 1994 until the present, CCC made two ch anges in its fee schedule for GSM 102.  First, it 
                                                      
 231 Exhibit Bra-166 (US Department of Agriculture  Foreign Agricultural Service, News Releases 
regarding extension of GSM 102 and GSM 103 guarantees to Dominican Republic, Morocco, Ghana, South 
Korea, Vietnam and Algeria). 
 232 Exhibit Bra-155 (US Department of Agriculture Foreign Agricultural Service, Notice to GSM-102 
and GSM-103 Programme Participants , 24 September 2002). 
 233 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).   
 
234 Exhibit Bra-154 (US Department of Agriculture Office of Inspector General Great Plains Region 
Audit Report of the Commodity Credit Corporation’s Fina ncial 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 programmes have not been changed for many years and may not be reflecting current costs.”). 
 235 Exhibit Bra-155 (US Department of Agriculture Foreign Agricultural Service, Notice to GSM-102 
and GSM-103 Programme Participants , 24 September 2002). 
 236 Exhibit Bra-155 (US Department of Agriculture Foreign Agricultural Service, Notice to GSM-102 
and GSM-103 Programme Participants , 24 September 2002); Exhibit Bra-98 (US Department of Agriculture 
Foreign Agricultural Service, Notice to GSM-102 and GSM-103 Programme Participants , 4 September 2001); 
Exhibit Bra-156 (US Export-Import Bank, Comparison of Major Features of Programmes Offered by Ex-Im 
Bank and Commodity Credit Corporation for Support of Bulk Agricultural Commodities , available at 
http://www.exim.gov/pub /ins/pdf/eib99-13.pdf ).  Brazil was unable to locate from public sources other fee 
schedules from the period 1993-2002. WT/DS267/R/Add.2 
Page I-66  
 
changed the fee for a 12-month guarantee with se mi-annual repayment intervals from $0.209 per $100 
of coverage to $0.229 pe r $100 of coverage.  Second, it decide d to offer borrowers the additional 
option of 30- and 60-day guarantees, at the same fee charged for 90-day and 4-, 6- and 7-month guarantees.  85. Is the Panel correct in understanding that , under the SCGP, the exporter pays a fee for 
the guarantee calculated on the guaranteed portio n of the value of the export sales? How and on 
what basis are the fee rates fixed?  Do the f ee rates ever change?  If so, how and for what 
reason?  Would it be necessary to amend the legisl ation and/or regulations in order to adjust the 
fee rates?  Please explain any "risk" assessment involved in the programme.  USA 
 
Brazil’s Comment:
 
 194. The Panel is correct in stating that fees fo r SCGP guarantees vary only according to the dollar 
value of the transaction and the length of the guar antee.  SCGP fees do not otherwise vary and are 
charged according to a fee schedule that does not account for the country risk involved or the credit 
rating of the borrower.  For SCGP guarantees of up to  90 days, the fee is $0.45  per $100 of coverage, 
and for SCGP guarantees from 90-180 days, th e fee is $0.90 per $100 of coverage.
237  Brazil attaches 
news releases from the US Department of Agri culture’s Foreign Agricultural Service announcing 
SCGP guarantees to Tunisia, Azerbaijan, Vietnam, South Korea, Japan and Nigeria.238  The Panel will 
note that the fees do not vary.  
 
86. Is there a risk categorization in relatio n to three export credit guarantee programmes 
(GSM-102, GSM-103 and SCGP)? Does this have any impact on premiums payable and the ability of the CCC to on-sell the guarantees ? USA 
 Brazil’s Comment:
 
 195. Fees for GSM 102, GSM 103 and SCGP guarant ees do not vary depending upon the credit 
rating of the borrower.  As noted in Brazil’s co mments on Questions 84 an d 85, guarantee fees for 
these three programs vary only according to the dollar value of the transaction and the length of the 
guarantee.  Fees do not otherwise vary and are charged according to a fee schedule that does not 
account for the country risk involved or the credit rating of the borrower. 
 196. In calculating the “subsidy cost” for the purpo ses of the Federal Credit Reform Act, agencies 
like the CCC account for country risk.  According to the narrative description included in the US 
budget, 
 
[t]he subsidy estimates for the GSM-102 and GSM-103 programs are determined in 
large part by the obligor’s sovereign or non-sovereign country risk grade.  These 
grades are developed annually by the Inte rnational Credit Risk Assessment System 
Committee (ICRAS). . . .  The default estimates for GSM guarantees are determined in large part by the risk prem ia assigned for each risk grade.
239 
197. According to the GAO, “OMB requires executiv e branch agencies to cal culate the costs of 
foreign loans and guarantees usi ng annually updated ICRAS ratings a nd . . . country risk interest 
premiums when foreign loans or guarantees are budgeted, authorized, disbursed, or modified. . . .”240 
                                                      
 237 Exhibit Bra-167 (12 Steps to Participating in the USDA Supplier Credit Guarantee Programme, 
Step 5). 
 238 Exhibit Bra-168 (US Department of Agriculture  Foreign Agricultural Service, News Releases 
regarding extension of SCGP guarantees to Tunisia, Azerbaijan, Vietnam, South Korea, Japan and Nigeria). 
 239 Exhibit Bra-127 (US budget for FY 2004, p. 108). 
 240 Exhibit Bra-121 (GAO/NSIAD/GGD-95-31, p. 7). WT/DS267/R/Add.2 
Page I-67 
 
 
 198. Thus, while CCC fees for GSM 102, GSM 103 and SCGP fees do not account for country risk 
or the credit risk of the borrower, the “guaranteed loan subsidy” line in the US budget and the subsidy 
figures in the CCC’s financial statements do take account of country risk.  87. What proportion of CCC (export-related and total) long term opera ting costs and losses 
are represented by GSM-102, GSM-103 and SCGP programmes? USA 
 
88. (a) Is the Panel correct in understanding that the United States' argument is that, at 
present, by virtue of Article 10.2 of th e Agreement on Agriculture, there are no 
disciplines on agricultural export credit gu arantees under the Agreement on Agriculture 
(or the SCM Agreement)?  USA 
  (b) Does the United States agree with the following proposition:  a WTO Member 
may therefore extend agricultural export credit guarantees without charging a 
premium, and for an indefinite period, in addition to any other terms and 
conditions it may wish?  How would this reconcile with the title of Article 10 of the Agreement on Agriculture ("Preven tion of Circumvention on Export 
Subsidy Commitments"), and with other commitments contained in the Agreement on Agriculture? Please cite any relevant material, including any past WTO dispute settlement cases.  How would this reconcile with the United States' 
own statement, at paragraph 21 of its closing oral statement that "of course, the 
United States may not provide subsidies without any limit".  USA 
  (c) If, as the United States argues, there are no disciplines on export credit 
guarantees in the Agreement on Agriculture, how could export credit guarantees 
"conform fully to the provisions of Part  V" of the Agreement on Agriculture 
within the meaning of Article 13 (how can you assess "conformity" or non-conformity when there are allegedly no disciplines against which such an 
assessment could occur)?  USA  
 
Brazil’s Comment:
 
 
199. As the Panel’s question suggests, if the Pa nel determines that export credit guarantees are not 
subject to the export subsidy disciplines in th e Agreement on Agriculture, the United States is 
nevertheless not entitled to the protection afforded  by Article 13(c).  Article 13(c) provides an 
exemption from action for those export subsidies that “conform fully to the provisions of Part V” of 
the Agriculture Agreement.  If, as the United Stat es argues, export credit guarantees are not subject to 
Part V, then they cannot “conform fully to the pr ovisions of Part V,” and are not entitled to the safe 
haven in Article 13(c).  200. The panel in Canada – Aircraft (21.5) took a similar approach with respect to the safe haven 
included in the second paragraph of item (k) to the Illustrative List of Export Subsidies appended to 
the SCM Agreement.
241  The second paragraph of item (k) provides as follows: 
 
Provided, however, that if a Member is a party to an international undertaking on 
official export credits to which at least tw elve original Members to this Agreement 
are parties as of 1 January 1979 (or a successor undertaking which has been adopted 
by those original Members), or if in pr actice a Member applies the interest rates 
provisions of the relevant undertaking, an export credit practice which is in conformity with those provisions shall not be considered an export subsidy prohibited 
by this Agreement. 
                                                     
 
 241 Panel Report, Canada – Aircraft (21.5) , para. 5.143-5.145.  WT/DS267/R/Add.2 
Page I-68  
 
The “international undertaking on official export cred its” cited in this provision is the Organization 
for Economic Co-operation and Development’s Arra ngement on Guidelines for Officially Supported 
Export Credits (“OECD Arrangement”).
242   
 201. To determine whether a particular Canadian measure could benefit from the safe haven in the 
second paragraph of item (k), the Panel first revi ewed which types of “export credit practices” could 
potentially be “in conformity with” the “interes t rates provisions” of the OECD Arrangement.  
According to the Panel, it could only “determine th e conformity of a given export credit practice with 
those interest rate provisions . . . [if] it is of the ty pe that conceptually could be subject to, and thus in 
conformity with, those provisions”.
243  Similarly, if the United States is correct that CCC export credit 
guarantees are not subject to the disciplines in Pa rt V of the Agriculture Agreement, then CCC 
guarantees cannot logically “conform fully to the provisions of Part V” and trigger the exemption from action provided for in Article 13(c).  
 (d) Is the United States advocating the view that its own export credit guarantee 
programmes, which pre-dated the Uruguay Round, are effectively 
"grandfathered" so as to benefit from some sort of exemption from the export subsidy disciplines of the Agreement on Agriculture?  How, if at all, is it relevant that the SCGP did not, according to the United States, become relevant for upland cotton until the late 1990's (i.e. after the entry into force of the WTO Agreement)?  USA 
 
F. STEP 2 PAYMENTS 
 
89. Does the United States confirm Brazil's statement in paragraph 331 of its first 
submission that "The conditions and require ments for Step 2 domestic payments remain 
unchanged with the passage of the 2002 FSRI Act"?  What is the relevance of this, if any, to this dispute? USA 
 
90. Does the United States confirm Brazil's statement in paragraph 235 of its first 
submission that the changes concerning Step 2 export payments from the 1996 FAIR Act to the 
2002 FSRI Act are:  increase in the amount of the subsidy by 1.25 cents per pound and the 
removal of any budgetary limits that applied under the 1996 FAIR Act?  What is the relevance of this, if any, to this dispute? USA  91. What is the significance of the elimin ation of the 1.25 cent threshold payment in the 
2002 FSRI Act pertaining to Step 2 payments? USA 
 92. Does the United States confirm that Exhi bit BRA-65 represents a sample contract for 
exporters of eligible upland cotton to conclude with the CCC under the FSRI 2002, and that an 
application form (Exhibit BRA-66) needs to be  filled out with data on weekly exports and 
submitted to the USDA FAS. Is Exhibit BRA-66 - Form CCC 1045-2 – also a valid example?  If 
not, please identify any differences or distinctions.  USA  
 
                                                     
 
 242 Available at http://www.oecd.org/dataoecd/52/3/2763846.pdf. 
 243 WT/DS70/RW, para. 5.93.  The Panel concluded that “the only forms of export credit practices” 
subject to the interest rate provisions of the OECD Arrangement  are “direct credits/financing, refinancing and 
interest rate support,” since only those forms of official financing support are subject to the Arrangement ’s 
commercial interest reference rates (“CIRR”) – “the only existing  systems of minimum interest rates under the 
Arrangement .”  Id., paras. 5.98, 5.101 (emphasis in original).  Since the CIRR are only expressed as fixed rates, 
the Panel concluded that they could only be applied to fixed (and not floating) interest rate transactions.  Id., 
para. 5.102.  Nor could the CIRR be applied to official support with a shorter maturity than two years (the 
minimum term expressly listed in the OECD Arrangement ), or to guarantees or insurance.  Id., para. 5.106. WT/DS267/R/Add.2 
Page I-69 
 
 
Brazil’s Comment:   
 202. Brazil includes a new version of the cu rrent “Upland Cotton Domestic User/Exporter 
Agreement” (Revision 7, in effect as of 1 A ugust 2003 and issued on 17 June 2003), which replaces 
Revision 6 that Brazil has included as Exhibit Bra-65 to its First Submission. 
 
93. Please elaborate why the United States deems that Step 2 payments upon submission of 
proof of export are not subsidies contingent upon export.  Is it the US contention that, in order 
to be contingent on export, exportation must  be the exclusive condition for receipt of the 
payment? USA 
 
94. Is the Panel correct in understanding that Brazil alleges an inconsistency with Article 3.1(b) of the SCM Agreement only with respect to Step 2 domestic payments? BRA   
 
Brazil’s Answer:  
 
 
203. Yes.   
95. Do the criteria in 7 CFR 1427.103(c)(2) (Exhibit BRA-37) that Step 2 "eligible upland 
cotton" must be "not imported cotton" apply to both domestic and export payments?  USA 
 
96. Is a domestic sale a "use" for the purposes of  Step 2 payments? Is a sale for export, or 
export, considered a "use"? USA    97. How does the United States respond to Braz il's assertion, at paragraph 70 of Brazil's 
oral statement at the first session of the first substantive meeting, that "It is obvious that a 
single bale of cotton cannot be both exported  and used domestically."  Is this a relevant 
consideration? USA  98. How many Step 2 payments are received if a bale of upland cotton is exported, and then 
opened by a domestic user in the United States, or vice versa? USA   
99. How does the United States respond to Brazil's arguments in paragraphs 71-75 of 
Brazil's oral statement at the first session of the first Panel meeting concerning the relevance of 
the Appellate Body Report in US-FSC (21.5).  USA  100. How does Brazil respond to the statement in  note 119 of the United States' first written 
submission that "...to the extent a consumer that  had intended to export instead opens the bale, 
then that consumer could still obtain the Step 2 payment upon submission of the requisite documentation".   The Panel notes that Step 2 payments all involve upland cotton produced in 
the United States.  What are the two distinct factual situations that Step 2 payments involve?  Other than the panel report in Canada-Dairy and the findings of the Appellate Body in US-FSC 
(21.5)
244, do any other dispute settlement reports offer guidance on this issue?  For example, 
how, if at all is the Appellate Body's report in Canada-Aircraft relevant here?245  BRA  
                                                      
 244 "We recall that the ETI measure grants a tax exemp tion in two different sets of circumstances:  (a)  
where property is produced  within  the United States and held for use  outside  the United States; and (b)  where 
property is produced  outside  the United States and held for use outside  the United States.  Our conclusion that 
the ETI measure grants subsidies that ar e export contingent in the first set of  circumstances is not affected by the 
fact that the subsidy can also be obta ined in the second set of circumstances .  The fact that the subsidies granted 
in the second set of circumstances  might  not be export contingent does not dissolve the export contingency 
arising in the first set of circumstances. 244  Conversely, the export contingenc y arising in these circumstances 
has no bearing on whether there  is an export contingent  subsidy in the second set of circumstances.  Where a 
United States taxpayer is simultaneously producing property  within and outside the Unit ed States, for direct use WT/DS267/R/Add.2 
Page I-70  
 
 Brazil’s Answer:  
 
 204. The applicable regulations (7 CFR 1427.104)
246 define eligible domestic users and exporters 
of upland cotton.247  To receive a Step 2 export payment, a person (including a cotton producer or a 
cooperative) must be “regularly engaged in selling eligible [US] upl and cotton for export”.248  T o  
receive a domestic payment, a person must be “regul arly engaged in the business of opening bales of 
eligible [US] upland cotton to manufacture US  upland cotton into cotton products in the 
United States”.249  The only actor who can be indiffere nt whether they export or use cotton 
domestically is a hypothetical domestic US cott on product manufacturer regular ly engaged in opening 
US bales for domestic US manufacture that also regu larly engages in exporting US cotton.  In that 
situation, if a bale of cotton is opened by mistake instead of being exported, the exporter who is also 
the US cotton product manufacturer will receive a St ep 2 domestic payment for that bale if the 
company has already entered into a contract with CC C for Step 2 payments, and subject to proof that 
bale is in fact used for manufacturing cotton pro ducts in the United States.  But even if that 
hypothetical situation were to occur, then the paym ent would be contingent upon the domestic use of 
only US upland cotton (prohibited by Article 3.1(b) of the SCM Agreement).  And if the bale were 
exported, the US exporter would receive the Step 2 payments subject to proof of export of US (not 
foreign) upland cotton (prohibited by Article 3.1(a) of the SCM Agreement).    205. It follows that the “two distinct factual situ ations” resulting in the payment of Step 2 subsidies 
are (1) the domestic “use” of eligible US upland co tton by a manufacturer of cotton products regularly 
engaged in opening bales; and (2) th e “export” of eligible US cotton by  exporters regularly engaged in 
selling US upland cotton.  The United States argues that this case is distinguishable from US – FSC 
(21.5) because in that case one situation involved prop erty produced within the United States and held 
for use outside the United States, and the other situation involved property produced outside the 
United States and held for use outside the United States.
250  This is irrelevant.   
 206. The point of the distinction by the Appellate Body in US – FSC (21.5) was not the geographic 
location of the property at issue, but rather wh ether one portion of payment under a programME was 
export contingent.  In fact, in US – FSC (21.5), the products found to be subject to the export 
contingency were those produced within the United St ates and held for use outside the United States.  
This is exactly the situation with Step 2 e xport payments.  Upland cotton produced in the 
United States receives Step 2 payment upon proof of export (“held for use outside the United States”) 
outside the United States.  As in US – FSC (21. 5), the fact that subsidies available under the 
programme are also granted in a second situation, i.e., when upland cotton pr oduced within the United 
States is used within the United States “does not diss olve the export contingency arising in the first set 
of circumstances”.
251  
 
                                                                                                                                                                     
outside the United States, subsidies may be granted under the ETI measure in respect of both sets of property.  
The subsidy granted with respect to th e property produced within the United St ates, and exported from there, is 
export contingent within the mean ing of Article 3.1(a) of the  SCM Agreement , irrespective of whether the 
subsidy given in respect of property produced outside the United States is also export contingent." 
245 There, the Appellate Body stated that,  
"the fact that some of TPC's contributions, in some industry sectors, are  not contingent upon export 
performance, does not necessarily mean that the same is true for all of TPC's contributions.  It is 
enough to show that one or some of TPC's contri butions do constitute subsidies "contingent ... in 
fact … upon export performance". 
 246 Exhibit Bra-37 (7 CFR 1427.104). 
 247 First Submission of Brazil, paras 92, 98.   
 248 Exhibit Bra-37 (7 CFR 1427.104(a)(2)).  
 249 Exhibit Bra-37 (7 CFR 1427.104(a)(1)).  
 250 First Oral Statement of the Un ited States, paras. 21-22.   
 251 Appellate Body Report, US – FSC (21.5) , para. 119.  WT/DS267/R/Add.2 
Page I-71 
 
 
207. Concerning other relevant dispute settlement  reports, Brazil believes that the Canada – 
Aircraft decision is useful precedent.  In that  case, Canada argued that Technology Partnership 
Canada (TPC) was a funding mechanism providi ng “support to a broad base of sectors and 
technologies” “that result in a high technology product  or process for sale in domestic and export 
markets”.252  Canada claimed that “Brazil has not adduced any evidence to show that TPC 
contributions are contingent on export performance, in the sense that the contributions would not be 
paid unless exports took place, that there would be rewards if exports took place. . .”.253  T h e  
Appellate Body affirmed the pane l’s finding of export contingency, noting that “it is enough to show 
that one or some of TPC’s contri butions do constitute subsidies ‘conti ngent . . . in fact . . . upon export 
performance.’”254  This finding is consistent with the A ppellate Body’s later decision in US – FSC 
(21.5).  It stands for the proposition that where a programme makes some payments contingent upon 
export of products, the fact that other payments  under the programme are made for domestic use does 
not eliminate the export contingency of the programmes.    
101. How does Brazil respond to the United St ates' assertion at paragraph 22 of its oral 
statement that the programme involves "eligible users" who constitute the "entire universe" of 
potential purchasers of upland cotton? BRA 
 
Brazil’s Answer:  
 
 208. Brazil considers that the United States’ statem ent is not correct.  As noted in the previous 
answer, an “eligible” user cannot include firms that  are not “regularly engaged in” opening bales of 
upland cotton for manufacturing upland cotton products in the United States or exporting upland cotton from the United States.
255  The eligible domestic user criteria exclude all firms that are 
domestic cotton brokers or simple resellers.  Nor would “eligible domestic users” include firms that 
have not entered into CCC contracts or who open ba les but do not use them in the manufacture of 
upland cotton products or who only occasionally ope n bales of upland cotton for manufacture of 
upland cotton products.  Similarly, the regulations for eligible “expor ters” do not include persons who 
occasionally export and who are, thus, not considered to be persons “regularly engaged” in exporting 
upland cotton.256  Furthermore, the regulations do not cove r exporters who have not entered into a 
CCC contract as exporters eligible for payment.257   
 102. How does Brazil respond to the United States' assertion at paragraph 129 of its first written submission, that "[t]he programme is indi fferent to whether recipients of the benefit of 
this programme are exporters or parties that op en bales for the processing of manufacturing 
raw cotton into cotton products in the United States." BRA 
 Brazil’s Answer:  
 
 209. Brazil notes that the same “programme indiffe rence” argument could have been made by the 
United States in the US – FSC (21.5) case (tax deferr ed whether products produced within or outside 
the United States) or by Canada in the Canada – Aircraft case (TPC paymen ts made whether products 
consumed or used domestically or exported).  Th ese two Appellate Body decisions clarify that what 
matters is whether one segment of the programme is contingent upon e xport.  This is consistent with 
the Article 3.1(a) text that the export contingency be “solely or as one of several other conditions”.  
Step 2 export payments are clearly contingent upon proof of export of US upland cotton by eligible 
exporters.  The fact that another class of persons in  a different situation (domestic users) also may 
                                                     
 
 252 WT/DS70/R, paras. 6.231, 6.235 
 253 WT/DS70/R, para. 6.248.  
 254 Canada – Aircraft, WT/DS70/AB/R, para. 179.   
 255 Exhibit Bra-37 (7 CFR 1427.104(a)(1)).  
 256 Exhibit Bra-37 (7 CFR 1427.104(a)(2) and (b)). 
 257 Exhibit Bra-37 (7 CFR 1427.104(a)(2) and (b)). WT/DS267/R/Add.2 
Page I-72  
 
receive the payment does not remove this export con tingency.  Additionally, Brazil notes that Step 2 
domestic payments violate Article 3.1(b).  
103. Is the Step 2 programme fund a unified fund that is available for either domestic users 
or exporters, without a specific amount earmar ked for either domestic users or exporters?  
Please substantiate your response, including by reference to any applicable statutory or 
regulatory provisions. USA  104. How does the United States respond to th e data presented in Exhibit BRA-69?  Is it 
accurate? Please substantiate. USA 
 
105. Why is the Step 2 program me separated into "domestic users" and "exporters"?  Apart 
from differentiating between exporters and domestic  users, with consequential differentiation as 
to the forms that must be filled out and certain other conditions that must be fulfilled, are the eligibility criteria for Step 2 payments identical?  Are the form and rate of payment, as well as 
the actual payment made, identical? USA 
 106. With respect to paragraph 139 of the United States' first written submission, are Step 2 
export payments included in the annual reducti on commitments of the United States? If so, 
why? USA  
107. Please comment on any relevance, to Brazil' s de jure claims of inconsistency with the 
provisions of the Agreement on Agriculture, of Exhibit BRA-69, which shows Step 2 payments made to (i) domestic users and (ii) exporters.  This Exhibit shows that, from FY 91/92 through 
02, the Step 2 payments for exporters exceeded tho se for domestic users in FY 94; FY 95; FY 96 
(in fact there were no domestic payments in FY 96); and FY 02.  In the other years, the domestic 
payments are greater than export payments.  BRA, USA  
 
Brazil’s Answer:  
 
 210. This document is not relevant for either Braz il’s Article 3.1(a) or Article 3.1(b) claims under 
the SCM Agreement.  Even if the Step 2 export paymen ts were zero in certain years (which they have 
never been), it would not remove the export contingenc y.  Similarly, the fact that Step 2 domestic 
payments were not made in one time period does not  resolve their contingency upon use of domestic 
over imported upland cotton.  Brazil’s claims are th at whenever a Step 2 payment for exported or 
domestically used upland cotton takes place, this payment is required to be made in a manner inconsistent with Articles 3.1(a) or 3.1(b) of th e SCM Agreement and with Articles 3.3 and 8 of the 
Agreement on Agriculture in the case of Step 2 export payments.       
 
108. At paragraph 135 of its first written submission, the United States states :  "[T]he 
subsidy is not contingent upon export performan ce..." (emphasis added).  Again, in the course 
of the first Panel meeting, the United States admitted that the Step 2 payments were "subsidies".  Does the United States thus concede that Step 2 payments constitute a "subsidy" 
within the meaning of the WTO Agreement? USA 
 109. How does the United States respo nd to Brazil's arguments concerning a 
mandatory/discretionary distinction and the alle gation that certain United States measures 
(including s.1207(a) of the 2002 FSRI Act) are manda tory? (This is referred to, for example, in 
paragraph 28 of Brazil's first written submi ssion).  Does the United States agree with the 
assertion that (subject to the availability of funds) the payment by the Secretary of Step 2 payments is mandatory under section 1207(a) FSRI upon fulfilment by a domestic user or exporter of the conditions set out in the legislatio n and regulations?  If not, then why not?  To 
what extent is this relevant  here?  What determines the "availability of funds"? Please cite any WT/DS267/R/Add.2 
Page I-73 
 
 
other relevant measures or provisions which you consider should guide the Panel in respect of 
this issue.  USA  110. Section 1207(a) of the 2002 FSRI Act provides that during the period beginning on the date of the enactment of the FSRI Act through July 31 2008, " .. the Secretary shall issue 
marketing certificates or cash payments, at the option of the recipient, to domestic users and 
exporters for documented purchases by domestic  users and sales for export by exporters...".  
The Panel notes that Brazil does not appear to distinguish between the treatment of (i) cash payments and (ii) marketing certificates in terms of the issue of whether or not a "subsidy" exists.  The United States refers to "benefits" and "payments" and "program" in asserting that 
Step 2 is not export contingent (paragraphs 127-135 of the United States' first written 
submission).     (a) Do the parties thus agree that there is no need to draw any distinction between 
the treatment of (i) cash payments and ( ii) marketing certificates in terms of the 
issue of whether or not a "subsidy" exis ts for the purposes of the Agreement on 
Agriculture?  BRA, USA  
 
Brazil’s Answer:  
 
 211. Brazil agrees there is no need to draw  any distinction between cash payments and 
“commodity certificates”.  The Step 2 regulations indicate that Step 2 payments “shall be made 
available in the form of commodity certificates issu ed under part 1401 of this Chapter, or in cash, at 
the option of the programme participants”.
258   Part 1401 of the regulations indicated that commodity 
certificates may be exchanged for cash.259  
  (b) Why would a domestic user or an exporter select to receive a marketing 
certificate over a cash payment?  What is the proportion of cash payments vs. marketing certificates granted under the programme?  USA 
 111. Does the United States maintain its argument that actions based on Article 3.1(b) of the SCM Agreement are conditionally "exempt from ac tions" due to the operation of Article 13 of 
the Agreement on Agriculture? USA 
 112. In the event that the Panel finds that Article 6.3 of the Agreement on Agriculture does not preclude an examination of Brazil's claims  under Article 3.1 of the SCM Agreement and 
Article III:4 of GATT 1994, how does the United St ates respond to the merits of Brazil's claims 
relating to Step 2 payments under those provisions? USA 
 113. Is it necessary for measures directed at agricultural processors included in AMS to 
discriminate on the basis of the origin of goods? USA  114. With respect to the last sentence of paragr aph 22 of Brazil's closing oral statement, 
could Brazil elaborate on the circumstances in wh ich a local content subsidy would comply with 
Article 3.1(b) of the SCM Agreement?  BRA  
 
Brazil’s Answer: 
 
 
212. Brazil believes the Panel is referring to para graph 21 of the final “as delivered” version of 
Brazil’s Closing Statement on 24 July 2003.  The text of  this sentence reads as follows:  “There is also 
no conflict between Article 3.1(b) of the SCM Ag reement and Agriculture Agreement Article 6 or 
                                                      
 258 Exhibit Bra-37 (7 CFR 1427.106). 
 259 Exhibit Bra-34 (7 CFR 1401.4(a)).   WT/DS267/R/Add.2 
Page I-74  
 
Annex 3, paragraph 7, because there are two types of domestic subsidies – those that comply with Article 3.1(b) of the SCM Agreement and those th at do not.”  Paragraph 85 of Brazil’s First Oral 
Statement of 22 July 2003 was more precise in focu sing on the relevant type of support, i.e., support 
provided to processors of agricultural products, stati ng that “[t]here are two types of ‘non-green box’ 
support to processors that could benefit producers of  agricultural goods:  support that violates ASCM 
Article 3.1(b) and GATT Article III: 4 and support that does not.”   
 213. There are no circumstances in which a “local content subsidy” would comply with Article 3.1(b) of the SCM Agreement.    115. What is the meaning and relevance (if any) to Brazil's claims under Article 3 of the SCM Agreement and Article III:4 of GATT 1994 of the phrase "measures directed at 
agricultural processors shall be included to the ex tent that such measures benefit the producers 
of the basic agricultural products" in the Agreement on Agriculture? BRA, USA 
 Brazil’s Answer:  
 
 214. The phrase from Annex 3, paragraph 7 of th e Agriculture Agreement cited by the Panel 
requires Members to tabulate and include as part of  AMS to individual products an amount of benefit 
provided to producers of basic agricultural products resulting from “measures di rected at agricultural 
processors. . . ”.  The obligations of Members to  comply with reduction commitments tied to AMS, 
and the obligations of Members under SCM Article  3 and GATT Article III, all apply cumulatively 
and simultaneously.  This phrase recognizes that subs idies to processors of agricultural products may 
benefit producers of the basic agricultural product a nd, thus, must be included within total AMS.  
However, as Brazil has argued, this phrase does not  provide an exemption from the SCM Agreement 
or GATT Article III for such subsidies, and no such  exemption can be interpolated into the text.
260  
The cumulative nature of the obligations in curred under the WTO Agreement results in the 
prohibition of certain “measures directed at agricu ltural processors” that otherwise would be included 
in the AMS calculation, namely those that are c ontingent upon the use of domestic over imported 
agricultural products contrary to Article  3.1(b) of the SCM Agreement.   
 
116. With respect to paragraph 32 of the oral st atement of the EC, are subsidies contingent 
on the use of domestic goods consistent with the Agreement on Agriculture?  Does the phrase 
"provide support in favour of domestic producers" in Article 3.2 of the Agreement on Agriculture refer to, and/or permit such subsidies? BRA, USA 
 
Brazil’s Answer:  
 
 
215. Brazil agrees with the EC that Articles 1(a), 3.2, 6.3 of the Agreement on Agriculture include 
the phrase “domestic support in favour of agricultural producers”.  And Brazil further recognizes that 
all types of “domestic support in favour of agricu ltural producers” must be tabulated for the purposes 
of setting and enforcing a Member’s domestic s upport reduction commitments (Total AMS).  But 
Brazil notes that neither the EC nor the United States  can point to any inherent conflict between these 
provisions and the prohibition of local content subs idies under Article 3.1(b) of the SCM Agreement 
for the reasons set forth in Brazil’s First Oral Stat ement and in Brazil’s answer to the Panel’s Question 
114.261   
 216. The EC and the United States fail to acknow ledge that there can be subsidies/domestic 
support measures provided to processors of the basic agricultural product that can be consistent with 
Article 3.1(b) of the SCM Agreement and that  also “provide support in favour of domestic 
producers”.  The EC appears to assume that al l support to processors of a basic agricultural 
                                                     
 
 260 First Oral Statement of Brazil, paras. 81-86.  
 261 First Oral Statement of Brazil, paras. 81-86.  WT/DS267/R/Add.2 
Page I-75 
 
 
commodity violates Article 3.1(b) of the SCM Agreement.  That is simply not correct.  Yet, without this assumption, there is no inherent conflict between the SCM Agreement and the Agreement on 
Agriculture.  The absence of any conflict coupled with  the absence of any explicit exemption for local 
content subsidies in Article 13(b) or anywhere else in the Agreement on Agriculture supports the 
conclusion that local content subsidies related to agricultural goods violate Article 3.1(b) of the SCM 
Agreement.   
 
117.  What is the relationship between Step 2 payments to exporters and the marketing loan 
payments, both of which appear to compensate fo r the price differences relative to the Liverpool 
A-Index?  For example, is there double compensati on?  Or is one of the explanations that these 
export-related price compensatory payments are paid to different operators (namely, the 
producer, on the one hand under the marketing loan arrangements, and the processor/users 
(Step 2 programme) arrangements on the other? USA 
 
118. Can the United States confirm that it does not rely on Article III:8 of GATT 1994? USA 
 
G. ETI ACT 
 
119. How does the United States respond to Brazil's  reference to the panel report in India - 
Patents (EC) (at paragraph 138 of its oral statem ent at the first session of the first substantive 
meeting)?262  How, if at all, should the Panel take this report into account in considering the 
issues raised by Brazil's claims relating to the ETI Act? USA  120. Concerning its claims on the ETI Act, Braz il relies on the US – FSC case.  However, it 
appears that the United States did not raise the issue of the Peace Clause in that case, nor did 
the United States appear to invoke Article 6 of the Agreement on Agriculture.    If the Panel's 
understanding is correct, how, if at all, are th ese differences relevant here? Could you direct the 
Panel to any relevant findings or conclusions by the panel or Appellate Body in that case? BRA  
 
Brazil’s Answer:  
 
 
217. Brazil is not aware that there are any differe nces between the US position regarding the peace 
clause in the US – FSC case and the present case.  Ther e is no reference in the entire record of that 
dispute that the United States ever asserted that th e EC’s claims regarding the ETI Act were exempt 
by the peace clause.  Also in this dispute, Brazil is not aware that the United States has ever asserted 
that Brazil’s claims regarding the ETI Act were ex empted by the peace clause.  In this regard, the 
United States has taken a consistent approach  in the present case and in US – FSC.   
 218. Because the United States never raised the peace clause as a defense in US – FSC, there were 
no findings by the panel or the Appellate Body rega rding the peace clause.  And neither the panel nor 
the Appellate Body held that the EC was require d to demonstrate that the United States was not 
entitled to peace clause protection before proceeding to  the substance of the EC’s claims against the 
ETI Act.  In any event, the Unite d States has been unable to establish that the ETI Act is consistent 
                                                     
 
 262 That panel stated:   "It can thus be concluded that panels are not bound  by previous decisions of 
panels or the Appellate Body even if the subject-matter is the same.  In examining dispute WT/DS79 we are not 
legally bound by the conclusions of the Panel in dispute WT/DS50 as modified by the Appellate Body report.  
However, in the course of "normal dispute settleme nt procedures" required under Article 10.4 of the DSU , we 
will take into account the conclusions and reasoning in the Pane l and Appellate Body reports in WT/DS50. 
Moreover, in our examination, we believe that we shoul d give significant weight to both Article 3.2 of the DSU , 
which stresses the role of the WTO dispute settlement system in providing security and predictability to the multilateral trading system, and to the need to avoid inc onsistent rulings (which conc ern has been referred to by 
both parties).  In our view, these considerations form the basis of the requirement of the referral to the "original 
panel" wherever possible under Article 10.4 of the DSU ." (footnote omitted) WT/DS267/R/Add.2 
Page I-76  
 
with Part V of the Agreement on Agriculture.  Therefore, the United States does not enjoy peace 
clause exemption under Article 13(c) of the Agreement on Agriculture.      
121. How do you respond to the reference in pa ragraph 43 of EC third party oral statement 
with respect to the relevance of Article 17.14 of th e DSU, and, in particular, the phrase "a final 
resolution to that dispute" (emphasis added)?  Please explain the use, and relevance (if any) of 
the term "disputes" in Articles 9.3 and 12 and Appendix 3 of the DSU, and please cite any other provisions you consider relevant. USA, BRA  
 
Brazil’s Answer:
 
 
219. Brazil is of the view that DSU Article 17.14 requires that following the adoption of an Appellate Body report, the parties to the dispute,  i.e., the defending and complaining Member, are 
unconditionally bound by the results of that report.   This interpretation is consistent with the 
Appellate Body decisions in US – Shrimps (21.5)
263 and EC – Bed Linen (21.5),264 both confirming 
that panel and Appellate Body reports adopted by the Dispute Settlement Body must be considered 
final resolutions to a dispute between the parties to that dispute.  There is no precedent in the WTO or 
GATT that would require the Panel to find that th e United States alone is bound in this case.  It is 
difficult to imagine, however, how the United Stat es could take a different position in defending 
against Brazil’s ETI claims in this case, in light of the adoption by the DSB of the Appellate Body and panel reports in US – FSC (21.5), and the recomm endation by the DSB that the United States bring 
the ETI Act into conformity with the Agreem ent on Agriculture and the SCM Agreement.   
 220. In this case, Brazil challenges exactly the same measure as that found by the panel and the 
Appellate Body in US – FSC (21.5) to viol ate the Agreement on Agriculture and the SCM 
Agreement.  There have been no changes to the ETI  Act since the adoption of the panel and Appellate 
Body reports by the WTO Dispute Settlement Body.
265  Brazil challenges the ETI Act with exactly the 
same rationale as the EC.  Thus, there is a comp lete identity between the “measure” and the “claims” 
in this case and the US – FSC (21.5) dispute (noti ng that upland cotton is a sub-set of all the products 
covered by the ETI Act).  Under these circumstances,  it is appropriate for the Panel to make similar 
findings of fact, conclusions of law, and recomme ndations as the panel and A ppellate Body in US – 
FSC (21.5).266   
 
221. Brazil does not consider any of the other provisi ons cited by the Panel to be relevant to this 
particular question.  Should the Panel wish Brazil to  elaborate on any of provisions more specifically, 
Brazil will be pleased to do so. 
                                                      
 263 Appellate Body Report, US – Shrimps (21.5) , para. 97. 
 264 Appellate Body Report, EC – Bed Linen (21.5) , para. 90-96. 
 265 The United States has indicated in its First Submission (para. 189) that both branches of Congress 
are considering legislative proposals that would repeal th e ETI Act.  However, Brazil notes that it has been over 
18 months since 29 January 2002, the date on which the panel and Appellate Body reports on the ETI Act were 
adopted by the DSB.  
266 First Oral Statement of Brazil, paras. 138-39.   WT/DS267/R/Add.2 
Page I-77 
 
 
ANNEX I-2 
  
ANSWERS OF THE UNITED STATES  TO THE QUESTIONS FROM  
THE PANEL TO THE PARTIES FO LLOWING THE FIRST SESSION  
OF THE FIRST SUBSTA NTIVE PANEL MEETING 
 
(11 August 2003) 
  UPLAND COTTON  
 
1. Please confirm that all information and data that you have provided to the Panel 
relating to "cotton" in fact relates to upland cotton only.  BRA, USA   
 1. The United States can confirm that, with the exception of export credit guarantees, all of the 
information and data we have provided to-date rela tes to upland cotton only.  With respect to export 
credit guarantees, the Commodity Credit Corporation does not maintain data to distinguish transactions involving different types of cotton (for example, upland cotton versus extra-long staple (ELS) cotton).  However, the United States has no r eason to believe that types of cotton other than 
upland cotton constitute a material percentage of such transactions. 
 
PRELIMINARY ISSUES  
 
Product scope of Panel's terms of reference rel ating to Brazil's export credit guarantee claims  
 
3. If the request for consultations in this di spute omitted certain products in relation to 
export credit guarantees, on what basis is it ar gued that it failed to identify the measures 
at issue in accordance with Article 4.4 of the DSU?  USA  
 
2. The only export credit guarantee measures id entified in the Brazilian consultation request 
were those in respect of upland cotton.  The requ est for consultations did not identify export credit 
guarantee measures for any other agricultural commodities. 
 3. The request for consultations identified the measures subject to consultations in a single 
sentence:
1 
 
The measures that are the subject of th is request are prohibited and actionable 
subsidies provided to US producers, users and/or exporters of upland cotton1, as well 
as legislation, regulations, statutory instruments and amendments thereto providing such subsidies (including export credits), gr ants, and any other assistance to the US 
producers, users and exporters of upland cotton (“US upland cotton industry”). 
 ______________ 
 1 Except with respect to export credit gua rantee programmes as explained below.  
 Another sentence followed this one, setting out (in a page and a half) a listing of measures that were 
included within the identification in the first sentence.  
4. Apart from the footnote, the first two lines of  the sentence quoted in the previous paragraph 
address “subsidies provided to US producers, users and/or exporters of uplan d  cotton”; thus, apart 
                                                     
 
1WT/DS267/1, at 1. WT/DS267/R/Add.2 
Page I-78  
 
from the footnote, it is clear that subsidies pr ovided to US producers of, say, soybeans are not 
included within the scope of the request.  Equally, apart from the footnote, it is clear that subsidies 
provided to, say, banks that finance US cotton expor ts (but do not produce, use or export cotton) are 
not included within the scope of the request.  To give an example from another part of the request, 
Brazil’s consultation request identified “[e]xport subs idies provided to exporters of US upland cotton 
under the FSC Repeal and Extraterritorial Income  Exclusion Act of 2000” as a challenged measure.  
Having identified that measure at issue for pur poses of DSU Article 4.4 as subsidies provided to 
upland cotton exporters under that legislation, Brazil could not then have included in its panel request 
such subsidies provided to exporters of all agricultural commodities or all industrial goods. 
 
5. Brazil, however, contends that “[t]he footnote clarifies that Brazil’s request with respect to 
export credit guarantees is not limited to upland cotton.”
2  Brazil’s contention is incorrect.  The 
footnote does nothing more than direct the reader of the consultation request to look “below” for an explanation.  The footnote by itself does not contain any “identification of [a] measure at issue” as required by DSU Article 4.4, and therefore cannot  itself bring any additional measures within the 
scope of the consultation request.  Any such a dditional measures would have to be found -- if 
anywhere -- in an explanation “below.”  6. However, as described in the first US subm ission, no such explanation or identification of 
additional measures ever appears.  In fact, though Braz il devoted several paragraphs to this issue in its 
oral statement, it has never pointed to any explanation of any kind -- or any other identification of 
additional measures -- “below.” 
 7. In addition, the statement of  evidence attached to Brazil’s consultation request did not include 
any evidence related to measures othe r than those for upland cotton.  For Brazil to now argue that its 
consultation request was broader than its statemen t of evidence is for Brazil to admit that its 
consultation request was in breach of Article 7.2 of  the Subsidies Agreement.  Brazil cannot have it 
both ways.
3 
 8. In summary, while Brazil’s consultation request  did identify measures at issue for purposes of 
DSU Article 4.4, the measures it actually iden tified did not include export credit guarantees for 
agricultural commodities other than cotton.  Thus, the latter measures were not within the scope of 
consultations, were not c onsulted upon, and could not have been included in Brazil’s panel request.   
 
4. Is it argued that the export credit gu arantee programmes concerning upland cotton are 
each a separate or independent measure, in  that they operate independently?  USA  
 9. The CCC export credit guarantee programme (G SM-102), the CCC intermediate export credit 
guarantee programme (GSM-103), and the Suppli er Credit Guarantee Programme (SCGP) each 
constitute separate programmes.  The distinct opera tion of the programmes themselves is manifested 
in both the terms of the particular programmes as well as in the nature of the obligation guaranteed.  
The GSM-102 and GSM-103 programmes guarantee obliga tions of banks.  SCGP extends exclusively 
to obligations of importers.  Obligations guaranteed under the GSM-102 programme may not extend 
beyond three years.  SCGP guarantees a far lowe r percentage of principal (65 per cent). 
 10. Within each programme, allocations are ma de by country, by commodity, and by amount.
4  
Thus, discrete programming decisions are made in  connection with each such country, commodity, 
                                                      
2Brazil’s Opening Oral Statement, para. 90. 
3In light of the Panel’s intended finding on the scop e of Brazil’s consultation request with respect to 
export credit guarantees, the United States will be making  a request for a preliminary ruling on this point. 
4See 7 C.F.R. §§ 1493.4, 1493.5 (setting forth allocati on criteria).  These criteria also apply to SCGP.  
7 C.F.R. § 1493.400. WT/DS267/R/Add.2 
Page I-79 
 
 
programme, and amounts (in terms of a guarantee value).5  As a result, for the last 10 fiscal years, for 
example, as described in the First Written Submi ssion of the United States, no cotton transactions 
occurred under the GSM-103 programme.  11. Furthermore, each export credit guarantee issu ed is a separate measure.  Under DSU Article 
4.4, it is incumbent upon Brazil to identify in its consultation request “the measures at issue.”  Here, 
Brazil identified the measure as “export credit guara ntees . . . to facilitate the export of US upland 
cotton,” and the United States may, and did, rely on  that consultation request (including the attached 
statement of evidence) for notice.  5. Is there a specification in any legislation or regulation (or any other official government 
document) which limit or restrict the export credit guarantee programmes at issue exclusively to upland cotton?  USA  
 
12. Programme announcements issued pursuant to applicable programme regulations (7 C.F.R. 
§§ 1493.10(d), 1493.400( d)) serve to limit the availability of CCC export credit guarantees.  These 
limitations are expressed in terms of one or more  of the following criteria:  commodities, total 
guarantee value for individual commodities, destinati on, and time within which export must occur.  
Examples of such programme announcements are included as Exhibit US-12.  Thus, export credit guarantee offerings through programme announcements  may be limited to cotton, pursuant to the 
authority of programme regulations. 
 
6. For the purposes of the Panel's examinatio n of Brazil's claims relating to GSM-102, 
GSM-103 and SCGP under the Agreement on Agriculture and the SCM Agreement, is 
accurate data and information available with respect to these export credit guarantee 
programmes concerning upland cotton alone (e.g . with respect to "long-term operating 
costs and losses")?  In this respect, the Pane l also directs the parties' attention to the 
specific questions below relating to the programmes.   USA    
 
13. The United States endeavoured to provide precisel y such data with respect to cotton alone in 
paragraph 173, and associated tables,  in its First Written Submission. 
 7. Are commitments with respect to export  subsidies under the Agreement on Agriculture 
commodity-specific?  How, if at all, is this relevant? BRA, USA  
 
14. Export subsidy commitments under the Agri culture Agreement are, indeed, commodity 
specific.  Each Member may have a schedule of reduction commitments with respect to specified 
commodities.  To illustrate, the export subsidy re duction commitment schedule of the United States is 
attached as Exhibit US-13.  As reflected in that schedule, for each of the 12 scheduled commodities, 
the United States has a reduction commitment with respect to both budget outlays and subsidized 
quantities.  Other Members have similar schedul es involving different commodities and reduction 
commitments.  In all cases, however, the budgeta ry and quantitative commitments are unique to each 
commodity on each Member’s respective schedule of export subsidy reduction commitments. 
 
15. An individual Member, therefore, could appl y an export subsidy programme with respect to 
all commodities for which it has undertaken reduction commitments.  By operation of such an export 
subsidy programme, however, a Member may be in conformity with none, some, or all of its 
commodity-specific reduction commitments.  So long  as a Member applies such export programme in 
a given year in accordance with the commodity-s pecific reduction commitment for each year, such 
export subsidy programme is permitted with respect  to each commodity and conforms fully with 
respect to Part V of the Agreement on Agriculture.  The fact that commitments are taken on a product-
                                                     
 
5See Exhibit US-12. WT/DS267/R/Add.2 
Page I-80  
 
specific basis confirms that alleged export subs idy measures can be defi ned on a product-specific 
basis – and that is exactly what Brazil did here.    16. In contrast, for those specific commodities fo r which such Member does not have a reduction 
commitment, then such Member may not provide e xport subsidies at all in connection with such 
specific commodities.  As a result, the same pr ogramme that, as applied, may be entirely in 
conformity with that Member’s reduction commitme nt vis-à-vis one commodity may be a prohibited 
subsidy with respect to another commodity.  
8. Does the United States confirm that the qu estions referred to by Brazil in paragraph 92 
of Brazil's oral statement were posed to the United States in the consultations? USA  
 
17. Yes.  When Brazil posed them during the consultations, the United States immediately 
objected to questions about commodities other th an cotton as being outside the scope of the 
consultations (as paragraph 94 of Br azil's oral statement acknowledges).  
 
9. How does the United States respond to pa ragraph 94 of Brazil's oral statement? USA  
 
18. It is incumbent on the complaining party to identify the specific measure at issue, and it 
should not fall to the responding party to intuit that measures not specified in the request for consultations are considered included by the complain ing party.  This deprives the responding party of 
an opportunity to understand the measures that are at  issue and to enjoy the benefit of appropriate 
consultations.  In the final analysis, Brazil essen tially argues that its consultation questions and 
statement at consultations could expand the scope of the measures at issue as identified in its consultation request beyond “export credit guarantees . . . to facilitate the export of US upland 
cotton.”  This is not the case.  (For further inform ation, please refer to the US answer to Question 3.) 
 
10. What actual prejudice, if any,  has the United States suffered as a result of the alleged 
omission of products other than upland cotto n from the request for consultations?  USA  
 
19. The issue of prejudice is not relevant to th e question of whether a measure not consulted upon 
may be the subject of panel proceedings.  The requi rement of consultations at the beginning of a 
dispute is a central characteristic of the dispute settlement system, and is reflected throughout DSU 
Article 4.  Consultations serve a number of im portant functions, including helping the parties to 
understand each others’ concerns and aiding in effort s to resolve the dispute.  The DSU affirms the 
importance of consultations and requires  that a Member cannot proceed to a panel unless the Member 
has consulted on that measure.   
 
20. Article 4.4 delimits the scope of the cons ultations through its requirement that the 
complaining Member identify the measures at issue.  In light of the jurisdictional nature of the consultation requirement, Article 4. 4’s explicit requirement that the measures be identified serves the 
useful role of establishing a bright line as to the matters which are within the scope of the 
consultations and the dispute.  Any resort to an an alysis of what topics were actually discussed at the 
consultations – beyond conflicting with the DSU Arti cle 4.6 requirement that consultations “shall be 
confidential,” designed to facilitate the resolution of the dispute – would invite litigation over the 
unverifiable recollections of each party.    21. The United States notes that in past disputes in which the scope of the dispute was at issue, it 
was accepted as a given that the consultation request  defined the scope of the consultations.  For 
example, in the  US – Import Measures  dispute, the European Communities did not assert that US 
actions taken on 19 April 1999 were  the subject of consultations ev en though consultations took place 
two days later, on 21 April 1999.  Instead, accep ting that its 4 March 1999, consultation request 
delimited the scope of the consu ltations, and could not have covere d measures taken after that time, WT/DS267/R/Add.2 
Page I-81 
 
 
the EC argued (unsuccessfully) that the April 19 actions  were the same measure as that identified in 
the 4 March consultation request.6   
 22. Brazil’s consultation request identified e xport credit guarantees on upland cotton as the sole 
export credit guarantee measures within the scope of the consultations and, hence, the dispute.  Had it 
wished to include export credit guarantees with resp ect to other products within the scope of the 
consultations, Brazil could have re -filed its consultation request to include these guarantees, much as 
other Members have re-filed consu ltation requests when they have wished to expand the scope of the 
dispute.
7  Brazil chose not to, instead apparently hoping to be relieved of the procedural requirements 
of the DSU, requirements enforced with resp ect to, and taken seriously by, other Members.8 
 
23. While prejudice is not relevant to whether th e scope of this dispute includes export credit 
guarantees for products other than upland cotton, the United States observes that, not only has it 
suffered prejudice as a result of Brazil’s omission of  allegations concerning products other than 
upland cotton, but more importantly, the United States will suffer even further prejudice if it is 
compelled to respond to allegations that Brazil never properly included in its request for consultations.  
The United States has suffered an in ability to prepare, respond, and consult with respect to allegations 
on measures never presented to the United States in  accordance with the DSU.   The United States was 
entitled to rely on the measures identified by Brazil in its request for consultations and also rely on 
that which Brazil declined to put at issue by its fa ilure to so state in its request.  This justifiable 
reliance is furthered by Brazil’s fa ilure to amend its request for cons ultations after ample notice from 
the United States of its reasonable understanding of Brazil’s request.   
 24. Consequently, the US has not had proper opportunity to consult with respect to the application of the three separate export credit guara ntee programmes and their specific application to 
the myriad of commodities exported in connection with these programmes nor with respect to the 
conformity of the WTO obligations of the United St ates with the application of such programmes to 
such commodities.  If export credit guarantees with respect to other eligible commodities were now 
included in this dispute, the United States will suffe r the prejudice of having to prepare and defend its 
actions in a severely compressed time frame without  the benefit of any consultations whatsoever.  
 
11. Does the United States agree that Brazil's request for establishment of the Panel can be 
understood to indicate that Brazil's export cred it guarantee claims relates to products 
other than upland cotton?  How, if at all, is this relevant?  USA  
 
25. Brazil’s panel request change d the language relating to expor t credit guarantees to include the 
words “other eligible agricultura l commodities.”  However, Brazil may not unilaterally alter the scope 
of the “measures at issue” in its panel request si mply by adding measures not previously identified.  
Thus, while Brazil would have been free to add additional claims  in its panel request, it was not free 
to broaden the scope of the challenged measures . 
 26. Indeed, Brazil and at least one third party have argued that in two SPS disputes between the 
United States and Japan panels found that a complain ing party may introduce new claims in its panel 
                                                     
 
6 Appellate Body report, United States - Import Measures on Certain Products of the European 
Communities,  WT/DS165/AB/R, adopted 10 January 2001, para.70. 
7 See, e.g. , WT/DS204/1& WT/DS204/1/Add.1 (consultation request supplemented to add measures); 
WT/DS174/1 & WT/DS174/1/Add.1 (consultation request  to add consultations under additional covered 
agreement). 
8 The United States refers the Panel to the preliminary ruling of the panel in the Canada Wheat Board 
dispute, WT/DS276/12, which necessitated the refiling of the US panel request and establishment of a second 
panel.  Likewise, the United States refers the panel to India’s refiling of its panel request in the US Rules of 
Origin  dispute (WT/DS243/5/Rev.1) when made aware of de ficiencies in that request at the DSB meeting at 
which the request was considered.  See also  WT/DS210/2 & WT/DS210/2/Rev.1. WT/DS267/R/Add.2 
Page I-82  
 
request that were not included in its consultation re quest.  In both of these cases, Japan argued that the 
United States could not introduce new claims (cite to new legal provisions) not in its consultation 
request.  The United States argued, and both panels  agreed, that every legal claim need not be 
included in the consultation request.  However, these disputes are not relevant here because they did 
not involve identifying a new measure  in the panel request.  As noted in the 3d party oral statement of 
Benin, “claims” and “measures” are distinct concep ts; indeed, the distinction between “claims” and 
“measures” is fundamental.
9  
 
12. Please address issues and submit eviden ce regarding the three export credit guarantee 
programmes concerned relating to upland cotton and other eligible agricultural 
commodities in your answers to questions and rebuttal submissions.  BRA, USA  
 
27. In light of the Panel's preliminary ruling and without prejudice to the US position that these 
measures are not within the scope of this dispute,  the United States will respond to Brazil's arguments 
in the US submissions. 
 
13. Please include any argumentation and evidence to support your statement during the 
Panel meeting that the inclusion of such other eligible agricultural commodities would create additional "work" for the Panel wi th respect to each of these commodities under 
Article 13 of the Agreement on Agriculture.   USA  
 28. Article 10.2 defers disciplines on, inter alia , export credit guarantees until such time as 
internationally agreed disciplines are reached – as Members hope to do in the Doha Development 
Round.  Therefore, export credit guarantees are not export subsidies within the meaning of the Agriculture Agreement, and Article 13(c) does not apply.  However, for purposes of argument, we 
note that Article 13(c)(ii) of the Ag reement on Agriculture provides that:  
 
(c)  export subsidies that conform fully to th e provisions of Part V of this Agreement, 
as reflected in each Member’s schedule, shall be: 
* * * * * 
 
(ii)  exempt from actions based on Articl e XVI of GATT 1994 or Articles 3, 5, and 6 
of the Subsidies Agreement. 
Pursuant to Article 13(c)(ii), to the extent a Member is providing export subsidies in conformity with 
its reduction commitments under Part V of the Ag reement on Agriculture, such export subsidies are 
exempt from action under Article XVI of the GATT and Articles 3, 5, and 6 of the SCM Agreement.   
 
29. Article 13(c) is not relevant with respect to export subsidies granted in connection with 
commodities not subject to reduction commitments in  the applicable schedule of the Member.  For 
example, the United States does not have a reducti on commitment with respect to upland cotton.  
Therefore, the United States may not provide any export subsidy for upland cotton.  The Peace Clause 
protection of Article 13(c) therefore cannot apply to any theoretical export subsidy of the United 
States for upland cotton. 
 
30. In contrast, however, the United States has reduction commitments for 12 commodities.  (Please refer to the response of the United States to Question 7 for a description of how the export 
subsidy reduction commitments – and therefore expor t subsidy obligations – of the United States and 
all other members are, therefore, commodity speci fic.)  Because such commitments are commodity 
specific, the extent to which Article 13(c)(ii) ma y apply to export subsidy measures of the United 
                                                     
 
9See, e.g. , Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding Portland 
Cement from Mexico , WT/DS60/AB/R, adopted 25 November 1998, para. 72. WT/DS267/R/Add.2 
Page I-83 
 
 
States is also commodity specific.  Conformity w ith WTO obligations and the application of Article 
13(c)(ii) to export credit guarantees with respect to  those twelve commodities could only be evaluated 
by an examination of each  commodity subject to reduction commitments. 
 
Expired measures  
 
14. Please submit evidence regarding th e programmes under the 1996 FAIR Act, in 
particular, production flexibility contract  payments and market loss assistance 
payments, to the extent that they would be  relevant to the Panel's determination under 
Article 13 of the Agreement on Agriculture in your answers to questions and rebuttal 
submission.  USA  
 
31. The United States will present evidence a nd arguments regarding payments under the 1996 
Act as may be relevant to the Panel’s Peace Clau se analysis with respect to those measures. 
 15. Do the parties agree that it is beyond a Panel's power to recommend a remedy for an 
expired measure?  Could the Panel could be required to examine "expired measures" in 
order to conduct its assessment of the matter before it?  How, if at all, is Article 7.8 of the SCM Agreement relevant to these matters?  BRA, USA  
 
32. The United States agrees that it is beyond a pa nel’s power to recommend that a Member bring 
into conformity a measure that no longer exists.
10  However, more fundamentally, the issue is whether 
the expired measures in this dispute could have b een measures affecting the operation of any covered 
agreement within the meaning of DSU Article 4.2 or  “measures at issue” within the meaning of DSU 
Article 6.2.  Because the production flexibility contr act payments and market loss assistance payments 
were completed, the programmes terminated, and th e statutory instruments providing them superseded 
before Brazil’s consultation and/or panel requests we re filed, they could not have been “measures at 
issue,” and they could not properly have been cons ulted upon or brought within the terms of reference 
of the Panel.  This is a broader concern than  whether the Panel may recommend a remedy since 
findings cannot be made with respect to such expired measures.  33. To determine whether past subsidies may current ly be challenged, it is useful to distinguish 
between recurring and non-recurring subsidies.  A n on-recurring subsidy is a measure that continues 
in existence for the duration of the a llocation of the subsidy to production.
11  For example, a subsidy 
to acquire capital stock to be used in future production would be non-recurring and allocated over the 
useful life of the stock.  Where a subsidy is non-recurring and is allocated to future production12, the 
measure (subsidy) may continue to be actionable even  if the authorizing programme or legislation has 
expired.  For example, in the Indonesia – Autos  dispute, where a non-recurring subsidy was provided, 
the panel deemed the measure to continue even though the subsidy programme had allegedly been 
terminated (and it is worth noting that the termin ation allegedly occurred well after the panel and 
consultation requests– in fact, af ter the second panel meeting).   
 34. In contrast, a recurring subsidy is typically prov ided year-after-year and is made in respect of 
current rather than future production.  Once produc tion has occurred and the me asure been replaced or 
                                                     
 
10Appellate Body Report, United States – Import Measures on Certain Products from the European 
Communities , WT/DS165/AB/R, adopted 10 January 2001, para. 81. 
11See, e.g. , Report by the Informal Group of Experts to the Committee on Subsidies and Countervailing 
Measures, G/SCM/W/415, para. 12 (25 July 1997) (“Whether a subsidy is oriented towards production in future 
periods, consists of equity, or is carried forward in th e recipient’s accounts were viewed as related to the 
question whether its benefits persist beyond a single period, and hence whether it should be allocated to future 
periods.”). 
12Subsidies Agreement, Annex IV, para. 7 (referring to “[s]ubsidies . . . the benefits of which are 
allocated to future production). WT/DS267/R/Add.2 
Page I-84  
 
superseded, there would no longer be any measure in  existence to challenge.  Accordingly, a Report 
by the Informal Group of Experts to the Co mmittee on Subsidies and Countervailing Measures 
suggested that recurring subsidies – such as grants  for purposes other than the purchase of fixed assets 
and price support payments – should be expensed, or attributed to a single year, rather than allocated 
over some multi-year period.
13 
 
35. In the case of production flexibility contract payments and market loss assistance payments, 
these measures were subsidies allocated to a part icular crop or fiscal year by the respective 
authorizing legislation.  Pursuant to the 1996 Act,  the last production flexibility contract payment was 
made for fiscal year 2002 (1 October 2001 – 30  September 2002) “not la ter than” 30 September 
2002.14  Pursuant to legislation enacted on 13 A ugust 2001, the last market loss assistance payment 
was for the 2001 marketing year (1 August 2001 – 31 July 2002), that is, for market conditions 
prevailing in that year.15  Once the relevant fiscal year and marketing year, respectively, had been 
completed, these measures would no longer exist.  T hus, by the time of Braz il’s consultation and/or 
panel requests, there were no measures to consult upon nor to be at issue under the DSU; production 
flexibility contracts and market loss assistance paymen ts therefore do not fall within the Panel’s terms 
of reference.   
Agricultural Assistance Act of 2003  
 
16. What, if any, prejudice in terms of the presentation of its case does the United States 
allege, should the Panel proceed to consid er the measures constituting the cottonseed 
payments under the Agricultural Assistance Act of 2003? USA   
 
36. It has been a fundamental characteris tic of both the GATT 1947 and the WTO dispute 
settlement systems that proposed measures may not be  the subject of dispute settlement.  This has 
meant that dispute settlement proceedings, including  consultations, could not begin until the measure 
at issue actually came into existe nce.  In seeking to bring into the scope of this dispute the 
Agricultural Assistance Act of 2003, Brazil is seeki ng to fundamentally expand and change the nature 
of WTO dispute settlement.  This issue goes we ll beyond the question of whether a particular 
responding party is prejudiced in a particular dis pute and cannot be resolved on the basis of whether 
such prejudice has occurred.  The reasons that th e United States would be prejudiced if the Panel 
considered any measure under the Agricultural Assistance Act of 2003, including a cottonseed 
payment under that Act, are the reasons that the di spute settlement system has been organized to only 
allow proceedings on actual, not proposed, measures.  First, the responding party would have lost the 
benefit of consultations on these measures.  Cons ultations serve a number of important functions, 
including helping the parties to understand each others ’ concerns and aiding in efforts to resolve the 
dispute.  The DSU affirms the importance of consultations and requires  that a Member cannot 
proceed to a panel unless the Member has consulted on that measure.  Likewise, the DSU requires that 
the “measures at issue” be identified in the panel request, and non-existent measures quite simply are 
not measures at all.   37. Apart from reflecting the importance Members have placed on consultations, the DSU’s 
requirement that a measure exist before it can be the subject of dispute settlement proceedings avoids 
a waste of resources since anticipated measures may ne ver come into effect, or may, when enacted, be 
in substantially changed form.  Further, allowing challenges to measures not yet in existence would 
                                                     
 
13G/SCM/W/415, paras. 1-12; id., Recommendation 1, at 26-27. 
14Federal Agriculture Improvement and Reform Act of 1996, § 112(d)(1), Public Law No. 104-127 
(4 April 1996); 7 US Code § 7212(d)(1). 
15Public Law No. 107-25, § 1(a) (23 Aug. 2001) (“The Secretary of Agriculture . . . shall, to the 
maximum extent practicable, use $4,622,240,000 of fu nds of the Commodity Credit Corporation to make a 
market loss assistance payment to owners and producers on a farm that are eligible for a final payment for fiscal 
year 2001 under a production flexibility contract for the farm under the Agriculture Market Transition Act.”). WT/DS267/R/Add.2 
Page I-85 
 
 
effectively authorize panels to issue advisory opini ons.  Should Members desire to expand the scope 
of the dispute settlement system in this manner, they may do so – indeed could only do so – through 
amendment of the DSU.  The DSU now requires the existence of a measure before consultations may 
be requested or a panel established.   
38. Finally, were the issue of the specific prejudice to the United States relevant in deciding 
whether a panel’s terms of reference could incl ude a measure not in existence at the time of 
consultations or the panel request, the United States notes that this dispute is already complex, with 
multiple measures at issue involving multiple claims.  To require the United States to address Brazil’s 
allegations on the Agricultural Assistance Act of  2003 would detract from the time and resources 
available to respond to questions and make arguments relating to those measures that are properly 
within the terms of reference.  
17. (a) What is the relationship of the Ag ricultural Assistance Act of 2003 to other 
legislation in the request for establishment of the Panel?  BRA, USA   
 
  (b) Do the legal instruments follow directly one after another, or are there temporal 
gaps?  Are payments authorized under a broad legislative authority or are they specific to each legal instrument?  BRA, USA 
 
 (c) Please provide any implementing regulations.  Do these implementing 
regulations resemble those relating to previous programmes or payments?  Are payments made retrospectively?  How if at all is this relevant? BRA, USA  
 
39. (a)  The Agricultural Assistance Act of 2003
16 was part of a large piece of legislation covering 
a diverse range of topics.  The Act had several disaster provisions including some relief for sugar 
interests and more generalized relie f for persons who lost other crops.  One of the provisions provided 
for a cottonseed payment to be applied to the 2002  cotton crop (the crop that was harvested in that 
calendar year):  
Sec. 206. COTTONSEED. The Secretary shall use $50,000,000 of funds of the 
Commodity Credit Corporation to provide assistance to producers and first-handlers 
of the 2002 crop of cottonseed.  
No law compelled or authorized the cottonseed  payment for the 2002 crop except for the 2003 Act, 
which bears no relation to other legislation cited by Brazil.  
40. There was no cottonseed payment authorized  in either 2002 or 2001 for the 2001 crop.  
Cottonseed payments were made for the 1999 and 2000 crops.  Of the three pieces of legislation 
authorizing cottonseed payments for the 1999 and 2 000 crops, only one arguably may be found in 
Brazil’s consultation and panel requests.  Braz il identifies the “Crop Year 2001 Agricultural 
Economic Assistance Act (August 2001)” as a chal lenged measure.  The Emergency Agricultural 
Assistance Act, Public Law No. 107-25 (13 Augus t 2001), authorized a cottonseed payment of $85 
million.  In addition, Section 2 04(e) of Public Law No. 106-224, enacted 20 June 2000, directed the 
Secretary to use $100 million of Commodity Credit Co rporation (CCC) funds to provide assistance to 
producers and first handlers of the 2000 crop of co ttonseed.  Finally, the co ttonseed payment for the 
1999 crop was authorized by section 104(a) of Public Law No. 106-113, enacted 19 Nov. 1999; $79 million in residual funds were used for the 1999 crop programme.  
 
41. (b)  The temporal gaps between the various cottonseed payments are indicated in the answer 
to (a), above.  That is, no cottonseed payments were made in 2001 or 2002 for the 2001 crop (nor 
                                                     
 
16Public Law No. 108-7 (Feb. 23, 2003). WT/DS267/R/Add.2 
Page I-86  
 
prior to 1999).  This gap serves to emphasize that these payments are ad hoc , and there was no 
legislative guarantee that there would be a payment for any of the years involved until the payment was actually authorized.  Thus, what Brazil h as termed the “cottonseed programme” is readily 
distinguished from those programmes under the 2002 Act that recur for ea ch crop harvested from 
2002 through 2007.
17  In contrast, the legal authority fo r each cottonseed payment was separate and 
distinct; no underlying piece of legislation mandated that cottonseed payments be made. 
 42. (c)  We note that each time a cottonseed paymen t is authorized, new rules must be issued to 
disburse the funds because there is no ongoing cott onseed “programme”; thus , when new rules are 
issued, the old rules are either removed at the same  time or had been removed previously.  That is, 
there is no publication that included rules for all three programmes. 
 43. The cottonseed payment under the 2003 Agricultu ral Assistance Act is not related to the other 
cottonseed payments except  by subject matter.  As  indicated at the panel hearing, the text in the 
Agricultural Assistance Act (quoted above) is broad and simple, leaving much to the Department of 
Agriculture.  Because of the discretion vested in  the Secretary to disburse the 2002 crop cottonseed 
payment, and for reasons of administrative c onvenience, the 2003 regulations borrow from the 
regulations that implemented the cottonseed paymen ts for the 2000 crop and for the 1999 crop.  On 25 
April 2003, the Department published regulations at  68 Federal Register 20331 to disburse funds in 
respect of the 2002 crop.
18  The regulations to disburse th e 2000 crop cottonseed payment were 
published at  65 Federal Regi ster 65718 (2 November 2000).19  The regulations to disburse the 1999 
crop cottonseed payment were published on 8 June 2000 at 65 Federal Register 36550.20 
 
ARTICLE 13(B): DOMESTIC SUPPORT MEASURES  
 
"exempt from actions"     
 
20. In paragraph 8 of its initial brief (dated 5 June, 2003), the United States argued that the 
word "actions" as used in the phrase "exempt from actions" in Article 13 of the Agreement on Agriculture includes the "bring ing of a case" and consultations.  In 
paragraph 36 of its first written submission (dated 11 July, 2003), the United States stated as follows: 
 
 "[P]rior to this point in the process, the DSU rules did not afford the United States any 
opportunity to prevent the dispute from proceeding through consultations and panel 
establishment automatically, regardless of the US insistence that its measures conform to the Peace Clause." 
 
 Is it the United States' understanding that  the drafters used the phrase "exempt from 
actions" knowing that under the DSU it would not be possible fully to exempt "actions", 
as the United States interprets that term? USA  
 
44. There is a difference between a commitment to exempt from action and the mechanism to 
enforce that commitment, just as there is a diffe rence between rights and obligations under the WTO 
and the mechanism to enforce those rights and obligations.  For example, where one Member 
                                                     
 
17Farm Bills are initiated by Agricultural Committees of  the US Congress and re cur every 5 or 6 years. 
Programmes provided for in a Farm Bill are generally not tied to finite amounts of money but rather make use of 
the funds of the  Commodity Credit Corporation (CCC), which has borrowing authority in the US Treasury.  See 
15 US Code § 713 a-11 et seq.   As a result, no appropriation is needed.  By contrast, cottonseed payments 
(similar to other disaster payments) are ad hoc  with targeted monies. 
18Exhibit US-14. 
19Exhibit US-15. 
20Exhibit US-16. WT/DS267/R/Add.2 
Page I-87 
 
 
breaches a tariff binding, another Member will need to resort to dispute settleme nt in order to resolve 
the issue.  This does not mean that it is not possibl e to fully obligate the Member to observe its tariff 
bindings.  The similar situation arises with respect to procedural obligations as well.    45. When responding Members have been confronted by situations in which they considered that 
complaining parties did not meet requirements for invoking dispute settlement procedures, those 
responding Members can voice their objections at cons ultations and the DSB meetings at which panel 
establishment has been considered, but then must accept that the i ssue will ultimately be decided by 
the panel.  For example, notwithstanding that th e DSU requires consultations on a measure before a 
panel may be established, there is no mechanism available to address a complaining party’s failure to 
consult absent resolution by a panel. 
 46. Responding Members have allowed jurisdictional issues to go to the panel for resolution as a practical way forward that offers sufficient protec tion for their interests while also protecting the 
integrity of the dispute settlement system.  This does not mean that responding Members in any way 
lost their rights, for example, to consult on the measures at issue before being subject to panel 
proceedings; it has simply been practical to allow the issue to be decided by panels. 
 47. Likewise, in this dispute, the fact that Brazil has attempted improperly to invoke dispute 
settlement procedures notwithstanding the Peace Cl ause – and the fact that the United States has 
accepted that the issue should be resolved by the Pa nel – does not and cannot diminish the right of the 
United States to be exempt from Brazil’s action.  The fact that Members may disregard their 
obligations, or act based on a misunderstanding of the facts or obligations, does not affect those 
obligations.  In this case, Brazil considers that th e Peace Clause is inapplicable.  As our argumentation 
to date indicates, we disagree and consider that, b ased on a correct reading of the law and facts, the 
Peace Clause is applicable, and Brazil was obliged not to bring this dispute.  Upon making a finding 
on this issue in our favour, the Panel would eff ectively be concluding that Brazil’s invocation of 
dispute settlement was improper – even if undertaken in good faith – just as panels have in the past 
concluded that complaining parties have improperl y included measures that were not consulted upon 
in their panel requests or claims that were not within the panel’s terms of reference in their 
argumentation.   21. In US - FSC and US - FSC (21.5) the Appellate Body made findings under the SCM 
Agreement relating to export subsidies in respect of agricultural products without making a finding in respect of Article 13 of the Agreement on Agriculture.  How is this 
relevant to the United States' interpretation of the phrase "exempt from actions" as used in Article 13? USA  
 
48. The FSC findings are not relevant since they do not address the Peace Clause issue.  The issue was not raised by either party, and so neither the panel nor the Appellate Body made any finding with 
respect to Article 13, nor did they offer any reasoni ng on this issue.  Indeed, in the absence of any 
party raising or arguing this issue, it would be di fficult to see how the panel or Appellate Body could 
have made any findings concer ning Article 13.  Those DSB recommendations and rulings thus 
provide no guidance for purposes of this dispute.  
 
"such measures" and Annex 2 of the Agreement on Agriculture  
 
22. Please explain the difference, if any, between the meaning of "defined" and the meaning 
of "fixed" in the phrase "a defined and fixed base period" in paragraph 6(a) of Annex 2 
of the Agreement on Agriculture. BRA, USA  
 
49. These terms should be interpreted according to th e customary rules of interpretation of public 
international law.  The ordinary meaning of “d efined” is “clearly marked, definite” and “set out WT/DS267/R/Add.2 
Page I-88  
 
precisely.”
21  “Fixed” means “stationary or unchanging in relative position.”22  Thus, as used in 
paragraph 6(a), a “defined and fixed base period” means a base period that is “set out precisely” and 
“stationary or unchanging in relative position.”  Th at is, the “definite” base period must not be 
“changing in relative position”; for example, th e “base period” for purposes of determining “base 
acres” for the deficiency payments under the 1990 Ac t was a farm’s average acreage over the three 
most recent years23, and so, was not a “fixed” base period but a moving one.  On the other hand, US 
direct payments satisfy this criterion because eligib ility is determined by historical production of any 
of a number of crops (including up land cotton) in a base period that is “definite” (set out in the 2002 
Act) and “stationary or unchanging in a relative pos ition” (does not change in  relative position for the 
duration of the 2002 Act). 
 
23. Please explain the meaning of "a" in "a defined and fixed base period" in paragraph 
6(a) of Annex 2 of the Agreement on Agriculture, the meaning of "the" in "the base period" in paragraphs 6(b), (c) and (d), and the difference between these and the phrase "based on the years 1986-88" in Annex 3.  BRA, USA  
 
50. Paragraph 6(a) establishes that eligibilit y for payments under a decoupled income support 
measure shall be determined by clearly-defined criteria in “ a defined and fixed base period.”  That is, 
paragraph 6(a) does not mandate that any particul ar base period be used for a decoupled income 
support measure and does not mandate that the same base period be used for all decoupled income 
support measures.  This contrasts with the use of the phrase “ the base period” in paragraph 9 of Annex 
3, which is defined in that same paragraph as “the years 1986 to 1988.”
24  
 51. Paragraphs 6(b), (c), and (d) use the term “ the base period.”  As these subparagraphs all 
follow paragraph 6(a), in which eligibility is set  in “a” defined and fixed base period, the later 
references to “the base period” should be read to  refer to the base period used for eligibility under 
paragraph 6(a).  Again, because paragraph 6(a) do es not mandate that any particular base period be 
used (as opposed to paragraph 9 of Annex 3), “the base period” for paragraphs 6(b), (c), and (d) will 
be the “defined and fixed base period” used for purposes of eligibility under the decoupled income 
support measure.  The definite article “the” is commonly used to refer back to a member of a 
indefinite set identified by the indefinite article “a.”  For example, it would be common grammatically 
to say:  “A Member may take action if the Member makes the appropriate notification to the WTO.” 
 
24. How often can a Member define and fix a base period in accordance with paragraph 6 
of Annex 2 of the Agreement on Agriculture? BRA, USA  
 
52. Paragraph 6 establishes policy-specific criteria applying to a decoupled income support 
measure.  Under paragraph 6(a), eligibility for paym ents under such a measure shall be determined by 
criteria “in a defined and fixed base period.”  Other policy-specific criteria under paragraph 6 
establish that the amount of payments under a deco upled income support measure shall not be related 
to or based on the type or volume of production, the prices, or the factors of production employed in any year after the base period used for purposes of  determining eligibility under paragraph 6(a).  
                                                     
 
21The New Shorter Oxford English Dictionary , vol. 1, at 618 (1993 ed.). 
22The New Shorter Oxford English Dictionary , vol. 1, at 962 (1993 ed.). 
23See US First Written Submission, para. 101 n. 92. 
24Agriculture Agreement, Annex 3, paragra ph 9 (“The fixed external reference price shall be based on 
the years 1986 to 1988  and shall generally be the average f.o.b. unit value for the basic agricultural product 
concerned in a net exporting country  and the average c.i.f. unit value for the basic agricultural product 
concerned in a net importing country in the base period .”) (emphasis added).  See also id. , Annex 3, paragraph 5 
(“The AMS calculated as outlined below for the base period shall constitute the base level for the 
implementation of the reduction commitment on domestic support.”) (emphasis added).  Appellate Body Report, Korea - Measures Affecting Imports of Fresh, Chilled and Frozen Beef , WT/DS161/AB/R - WT/DS169/AB/R, 
adopted 10 January 2001, paras. 115-16. WT/DS267/R/Add.2 
Page I-89 
 
 
Thus, with respect to a decoupled income support me asure, the base period used must be “defined and 
fixed.”    53. There is no requirement in paragraph 6 that a particular  base period be used for a decoupled 
income support measure nor that the same  base period be used for purposes of every decoupled 
income support measure.  Thus, so long as the base period for a particular measure is “defined and 
fixed,” this element of the policy-specific criteria in paragraph 6 will be met.    54. For purposes of this dispute, the base peri od for US direct payments under the 2002 Act is 
defined by the 2002 Act and fixed for the duration of the 2002 Act – that is, for marketing years 2002-
2007.  Thus, one “defined and fixed base period” applies for payments under the US direct payment 
programme for the six-year period to which the 2002 Act applies.  
25. Does the United States consider that there is any ambiguity in the term "type of 
production" as used in paragraph 6(b) of Annex 2 of the Agreement on Agriculture? 
USA  
 
55. When read according to the customary rules of  interpretation of public international law, the 
United States does not consider that the meaning of the term “type . . . of production” as used in paragraph 6(b) is ambiguous or ob scure.  This paragraph establishes that the amount of decoupled 
income support payments may not be “based on, or linked to, the type or volume of production . . . 
undertaken in any year after the base period.”  In terpreted according to the ordinary meaning of the 
terms, in context, and in light of the object and purpose of the Agriculture Agreement, this provision 
means that a decoupled income support measur e may not base or link payments to production 
requirements, whether by type or volume.   26. Can the United States  confirm Brazil's assert ions in paragraph 174 of its first written 
submission that the implementing regulations for direct payments prohibit or limit payments if 
base acreage is used for the production of certain crops?  If so, can the United States clarify the 
statement in paragraph 56 of its first written submission that direct payments are made regardless of what is currently produced on th ose acres?  Can the United States confirm the 
same point in relation to production flexibility contracts?  USA  
 
56. The 2002 Act allows any commodity or crop to  be planted on base acres on a farm for which 
direct payments are made with limitations regarding certain commodities.  Those commodities are 
fruits, vegetables (other than len tils, mung beans, and dry peas), and wild rice.  Planting of those 
commodities on base acres is prohibited, except: (1) in a region with a history of double-cropping 
those commodities with those crops the historical production of which makes acres eligible for direct 
payments, double-cropping is permitted; (2) on a farm  with a history of planting those commodities, 
planting is permitted, and direct pa yments would be reduced for every acre so planted; and (3) for a 
producer with a history of planting those commodities, planting is permitted, and direct payments would be reduced for every acre so planted.
25   
 
57. To be more precise, the third sentence of para graph 56 of the US first submission should have 
used the phrase “whether upland cotton” in place of “what.”  As the United States has previously 
indicated,26 direct payments are not “related to, or based  on, the type or volume” of current production 
                                                      
25Farm Security and Rural Investment Act of 2002, § 1106 (“2002 Act”) (Ex. US-1). 
26US First Submission, para. 22 (“These [direct] paymen ts are made with respect to farm acreage that 
was devoted to agricultural production in the past; the payments, however, are made regardless of whether 
upland cotton is currently produced on those acres or whether anything is produced at all.”); id., para. 24 (“As 
stated, no current production of upla nd cotton (or any other crop) is required to receive payment – or, put 
another way, the payment is the same regardless of how much, or any, upland cotton is produced.”); id., para. 67 
(“Not only is there no requirement that a direct payment recipient engage in any particular type or volume of WT/DS267/R/Add.2 
Page I-90  
 
because there is no requirement  that a recipient produce upland cotton or any other crop in order to 
receive these payments.  Direct payments are made with respect to farm acreage that was devoted to 
agricultural production in the past.  In its rebu ttal submission, the United States will describe 
production flexibility contract payments, which woul d share these characteristics but not others with 
direct payments, and explain why production flexibili ty contract payments are “green box” measures. 
 
29. Please explain the meaning of the words "the fundamental requirement" as used in 
paragraph 1 of Annex 2 of the Agreement on Agriculture.  USA  
 
58. “Fundamental” means “[s]erving as the base or foundation” and “primary, original; from 
which others are derived.”
27  A “requirement” is “[s]omething called for or demanded.”28  Thus, the 
“fundamental requirement” that measures for wh ich exemption from reduction commitments under 
Article 6 is claimed must have “no, or at most minimal, trade-distorting effects or effects on production” is “something called for or dema nded” “from which others are derived.”  
 
59. The United States, perhaps in distinction fro m the European Communities, does not view this 
“requirement” (“something called for or demanded” ) as merely setting out in hortatory terms the 
objective of Annex 2.  However, as suggested by  the use of the word “fundamental” (“from which 
others are derived”) and the structure of Anne x 2 (that is, beginning the second sentence with the 
word “accordingly”), compliance with the fundament al requirement of the first sentence will be 
demonstrated by conforming to the basic criteria of the second sentence plus the applicable policy-
specific criteria of paragraph 6 through 13.  Relevant  context supports this in terpretation: Articles 6.1, 
7.1, and 7.2 refer to measures which are not s ubject to reduction commitments because they qualify 
under “ the criteria  set out in Annex 2.”  Article 18.3 requir es a Member to notify “details of the new 
or modified measure and its conformity with the agreed criteria  as set out either in Article 6 or in 
Annex 2.”  Annex 2 itself, in describing the policy-sp ecific criteria that must be met under paragraphs 
2 and 5, emphasizes that measures must meet the “ basic criteria  set out in paragraph 1” rather than 
the “fundamental requirement” of that paragraph.    60. The text and context of paragraph 1 is al so confirmed by the object and purpose of the 
Agriculture Agreement.  Members need to be able  to design green box measures with certainty that 
these measures will be exempt from reduction commitm ents so that they can meet their binding 
commitments on domestic support in furtherance of th e goal of “substantial pr ogressive reductions in 
agricultural support . . . sustained over an agreed period of time.”
29  Assessing the conformity of a 
claimed green box measure against the “fundamental requirement” of the first sentence in isolation 
would be a difficult, if not impossible task, for a Panel.  Members foresaw the problem and therefore provided guidance on how a measure would fulfill th at fundamental requirement – that is, if the 
measures “conform to the . . . basic criteria” of  the second sentence plus any applicable policy-
specific criteria, they shall be deemed to have met the fundamental requirement of the first sentence of 
Annex 2.  
30. Do the parties consider that direct p ayments and production flexibility contract 
payments meet or met the basic criteria refe rred to in paragraph 1 of Annex 2 of the 
Agreement on Agriculture?  BRA, USA  
 
61. The “basic criteria” referred to in paragraph 1 of Annex 2 are: (a) the support in question shall 
be provided through a publicly-funded government  programme (including government revenue 
                                                                                                                                                                    
 
production, a recipient need not engage in any current agricultural pr oduction in order to receive the direct 
payment.”); US Opening Statement at the First Panel Meeting, para. 18 (“The payments, however, are made 
regardless of whether cotton is currently produced on those acres or whether anything is produced at all.”). 
27The New Shorter Oxford English Dictionary , vol. 1, at 1042 (1993 ed.) 
28The New Shorter Oxford English Dictionary , vol. 2, at 2557 (1993 ed.) 
29Agriculture Agreement, preamble. WT/DS267/R/Add.2 
Page I-91 
 
 
foregone) not involving transfers from consumers  a nd (b) the support in question shall not have the 
effect of providing price support to producers.  Direct payments under the 2002 Act meet these basic 
criteria, and the expired production flexibility contr act payments under the 1996 Act met these criteria 
as well.  
62. As noted in the US first written submissi on, direct payments under the 2002 Act are support 
provided through a publicly-funded government progra mme not involving transfers from consumers.  
Under Section 1103 of the 2002 Act, the Secretary of  Agriculture “shall make direct payments to 
producers on farms [including landowners where no pr oduction occurs] for which payment yields and 
base acres are established,” and, under Section 1601 of the Act, the Secretary “shall use the funds, 
facilities, and authorities of the Commodity Credit Corporation to carry out this title.”  Thus, no 
transfers from consumers are involved.
30 
 63. Direct payments under the 2002 Act also do not have the effect of providing price support to 
producers.  Direct payments augment the income of persons on farms based on historic acres and 
yields.  They are not made to support any “applied administered price” for upland cotton (or that for 
any other commodity), for example, by increasing upland cotton demand or reducing upland cotton supply.
31  To-date, Brazil has not contested that US di rect payments satisfy both “basic criteria” under 
paragraph 1.  64. As set out in the US answer to Question 15 from the Panel, the expired production flexibility 
contract payments are not within the Panel’s terms of reference.  Nonetheless, as we shall explain in 
more detail in our rebuttal submission, these payments  too satisfy the “basic criteria” referred to in 
paragraph 1 of Annex 2.  Producti on flexibility contract payments provide support through a publicly-
funded government programme not involving transfers from consumers.
32  In addition, production 
flexibility contract payments did not have the effe ct of providing price support to producers; these 
payments augmented the income of persons on farms based on historic acres and yields but were not 
made to support any “applied administered price” for upland cotton (or that for any other commodity).  
Again, Brazil has not contested that US production flexibility contract payments satisfy both “basic 
criteria” under paragraph 1.  
31. If the first sentence of paragraph 1 of Annex 2 is not a stand-alone obligation, then must 
new, non- or minimally trade-distorting measures that do not conform to the criteria 
listed in Annex 2 be classified as non-Green Box?  BRA, USA  
 
65. As set out in the US answer to Question 29 from the Panel, the United States views the first 
sentence of paragraph 1 as an obligation in that it establishes a “fundamental requirement” for green 
box measures under Annex 2.  This obligation is met when measures conform to  the basic criteria of 
the second sentence plus the applicable policy-specifi c criteria of paragraphs 6 through 13.  If a new 
measure does not conform to the basic and applicable  policy-specific criteria in Annex 2, it will not 
have the benefit of the presumption that it meets th e fundamental requirement of the first sentence.  
 
32. If the first sentence of paragraph 1 of Annex 2 expresses a general principle which 
informs the interpretation of the criteria in Annex 2, please explain how this affects the 
assessment of the direct payments programme's compliance with paragraph 6 of Annex 2.  USA  
 
                                                     
 
30See US First Written Submission, para. 65. 
31See US First Written Submission, para. 66. 
32Federal Agricultural Improvement Act of 1996, Title I, § 161(a) (“Use of Commodity Credit 
Corporation. — The Secretary shall carry out this  title through the Commodity Credit Corporation.”); id., Title I, 
§ 111 (providing for production flexibility contract payments). WT/DS267/R/Add.2 
Page I-92  
 
66. As set out in the US answer to Question 29 from the Panel, the United States does not view 
the first sentence of paragraph 1 as merely setting out  a general principle; according to its term, it 
establishes a “fundamental requirement” for green box measures under Annex 2.   However, Annex 2 
also indicates that measures that conform to th e basic criteria of the second sentence plus the 
applicable policy-specific criteria of paragra phs 6 through 13 comply with that fundamental 
requirement.  Thus, the first sentence of paragraph 1 provides important context for the interpretation 
of other provisions of Annex 2.  67. US direct payments satisfy the criteria set out in Annex 2 and therefore comply with the fundamental requirement of the first sentence of pa ragraph 1.  As explained in the US answer to 
Question 30, US direct payments satisfy the two basic criteria under the second sentence of paragraph 
1.  In addition, as set out in the US first written submission,
33 direct payments satisfy the five policy-
specific criteria set out in paragraph 6 of Annex 2 for decoupled income support. 
 68. The context provided by the first sentence of  paragraph 1 indicates that Brazil’s argument  
that direct payments do not satisfy paragraph 6(b) because payments are eliminated or reduced if 
payment recipients harvest certa in fruits or vegetables is wrong.
34  Brazil’s argument essentially is 
that paragraph 6(b) precludes a Member from requiring a recipient not to produce certain crops, rather 
than precluding a Member from requiring a recipient to produce certain crops.  As indicated above, 
however, Brazil’s interpretation leads to a conflic t between paragraph 6(b)  and the fundamental 
requirement of the first sentence.  That is, a m easure that demonstrably meets that fundamental 
requirement (there are no trade-distorting effect s or effects on production because production of no 
crop is allowed) would be inconsistent with para graph 6(b) (the amount of payment would be based 
on the type of production – production of no crops – in a year after the base period).  In the context of 
the first sentence of paragraph 1, then, paragra ph 6(b) should be read to prevent a Member from 
requiring a recipient to produce  certain crops.  US direct paymen ts do not require a recipient to 
produce upland cotton or any other cr op in order to receive payment. 
 
"do not grant support to  a specific commodity"  
 
33. According to the United States' interpretat ion of the word "grant", when can a Member 
claim that a measure is not exempt from action  under Article 13(b)?  What if the measure is 
enacted annually?  Can the Member obtain a remedy in respect of that measure under the 
DSU?  USA  
 
69. The United States has interpreted the word “g rant” according to its ordinary meaning: to 
“bestow as a favour” or “give or confer (a possession, a right, etc.) formally.”35  Because the phrase 
“such measures do not grant support to a specific commodity” is expressed in the present tense, we 
have explained that this criterion indicates that whether measures currently in effect are exempt from actions depends upon the support they currently grant.
36  For example, whether payments under the 
2002 Act can be challenged in the WTO at this tim e requires an examination of the product-specific 
support such measures currently grant (understood to be  as of the date of the panel request or panel 
establishment), not the support measures granted 1, 2, or 3 years ago.  A finding of a Peace Clause 
breach by current measures would allow a Member to proceed with an action based on Peace Clause-
specified provisions and potentially obtain reme dies with respect to those current subsidies. 
 70. A Member can make the claim that a measur e is not exempt from action under Article 13(b) 
when the Member believes the measures at issue fa il to conform to the Peace Clause, including that 
the Member believes the measure provides support in excess of that decided in 1992.  It would not 
                                                     
 
33US First Written Submission, para. 67. 
34See also  US Answer to Question 25 from the Panel. 
35The New Shorter Oxford English Dictionary , vol. 1, at 1131 (fourth & fifth definitions). 
36US First Written Submission, paras. 79-81. WT/DS267/R/Add.2 
Page I-93 
 
 
matter whether the measure were enacted annually.  If there were a finding of a breach of the Peace 
Clause, then the complaining party could obtain a remedy in the form of a recommendation to bring the measure into conformity with the WTO agreements.  71. The issue of when a Member  can claim that a measure is not exempt from action highlights 
the difficulty in adopting Brazil’s interpretation that only budgetary outlays are relevant to the Peace 
Clause comparison.  In the case of US domestic support measures, budgetary outlays are not known 
ahead of time.  Accordingly, Brazil could only provide estimates  of marketing year 2002 budgetary 
outlays in its first submission, explaining that “the  evidence to tabulate the support granted to upland 
cotton during MY 2002 is not yet complete as the marketing year does not end until 31 July 2003.”
37  
Brazil has not demonstrated that US product-sp ecific budgetary outlays for upland cotton exceeded 
marketing year 1992 outlays as of the time of its pa nel request, as of the time of panel establishment, 
nor, indeed, as of today.38   
 72. This problem is not presented when one looks at the support as decided by  US domestic 
support measures.  Because those measures, both in 1992 and today, set a rate of support (72.9 cents 
per pound during marketing year 1992; 52 cents per pound during marketing year 2002), the level of 
support is known at the outset (or even in advance) of the relevant crop year in which payments are 
made, permitting a rapid challenge a nd perhaps panel findings before a given crop year is over.  Thus, 
a Member would  be able to claim that a current measure is not exempt from ac tion under Article 13(b) 
and would  be able to obtain a remedy under the DSU. 
 
35. Does a failure by a Member to comply in a given year with either the chapeau of 
Article 13(b) or the proviso in subparagraph ( ii) of Article 13(b) impact its entitlement 
to benefit in an earlier or a later year from the exemption from action provided by 
Article 13(b)? BRA, USA  
 
73. A failure by a Member to comply in a given y ear with either the chapeau of Article 13(b) or 
the proviso in subparagraph (ii) of Article 13(b)  would only lift the exemption from action for those 
measures for the year of that breach.  Measures (subs idies) in a later year would remain exempt from 
action so long as those measures in the given year comply with the c onditions in Article 13(b)(ii).   
 
74. This conclusion flows from the text of the P eace Clause as well as the nature of the subsidies 
challenged by Brazil.  The universe of measures exempt from actions under Article 13(b)(ii) is 
“domestic support measures that conform fully to the provisions of Article 6 of this Agreement 
including direct payments that conform to the requ irements of paragraph 5 thereof, as reflected in 
each Member's Schedule, as we ll as domestic support within de minimis  levels and in conformity with 
paragraph 2 of Article 6.”  Because the fundament al commitment under Article 6 is to limit domestic 
support as measured by the Current Total Aggregat e Measurement of Support to a Member’s final 
bound commitment level, and that commitment is judged on a year-by-year basis
39, a Member may 
breach its commitments under Article 6 in one year and come back into compliance in the following 
year.  Thus, conformity with this element of Article 13 must be judged on a year-by-year basis.  
75. The proviso to Article 13 states that such measures shall be exempt from actions “provided 
that such measures do not grant support to a specifi c commodity in excess of that decided during the 
1992 marketing year.”  Thus, with respect to past  subsidies (and putting aside the issue of whether 
there is a measure that can be challenged under th e DSU), the Peace Clause proviso would require an 
                                                     
 
37Brazil’s First Written Submission, para. 149. 
38See US Answer to Question 67 from the Panel. 
39Agriculture Agreement, Article 6.3 (“A Member sha ll be considered to be in compliance with its 
domestic support reduction commitments in any year  in which its domestic support in favour of agricultural 
producers expressed in terms of Current Total AMS does not exceed the corresponding annual or final bound 
commitment level specified in Part IV of the Member's Schedule.”) (emphasis added). WT/DS267/R/Add.2 
Page I-94  
 
examination of the support those measures were granting as of the time such measures were in 
existence.  Were the Peace Clause breached in an y particular year, a Member could bring an action 
against such measure (subsidy), but only for the y ear of the breach.  For example, where subsidies 
were provided on a yearly basis, a Member could breach the Peace Clause in one year in which the 
support such measures grant is in excess of that d ecided during the 1992 marketing year but could be 
in conformity in the following year if support were again within the 1992 marketing year level.  Only 
the subsidies for the year in whic h the Peace Clause were breached would not be exempt from actions.   
 76. Finally, we note that payments under the 2002 Act are recurring subsid ies, expensed in the 
crop year to which they apply and superseded  by new payments in the following crop year.
40 (So too 
were past payments under the expired 1996 Act.)  Thus, whether such measures conform fully to 
Article 6 and do not grant support in excess of that  decided during the 1992 marketing year – that is, 
whether such measures are exempt from action unde r Article 13(b) – must be judged on a year-by-
year basis.  A breach of the Peace Clause in any particular year would allow a Member to bring an action against such measures, but only for the year of the breach.  
 
36. Does a failure by a Member to comply wi th Article 13(b) in respect of a specific 
commodity impact its entitlement to benefit in respect of other agricultural products 
from the exemption from action provided by Article 13(b)? BRA, USA  
 
77. No.  For example, were the Panel to find a breach of the Peace Clause because the product-
specific support US measures grant for upland cotton is in excess of that decided during the 1992 
marketing year, this would not remove Peace Clause  protection for support for soybeans (or any other 
commodity).  In any subsequent action, a complaining Member would have to demonstrate that the challenged measures breach the Peace Clause with respect to that commodity and support. 
 37. In the United States' view, why did the drafters not use the exact term 
"product-specific" in Article 13(b)(ii)? USA  
 
78. It is not possible to determine exactly why the drafters of Article 13(b)(ii) did not use the term 
“product-specific support” in place of “support to a specific commodity.”  Nonetheless, the phrase 
“support to a specific commodity” must be interpreted according to its ordinary meaning, in context, 
and in light of the object and purpose of the Agreem ent.  As the United States has explained, this 
phrase means “product-specific support.”
41  We note that while it is no doubt a good drafting  rule to 
use one and only one term for any given concept in an  agreement, the drafters’ failure to follow that 
rule does not alter a treaty interpreter’s  obligation to interpret under the customary rules of public 
international law the words that  actually are in the treaty.  
 
79. Further, it is not surprising that this exact phrase is not used in the Peace Clause.  The phrase 
“product-specific support” is not a defined term to be  found in Agriculture Agreement Article 1.  Not 
surprisingly, then, in different provisions the Agri culture Agreement uses diffe rent words to describe 
the concept of product-specific support.  For exam ple, in Article 1(a), the basic definition of 
product-specific support (although not identified as such) is given as "support . . . provided for an 
agricultural product in favour of the producers  of the basic agricultural product."  In Article 1(h), the 
Agreement again refers to product-specific support not  by using that term but by using the words 
"support for basic agricultural products."42  None of these references to “product-specific support” 
even uses the term “specific” wh ereas the phrase “support to a specific commodity” contains all three 
elements of that phrase (that is, product, speci fic, and support), using “commodity” in place of 
                                                      
40See US Answer to Question 15 from the Panel. 
41US First Written Submission, paras. 77-78. 
42Similarly, in Annex 3, paragraph 6, the Agreement refers to a "product-specific" AMS not by using 
those words but by using the phrase "for each basic agricultural product, a specific AMS shall be established." WT/DS267/R/Add.2 
Page I-95 
 
 
“support.”43  The use of the phrase “support to a specific commodity” in the Peace Clause to refer to 
“product-specific support” is not remarkable in light  of these multiple examples of different words in 
the Agreement that describe the same concept.44 
 
38. Given the fact that subsidies available for more than one product could have various 
effects on production, how does the United States demarcate between product-specific 
support and non-product specific support ? USA  
 
80. The phrase “support to a specific commodity” in the Peace Clause proviso, read according to 
its ordinary meaning, in context, and in light of the object and purpose of the Agreement, means 
“product-specific support.”  The United States finds the demarcation between product-specific and 
non-product-specific support in the Agriculture Agreem ent.  Specifically, Article 1(a) defines the 
universe of support making up the Aggregate Measurement of Support as follows:   
“Aggregate Measurement of Support” and “AMS” mean the annual level of support,  
expressed in monetary terms, provided for an agricultural product in favour of the 
producers of the basic agricultural product or non-product-specific  support provided 
in favour of agricultural producers in general,  other than support provided under 
programmes that qualify as exempt from reduc tion under Annex 2 to this Agreement . 
. . (italics added). 
Article 1(h), which defines the “Total Aggregate Measurement of Support,”
45 and paragraph 1 of 
Annex 3, explaining the calculation of the Aggregate Measurement of Support46, also distinguish 
between product-specific and non-product-specific s upport, without providing a dditional detail to that 
found in Article 1(a).  81. Article 1(a), therefore, provides the b asic demarcation between product-specific and non-
product-specific support; as mentioned at the first pane l meeting, Brazil has not contested this point.  
Product-specific support, then, is “support . . . provide d for an agricultural product in favour of the 
producers of the basic agricultural product.”  This de finition contains two elements.  First, the support 
must be provided “ for an agricultural product ,” which suggests that the subsidy is given “in favour 
of”
47 a product and not in respect of criteria not re lated to the product or in respect of multiple 
products.  Second, such support is “in favour of the producers of the basic agricultural product ,” 
                                                      
43Again, the use of the term “commodity” in place of  “product” may result from the unique negotiating 
history of the Peace Clause.  While the term “product” is used exclusively elsewhere in the Ag reement, in the 
course of the Uruguay Round agriculture negotiations, the term “commodity” had been commonly used.  See, 
e.g., Framework Agreement on Agriculture Reform  Programme, Draft Text by the Chairman, 
MTN.GNG/NG5/W/170, paras. 3, 5, 6, Annex I (11 July 1990).  Despite th e fact that the Peace Clause uses 
“commodity” in place of “product,” Br azil has not suggested that “commodity” should be interpreted as 
anything other than agricultural "products" subject to the Agreement.   
44The United States also notes that under paragraph 1 of Annex 3, non-product-specific support is to be 
aggregated into one separate AMS, which supports the notion that non-product-specific support is not to be 
allocated to specific products , contrary to what Brazil urges the Panel to do here. 
45Agriculture Agreement, Article 1(h) (“‘Total Ag gregate Measurement of Support’ and ‘Total AMS’ 
mean the sum of all domestic support provided in favour of agricultural producers, cal culated as the sum of all 
aggregate measurements of support for basic agricultural products , all non-product-specific aggregate 
measurements of support  and all equivalent measurements of support  for agricultural products . . . .”). 
46Agriculture Agreement, Annex 3, paragraph 1 (“Subject  to the provisions of Article 6, an Aggregate 
Measurement of Support (A MS) shall be calculated on a product-specific basis for each basic agricultural 
product  receiving market price support, non- exempt direct payments, or any other subsidy not exempted from 
the reduction commitment (‘other non-exempt policies’).  Support which is non-product specific shall be 
totalled into one non-product-specific AMS  in total monetary terms.” (emphasis added)). 
47The New Shorter Oxford English Dictionary , vol. 1, at 996 (1993 ed.) (definition of “for”: “in favour 
of”; “[w]ith the purpose or result of benefitting”). WT/DS267/R/Add.2 
Page I-96  
 
which suggests that subsidy benefits those who produce the product – that is, production is necessary 
for the support to be received.   82. Article 1(a) explains non-product-speci fic support as “support provided in favour of 
agricultural producers in general.”  That is, non- product-specific support is not support provided “for 
an agricultural product” and is not support in favour of “the producers  of the basic agricultural 
product” but rather is support in favour  of agricultural producers “generally.”
48  Thus, read according 
to its ordinary meaning and in the context of Article 1(a), non-product-specific support is a residual 
category of support covering those measures that do not fall within the more detailed criteria set out in 
the definition of product-specific support. 
 
83. Finally, we note Brazil’s argument that “[t]he  term ‘product-specific’ that the United States 
seeks to read into Article 13(b)(ii) has a very tec hnical and particular meaning as set out in Article 
6(4), and Annex 3 to the Agreement on Agriculture.”49  As explained above, while both of these 
provisions use the term “product-specific” as well as “non-product-specific,” the Panel will search 
these provisions in vain for a “technical and particular meaning” of either of these terms.  Brazil fails 
to direct the Panel’s attention to the only explan ation of the meaning of those terms, Article 1(a), 
perhaps because this explanation of the “technical and particular meaning” of product-specific support 
suggests that several of the measures challenged by Brazil provide non-product-specific support and 
are not part of the comparison under the Peace Clause proviso.  39. If "such measures" in Article 13(b)(ii) refers to all those in the chapeau of Article 13(b), 
why are they not all included in the potential comparisons with 1992?  In what circumstances can measures which grant non- product specific support lose exemption 
from action under Articles 5 and 6 of the SCM Agreement and Article XVI of GATT 1994? USA  
 
84. The introductory phrase of Article 13(b) estab lishes the full universe of measures that are 
potentially exempt from actions under this provi sion – that is, domestic support measures “that 
conform fully to the provisions of Article 6.”  Th e phrase “such measures” in Article 13(b)(ii) occurs 
in the proviso, and the use of the word “such” re fers back to those measures identified in the 
introductory phrase.  However, the type of support th at must be compared pursuant to the proviso is 
set out by the text of the proviso: the comparison is not between the total (product-specific and non-
product-specific) support provided by all measures that existed in 1992 versus those that exist 
currently; rather, the proviso comparison is betw een the “support to a sp ecific commodity” that 
challenged measures grant versus that decided during the 1992 marketing year. 
 
85. With respect to Article 13(b), then, the Peac e Clause has two tiers of analysis and effect.  
First, non-green box domestic support measures collectiv ely lose Peace Clause protection if they do 
not conform fully to the provision of Article 6 – that is, if they exceed a Member’s domestic support commitment level.  Second, even if a Member’s Current Total Aggregate Measurement of Support is 
within the reduction commitment, the support to a sp ecific commodity can still  lose its Peace Clause 
protection if it exceeds the level decided during ma rketing year 1992.  This second tier was intended 
to prevent a Member from increasing its non-green box support to a specific commodity while staying 
within the domestic support commitment level.  When a Member has disciplined its product-specific 
support, however, by staying within the level decided during the 1992 marketing year (as the United States has done), it is entitled to the benefit of observing that commitment.  
86. Finally, we note that Brazil’s interpretation of the proviso calls for allocating support from all 
non-green box measures to an agricultural produc t regardless of whether that support is product-
                                                     
 
48 “In general” means “in general terms, generally” and “as a rule, usually.”  The New Shorter Oxford 
English Dictionary , vol. 1 , at 1073 (1993 ed.).   
49Brazil’s Opening Oral Statement at the First Panel Meeting, para. 16. WT/DS267/R/Add.2 
Page I-97 
 
 
specific or non-product-specific.  This analysis h as no foundation in the Agriculture Agreement.  In 
fact, Brazil has not followed its own approach through to its logical conclusion: as alluded to by Question 41 from the Panel, presu mably Brazil could have taken all non-product-specific support 
provided by the United States and allocated some por tion of that support to upland cotton producers.  
Brazil has not done so, but there is no basis in th e Agreement to distinguish the non-product-specific 
support Brazil excluded from the non-product-specific support Brazil included  for purposes of its 
Peace Clause analysis (for example, counter-cyclical  payments and crop insurance).  The only basis to 
distinguish whether a measure provides “support to  a specific commodity” that is found in the 
Agriculture Agreement is to rely on the distinc tion between product-specific and non-product-specific 
support as explained in Article 1(a). 
 
43. What are the precise differences between deficiency payments and counter-cyclical 
payments that lead you to classify the fo rmer as product-specific and the latter as 
non-product specific?  How do you classi fy market loss assistance payments?  USA  
 87. As indicated in the US answer to Question 38  from the Panel, Article 1(a) of the Agriculture 
Agreement provides the demarcation between produc t-specific and non-product-specific support.  The 
definition of product-specific support contains two el ements.  First, the support must be provided “ for 
an agricultural product ,” which suggests that the subsidy is given in respect of a product and not in 
respect of criteria not related to the product or in respect of multiple products.  Second, such support 
is “in favour of the producers of the basic agricultural product ,” which suggests that subsidy 
recipients are those who produce the product – that is, production is necessary for the support to be 
received.  Non-product-specific support is a r esidual category of “support provided in favour of 
agricultural producers in genera l” – that is, “generally.” 
 88. In light of these definitions, it follows that  deficiency payments under the 1990 Act were 
product-specific support whereas counter-cyclical paym ents are non-product-specific.  The relevant 
differences may be summarized as follows:  
 
Deficiency Payments   
Counter-Cyclical Payments  
 
Farmer must plant upland cotton to receive payment  
No requirement to plant upland cotton (or any crop) 
 Payment based on acres “planted for harvest” to 
upland cotton in that crop year  
Payment based on historical “base acres” irrespective 
of acres currently planted to upland cotton 
 
 In short, deficiency payments required produc tion of upland cotton whereas counter-cyclical 
payments do not.  Thus, deficiency payments were support for upland cotton in favour of the 
producers  of upland cotton. 
 89. In order to receive a deficiency payment, a producer was required to plant upland cotton for 
harvest.  The “farm programme payment acreage” for an individual farm – that is, the acres on the 
farm for which the producer would receive a deficien cy payment in a given crop year – was defined 
as “the smaller of the maximum payment acreage or the acreage planted to the crop on the farm for 
harvest within the permitted acreage of the crop of the farm.”
50  That is, a farmer would be paid on the 
acres planted to upland cotton for harvest up to the maximum payment acreage.  Under the 
programme regulations, “crop acreage planted for harvest” was generally defined as “[t]he acreage 
                                                      
507 Code of Federal Regulations § 1413.108(d) (1 Jan. 1993) (emphasis added) (Exhibit US-3); 7 US 
Code § 1444-2(c)(1)(B)(i) (1992 Supp.) (4 January 1993) (Exhibit US-5). WT/DS267/R/Add.2 
Page I-98  
 
harvested.”
51  Thus, in a given crop year, production was required to receive a deficiency payment, 
and the amount of the deficiency payment was based on the acreage on which upland cotton was harvested.  Thus, both elements of the definition of product-specific support in Article 1(a) are 
satisfied.  The deficiency payment was support for an agricultural product in favour of the producers 
of the product because recipients had to have plan ted upland cotton for harvest to receive payment in 
a given crop year. 
 90. On the other hand, counter-cyclical paymen ts are decoupled from production requirements.  
Counter-cyclical payments are made to persons with  farm acres that were devoted to production of 
any of a number of crops, including upland cotton, du ring an historical base period.  That base period 
was defined in the 2002 Act and is fixed for the lif e of the legislation (that is, for marketing years 
2002-2007).
52  However, a person with “upland cotto n base acres” need not produce upland cotton 
(nor any other particular crop) to receive the count er-cyclical payment.  A person with “upland cotton 
base acres” also need not produce any crop at all.  Thus, counter-cyclical payments do not satisfy the 
definition of product-specific support: they are not payments for an agricultural product in favour of 
the producers  of the product since no production of any product, including upland cotton, need occur 
for payment . 
 91. As indicated in our 1999 WTO domestic support notification (G/AG/N/USA/43), the United States believes that market loss assi stance payments are non-product-specific amber box 
support.  As with production flexibility contract payments, market loss assistance payments were 
made to persons with farm acres that previously  had been devoted to production of certain crops, 
including upland cotton, during an historical base period.  No production of upland cotton or of any other crop was required to receive payment, and no production was required at all.  Thus, these 
payments do not meet the definition of product-specific support in Annex 1(a).    
92. However, the United States did notify these payments as amber box because they were made 
in response to low prevailing commodity prices.  As such, the United States does not consider that 
they conform to the criterion in paragraph 6(c) of Annex 2 that the amount of decoupled income 
support payments “in any given year shall not be related to, or based on, the prices, domestic or 
international, applying to  any production undertaken in any year after the base period”.  We note that 
while Brazil has included market loss assistance pa yments in its Peace Clause comparison, it has not 
contested the US position (as evidenced by G/AG/N/USA/43) that these payments are non-product-
specific amber box support.
53 
 
45. If the Panel considered that Step 2 paymen ts paid to exporters were an export subsidy, 
would the United States count them as domestic support measures for the purposes of 
Article 13(b)?  Please verify Brazil's separate data for Step 2 export payments and 
Step 2 domestic payments in Exhibit BRA-69 or provide separate data. BRA, USA  
 
                                                      
517 Code of Federal Regulations § 1413.4(b) (1 Jan. 1993) (Exhibit US-3).  Under the 1990 Act, there 
were so-called 50-92 provisions, under which a producer could devote part of the maximum payment acreage (that is, 85 per cent of the established crop acrea ge base less any acreage under an acreage reduction 
programme) to conserving uses and s till receive deficiency payments on the acreage.  To take advantage of that 
provision, the producer was still required to plant upland cotton for harvest on at least  50 per cent of the 
maximum payment acreage.  7 US Code § 1444-2(c)(1)(D)(ii) (1992 Supp.) (4 Jan. 1993) (“To be eligible for 
payments . . . the producers on a farm must actually plant upland cotton for harvest on at least 50 per cent of the maximum payment acres for cotton for the farm.”) (Exhibit US-5). 
52By way of contrast, under the de ficiency payment program, “base acres” were determined by a 
farmer’s yearly upland cotton planting decisions.  Base acres were defined as “the average of the acreages 
planted and considered planted to such crop for harves t on the farm in each of the 3 crop years preceding such 
crop year.”  7 Code of Federal Regulations § 1413.7(c) (1 Jan. 1993) (Exhibit US-3). 
53See Brazil’s First Written Submission, paras. 60-62. WT/DS267/R/Add.2 
Page I-99 
 
 
93. If the Panel were to conclude that the Step  2 programme and payments  made thereunder could 
be separated in to domestic and export components,  and the export component were deemed to be an 
export subsidy, logically, that component would no longer constitute domestic  support.  Therefore, 
that measure would not form part of an analys is under Article 13(b), but rather would fall under 
Article 13(c).  For data relating to Step 2 payment by fiscal year and use, please see the US answer to 
Question 104 from the Panel. 
 
46. What is the relevance, if any, of the concept of "specificity" in Article 2 of the SCM 
Agreement and references to "a product" or "subsidized product" in certain provisions 
of the SCM Agreement to the meaning of  "support to a specific commodity" in 
Article 13(b)(ii) Agreement on Agriculture? BRA, USA  
 
94. The concept of specificity in Article 2 of th e Subsidies Agreement is entirely unrelated to the 
meaning of  “support to a specific commodity” in Ar ticle 13(b)(ii) of the Agreement on Agriculture.  
Generally, under Article 2 of the Subsidies Agreement,  a subsidy is specific if it is limited, in law or 
in fact, to “an enterprise or industry or group of en terprises or industries.”  The relevant context for 
“support to a specific commodity” is found in Articles 1(a), 1(h), 6.4, and Annex 3 of the Agriculture 
Agreement.  
"in excess of that decided during the 1992 marketing year"  
 
47. Where does Article 13(b)(ii) require a year-on-year comparison?  BRA, USA  
 
95. Please see the US answer to Question 35 fro m the Panel for a reply to this question. 
 
48. Does Article 13(b)(ii) require a comparison of  support granted with support decided?   
How could such a comparison be made?  BRA, USA   
 
96. The proviso to Article 13(b)(ii) requires a comparison of the product-specific support that 
challenged measures grant (in this case, for upla nd cotton) to the product-specific support decided 
during the 1992 marketing year.  The United States agrees with Brazil that the Peace Clause proviso 
requires an apples-to-apples comparison.  However, while Brazil’s proposed comparison (the 
budgetary outlays that may be allocated to a commodity, whether product-specific or non-product-
specific) has no grounding in the text or context of  the Peace Clause, the United States believes the 
basis for this comparison is establishe d by the use of the word “decided.” 
 97. The term “decided” is not explicitly defined in the Agreement and is not used elsewhere in 
the Agriculture Agreement nor in the Subsidies Agreem ent to refer to support or subsidies.  Members’ 
unique choice of words must be given meaning.  “Decide” means to “[d]etermine on as a settlement, 
pronounce in judgement” and “[c]ome to a determination or resolution that, to do, whether .”
54  Thus, 
the basis for the comparison under the Peace Clause proviso is the product-specific support that was 
“determined” or “pronounced” during the 1992 ma rketing year.  US measures “decided” product-
specific support for upland cotton in terms of a ra te of 72.9 cents per pound through the combination 
of marketing loans and deficiency payments.  Thus, to make an apples-to-apples comparison, this rate 
of support must be compared to the rate of  support that challenged measures “grant.” 
 98. Contrary to Brazil’s assertion, the use of the term “grant” does not compel an examination of budgetary outlays.  The ordinary meaning of “grant” is to “bestow as a favour” or “give or confer (a 
possession, a right, etc.) formally”.
55  Thus, the use of the term “grant” would permit an evaluation of 
the rate of support that challenged measures “give or  confer . . . formally”.  Brazil’s reference to 
                                                      
54The New Shorter Oxford English Dictionary , vol. 1, at 607 (first and third definitions) (italics in 
original).   
55The New Shorter Oxford English Dictionary , vol. 1, at 1131 (fourth & fifth definitions). WT/DS267/R/Add.2 
Page I-100  
 
footnote 55 of the Subsidies Agreement
56 is not pertinent as this is one of several Subsidies 
Agreement references to a Member  granting a subsidy ,57 which differs from the Peace Clause phrase, 
“such measures  do not grant support”.  More importantly, Members did not choose to use the word 
“granted” in place of “decided”, a nd a valid interpretation must make sense of that choice rather than 
reading it out of the Agreement.  In addition, had Members intended the Peace Clause comparison to 
be made solely  on the basis of budgetary outlays, they could have used that term.  After all, 
“budgetary outlays” is a defined te rm in Article 1(c) and repeatedly referred to in the Agreement.58 
 99. Thus, the comparison of the product-specific support “decided” during the 1992 marketing year to the support challenged measures “grant” must be made on the terms established by US 
measures themselves.  The United States decided to en sure producer support at a rate of 72.9 cents per 
pound of upland cotton during the 1992 marketing year.  In this case, the comparison presents no difficulty because the challenged measures also gran t a rate of support (52 cents per pound).  Because 
the latter is not in excess of the former, challenge d US domestic support measures are exempt from 
actions pursuant to Article 13(b)(ii). 
 
50. Please provide any written drafting history which could shed light on why the proviso 
was added to what is now Article 13(b)(ii) and, in particular, why both words "grant" and "decided" were used.  USA  
 
100. The United States is not aware of any written drafting history on this point. 
 
51. Could the United States please comment on the interpretation advanced by the EC, in 
paragraphs 16 and 18 of its oral statement, of the words "decided during the 1992 marketing year"? USA  
 101. The United States agrees with parts of the interpretation advanced by the EC.  The 
Communities too see the use of the term “decided” in  the Peace Clause as notable and suggest that it 
compels an examination of “an amount of support adopted by some form of decision”.  The Communities argues that a Member cannot be deemed to have “decided” all of the “applications for 
support under a particular progra mme” (as is implied by an exam ination of budgetary outlays) and 
that the term “decided” cannot “set up a comparis on between domestic support [actually] granted in 
1992 and domestic support granted in a more recent period”.  The United States agrees with these 
statements.  102. The Communities also advance argumentation that may not flow from the ordinary meaning of the term “decided.”  For example, the Commu nities suggests that the term “implies a one-off 
decision”, without further explanation.  It would appear that the support “decided” during a marketing 
                                                     
 
56See Subsidies Agreement, fn. 55 ("For a developing country Member not granting export subsidies as 
of the date of entry into force of the WTO Agreement, this paragraph shall apply on the basis of the level of 
export subsidies granted in 1986."). 
57See, e.g. , Subsidies Agreement, Article 2.1(c) (“Such f actors are: . . . the manner in which discretion 
has been exercised by the granting authority in the decision to grant a subsidy”); id., Article 3.2 (“A Member 
shall neither grant nor maintain [prohibited]  subsidies referred to in paragraph 1.”); id., Article 4.1 (“Whenever 
a Member has reason to believe that a prohibited subsidy is being granted or maintained by another Member, 
such Member may request consultations with such other Member.”); id., Article 7.1 (“Except as provided in 
Article 13 of the Agreement on Agricultu re, whenever a Member has reason to believe that any subsidy referred 
to in Article 1, granted or maintained by another Member , results in injury to its domestic industry, nullification 
or impairment or serious prejudice, such Member may request consultations with such other Member.”); id., 
Article 9.2 (“Upon request for consultations under paragraph 1, the Member granting or maintaining the subsidy programme in question shall enter into such consultations as quickly as possible.”); id., Article 25.2 (“Members 
shall notify any subsidy as defined in paragraph 1 of Article 1, which is specific within the meaning of Article 2, 
granted or maintained within their territories.”). 
58See Agriculture Agreement, Articles 3.3, 9.2; id., Annex 3, paras. 2, 10, 12, 13; id., Annex 4, para. 2. WT/DS267/R/Add.2 
Page I-101 
 
 
year could be made through more than one decision,  however.  In addition,  the Communities suggests 
that this decision is one “in which support for a specific product is decided and allocated for future 
years.”  While it may be that a Member decided support for a future year during the 1992 marketing year, forming the benchmark for the comparison und er the Peace Clause proviso, it would also appear 
likely that a Member decided on a level of support for the marketing year during that marketing year.  
Thus, the support decided during the 1992 marketi ng year would not appear to be necessarily limited 
to support for future years.  
52. Please comment on an interpretation of the words "decided during" in Article 13(b)(ii) 
that would read them as synonymous with the words "authorized during".  BRA, USA  
 
103. The ordinary meaning of the words “decided during” would be “determined or pronounced during” or “having come to a determination or resolution that or to do during.”  The United States understands that the term “decided during” was intended to capture not just a decision during 1992 for 
1992, but also, as the EC indicates, a decision in 1992 of the support to be granted in a future year, in 
particular the EC’s decision during 1992 for future  years.  The term “authorized during” would not 
appear to capture all of these dimensions of the term “decided during”.  In fact, a measure could be “authorized” during 1992 based on a “decision” dur ing an earlier year so the two terms are not 
synonymous.  
54. Please identify all United States legal a nd regulatory and administrative instruments 
decided during the marketing year 1992, with  the respective dates of decision, that 
decided support for upland cotton. BRA, USA  
 
104. The level of support decided during marketing year 1992 was to ensure a rate of return to 
producers of 72.9 cents per pound.  Numerous lega l, regulatory, and administrative instruments 
“determined” or “pronounced” this support.  This le vel of support was first determined or pronounced 
by the 1990 Act, which covered the 1991-1995 marketing years.  This legislation stated that “[t]he 
established price for upland cotton shall not be less than $0.729 per pound” for deficiency payments
59 
and promised to make up the difference between that  price and the higher of the (1) marketing loan 
rate or (2) market price.  The 1990 Act was enacted on 28 November 1990.  We note that the 
established price was set at “not less than” 72.9 cents  per pound; that is, the Secretary of Agriculture 
was given some discretion to set the effective pric e so long as this did not fall below 72.9 cents.  The 
Secretary, in fact, did not decide to alter this effective price prior to, during, or after the 1992 
marketing year.  105. The Secretary decided on the marketing loan rate applicable for the 1992 crop via a series of 
regulations.  A proposed rule was published on 13 September 1991, at 56 Federal Register 46574.  
The final decision on a loan rate of 52.35 cents per pound was announced on 31 October 1991, 
published on 20 April 1992, at 57 Federal Register 14326.
60  Those determinations applied to all 
marketings during marketing year 1992.  106. The United States decided to maintain the eff ective price for deficiency payments and loan 
rate for marketing loans at those levels during the 1992 marketing year as reflected in several 
published documents.  The 1 January 1993, Code of  Federal Regulations (Exhibit US-3) codified 
these levels of support.
61  The 1992 Supplement to the US Code also codified the legislated effective 
price of “not less than” 72.9 cents per pound.  In add ition, the Department of Agriculture published an 
upland cotton fact sheet in September 1992 announcing that “[t]he 1992 target price [for deficiency 
payments] is 72.9 cents per pound” and the “1992 loan rate . . . is 52.35 cents per pound”.62 
                                                      
597 US Code § 1444-2(c)(1)(B)(ii) (1992 Supp.) (4 Jan. 1993) (Exhibit US-5). 
60Exhibit US-2. 
617 Code of Federal Regulations § 1413.104(a) (1 Jan. 1993) (Exhibit US-3). 
62US Department of Agriculture, Upland Cotton Fact Sheet, at 2 (September 1992) (Exhibit US-17). WT/DS267/R/Add.2 
Page I-102  
 
 107. Finally, we note that in anticipation of the 1993 crop year the Department of Agriculture also initially pronounced the level of support for the 1993 crop year during the 1992 marketing year.  On 
24 March 1993, regulations  were published at 58 Federal Regi ster 15755 setting the marketing loan 
rate at 52.35 cents per pound and leaving undisturbed th e effective price for deficiency payments at 
72.9 cents per pound.
63  Thus, the support decided for the 1993 crop was the same as that decided for 
the 1992 crop: to ensure producer support of 72.9 cents per pound of upland cotton.64   
 
55. Please provide a copy of the instrument in  which the rate of support for upland cotton 
during the marketing year 1992 was decided, indicating the date of the decision.  USA  
 
108. As indicated in the US answer to Question 54 from the Panel, the United States has provided 
copies of multiple legal, regulatory, and administra tive instruments and publications reflecting the rate 
of support decided during marketing year 1992.  These multiple decisions stem from the fact that an 
effective price and marketing loan rate were firs t published in advance of the 1992 marketing year in 
order to allow producers to become familiar with the programmes; subsequently, the Secretary of 
Agriculture decided not to change either the eff ective price (72.9 cents per pound) or the marketing 
loan rate (52.35 cents per pound), despite having the authority to do so.  
56. Could the United States please explain how support granted under legislation that dates 
back to 1990 can have been support "deci ded during the marketing year 1992"?  USA  
 
109. Payments during the 1992 marketing year we re made pursuant to the 1990 Act, which 
directed the Secretary of Agriculture to make mark eting loan payments and deficiency payments (as 
well as Step 2 payments).  The 1990 Act, however, was only the first decision on the level of support.  The Act provided that the marketing loan rate could “not be reduced below 50 cents per pound”.
65  
The 1990 Act also stated that the “established price for upland cotton shall not be less than $0.729 per 
pound”.66  Thus, the Secretary had discretion to alter those rates of support.  
 110. The Secretary decided to set the marketing loan rate at 52.35 cents per pound in April 1992 
but also decided not to change the implementin g regulations establishing the effective price for 
deficiency payments.  Similarly, during the 1992 marketing year, the Secretary had the discretion to 
raise the deficiency payment target price above 72.9 cents per pound and to raise the marketing loan 
rate above 52.35 cents per pound but decided not to .  Documents published during 1992 evidence this 
decision: the 1992 supplement to the United States Code published in January 1993 reflects the decision not to alter the statutory provisions relati ng to upland cotton rates.  The 1993 Code of Federal 
Regulations was published in January 1993 and also reflects the decision not to alter the regulatory 
rate provisions.  Finally, when the upland cotton fact sheet was published in September 1992, the 
effective price and marketing loan rate were left unchanged, reflecting the Secretary’s decision not to 
change the level of support.   111. In this case, the support determined or pronounced by US measures during the 1992 marketing year was also the support determined or  pronounced for the 1992 marketing year.  This 
result is entirely consistent with the Peace Clause text; in fact, it provides certainty to both Members 
seeking to provide support within Peace Clause limi ts and Members seeking to understand whether 
the Peace Clause has been breached.   
                                                     
 
63A proposed rule for the 1993 crop was published on 29 September 1992.  The 1993 rates were 
announced on 2 November 1992, and published in the 24 March Notice. 
64We note that one distinction made by the 24 March 2003 regulations between the 1993 crop and the 
1992 crop was that the acreage reduction program percentage was lowered from 10 per cent in 1992 to 7.5 per cent in 1993. 
657 U.S.C. 1444-2(a)(1), (2)(A) (1992 S upp.) (Jan. 4, 1993) (Exhibit US-5). 
667 U.S.C. 1444-2(c)(1)(B)(ii) (1992 Supp.) (Jan. 4, 1993) (Exhibit US-5). WT/DS267/R/Add.2 
Page I-103 
 
 
 112. Thus, the 1990 Act initially established a leve l of support applicable to the 1991-95 crops.  
The US Congress could have changed the 72.9 cents  per pound level at any time during MY 1992, but 
it decided not to.  The Secretary of Agriculture also had discretion to alter the level of support (that is, 
to raise it) but also decided not to.  Thus, 72.9 cents per pound was decided and remained decided as 
the level of support for each day of the 1992 marketing year. 
 
57. If the United States decided on a rate of support for MY1992, does that not mean that it 
decided on whatever budgetary outlay was required to meet that rate of support, even if the exact amount was not known at that time?  USA  
 
113. The Peace Clause proviso establishes the benc hmark for comparison: the support “decided” 
during the 1992 marketing year.  To say that the United States “determined” or “pronounced” an 
indefinite amount of budgetary outlays would not fi t those meanings of the term.  The United States 
could also not have come to a “determination or r esolution” to make any budgetary outlay since that 
outlay would be determined by market prices during the year, not by the US Government.  To read 
support “decided” as encompassing not only the explic it rate of support set out in US measures but 
also “whatever budgetary outlay was required to meet that rate of support, even if the exact amount 
was not known at the time,” would also appear to  make the Peace Clause comparison impossible.  
That is, because both during the 1992 marketing year and under the 2002 Act the support decided 
would be “whatever budgetary outla y was required to meet that ra te of support,” both budgetary 
outlay “decisions” by the United States would appear to be unlimited, and one could not be in excess 
of the other.  Alternatively, one could reason th at a decision to provide whatever budgetary outlays 
would be necessary implies that the  1992 decided leve l would be higher because, even if prices fell to 
zero, the higher nominal level in 1992 would mean higher budgetary outlays.  
114. The only support “decided” by the United States was the 72.9 cents per pound level of 
support.  In effect, the United States provided a re venue floor for producers by guaranteeing a rate of 
income for plantings.  The United States has neve r exceeded that level of incentive “for the 
commodity.”  Brazil’s approach, which would ascr ibe to the United States a decision to make 
budgetary outlays resulting from differences between ma rket prices and the level of support, is an 
effort to impose something akin to an AMS lim it on US support for upland cotton.  (We note, 
however, that Brazil cannot simply argue for cal culating an AMS for upland cotton because that 
would exclude non-product-specific support, which Brazil wishes to include in the Peace Clause comparison, and would not require that support be  measured through budgetary outlays.)  Members 
considered and rejected any product-specific AMS limits in the Uruguay Round, however, and such a 
concept may not be overlaid onto the Article 13 language.  The United States has introduced 
payments decoupled from production precisely to lo wer the incentive to produce the marginal pound 
of cotton and avoid exceeding the product-specifi c level of support of 72.9 cents per pound. 
 
59. Should the rate of support as indicated in Ar ticle 13(b)(ii) include the market price?  If 
so, why is it appropriate to include it in the comparison under Article 13(b)(ii)?  BRA, USA  
 
115. No, the market price is not relevant fo r purposes of the Peace Clause comparison.  As 
indicated in the US answers to Questions 48 and 57 from the Panel, the benchmark for that 
comparison is the support “decided” during the 1992 marketing year.  That support was decided by the United States as a rate of support: 72.9 cents  per pound.  The actual amount of expenditures 
necessary to provide that support depended on the ma rket prices during the marketing year.  However, 
these prices were not “determined” or “pronounced ” by the United States and therefore cannot have 
been (or be) part of any US decision.  
60. Can you provide information on support decided in 1992 and the years with which you 
believe it should be compared, on a per s upport programme / per unit of production/per WT/DS267/R/Add.2 
Page I-104  
 
annum basis?  If possible, please specify how, if at all, budget outlays may be transposed 
into units of production, and which units of production are best to use.  BRA, USA  
 
116. The United States has explained that the product-specific support decided during the 1992 marketing year for upland cotton was 72.9 cents per pound through the combined effect of the target 
price for deficiency payments and the loan rate fo r marketing loans.  This rate was the only support 
“decided” by the United States as evid enced by the relevant legisla tion, regulations, and programme 
announcements. By comparison, the product-specifi c support that upland cotton support measures 
currently grant is only 52 cents per pound through the loan rate for the marketing loan programme. 
 
117. The United States believes that any analys is that takes budgetary outlays into account 
necessarily will not reflect the support “decided” by the United States.  Because US domestic support measures are largely dependent on a price-gap, budge tary outlays will reflect prevailing market prices 
during the applicable marketing year, prices the Unite d States cannot decide.  Budgetary outlays will 
also reflect, for the product-specific support that marketing loans grant, various producer  decisions on 
programme participation, timing of receipt of paym ents, and production levels.  Again, these factors 
cannot be decided by the United States.  Thus, gi ven the way in which the challenged US measures 
decide the level of support, the Peace Clause comparison may only be made on the basis of rates of support, not budgetary outlays.  
61. Does the United States consider that Article 13(b)(ii) permits a comparison on any basis 
other than a per pound basis? USA  
 
118. Article 13(b)(ii) requires that the benchmar k for comparison be the support “decided” during 
the 1992 marketing year.  The United States decided on an a rate of support of 72.9 cents per pound during the 1992 marketing year.  Therefore, the evaluation must be whether challenged measures 
grant product-specific support in excess of that decided during the 1992 marketing year – that is, in 
excess of the 1992 rate of support.  Were the re levant US domestic support measures structured 
differently, the term “decided” might imply a different comparison.  
66. Could you please comment on the relative m erits of each of the following calculation 
methods for the purposes of the comparison of support to upland cotton with 1992, 
irrespective of whether a particular measure should be included or excluded: 
  (a) Total budgetary outlays (Brazil's approach).  USA  
119. As stated in the US answer to Question 60 from the Panel, the United States believes that any 
analysis that takes budgetary outlays into account necessarily will not reflect the support “decided” by 
the United States.  Because some  US domestic support measures ar e dependent on a price-gap (for 
example, marketing loans), budgetary outlays will reflect prevailing market prices during the 
applicable marketing year, prices the United States cannot decide.  Budgetary outlays will also reflect, 
for the product-specific support that marketing loans grant, various producer  decisions on programme 
participation, timing of receipt of payments, a nd production levels.  Again, these factors cannot be 
decided by the United States.  Thus, given the wa y in which the challenged US measures decide the 
level of support, the Peace Clause comparison may only be made with respect to these measures on the basis of rates of support, not budgetary outlays. 
 
 (b) Budgetary outlays per unit of upland cotton:   Could you please calculate and 
provide an estimate for the marketing years 1992 and 1999-2002, respectively, 
and draw attention to any factors/qualificat ions that the Panel would need to be 
aware of.  BRA, USA 
 
120. For the reasons stated in response to Questi on 66(a), any analysis involving budgetary outlays 
necessarily will not reflect the support “decided” by the United States.  A budgetary outlays per unit WT/DS267/R/Add.2 
Page I-105 
 
 
of upland cotton approach thus would not only be ba sed on a faulty premise, but to calculate outlays 
per unit might also necessitate an ex post  or retrospective analysis.  Again, this cannot reflect the 
support “decided” by the United States.  
 (d) Per unit rate of support for upland co tton (Prof. Sumner's approach at the first 
session of the first substantive meeting ).  USA  
 
121. The United States continues to examine Mr. Sumner’s approach to calculating a per-unit 
subsidy rate.  We will present a de tailed critique of Mr. Sumner’s anal ysis in our rebuttal submission.  
Here, we limit our comments to two points. 
 
122. First, as with the budgetary outlays approach favoured by Brazil, this per unit rate of support 
analysis ascribes to the United States choices made by  producers themselves.  For example, the first 
line of Sumner’s analysis of the deficiency payment programme stated: “The following qualifications and adjustments must [] be made to the level of support provided by the deficiency payment 
programme: (1) payments were made only if a farm chose to participate in the deficiency payment 
programme; in 1992, farms representing 11 per cent (1. 64 million acres) of the total ‘effective’ upland 
cotton acreage base (14.9 million acres) did not agree to participate in the programme and hence 
cotton production on this la nd could not receive support.”
67  Sumner makes a similar argument and 
adjustment for the 1992 loan rate.68 
 
123. Attempting to adjust the per unit rate of suppor t to take account of producers that chose not to 
participate in the programme is a serious conceptu al error.  In economic terms, a farmer that 
participated in the upland cotton programme receiv ed full programme benefits; a farmer who chose 
not to participate did not.  Averaging these numbers produces a “per unit rate of support” that no cotton farmer ever could have expected to receive. 
 
124. Nor could a Member have “decided” such a le vel of support.  In lega l terms, an individual 
producer’s choices on programme participation do not  reflect any decision by the US Government.  
Thus, estimated rates of support that reflect these producer decisions are not relevant to the Peace 
Clause analysis under Article 13(b)(ii).  We will discu ss other conceptual errors in Sumner’s approach 
in our rebuttal submission. 
 
125. In reviewing Sumner’s analysis, the United St ates was particularly struck by another point.  
The Panel may recall Brazil commenting at the first panel meeting that Sumner’s calculations were 
not entirely unfavourable to the US position.  A look at Appendix Table 1 to Sumner’s statement (Exhibit BRA-105) reveals why.   
 
126. Even using Sumner’s flawed calculations, if one excludes the non-product-specific support that Brazil is attempting to “allocate” to upland co tton from the table, Sumner’s analysis supports the 
United States, not Brazil.  That is, Sumner ’s estimated per unit rate of support was lower  in every year 
from marketing year 1999 through marketing year 2002 than the level of support during marketing 
year 1992: 
 
                                                     
 
67Exhibit BRA-105 (Statement of Mr. Daniel Sumner, para. 10) (emphasis added). 
68Exhibit BRA-105 (Statement of Mr. Daniel Sumner, para. 12). WT/DS267/R/Add.2 
Page I-106  
 
 
Product-Specific Support in Sumner’ s per Unit Subsidy Rates (Cents per Pound) by Programme and Year 
 
  
MY1992  
MY1999  
MY2000  
MY2001  
MY2001 
 
Marketing Loan  
44.34  
50.36  
50.36  
50.36  
52.00 
 
Deficiency  
13.25  
na  
na  
na  
na 
 
Step 2  
2.46  
2.46  
2.46  
2.46  
3.71 
 
Cottonseed  
na  
0.97  
2.27  
na  
0.6169 
 
Total   
60.05  
53.79  
55.09  
52.82  
56.32 
 
 127. Thus, even were one to accept for purposes of argument Sumner’s approach, comparing the 
product-specific support the challenged measures gran t to the product-specific support decided during 
marketing year 1992 reveals that in no marketing year from 1999 through 2002 did the level of 
support exceed the marketing year 1992 level .  Under Article 13(b)(ii), then, Sumner’s own analysis 
reveals that US domestic support measures that c onform fully to the provisions of Article 6 are 
exempt from actions based on Peace Clause-specified WTO subsidies provisions. 
 
67. The Panel requests the parties to calculate and submit estimates of  the AMS for upland 
cotton  for marketing years 1992, 1999, 2000, 2001 and 2002.  For this purpose the parties are each requested to submit AMS calculations for upland cotton (using the 
budgetary-outlay/non-price gap  methodology employed by the United States in  respect of cotton in its DS Notifications (e.g., G/AG/N/USA/43) and using the formats and 
supporting tables in document G/AG/2) on the same basis as would be the case in 
calculating a product specific AMS for the purposes of the calculation of the "Total Current AMS" in any year in accordance with the relevant provisions, including as appropriate Article 1(a), (b) and (h), Article 6 and Annex 3 to the Agreement.  BRA, USA  
 
128. The United States has calculated a product-sp ecific Aggregate Measurement of Support for 
upland cotton for marketing years 1992, 1999, 2000, 2001 , and 2002, as explained below.  This table 
summarizes the results of those calculations, and the following paragraphs provide additional detail: 
 
 
US Upland Cotton Aggregate Measurement of Support  
 
Marketing Year   
AMS (US $, millions)  
 
1992  
2,085 
 
1999  
2,262 
 
2000  
1,057 
 
2001  
2,804 
  
                                                      
69The United States includes the cottonseed amount from the table without prejudice to our preliminary 
ruling request that the Panel find the 2003 cottonseed pa yment not to be within the scope of this dispute. WT/DS267/R/Add.2 
Page I-107 
 
 
 
US Upland Cotton Aggregate Measurement of Support  
200270 970 
 
129. For marketing year 1992, the United States has used official data on budgetary outlays71 to 
calculate the upland cotton Aggregate Measurement  of Support, except for other product-specific 
support in the form of storage payments and inter est subsidies.  The latter payment amounts are based 
on estimates by the US Department of Agriculture.  The calculations, in millions of US dollars, are as 
follows:  
 
Crop year 1992 (estimate)  
Payments  
Source 
 
 Deficiency payments  
1,017  
US Department of Agriculture (USDA), Upland Cotton 
Fact Sheet (Ex. Bra-4) 
 
 Marketing loan gains /  
 Certificate exchange gains  
476  
USDA budget data (Ex. Bra-6) 
 
 Loan deficiency payments  
268  
USDA budget data (Ex. Bra-76) 
 
 User marketing certificates  
207  
USDA, Upland Cotton Fact Sheet (Ex. Bra-4) 
 
 Commodity loan forfeit  
(5)  
USDA estimate 
 
 Other payments  
122  
USDA estimate of storage payments & interest subsidy 
 
Product-Specific AMS  
2,085  
 
  130. To calculate the upland cotton Aggregate Measu rement of Support for marketing year 1999, 
the United States has used official budgetary outlays  data for loan deficiency payments, marketing 
loan gains, certificate exchange gains, user ma rketing certificates, and the 1999 crop year cottonseed 
payment.  For storage payments and interest subsid ies, we have used estimates by the US Department 
of Agriculture as notified to the WTO.  The calcula tions, in millions of US dollars, are as follows: 
                                                                                                                                                                    
 
70As explained further below, the United States ha s calculated the 2002 Ag gregate Measurement of 
Support for upland cotton as of the date of panel establishment, 18 March 2003. 
71In light of the question from the Panel, we have used budgetary outlays to estimate payments. WT/DS267/R/Add.2 
Page I-108  
 
 
 
Crop year 1999  
Payments  
Source 
 
 Marketing loan gains/ 
 Certificate exchange gains  
860  
USDA budget data (Ex. Bra-55) 
 
 Loan deficiency payments  
685  
USDA, Upland Cotton Fact Sheet (Ex. Bra-4) 
 
 User marketing certificates  
422  
USDA, Upland Cotton Fact Sheet (Ex. Bra-4) 
 
 Cottonseed payments  
79  
G/AG/N/USA/43 
 
 Other payments  
216  
USDA estimate of storage payments & interest subsidy 
(G/AG/N/USA/43) 
 
Product-Specific AMS  
2,262  
 
 131. To calculate the upland cotton Aggregate Measu rement of Support for marketing year 2000, 
the United States has again used official budgetary  outlays data for loan deficiency payments, 
marketing loan gains, certificate exchange gains, and user marketing certificates; the amounts set by 
legislation for the 2000 crop year cottonseed paymen ts; and estimates by the US Department of 
Agriculture for storage payments and interest  subsidies.  The calculations are as follows: 
 
 
Crop year 2000 (estimate)  
Payments  
Source 
 
 Marketing loan gains  
61 
  
USDA budget data (www. fsa.usda.gov/dam/ 
BUD/estimatesbook.htm)72 
 
 Loan deficiency payments  
152  
USDA, Upland Cotton Fact Sheet (Ex. Bra-4) 
 
 User marketing certificates  
236  
USDA, Upland Cotton Fact Sheet (Ex. Bra-4) 
 
 Cottonseed payments  
185  
Public Law 106-224, § 204(e) (20 June 2000); Public Law 
107-25, § 6 (13 Aug. 2001) 
 
 Certificate exchange gains  
360  
USDA budget data (www. fsa.usda.gov/dam/ 
BUD/estimatesbook.htm) 
 
 Other payments  
63  
USDA estimate of storage payments & interest subsidy 
 
Product-Specific AMS  
1,057   
 
 
132. For marketing year 2001, the United States ha s used estimates by the US Department of 
Agriculture for storage payments and interest subsid ies and official data on budgetary outlays for all 
other payments to calculate the upland cotton Aggr egate Measurement of Support.  The calculations, 
in millions of US dollars, are as follows:  
                                                     
 
72Exhibit US-18. WT/DS267/R/Add.2 
Page I-109 
 
 
 
Crop year 2001 (estimate)  
Payments  
Source 
 
 Marketing loan gains  
47  
USDA budget data (www. fsa.usda.gov/dam/ 
BUD/estimatesbook.htm) 
 
 Loan deficiency payments  
744  
USDA budget data (Ex. Bra-76) 
 
 User marketing certificates  
196  
USDA, Upland Cotton Fact Sheet (Ex. Bra-4) 
 
 Certificate exchange gains  
1,750   
USDA budget data (www. fsa.usda.gov/dam/ 
BUD/estimatesbook.htm) 
 
 Other payments  
68  
USDA estimate of storage payments & interest subsidy  
 
Product-Specific AMS  
2,805   
 
 
 133. For crop year 2002, the United States has provi ded unofficial data on budgetary outlays as of 
18 March 2003, the date of establishment of the Pane l, for marketing loan gains, certificate exchange 
gains, loan deficiency payments, and user marke ting certificates.  Because the crop year has just 
ended (as of 31 July 2003), official budgetary outlay data is not yet available.  For the 2002 crop year 
cottonseed payment, the United Stat es has used the amount set by legislation ($50 million).  We use a 
crop-year’s-end estimate by the US Department of Agriculture for storage payments and interest 
subsidies.  The calculation, in millions of US dollars, is as follows:  
 
 
Crop year 2002 (estimate as 
of panel establishment)  
Payments  
Source 
 
 Marketing loan gains/ 
 Certificate exchange gains  
563  
USDA unofficial data (www.fsa.usda.gov/ 
pscad/answer82rnat.asp (18 March 2003))73 
 
 Loan deficiency payments  
202  
USDA unofficial data (www.fsa.usda.gov/ 
pscad/answer82rnat.asp (18 March 2003))  
 
 User marketing certificates  
137  
USDA unofficial data  
 
 Other payments  
68  
USDA estimate of storage payments & interest subsidy  
 
Product-Specific AMS  
970  
 
   
 134. We note that it would not be appropriate for the Panel to examine payments made after the 
date of panel establishment, on which the Panel’s terms of reference were set.  Measures taken after the Panel was established cannot be within the Panel’ s terms of reference.  However, for the Panel’s 
convenience, we have also estimated an Aggregat e Measurement of Support for the entire crop year 
2002, using US Department of Agriculture projections  of all payments with respect to the 2002 crop 
                                                     
 
73See Exhibit US-19 (Marketing Year 2002 Loan De ficiency Payment and Pr ice Support Cumulative 
Activity As of 3/12/2003).  Upland cotton data is shown in the row marked “UP.”  The loan deficiency payment 
amount is shown in the third column, and the marketing loan gain and certificate exchange gain amounts are shown in the eighth column (second from left).  This Report, the PSL-82R, provides weekly, unofficial data.  
Brazil provided the same report as Bra-55 but chose to  present the report with data as of 13 June 2003. WT/DS267/R/Add.2 
Page I-110  
 
year.  These projections show no dramatic change  from the unofficial budgetary outlays as of 
18 March.  The full-year 2002 crop year estimat e, in millions of US dollars, is as follows: 
 
 
 
Crop year 2002 (full-year 
estimate)  
Payments  
Source 
 
 Marketing loan gains  
11  
USDA estimate (www.fsa.usda.g ov/dam/BUD/estimatesbook.htm)74 
 
 Loan deficiency payments  
206  
USDA estimate (www.fsa.usda.g ov/dam/BUD/estimatesbook.htm) 
 
 User marketing certificates  
217  
USDA estimate (www.fsa.usda.gov/ dam/ BUD/estimatesbook.htm) 
 
 Cottonseed payments  
50  
Public Law 108-7, § 206 (24 Feb. 2003) 
 
 Certificate exchange gains  
701  
USDA estimate (www.fsa.usda.g ov/dam/BUD/estimatesbook.htm) 
 
 Other payments  
65 USDA estimate of storage payments & interest subsidy 
 
Product-Specific AMS  
1,250  
 
 
 
68. Could you please clarify the result of the calc ulations of, and the meaning of the title, in 
Appendix Table 1 "Estimated per unit Subs idy Rates by Programme and Year" in 
Annex 2 to Exhibit BRA-105, page 12.   Why are the numbers calculated for marketing loans considered to be subsidies?   Could the Panel, for example, read the "total level of 
support" (bottom line of the table) as the e ffective support price for upland cotton or the 
maximum rate of support for upland cotton? BRA, USA  
 
135. The United States looks forward to reviewing Br azil’s explanation of its Appendix Table 1 to 
Annex 2 to Exhibit BRA-105.  
69. Can the United States confirm that the "mar keting year" for upland cotton is 1 August  
to 31 July ?  Can the United States confirm the Panel's understanding that USDA data 
for the "crop year" corresponds to the "marketing year"? USA  
 
136. The United States confirms that the "marke ting year" for upland cotton is 1 August  to 
31 July.
75  In response to a question from the Panel at the first meeting, we also communicate that 
payments listed in the Upland Cotton Fact Sheet (Ex.  Bra-4) are for monies spent with respect to 
cotton harvested in a particular crop year, not n ecessarily for payments made during the marketing 
year.  
EXPORT CREDIT GUARANTEE PROGRAMMES  
 
71. (a) Is an export credit guarantee a financia l contribution in the form of a "potential 
direct transfer of funds or liabilities (e.g. loan guarantee)" within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement? Why or why not? Does it confer a benefit within the meaning of Article 1.1(b)? Why or why not? If so, to whom? USA 
 
                                                     
 
74Exhibit US-19. 
757 Code of Federal Regulations 1412.103. WT/DS267/R/Add.2 
Page I-111 
 
 
 (b) How, if at all, would these elements be  relevant to the claims of Brazil, and the 
United States response thereto?  BRA, USA  
 
137. (a)  For the reasons stated in its first written submission76 and in response to Question 71(b), 
the United States does not believe that the appropria te analysis of the US export credit guarantee 
programme should begin with the Subsidies Agreement,  much less Article 1of that Agreement.  The 
text of Article 10.2 defers WTO obligations  for export credit guarantees until disciplines are 
internationally agreed, such as within the OECD or WTO.  Under the Agriculture Agreement, the 
provisions of the Subsidies Agreement “apply s ubject to the provisions of this Agreement,”77 and the 
export subsidy disciplines of Article 3.1(a) of the Subsidies Agreement expressly apply “[e]xcept as 
provided in the Agreement on Agriculture.”78  Thus, the appropriate analysis would begin and end 
with Agriculture Agreement Article 10.2.  138. Even were the Subsidies Agreement relevant to US export credit guarantees, given that export 
credit guarantees are covered by item (j) of the Illust rative List of Export Subsidies, the appropriate 
mode of analysis under the Subsidies Agreement is  to examine whether the programme is covering its 
long-term operating costs and losses.  139. (b)  Article 3 of the SCM Agreement specifica lly states that Article 3.1(a), prohibiting export 
subsidies, applies “[e]xcept as provided in the Ag reement on Agriculture”.  Article 21.1 of the 
Agriculture Agreement states that “[t]he provisi ons of GATT 1994 and of other Multilateral Trade 
Agreements in Annex 1A to the WTO Agreement sh all apply subject to the provisions of this 
Agreement”.  Under Article 10.2 of the Agreem ent on Agriculture, the negotiators specifically 
deferred the application of e xport subsidy disciplines on agricultural export credit guarantee 
programmes like those of the United States.  Any incidental “benefit” of any such measures is 
therefore irrelevant.  Similarly, even if a pa rticular (non-export credit) measure comprised a 
contribution and conferred a bene fit for purposes of the Subsidies Agreement, to the extent the 
resulting subsidy was contingent on export perform ance, such export subsidy might nevertheless be 
permitted under the Agreement on Agriculture if  within a Member’s applicable reduction 
commitment.    
73. The Panel could arguably take the view that Articles 1 and 3 of the SCM Agreement 
were relevant in assessing the WTO-consistency of United States export credit 
guarantees.  The United States has yet to submit any evidence or argumentation on this point, either as potential co ntext for interpretation of the terms in Article 10 of the 
Agreement on Agriculture or in relation to Brazil's claims under the  SCM Agreement.   
The Panel would therefore appreciate United St ates views in respect of this situation, 
and invites the United States to submit relevant argumentation and evidence. USA  
 
140. The United States does not believe that Braz il has submitted evidence and argumentation that 
would establish a prima facie  case in favour of Brazil’s claims, in particular in light of Article 10.2 of 
the Agriculture Agreement.  However, the Unite d States will review Brazil’s submissions, including 
its responses to these questions, and provide an y further response in the US submission. 
 
74. If the Panel decides to refer to provisi ons of the SCM Agreement for contextual 
guidance in the interpretation of the terms in Article 10 of the Agreement on Agriculture, should the Panel refer to item (j) or Articles 1 and 3 of the SCM Agreement or both? BRA, USA  
 
                                                     
 
76US First Written Submission, paras. 167-170. 
77Agriculture Agreement, Article 21.1. 
78Subsidies Agreement, Article 3.1. WT/DS267/R/Add.2 
Page I-112  
 
141. As the United States has argued, the first point of analysis is Article 10.2 of the Agreement on 
Agriculture, in which Members agreed that they  would only provide expo rt credit guarantees in 
conformity with internationally agreed disciplin es, which they undertook to develop.  That is, 
Article 10.2 indicates that no “internationally agreed disciplines” currently exist.  The obligation with 
respect to export credit guarantees is, in effect, a work programme to establish a future discipline.  
Brazil has not contested that challenged US expor t credit guarantee programmes are within the scope 
of Article 10.2.  Therefore, neither item (j) nor  Articles 1 and 3 of the Subsidies Agreement are 
relevant to the Panel’s analysis of  Article 10.2.  We do note, however, that item (j) of the Illustrative 
List of Export Subsidies was agreed in the Uruguay R ound, and, in fact, had previously formed part of 
the Illustrative List under the Tokyo Round Subsidies Code.  Thus, the fact that Members had agreed 
on item (j) and yet, in Article 10.2, agreed to “undertake to work toward the development  of 
internationally agreed disciplines to govern the pr ovision of export credits, export credit guarantees” 
and, once agreed, only to provide export credit guarantee programmes “in conformity with” such 
developed and agreed disciplines, suggests that item (j) does not impose disciplines on export credit 
guarantees for agricultural goods. 
 
142. Context for Article 10 is found in Article  9.1 of the Agreement on Agriculture, which 
describes specific practices that constitute e xport subsidies for purposes of the Agreement on 
Agriculture.  Export credit guarantees were not lis ted among such practices.  As to the practices 
described in Article 9.1, no recourse is necessary to Articles 1 and 3 of the SCM Agreement to determine whether a particular practice is an expo rt subsidy.  Article 1(e) of the Agreement on 
Agriculture defines an export subsidy only as a subsidy contingent on export performance.  To 
determine the applicability of Article 10.1 to a par ticular measure not described in Article 9.1 first 
requires a determination whether a subsidy exists.  In this regard, Article 1of the SCM Agreement 
would provide relevant context.  75. The Panel's attention has been drawn to Ar ticle 14(c) of the SCM Agreement (see e.g. 
written third party submission of Canada) and to the panel report in DS 222 Canada- Export Credits and Loan Guarantees.  How an d to what extent are Article 14(c) of the 
SCM Agreement, and the cited panel report, relevant to the issue of whether or not the United States export credit guarantee programmes confer a "benefit"?  What would be the appropriate market benchmark to use for any comparison?  Please cite any other 
relevant material. BRA, USA  
 
143. For reasons set out in more detail in the US answer to Question 71(b) and Question 71(c) 
from the Panel, the United States does not believe that Ar ticle 14(c) is relevant to the Panel’s analysis.  
An appropriate analysis of the US export cr edit guarantee programme begins and ends with 
Article 10.2 of the Agreement on Agriculture.  Even  were the Subsidies Agreement relevant to US 
export credit guarantees, the only appropriate mode of  analysis under the Subsidies Agreement is to 
examine whether US export credit guarantee progra mmes are covering their long-term operating costs 
and losses under item (j) of the Illustrative List of Export Subsidies.  
76. How does the United States respond to Braz il's statement that :  "...export credit 
guarantees for exports of agricultural export s [sic] are not available on the marketplace 
by commercial lenders."?  USA  
 
144. Brazil is incorrect.  Commercial insurers do offer export credit insurance covering agricultural 
commodities.  According to a background paper on export credits prepared by the WTO Secretariat, 
“While guarantees could be unconditional, they usually have conditions attached to them, so that in 
practice there is little distinction between credits which are guaranteed and credits which are subject 
to insurance.”
79  However, for the sake of completeness we wi sh to note that such private insurance is 
structured differently than CCC credit guarantees.  Most commonly, private insurers offer portfolio 
                                                      
79See Export Credits and Related Facilities , G/AG/NG/S/13 (26 June 2000).  WT/DS267/R/Add.2 
Page I-113 
 
 
coverage, covering multiple customers and transac tions for a particular exporter.  Because the 
coverage is not based on individual transactions  (like CCC’s coverage), it may be difficult or 
impossible to discern which particular transactions involve agricultural commodities.  
77. How does the United States interpretation of  "long term operating costs and losses" in 
item (j) as claims paid give meaning to bo th "costs" and "losses"?  Do claims paid 
represent "losses" or "costs" or both?  If cl aims paid is represented by "losses", what 
would go into the "cost" element of item (j)?  Could the United States expand on why it disagrees with the items which Brazil identifi es for inclusion in the examination to be 
conducted under item (j)?  USA  
 
145. Item (j) applies to three different typ es of programmes: export credits, export credit 
guarantees, and insurance.  In the case of the la tter two types of programmes, the provider will 
necessarily incur claims from time to time.  In th e case of direct export credits (the first type of 
programme), the provider will experience defaults on o ccasion.  To the extent such claims or defaults 
exceed revenue from whatever source it may be deri ved, the net result would be a loss arising from 
operations.  In an accounting sense such r esult would constitute an "operating loss." 
 146. In addition, it is appropriate to identif y and allocate costs necessary to operate such 
programmes.  For example, the Unite d States agrees that certain administrative expenses should be 
allocated to the operation of the export credit guarantee programmes, a nd an annual figure is 
attributed as administrative expense in the budget of the United States.  Other costs necessary for the 
operation of a programme would constitute  "operating costs" of such programme.   
 147. Were item (j) to be relevant in this dispute,  therefore, that item compels an examination of 
losses derived from the operation of the programme plus the costs necessarily allocable to the 
programme for its operation.  In the case of US export credit guarantee programmes, as reflected in 
paragraph 173 and accompanying tables of the US first written submission, the Commodity Credit 
Corporation (CCC) charges and receives premiums  from applicants.  In addition, CCC receives 
post-claim revenue through late paymen ts and rescheduling.  As reflected in the tables, with respect to 
cotton, such revenue exceeds the relevant claims experience.  The United States has, therefore, not 
incurred an operating loss. 
 
148. It is appropriate to allocate operating costs of  the programme in the final analysis within the 
meaning of item (j).  The United States disagrees,  however, with the allega tion of Brazil concerning 
interest allocation and the manner in which it attempts to ascribe figures from the US budget to 
operating costs for purposes of item (j).  These items are addressed specifically in the US response to 
Question 81 from the Panel. 
 
78. Can the United States provide supporting documentation for data used relating to 
"costs and losses" in paragraph 173?  Could the United States confirm that the figures cited in paragraph 173 of its first written submission relate to the SCGP? Why did the 
United States cite these figures after stating that it is not possible to make any 
assessment of the long-term operating co sts and losses of this programme?  USA  
 
149. The United States maintains a comprehensive electronic data base of export credit guarantee 
programme activity.  The data base is updated on a re gular basis and is the source of the data shown in 
paragraph 173 and accompanying table.  Data is r ecorded in the system at the time of each 
transaction.  These include such items as claim pa yments, recoveries, rescheduling agreements, and 
fees received.  150. As indicated in the tables accompanying pa ragraph 173, the figures s hown in paragraph 173 
relate to GSM-102 in the first table and SCGP in  the second table.  During the ten fiscal years 
reflected in the tables, no GSM-103 export credit gua rantees were issued with respect to cotton. WT/DS267/R/Add.2 
Page I-114  
 
 
79. In respect of what time periods does Arti cle 13(c) require an assessment of conformity 
with Part V of the Agreement on Agriculture?   How does this affect, if at all, your 
interpretation of Article 13(b)? BRA, USA  
 151. Article 13(c) applies to “export subsidies that c onform fully to the provisions of Part V of th[e 
Agriculture] Agreement, as reflected in each Member 's Schedule.”  Part V of the Agreement, and in 
particular Article 8, establishes that “Each Me mber undertakes not to provide export subsidies 
otherwise than in conformity with this Agreemen t and with the commitments as specified in that 
Member's Schedule.”  Those export subsidy redu ction commitments, which are expressed in both 
export quantity and budgetary outlay terms, apply on a yearly basis.
80  Accordingly, a Member may 
be in conformity one year and not in conformity in  another with regard to any particular commodity 
subject to reduction commitments.    152. If a Member has provided export subsidies to a particular commodity in any one year in 
excess of the applicable reduction commitments, th en export subsidies for that commodity during 
such year would not “conform fully to the provisions of Part V”, and those subsidies would not have Peace Clause protection.  In a subsequent year, a Member may again comply with its export subsidy 
commitments.  Its export subsidies would then conf orm fully to Part V of the Agreement and would 
again receive Peace Clause protection.  
153. Similarly, a failure by a Member to comply in  a given year with the criteria in Article 13(b) 
would lift the exemption from action for those dom estic support measures only for the year of the 
breach.  Measures (subsidies) in a later year would remain exempt from action so long as those measures in the given year comply with the conditi ons in Article 13(b)(ii).  This conclusion flows 
from the text of the Peace Clau se (measures must conform to Article 6, and Members’ final bound 
commitment levels are expressed in yearly terms) as well as the nature of the subsidies challenged by 
Brazil (recurring subsidies that are provided yearly and expensed in the year given).  For further 
explanation of the US interpretation of Article 13(b), please see the US answers to Questions 33 and 
35 from the Panel.  
81. How does the United States respond to th e following in Brazil's oral statement: USA 
 
 (a) paragraph 122 (rescheduled guarantees)  
 
154. Brazil is correct to assert "debt rescheduli ng does not involve any reduction in the value of 
outstanding debt".  A rescheduling does not involve de bt forgiveness.  As reflected in the terms of the 
various rescheduling agreements, outstanding inter est is capitalized, and interest accrues on such 
capitalized interest as well as on outstanding principal.   Further, the United States expects to recover 
in full pursuant to such rescheduling.    155. Therefore, from an accounting perspective, rescheduled amounts are counted as receivables , 
not losses, and are reflected as such in paragraph 173 of the US First Written Submission.  Contrary to 
the assertion of Brazil, the United States does in fa ct collect on the rescheduling.  The history of 
rescheduled Commodity Credit Corporation (CCC) export credit guarantee claims over the long-term 
(the 10-year period 1993-2002) c onfirms this position.  All rescheduled claims are currently 
performing.  In other words, all payments due up to this point under these agreements have been 
received. 
 
                                                     
 
80With the exception of Agriculture Agreement Article 9.2(b), which is no longer applicable. WT/DS267/R/Add.2 
Page I-115 
 
 
 (c) paragraphs 125 ff. (guaranteed loan subsidy)81 
 
156. The Credit Reform Act of 1990 establishes the procedures and parameters for US credit and 
credit guarantee programmes.  In accordance with the provisions of that Act, the budgeting and accounting for US credit programmes, including the CCC export credit guarantee programmes, are 
based on the estimated lifetime costs to the Federal G overnment of making the credit available.  In the 
case of credit guarantees, those costs are based on estimated payments by the Government to cover defaults and delinquencies, interest subsidies,  and other requirements, and payments to the 
Government, including origination and ot her fees, penalties, and recoveries.  
 
157. In presenting the annual budget, the subs idy costs of the programme reflect an estimate  of the 
long-term costs to the Government.  This estimate reflects various assumptions regarding credit risk, interest costs, and other factors that will apply over the lifetime period of the credit. At the time the budget is prepared, these costs are presented as estimates  as of the date the budget is prepared – that 
is, they are a snapshot of the estimated costs.  In  fact, Brazil acknowledges in paragraph 125 of its oral 
statement that the "guaranteed loan subsidy" entry in the annual US budget is an estimate of the cost 
of the guarantees projected to be issued.  158. A fundamental tenet of credit reform accounti ng is the requirement that the performance of 
the credit be tracked over its lifetime.  This is accomplished by tracking each cohort of credit until the 
credit period has expired or lapsed.  A cohort consists  of all transactions associated with each type of 
guarantee issued during a particular year – for example, all guarantees issued during fiscal year 2002 
comprise a distinct cohort.  159. Activity (disbursement, repayment, claims, et c.) occurs within a given cohort over the life of 
all guarantees that were disbursed against that cohor t.  To view the data and activity strictly on an 
annual basis and not by cohort limits the utility of th e data and distorts the costs of the programme.  
Not until the cohort is closed can one make an assess ment as to whether or not that particular cohort 
represents a cost to the Federal Government.  160. All cohorts for the CCC export credit gua rantee programmes under cr edit reform are still 
open although cohorts for 1994 and 1995 should close this year.  At present, the 1994 cohort has a 
total net downward subsidy re-estim ate of $116 million.  The original subsidy cost estimate for the 
1994 programme was $123 million; thus, applying the downward re-estimate, the net cost of the 
programme to the US Government is currently pr ojected at $7 million.  The 1995 cohort has a total 
net downward subsidy re-estimate of $149 million, versus an orig inal subsidy estimate of $113 
million.  Thus, the net cost of the 1995 programme is a receipt of $36 million to the US Government.  
For 1994 and 1995 together, the total net receipt  to the US Government is $29 million.   
 161. The experience of 1994 and 1995 is viewed as representative of the costs of the CCC export 
credit programmes generally, and it is expected that, once the cohorts for other years of credit activity 
are closed, they will follow closely the experience of the 1994 and 1995 programmes. 
  (d) paragraphs 127-129 (re-estimates, etc.)   
162. As discussed in response to Question 81( c), it is necessary to understand the difference 
between activity that occurs on a fiscal year basi s as opposed to the estimates and re-estimates of 
subsidy that calculate net present value over th e life of the programme.  Although estimates and 
re-estimates are made annually for each cohort, these include both actual data to date and estimates of 
future activity for the remainder of the life of the cohort.  
 
                                                     
 
81The US answer to Question 81(b) follows the an swer 81(d), which discusses budget re-estimates. WT/DS267/R/Add.2 
Page I-116  
 
163. With the exception of 2002, all cohorts for annual export credit programming since the 
inception of credit reform accounting in 1992, have a cumulative downward re-estimate.  The net total 
for all cohorts for guarantees issued since 1992 cu rrently stands at a downward re-estimate of 
$1.9 billion.  This experience with re-estimates  indicates that performance under the programme has 
been better than originally project ed and that the original cost es timates for those programming years 
as presented in the annual US budget were too high.  This experience also demonstrates that the 
assertion by Brazil at paragraph 129 of its oral statemen t that the original estimate of "guaranteed loan 
subsidy" line in the budget is an "ideal basis" for determining the costs of the programme is in error.  
Those estimates will be re-estimated on an annu al basis until each cohort is closed and, as 
demonstrated above, to date the re-estimates for each cohort on a net b asis have been almost 
exclusively downward. 
 
 (b) paragraph 123 (interest on debt to Treasury) 
 
164. Under the guidelines for credit reform budgetin g as established in the Credit Reform Act of 
1990, there are two kinds of interest calculations that affect the CCC export guarantee programmes.  
These calculations are "snapshots" in time and w ill change annually for a cohort until the cohort has 
closed.  Therefore, any one number shown in the bu dget for a given year is an estimate. The actual 
cost of the programme can be determined only when all financial activity for the cohort is completed. 
 165. An interest rate re-estimate is a component of the annual re-estimates of a cohort, which are 
made for as long as the guarantees are outstanding.  The interest rate re-estimate calculates the 
difference between the estimated interest at th e time the guarantee programme was budgeted and the 
actual interest at the time the guarantee is disbursed.  If the actual interest is higher, the additional cost 
is shown in the programme account as a re-estimate.  It should be noted that this cost would change 
with subsequent re-estimates in future years de pending on the timing of the guarantee disbursement. 
 
166. Interest on borrowings occurs in the financ ing account only if additional funds beyond those 
budgeted for a cohort is needed to pay claims. Agai n, these costs will vary from year to year as 
borrowings with a particular cohort change and the interest rate varies.   167. It is important to understand that should any in terest on borrowings occur, they would be fully 
reflected in the costs attributed to the individual cohort.  Thus, as the costs of the cohort are adjusted 
during the period it is active, any costs associated wi th the interest on borrowings are fully reflected in 
the programme costs.  It is, therefore, incorrect to state as Brazil asserts in paragraph 123 that those 
payments are not fully reflected in the ope rating costs of the CCC export credit guarantee 
programmes. 
 
 (e) Exhibits BRA-125-127  
 
168. Exhibits BRA-125-127 are pages from th e Budget Estimates for the United States 
Government for fiscal years 1994, 1995, and 2004.  These particular pages show one aspect of the 
budgeting for the CCC export credit guarantee progra mmes, the Export Loans Programme Account.  
In and of themselves, they do not reflect all aspect s of the budgeting and financing transactions for the 
programmes.  For example, Exhibit 127 for the fi scal year 2004 budget estimates excludes the Export 
Guarantee Financing Account, which appears on th e following page.  The data presented in the 
financing account is important because it presen ts information on both downward and upward 
re-estimates for the programme. 
 WT/DS267/R/Add.2 
Page I-117 
 
 
 (f) the chart on page 53 of Brazil's oral statement at the first session of the first 
Panel meeting relating to "Guaranteed Loan Subsidy and Administrative Expenses of US Export Credit Guar antee Programmes GSM-102 GSM 103 and 
SCGP"? 
 
169. The table on page 53 of Brazil's oral statemen t at the first panel meeting presents information 
on budget estimates for the CCC export credit progr ammes for fiscal years 1992 through 2004.  The 
data presented in the table are correct.  However, as discussed previously in the answers to questions 
81(c) and 81(d) above, the "guaranteed loan subsidy" is a snapshot estimate of the lifetime costs of the 
guarantees issued during the course of a given fiscal year.  As the cohorts for those guarantees are 
reviewed annually over their lifetime, those estimates  will change and, until the cohorts are closed 
out, the estimated costs of the programmes are simply that, estimates.  Accordingly, Brazil is incorrect 
in asserting in paragraph 132 of its oral statement th at, because the guaranteed loan subsidy line of the 
annual budget has always reflected a positive net presen t value, that fact indicates the programmes are 
"extending a subsidy to borrowers".  That statemen t misinterprets and misrepresents the information 
presented in the budget. 
 170. In addition, Brazil makes a statement in para graph 131 of its oral presentation with regard to 
the table on page 53 that likewise is incorrect.  Brazil  asserts that the column heading in the budget for 
the last completed fiscal year represents "actual" co sts for the programme for that particular year.  In 
fact, the numbers appearing in that colu mn simply represent the latest, revised estimate  of the costs of 
the programme for the fiscal year just completed.  The estimate of those costs will change over the 
lifetime of the credit as the cohort for that year is tr acked.  The term "actual" is used in the column 
because the revised estimate is based on an actual level of guarantees issued by CCC during the year 
just completed.    
171. Frequently, the level of guarantees issued by CCC in any given year is less than the level 
projected in the original budget for that year.  In the case of the 2002 budget that was released in 
February 2001, it projected that $3.9 billion of guarantees would be issued by CCC during that year.  
However, only $3.4 billion of guarantees were actually issued.  Thus, the estimate of programme costs 
in 2002 column of the 2004 budget has been revised to reflect that actual level of activity.  Nevertheless, the cost presented in the column rema ins an estimate, and the estimate will continue to 
be revised as long as the cohort for 2002 remains active.  
 172. With respect to the "administrative expenses" that are displayed in the table on page 53 of 
Brazil's oral statement, the United States has noted elsewhere that those are imputed costs ascribed to 
the operation of the CCC export credit programmes as a whole. 
 
 (g) In respect of (a)-(f) above, how and to what extent do the information and data 
presented for the export guarantee programmes concerning "programme" and "financing", "summary of loan levels", "subsidy budget authority", "outlay levels", etc., in particular in Exhibi ts BRA-125-127, reflect "actual costs and 
losses" of the GSM-102, GSM-102 and SCGP export credit guarantee 
programmes (see e.g. Brazil's closing oral statement at the first session of the 
first substantive meeting, paragraph 24)? USA  
 
173. The closing oral statement of Brazil at the fi rst session of the first substantive meeting of the 
Panel, and paragraph 24 in particular, display a fundamental misunderstanding of the budget and 
accounting for the CCC export credit programmes.  Contrary  to what is asserted in that paragraph, the 
information presented in the annual budget of the Un ited States does in fact represent estimates of the 
lifetime costs of the programmes.   Those estimates are being revi sed annually to reflect actual 
performance and, until the cohorts for the annual pr ogrammes have been clos ed out, the actual costs 
cannot be determined definitively.  However, as  demonstrated in response to Question 81(d), the WT/DS267/R/Add.2 
Page I-118  
 
re-estimates thus far have resulted in a net reduc tion in the estimated costs of these programmes of 
over $1.9 billion since the inception of credit reform budgeting in fiscal year 1992.  174. Further, as discussed in response to Question 81(c), the combined net costs of the cohorts 
associated with the 1994 and 1995 guarantee programmes, which are expected to close this year, are a 
receipt of $29 million to the Federal Government.  Based on those results, the Brazilian claim in 
paragraph 24 that "operating costs and losses for GSM 102, GSM 103, and SCGP have outpaced 
premiums collected in every single  year since the United States started applying the formula in 1992" 
is not supportable.  82. Please explain each of the following statemen ts and any possible significance it may have 
in respect of Brazil's claims about GS M-102 and GSM-103 (7 CFR 1493.10(a)(2), 
Exhibit BRA-38): BRA, USA  
 
 (a) "The programmes operate in cases where credit is necessary to increase or 
maintain US exports to a foreign mark et and where US financial institutions 
would be unwilling to provide financing without CCC's guarantee.  (7 CFR 1493.10(a)(2), Exhibit BRA-38)  
 
175. The export credit guarantee programmes are ge nerally made available in connection with 
middle-tier economies in which liquidity  is constricted.  In such cases,  cash sales for all suppliers are 
not occurring readily.  US financial institutions may face requirements regarding loan-loss reserves 
that impede their ability to lend.  
 (b) "The programmes are operated in a manner intended not to interfere with 
markets for cash sales.  The programm es are targeted towa rd those countries 
where the guarantee is necessary to secu re financing of the exports but which 
have sufficient financial strength so that foreign exchange will be available for scheduled payments."  (7 CFR 1493.10(a)(2) Exhibit BRA-38)  
 
176. The export credit guarantee programmes are inte nded to operate and indeed are applied in a 
manner not to displace cash sales.  As liquidity improves in certain countries, the use of the 
programme recedes.  This explains, in part, the dramatic reduction in US export credit guarantees 
since the years immediately preceding the inception of the WTO Agreement. 
 177. The following table shows the dollar value of  guarantees provided by the United States in US 
fiscal years 1992-1994, along with the average value of guarantees for fiscal years 1995 - 2002: 
 
 
 
Fiscal Year(s)   
Guarantee Value (Millions of USD)  
 
1992  
$5,671.8 
 
1993  
$3,853.7 
 
1994  
$3,177.4 
 1995 - 2002  
$3,061.9 
  
 (c) "In providing this credit guarant ee facility,  CCC seeks to expand market 
opportunities for US agricultural expo rters and assist long-term market WT/DS267/R/Add.2 
Page I-119 
 
 
development for US agricultural commodities." (7 CFR 1493.10(a)(2) Exhibit 
BRA-38)  
 
178. Although the goal of the export credit guarantee programmes is to expand market 
opportunities, such goal alone has no bearing on th e proper characterization of the programmes, the 
measures in dispute, or the conformity of the application of such programmes with the WTO 
obligations of the United States.  Moreover, the Unit ed States is statutorily compelled to be mindful 
not to provide any such guarantees in connection w ith any country that the Secretary of Agriculture 
determines cannot adequately service the debt associat ed with such sales, nor does the United States 
provide guarantees in connection with any foreign ba nk that it has not approved and with respect to 
which it has not established an exposure limit. 
 
84. Is the Panel correct in understanding that, under the GSM-102 and GSM-103 
programmes, the exporter pays a fee calculat ed on the dollar amount guaranteed, based 
on a schedule of rates applicable to different credit periods?  How and on what basis are 
the fee rates fixed?  Do the fee rates ever change?  If so, how and for what reason?  
Would it be necessary to amend the legislatio n and/or regulations in order to adjust the 
fee rates?  USA  
 
179. Fees paid by an exporter participating in  either the GSM-102 or GSM-103 programme vary 
by the guaranteed dollar value of the transaction, the repayment period, and the principal repayment 
interval (annual or semi-annual).  A schedule of current  fees is attached as Exhibit US-20.  Section 
211(b)(2) of the Agricultural Trade Act of 1978, 7 U.S.C. 5641(b)(2), limits the origination fee in 
connection with transactions under the GSM-102 progr amme, except for those transactions under the 
CCC Facility Guarantee Programme, to no more than  1 per cent of the amount of credit to be 
guaranteed.  There is no other legislation or  regulation addressing the specific fee rates. 
 
180. Other than the legislative restriction noted above, the CCC sets and changes the fee rates as it 
deems appropriate.  Fee rates are changed via a press announcement to the public.  The most recent 
change in guarantee fee rates occurred on 1 Oc tober 2002, at which time the fee schedule was 
modified to include rates for transactions with 30- and 60-day repayment periods.  Previously, the fee schedule had been adjusted to accommodate variab le interest rates as opposed to fixed rates.  
Legislative amendment is not required to change  the fee rates unless the rates for the GSM-102 
programme are to exceed 1 per cent of the guaranteed  dollar value of a transaction.  Neither is it 
necessary to amend the programme regulations in order to change the fee rates.  
85. Is the Panel correct in understanding that , under the SCGP, the exporter pays a fee for 
the guarantee calculated on the guaranteed po rtion of the value of the export sales? How 
and on what basis are the fee rates fixed?  Do  the fee rates ever change?  If so, how and 
for what reason?  Would it be necessary to amend the legislation and/or regulations in 
order to adjust the fee rates?  Please explain any "risk" assessment involved in the programme.  USA  
 181. Under the SCGP, the exporter pays a fee to  CCC based on the guaranteed dollar value of the 
export transaction and the repayment period.  Th e current guarantee fee rates are $0.45 per $100 of 
coverage for credit terms up to 90 days, and $0. 90 per $100 of coverage for credit terms up to 180 
days.  Section 211(b)(2) of the Agricultural Trade Act of 1978, 7 U.S.C. 5641(b)(2), limits the origination fee in connection with transactions unde r the SCGP to no more than 1 per cent of the 
amount of credit to be guaranteed.  There is no other legislation or regulation addressing the specific 
fee rates.  182. Other than the legislative restriction noted above, the CCC sets and changes the fee rates as it 
deems appropriate.  For example, fee rates for the SCGP were changed in US fiscal year 2000 
(beginning 1 October 1999) and set at their current leve l.  Prior to that time, the fee rate was $0.95 per WT/DS267/R/Add.2 
Page I-120  
 
$100 of coverage regardless of the repayment period .  The fee rates were changed to give exporters 
and importers an incentive to negotiate repayment terms of less than 180 days.  Legislative amendment is not required to change the fee rate s unless the rates for the SCGP are to exceed 1 per 
cent of the guaranteed dollar value of a transaction.  It is not necessary to amend the programme regulations in order to change the fee rates. 
 
183. CCC carries out a country risk assessment for each  country prior to announcing its eligibility 
for SCGP participation.  Country risk assessment  entails a review of the economic and political 
situation in each country to ensure there is a reas onable expectation that the country's importers will 
be able to repay debts incurred under the program me.  CCC does not determine the creditworthiness 
of importers participating in the SCGP.  CCC pr ovides a guarantee covering 65 per cent of the export 
transactions under the programme; the exporter or his assignee (US bank) must accept the remaining 
35 per cent of the transaction's risk.  This "ris k sharing" between CCC and the exporter/assignee is 
intended to ensure that due diligence is performed  in assessing an importer's creditworthiness before 
undertaking a transaction with that importer. 
 
86. Is there a risk categorization in relatio n to three export credit guarantee programmes 
(GSM-102, GSM-103 and SCGP)? Does this have any impact on premiums payable and the ability of the CCC to on-sell the guarantees ? USA  
 
184. All countries eligible for any of the CCC e xport credit guarantee programmes are categorized 
according to risk.  CCC categorization of countries is based on a US government internal risk 
classification system.  This system is administratively controlled and may not be released outside of the US Government.  A country's risk classification has no impact on the premiums payable under the US export credit guarantee programmes.  There is no secondary market for CCC guarantees; therefore, CCC does not "on-sell" the guarantees. 
 
87. What proportion of CCC (export-related and total) long term opera ting costs and losses 
are represented by GSM-102, GSM-103 and SCGP programmes? USA  
 
185. With the advent of the Credit Reform Act,  the export guarantee programmes are not financed 
out of the Commodity Credit Corporation.  While  the programmes continue to be run through the 
authorities and facilities of the CCC, all budget auth ority (funding) for the guarantee programmes is 
provided directly to accounts for those programmes from the US Treasury.  
88. (a) Is the Panel correct in understanding that the United States' argument is that, at 
present, by virtue of Article 10.2 of the Agreement on Agriculture, there are no 
disciplines on agricultural export cred it guarantees under the Agreement on 
Agriculture (or the SCM Agreement)?  USA  
 
186. Article 10.2 provides: “Members undert ake to work toward the development of 
internationally agreed disciplines to govern the provision of export credits, export credit guarantees or 
insurance programmes and, after ag reement on such disciplines to provide export credits, export credit 
guarantees or insurance programmes only in conf ormity therewith.”  Article 10.2 imposes an 
obligation on Members to work toward “interna tionally agreed disciplines” and, upon agreement on 
such disciplines, to provide export credit guarantees onl y in conformity with such disciplines.  This 
was the purpose of the negotiations in the OECD that followed the Uruguay Round, and which now are occurring under the aegis of the WTO.  If and when such disciplines ar e agreed upon, they are 
WTO obligations under the Agreement on Agriculture.
82 
 
                                                      
82This is similar to other work programs that continued beyond the close of the Uruguay Round.  See 
US First Written Submission, paras. 154-66.  WT/DS267/R/Add.2 
Page I-121 
 
 
187. Brazil's argument is that such "internationall y agreed disciplines" already apply.  If export 
credit guarantee programmes were already subject to  export subsidy disciplines, then Article 10.2 
would be unnecessary.  That is, Members would already  have “to provide . . . export credit guarantees 
. . . only in conformity” with the internationally agreed disciplines of the WTO.  In Brazil’s oral 
statement, Brazil attempts to avoid this implicati on of its reading by repeatedly attempting to insert 
the word "specific" into the text of Article 10.2 – that is, “undertake to work toward the development 
of specific  internationally agreed disciplines .”83  That word is not there, however.  The United States' 
interpretation of Article 10.2 gives meaning to th e text of Article 10.2 as drafted and agreed by 
Members whereas Brazil's reading would effectively read it out of the Agreement on Agriculture. 
  (b) Does the United States agree with the following proposition:  a WTO Member 
may therefore extend agricultural export credit guarantees without charging a 
premium, and for an indefinite period, in addition to any other terms and conditions it may wish?  How would this reconcile with the title of Article 10 of the Agreement on Agriculture ("Preven tion of Circumvention on Export 
Subsidy Commitments"), and with other commitments contained in the 
Agreement on Agriculture? Please cite any relevant material, including any past WTO dispute settlement cases.  How would this reconcile with the United States' 
own statement, at paragraph 21 of its closing oral statement that "of course, the United States may not provide subsidies without any limit".  USA  
 188. Article 10.2 applies only to export cred it guarantees (and export credits and insurance 
programmes) properly characterized as such.  In th e case of the United States, export credit guarantees 
are offered pursuant to programmes which charge premiums; impose limits on tenor; impose limits on 
exposure to individual bank obligations; impose limi ts on exposure to risk of default from different 
countries; define shipping periods; and issue allo cations (value limitations) of potential guarantee 
availability for specific commodities to be exported to specific destinations.  The United States also 
guarantees only a relatively small portion of interest.  Consequently, participants remain exposed to a 
significant component of the over-all risk of default.      189. The United States submits that the deferral of disciplines under Article 10.2 properly applies to export credit guarantees offered pursuant to a pr ogramme with such characteristics; indeed, Brazil 
has not contested that US export credit guarantee programmes are encompassed by the terms of 
Article 10.2.  Illegitimate attempts to char acterize export subsidy programmes as export credit 
guarantee programmes would be subject to the anti- circumvention provisions of Article 10.1 and the 
other commitments of the Agreement on Agriculture.
84   
 
190. The US interpretation of Article 10.2 presents  no conflict with the title of Article 10, which 
provides relevant context in interpreting the pr ovisions of Article 10.  Article 10 is entitled 
“Prevention of Circumvention on Export Subsid y Commitments.”  Article 10.2 contributes to the 
prevention of circumvention of export subsid y commitments by imposing two obligations on 
Members: first, they must undertake to work toward  the development of internally agreed disciplines 
                                                      
83See, e.g. , Brazil’s Oral Statement, para. 100 (“Article 10.2 instead announces Members’ intent to 
work toward negotiations on specific  disciplines for export credits.”) (italics in original); id. (“In the meantime, 
while those specific  disciplines are being discussed . . .”) (emphasis added); id., para. 102 (“Under the first part 
of Article 10.2, therefore, WTO Members have pledged to work toward the development of specific  disciplines 
. . . .”) (emphasis added); id., para. 103 (“If Members do conclude an agreement on these specific  disciplines 
. . . .”) (emphasis added); id. (Brazil and the United States agree that there has been no agreement on any such 
specific  disciplines . . . .”) (emphasis added). 
84For example, the United States could not simply change the name of the FSC Repeal and 
Extraterritorial Income  Exclusion Act to the "FSC Repeal and Extr aterritorial Income Ex clusion Export Credit 
Guarantee Program" and successfully asse rt that the deferral of disciplines contemplated by Article 10.2 applies 
to such re-named program. WT/DS267/R/Add.2 
Page I-122  
 
on export credit guarantees; second, “after agreement on such disciplines,” they must provide export 
credit guarantees “only in conformity therewith”.  Thus, Members agreed that those internationally 
agreed disciplines would constrain the provision of export credit guarantees, which in turn would contribute to the goal of Article 10, to prevent th e circumvention of export subsidy commitments.   
 
191. Although the language quoted fro m paragraph 21 of the United States' closing oral statement 
was intended to address concerns invol ving domestic support for upland cotton,
85 it also applies in the 
case of export subsidies.  The United States also can not provide export subsidies without limit.  It has 
a schedule of export subsidy reduction commitments for 12 commodities.  For these commodities, export subsidies can only be provided in accordan ce with such schedule.  For the remainder of 
agricultural commodities, the United States cannot  provide export subsidies at all.   
 192. Although internationally agreed disciplines on export credit guarantee programmes have yet 
to be agreed, the characteristics of such programme s and the discipline inherent in the risk-sharing 
aspects of such programmes impose an internal constr aint on their use.  Indeed, the use of US export 
credit guarantee programmes has declined  since the period before the inception of Uruguay Round 
commitments.  As shown in the US answer to Qu estion 82(b), the dollar value of guarantees provided 
by the United States in US fiscal year 1992 was $5,671.8 million, in fiscal year 1993 was $3,853.7 million, and in fiscal year 1994 was $3,177.4 million.  In contrast, the average value of guarantees for fiscal years 1995 - 2002 was only $3,061. 9 million.  Any concerns about unchecked 
use of export credit guarantee programmes, then, are not supported by the post-Uruguay Round 
experience. 
 
 (c) If, as the United States argues, there are no disciplines on export credit 
guarantees in the Agreement on Agriculture, how could export credit guarantees "conform fully to the provisions of Part  V" of the Agreement on Agriculture 
within the meaning of Article 13 (how can you assess "conformity" or 
non-conformity when there are allegedl y no disciplines against which such an 
assessment could occur)?  USA  
 
193. US export credit guarantee programmes pr ovide “export credit guarantees” within the 
meaning of Article 10.2 and therefore will be subject to disciplines only as contemplated by that 
Article.  Because no such disciplines currently ex ist, these programmes cannot be out of compliance 
with Part V of the Agriculture Agreement.  Moreover, export credit guarantees are not export 
subsidies within the meaning of either Article 9.1 or 10.1, and since they are not export subsidies, 
Article 13(c) does not apply to them.    (d) Is the United States advocating the view that its own export credit guarantee 
programmes, which pre-dated the Uruguay Round, are effectively 
"grandfathered" so as to benefit from some sort of exemption from the export subsidy disciplines of the Agreement on Agriculture?  How, if at all, is it relevant that the SCGP did not, according to the United States, become relevant for upland cotton until the late 1990's (i.e. after the entry into force of the WTO 
Agreement)?  USA  
 
194. It is not entirely clear what is meant by the term “grandfathering” in this connection.  
Agriculture Agreement Article 10.2 defers the imposition of disciplines on export credits, export 
                                                     
 
85The statement itself was intended to note that the United States is subject to the limit set forth in its 
domestic support reduction commitments for the Current Total Aggregate Measurement of Support.  This 
amount, across all US commodities, is $19.1 billion.  In a ddition, a very specific lim it applies with respect to 
domestic support for upland cotton under the Peace Clause.  It may not exceed the rate of 72.9 cents per pound, 
as decided in 1992, without removi ng the Peace Clause protection of Article 13 of the Agreement of 
Agriculture.  WT/DS267/R/Add.2 
Page I-123 
 
 
credit guarantees, and insurance programmes until inte rnationally agreed disciplines are reached, and 
in that sense the export subsidy disciplines of th e Agreement do not apply to the export credit 
guarantee programmes at issue in this dispute.   195. The SCGP began in 1996, and no transactions  occurred under this programme in connection 
with cotton until fiscal year 1998, which began in September 1997.  Although the negotiators 
obviously could not have considered the applicati on of this specific programme, it is substantially 
similar in its operation to other US export cred it guarantee programmes.  Again, Brazil has not 
contested that SCGP provides export credit guarantees within the meaning of Article 10.2.  Thus, the 
deferral of disciplines under Article 10.2 similarly applies. 
 
STEP 2 PAYMENTS  
 
89. Does the United States confirm Brazil's statement in paragraph 331 of its first 
submission that "The conditions and requireme nts for Step 2 domestic payments remain 
unchanged with the passage of the 2002 FSRI Act"?  What is the relevance of this, if 
any, to this dispute? USA  
 
196. While the Step 2 programme under the 2002 Act is largely consistent with the programme 
under the 1996 Act, there have been some modi fications since the inception of the programme, 
relating to the precise nature of the price differe ntial formula and the price ceiling for the Step 2 
payments.  The 2002 programme was unchanged fro m the 1996 Act programme, as amended, except 
for suspending the 1.25 cent differential.  In the end, this is inconsequential because it does not 
materially affect the levels of support decided in marketing year 1992 (72.9 cents per pound) or that 
measures currently grant (52 cents per pound).  90. Does the United States confirm Brazil's statement in paragraph 235 of its first 
submission that the changes concerning Step  2 export payments from the 1996 FAIR 
Act to the 2002 FSRI Act are:  increase in the amount of the subsidy by 1.25 cents per 
pound and the removal of any budgetary limits that applied under the 1996 FAIR Act?  What is the relevance of this, if any, to this dispute? USA  
 197. As noted in the US answer to Question 89, the 2002 Act suspended the 1.25 cents differential, 
but the United States disagrees with the assertion of increased budgetary exposure for the programme.  
First, we note that Step 2 for the 1992 crop and marketing years was covered by the provisions of the 1990 Act, which had no limit on the amount of expense th at could be undertaken in Step 2.  For the 
1996 Act, which covered the 1996-2002 crops until s upplanted by the 2002 Act, there was a limit of 
$701 million for the six-year duration of the Act, and in fact that money did run out in 
December 1998.  However, the Congress rem oved the budgetary limit of the 1996 Act as of 
October 1999 (Public Law No. 106-78, 22 Oct. 1999).  Therefore, neither the 2002 Act, nor the 1996 
Act (as of October 1999), nor the 1990 Act had budgetary limits on Step 2 expenditures.     198. While the potential step 2 payment (when price conditions in the statute are met) is higher in 
the 2002 Act than under the 1996 Act by as much as (but not more than) 1.25 cents per pound, step 2 
merely changes the vehicle of support.  
91. What is the significance of the elimin ation of the 1.25 cent threshold payment in the 
2002 FSRI Act pertaining to Step 2 payments? USA  
 
199. Please see the US answers to Question 89, 90, and 117.  
92. Does the United States confirm that Exhi bit BRA-65 represents a sample contract for 
exporters of eligible upland cotton to conc lude with the CCC under the FSRI 2002, and 
that an application form (Exhibit BRA-66) needs to be filled out with data on weekly WT/DS267/R/Add.2 
Page I-124  
 
exports and submitted to the USDA FAS. Is Exhibit BRA-66 - Form CCC 1045-2 - also a 
valid example? If not, please identify any differences or distinctions.  USA  
 
200. The Brazilian exhibits appear to be accurate versions of old Step 2 programme documents.  
Some of the documents in the exhibit are for domestic handlers and involved programme payment 
assignments. We also note that, in making an expor t claim, other documentation like bills of lading 
may be needed.    201. The official documents for the upland cott on step 2 programme can be found at the Farm 
Services Agency website (www.fsa.usda.gov/daco, c lick on "cotton" and on "upland cotton user 
marketing certificate programme".)  There is a common contract that exists for both domestic users 
and exports under the Step 2 programme, CCC Fo rm CCC-1045UP.  Because of the different nature 
of uses and therefore applications, there are se parate reporting forms: CCC-1045UP-1 for domestic 
users and  CCC-1045UP-2 for Exporter Users.  Recen tly updated documents used for this programme 
are attached as Exhibit US-21. 
 
93. Please elaborate why the United States deems that Step 2 payments upon submission of 
proof of export are not subsidies contingent upo n export.  Is it the US contention that, in 
order to be contingent on export, exportatio n must be the exclusive condition for receipt 
of the payment? USA  
 202.   As the United States has indicated, all upla nd cotton produced in the United States is eligible 
for the benefit of the Step 2 cotton subsidy.  If the statutory price condition applies, all US upland cotton used during the applicable period of time will received the subsidy.  “Use” in domestic 
manufacture or export constitutes the universe of potential use of US upland cotton.  The United States submits that when the entirety of production of a good in a country is eligible to receive a 
subsidy, no contingency on export exists.  The Step 2 subsidy is entirely distinct in this regard from a 
hypothetical situation in which a subsidy is theoreti cally available for domestic use, but in reality is 
exclusively or nearly exclusively av ailable in connection with exports. 
 
95. Do the criteria in 7 CFR 1427.103(c)(2) (Exhibit BRA-37) that Step 2 "eligible upland 
cotton" must be "not imported cotton" appl y to both domestic and export payments?  
USA  
 
203. Only domestic cotton is eligible for Step 2 payment, which is made if the statutory price 
conditions are met and requisite proof of use is submitted. 
 96. Is a domestic sale a "use" for the purposes of  Step 2 payments? Is a sale for export, or 
export, considered a "use"? USA   
 
204. A sale is not a use for purposes of the Step 2 subsidy.  For domestic manufacture, opening the cotton bale constitutes use.  For exports, similarly,  the sale alone does not itself constitute use; the 
exporter must demonstrate actual exportation.
86  
 
97. How does the United States respond to Braz il's assertion, at paragraph 70 of Brazil's 
oral statement at the first session of the first substantive meeting, that "It is obvious that 
a single bale of cotton cannot be both expo rted and used domestically."  Is this a 
relevant consideration? USA  
 
205. It is unclear what Brazil’s assertion is intende d to demonstrate.  The Step 2 programme makes 
payments to documented users of US upland cotton.  If a bale cannot be both opened domestically and 
exported (although it is not clear why that would be so), that amounts to arguing that a single bale 
                                                      
867 Code of Federal Regulations 1427.103(a). WT/DS267/R/Add.2 
Page I-125 
 
 
cannot be “used” twice.  The fact remains that either  opening the bale domestically or exporting it – 
that is, the universe of activities resulting in u se of US upland cotton – is entitled (given certain 
market conditions) to a Step 2 payment.   206. The United States notes, moreover, that it ma y actually be possible (economic realities aside) 
that the same bale could be exported and then br ought back into the country and opened for domestic 
use.  (Please see the US answer to Question 98 for mo re detail.)  The US Department of Agriculture’s 
position would be that the payment should be made on the bale once only.  The purpose of the programme is to provide support to upland cotton fa rmers.  Once the bale has been purchased by an 
upland cotton user, there would be no additi onal support for upland cotton farmers from providing 
Step 2 payments on additional “uses” of the same bale.  
 
98. How many Step 2 payments are received if a bale of upland cotton is exported, and then 
opened by a domestic user in the United States, or vice versa? USA  
 207. If a bale were exported and then imported and opened up (or vice versa) it would be the US 
position that only one payment would be made.  It does not  appear that this situation has ever arisen in 
fact, but we note that the Step 2 regulations specifical ly provide that “imported” cotton is not eligible 
for payment.  Such cotton may include any cotton that  was imported, even if it had been produced in 
the United States.   99. How does the United States respond to Brazil's arguments in paragraphs 71-75 of 
Brazil's oral statement at the first session of the first Panel meeting concerning the relevance of the Appellate Body Report in US-FSC (21.5).  USA  
 
208. In contrast to the facts of the United States – FSC (21.5)  dispute, in this dispute all of the 
product is produced in the United States; all of the product is eligible to receive the benefit of the 
subsidy; and all of the potential uses of the product ar e similarly eligible.  If the statutory formula of 
price conditions applies, all US upland cotton used during that time – regardless of how such use is 
manifested – will receive the subsidy.  This case involves only one factual situation: use of cotton 
during a particular period of time.  The only fact ual distinction applicable here is whether the 
applicable price conditions are on or off.  Brazil' s emphasis on the "different instructions" in the 
programme regulations is misplaced.  Such instruct ions are simply to demonstrate the requisite use 
and to assure payment is made to the proper party.  If upland cotton could be used in a third or fourth 
way, this would not change the eligibility for subs idy but would necessitate a parallel third or fourth 
set of instructions to demonstrate that form of use as well.   103. Is the Step 2 programme fund a unified fund that is available for either domestic users 
or exporters, without a specific amount earmarked for either domestic users or exporters?  Please substantiate your response, including by reference to any applicable 
statutory or regulatory provisions. USA  
 
209. The upland cotton user marketing certificat e programme (Step 2) makes no differentiation 
between funds for payments to exporters and domest ic handlers – it is all one programme.  The first 
paragraph of the Step 2 rule states:  
These regulations set forth the terms and conditions under which CCC shall make payments, in the form of commodity certif icates or cash, to eligible domestic users 
and exporters of upland cotton who ente red into an Upland Cotton Domestic 
User/Exporter Agreement with CCC to pa rticipate in the upland cotton user 
marketing certificate  
The Step 2 rule was published on 18 October 2002, at  67 Federal Register 64454,  and is codified at 
7 Code of Federal Regulations 1427.100-.108. WT/DS267/R/Add.2 
Page I-126  
 
 210. As with other US domestic support measures,  Step 2 payments are funded through the 
Commodity Credit Corporation, which has a borrowi ng authority in the Treasury and as such does not 
rely on appropriations.  This is provided for in Sections 1207 and 1601(a) of the 2002 Act and 
codified at 7 US Code 7937 and 7991. 
 
104. How does the United States respond to th e data presented in Exhibit BRA-69?  Is it 
accurate? Please substantiate. USA  
 
211. The data in Exhibit BRA-69 is not official US Government data, and Brazil has not indicated 
the source of the information.  Thus, we cannot conf irm its reliability.  The United States has tried in 
any event to obtain information in the format of Br a-69, which is not maintained and published by the 
US Government in that manner.  The following data  has been collected by the US Department of 
Agriculture and attempts to designate (as in Bra-69) Step 2 payments by fiscal year
87 and use.  
 
 
User Marketing Certificate (Step 2) Payments, by Fiscal Year and Use  
 
Fiscal Year  
Mill Use (US $)  
Export Use (US $) 
 
1991  
4,311,991  
17,259 
 
1992  
102,769,543  
30,852,107 
 
1993  
113,401,813  
89,095,640 
 
1994  
28,251,613  
178,266,742 
 1995  
17,571,224  
75,200,203 
 1996  
0  
34,798,579 
 1997  
6,201,540  
2,875,936 
 1998  
255,502,154  
158,924,004 
 1999  
165,831,362  
113,521,476 
 2000  
260,075,318  
185,273,956 
 2001  
144,849,807  
90,903,021 
 
2002  
72,425,112  
105,415,152 
 
A comparison with Exhibit BRA-69 suggest s that the Brazilian data is inaccurate. 
 212. During the first panel meeting, the Panel ask ed about the figures shown for fiscal year 1996, 
which showed a zero payment for mill use and a po sitive number for export use.  We suggested that 
perhaps appropriated amounts had s uddenly run out, but our suggesti on was not accurate.  Rather, the 
odd numbers for fiscal year 1996 resulted because, at the time, payments for export use accrued when 
the contract for export was made.  However, such  payments were not paid until the export actually 
took place, at which time the exporter would be paid  based on the Step 2 rates that applied when the 
                                                     
 
87The US fiscal year runs from October 1 - Septembe r 30, such that the 2002  fiscal year would run 
from 1 October 2001, through 30 September 2002.   WT/DS267/R/Add.2 
Page I-127 
 
 
contract was made.  As the Panel is aware, Step  2 payments can be made only when there is a 
difference between world and US prices for cotton for a certain time period.  In the case of fiscal year 
1996, these prices did not satisfy the Step 2 conditions, but there were some payments that were made 
during that fiscal year because they had accrued by an export contract made in the previous fiscal year.  That rule is now changed
88 so that the rate that a pplies for export use is the rate that is in effect 
when the export is made not when  the contract for export was made. 
 
105. Why is the Step 2 program me separated into "domestic users" and "exporters"?  Apart 
from differentiating between exporters and domestic users, with consequential 
differentiation as to the forms that must be filled out and certain other conditions that 
must be fulfilled, are the eligibility criteria fo r Step 2 payments identical?  Are the form 
and rate of payment, as well as the actual payment made, identical? USA  
 
213. US law does not separate the Step 2 programme  into domestic users and exporters.  There is 
but one Step 2 statute – codified at 7 US Code 7937 – and but one Step 2 rule for all users – found at 7 
Code of Federal Regulations 1427.100-.108.  The statute and rule do identify “domestic users” and 
“exporters” as the universe of bona fide  users of upland cotton and thus potential recipients for Step 2 
payments.  Therefore, the only distinction drawn between these recipients is the proof of use: 
domestic handlers are paid when they open a bale, a nd exporters are paid when they export.  The form 
and rate of payment are identical.  106. With respect to paragraph 139 of the United States' first written submission, are Step 2 
export payments included in the annual reduction commitments of the United States? If so, why? USA  
 
214. The United States does not distinguish between  the uses of US upland cotton for purposes of 
reporting the subsidy because the subsidy is  not contingent on export performance.  All Step 2 
payments are reported as product-specific domestic  support for upland cotton and are included within 
the Total Aggregate Measurement of Support calculation for purposes of domestic support  reduction 
commitments.  
107. Please comment on any relevance, to Brazil' s de jure claims of inconsistency with the 
provisions of the Agreement on Agriculture, of Exhibit BRA-69, which shows Step 2 
payments made to (i) domestic users and (ii)  exporters.  This Exhibit shows that, from 
FY 91/92 through 02, the Step 2 payments for exporters exceeded those for domestic 
users in FY 94; FY 95; FY 96 (in fact there were no domestic payments in FY 96); and FY 02.  In the other years, the domestic p ayments are greater than export payments.  
BRA, USA  
 
215. Without commenting on the accuracy of the sp ecific numbers set forth in Exhibit BRA-69, it 
is entirely possible that in certain years one type of user happened to receive a larger share of 
payments than another type of user.  This woul d entirely be a function of market conditions and 
relative demand for manufacture or for export.  That is, differences in amounts paid to exporters and 
domestic users during any time period are happensta nce based on actual use of US upland cotton.   
 216. The United States notes that payments to e xporters were previously made based on when 
exporters finalized the sale contract, not on when the cotton was actually exported.  In the specific 
case of fiscal year 1996, it appears that payments for exported upland cotton accrued  during a period 
when Step 2 payments were allowed by the statute, but that the payments were actually made at a time 
when market conditions no longer met the statutor y criteria for payment.  The rule has been 
changed,
89 and that situation can no longer recur. 
                                                      
88See 61 Federal Register 37544, 37548 (18 July 1996). 
89See 61 Federal Register 37544, 37548 (July 18, 1996). WT/DS267/R/Add.2 
Page I-128  
 
 
108. At paragraph 135 of its first written submission, the United States states :  "[T]he 
subsidy is not contingent upon export perfor mance..." (emphasis added).  Again, in the 
course of the first Panel meeting, the United States admitted that the Step 2 payments were "subsidies".  Does the United States thus concede that Step 2 payments constitute a 
"subsidy" within the meaning of the WTO Agreement? USA  
 
217.   The United States has always maintained th at Step 2 payments are subsidies that provide 
domestic support in favour of US agricultural producers.  109. How does the United States respo nd to Brazil's arguments concerning a 
mandatory/discretionary distinction and th e allegation that certain United States 
measures (including s.1207(a) of the 2002 FSRI Act) are mandatory? (This is referred 
to, for example, in paragraph 28 of Brazil's first written submission).  Does the United States agree with the assertion that (subject to the availability of funds) the payment by 
the Secretary of Step 2 payments is mandatory under section 1207(a) FSRI upon 
fulfilment by a domestic user or exporter of the conditions set out in the legislation and regulations?  If not, then why not?  To what extent is this relevant  here?  What determines the "availability of funds"? Pl ease cite any other relevant measures or 
provisions which you consider should guide the Panel in respect of this issue.  USA  
 218. The United States does not disagree 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.  With respect to th e well-accepted mandatory/discretionary distinction 
reflected in GATT 1947 and WTO panel and Appellate Body reports, the United States notes that the distinction is the natural consequence of the fact  that there can be no presumption of bad faith in 
WTO dispute settlement, a fact that numerous Memb ers, including the European Communities, have 
emphasized.
90  Thus, to the extent that a Member retains discretion under a measure to act in 
accordance with a WTO obligation, it may not be  presumed that the Member will violate that 
obligation, or to conclude that the measure itsel f – separately from the measure’s application in a 
specific instance – may be found inconsistent with that obligation.  110. Section 1207(a) of the 2002 FSRI Act provides that during the period beginning on the 
date of the enactment of the FSRI Act throug h July 31 2008, " .. the Secretary shall issue 
marketing certificates or cash payments, at the option of the recipient, to domestic users and exporters for documented purchases by do mestic users and sales for export by 
exporters...".  The Panel notes that Brazil do es not appear to distinguish between the 
treatment of (i) cash payments and (ii) mark eting certificates in terms of the issue of 
whether or not a "subsidy" exists.  The United States refers to "benefits" and "payments" and "programme" in asserting that Step 2 is not export contingent (paragraphs 127-135 of the United States' first written submission).   
  (a) Do the parties thus agree that there is no need to draw any distinction between 
the treatment of (i) cash payments and ( ii) marketing certificates in terms of the 
issue of whether or not a "subsidy" exis ts for the purposes of the Agreement on 
Agriculture?  BRA, USA  
 
219. The United States agrees that there is no need  to draw a distinction between cash payments 
and marketing certificates in terms of whether a subsidy exists for purposes of the Agreement on 
Agriculture.  
                                                     
 
90See Appellate Body Report, United States - Section 211 Omnibus Appropriations Act of 1998 , 
WT/DS176/AB/R, adopted 1 February 2002, para. 259. WT/DS267/R/Add.2 
Page I-129 
 
 
 (b) Why would a domestic user or an exporter select to receive a marketing 
certificate over a cash payment?  What is the proportion of cash payments vs. marketing certificates granted under the programme?  USA  
 
220. A user of upland cotton that elects to receive payment in the form of a marketing certificate is 
entitled to redeem that certificate for an equivale nt amount of upland cotton held by the Commodity 
Credit Corporation (CCC).  Although authorized by st atute, no Step 2 payments have been made in 
recent times in the form of certificates.  Marketi ng certificates in lieu of cash payments for Step 2 
were last used heavily in the early to mid-1990s .  The CCC does not currently maintain high upland 
cotton inventories from which such certificates if issued could be redeemed.   
 
111. Does the United States maintain its argument that actions based on Article 3.1(b) of the 
SCM Agreement are conditionally "exempt fr om actions" due to the operation of 
Article 13 of the Agreement on Agriculture? USA  
 221. Article 13(c) provides that “export subsidies that conform fully to the provisions of Part V of 
this Agreement, as reflected in each Member's Schedul e, shall be . . . exempt from actions based on 
Article XVI of GATT 1994 or Articles 3, 5 and 6 of  the Subsidies Agreement.”  Article 13(b), which 
applies to domestic support measures, does not refe rence Subsidies Agreement Article 3.  Brazil has 
advanced claims under Article 3.1(b) of the S ubsidies Agreement only with respect to Step 2 
payments, which are domestic suppor t measures and not export subsidi es.  Thus, on the US view the 
Peace Clause would not appear to be applicable; however, to the extent Brazil asserts that Step 2 
payments (or some part thereof) are export s ubsidies, Article 13(c) would be relevant. 
 222. We also note that paragraph 7 of Annex 3 requires that support in favour of domestic 
agricultural producers that is provided through paymen t to processors shall be included in the AMS of 
the Member.  If payments are made in connection with both domestic and foreign product then such 
payments are not support in favour of domestic agri cultural producers.  Consequently, the Agriculture 
Agreement necessarily contemplates that support paid to processors may be paid solely with respect 
to domestic production.  Under Article 6.3 of the Ag riculture Agreement, if a Member is providing 
support within its domestic support reduction commitments, then such  support may not be challenged 
under Article 3.1(b) because that Article applie s “[e]xcept as provided in the Agreement on 
Agriculture”.  If a Member exceeds its domestic support reduction commitmen ts, on the other hand, 
then such support paid to processors would be actionable under Article 3.1(b). 
 
112. In the event that the Panel finds that Article 6.3 of the Agreement on Agriculture does 
not preclude an examination of Brazil's claims under Article 3.1 of the SCM Agreement 
and Article III:4 of GATT 1994, how does the United States respond to the merits of 
Brazil's claims relating to Step 2 payments under those provisions? USA  
 
223. As indicated in the US answer to Ques tion 111 from the Panel, and as the European 
Communities has noted in its third party submissi on, inasmuch as paragraph 7 of Annex 3 of the 
Agreement on Agriculture requires support in favour of agricultural producers that is paid to 
processors to be included in the Member’s Aggreg ate Measurement of Support, then the Agreement 
on Agriculture necessarily contemplates that such payments to processors may apply solely with 
respect to domestic product.  Otherwise, as in th e case of Step 2 payments, domestic cotton producers 
would not receive the relative pr ice benefit conferred by the pa yment.  Consequently, such 
discrimination in favour of domes tic production is permitted under th e Agreement on Agriculture and, 
under Article 21.1 of that Agreement, the provi sions of GATT 1994 and of other Multilateral Trade 
Agreements in Annex 1A to the WTO Agreement ar e expressly “subject to the provisions of [the 
Agriculture] Agreement.”  For that  reason, neither Article 3.1(b) of the Subsidies Agreement nor 
GATT 1994 Article III:4 precludes such payments to users of US upland cotton, unless the United States exceeds its domestic support reduction commitments. 
 WT/DS267/R/Add.2 
Page I-130  
 
113. Is it necessary for measures directed at agricultural processors included in AMS to 
discriminate on the basis of the origin of goods? USA  
 
224. The United States does not express an opinion wh ether it is necessary in  all circumstances for 
all Members with respect to all commodities.  Howe ver, paragraph 7 of Annex 3 of the Agreement on 
Agriculture certainly contemplates that suppor t in favour of domestic producers provided by 
payments to processors is included in the Aggregat e Measurement of Support.  In the case of Step 2 
payments on upland cotton, if payments were pr ovided in favour of all upland cotton, whether 
domestic or foreign, used by domestics mills or ex porters, the price benefit for US producers would 
not be achieved.  Without such a benefit to US  producers, these payments would not need to be 
included in the Aggregate Measurement of Support.  The Agreement on Agriculture does not preclude 
payments that solely benefit domestic produ cers; indeed, paragraph 7 contemplates such 
discriminatory subsidy payments.  Accordingly, th e United States reports all Step 2 payments as 
domestic support in favour of US producers of upland cotton.  115. What is the meaning and relevance (if any) to Brazil's claims under Article 3 of the 
SCM Agreement and Article III:4 of GATT 1994 of the phrase "measures directed at 
agricultural processors shall be included to the extent that such measures benefit the 
producers of the basic agricultural products" in the Agreement on Agriculture? BRA, 
USA  
 225. The United States directs the Panel’s attention to the US answers to Questions 111, 112, and 
113 from the Panel.  
116. With respect to paragraph 32 of the oral st atement of the EC, are subsidies contingent 
on the use of domestic goods consistent with  the Agreement on Agriculture?  Does the 
phrase "provide support in favour of dom estic producers" in Article 3.2 of the 
Agreement on Agriculture refer to, and/or permit such subsidies? BRA, USA  
 
226. Subsidies contingent on the use of domestic  goods may be consistent  with the Agreement on 
Agriculture.  Paragraph 7 of Annex 3 of the Agreement requires the United States to include its Step 2 
payments in favour of domestic upland cotton pro ducers, even though such payments are made to 
processors, within its calculation of its Aggregate Measurement of Support.  The United States has 
complied with its domestic support reduction commitmen ts.  Therefore, Step 2 payments to upland 
cotton users that provide support to domestic produ cers contingent on the use of domestic goods is 
consistent with the Agreement on Agriculture.  If Members could not discriminate in favour of 
domestic producers when making subsidy payments through processors, there would be no reason for 
paragraph 7 of Annex 3.  Such payments that ar e not limited to domestic products would not be in 
favour of domestic producers because the relative ec onomic benefit of the subsidy vis-à-vis foreign 
production would not exist.  
117. What is the relationship between Step 2 p ayments to exporters and the marketing loan 
payments, both of which appear to compensa te for the price differences relative to the 
Liverpool A-Index?  For example, is there double compensation?  Or is one of the 
explanations that these export-related pr ice compensatory payments are paid to 
different operators (namely, the producer, on  the one hand under the marketing loan 
arrangements, and the processor/users (Step 2 programme) arrangements on the other? 
USA  
 
227. Both marketing loan payments and Step 2 payments are domestic support for upland cotton, 
but the marketing loan payment is made directly to the producer whereas the Step 2 payment is made 
to users of the cotton.  The marketing loan repa yment formula, in section 1204 of the 2002 Act, and 
the Step 2 payment formula in section 1207 of the 2002 Act, differ by their terms and are simply WT/DS267/R/Add.2 
Page I-131 
 
 
different forms of support, the latter (Step 2) being a form of support that can facilitate higher market 
prices for US cotton.  We will address this more fully in our rebuttal submission.  
118. Can the United States confirm that it does not rely on Article III:8 of GATT 1994? USA  
 228. The United States can confirm that the Step 2 payment is not made exclusively to domestic 
producers.  
ETI ACT  
 
119. How does the United States respond to Brazil's  reference to the panel report in India - 
Patents (EC) (at paragraph 138 of its oral statement at the first session of the first substantive meeting)?   How, if at all, shou ld the Panel take this report into account in 
considering the issues raised by Brazil's claims relating to the ETI Act? USA  
 229. We agree with the passage quoted from the India – Patents  dispute and consider it relevant to 
the extent that: Brazil has identified the challenge d measure; Brazil has argued why the reasoning of 
the panels and Appellate Body are relevant in dete rmining that the measure is inconsistent; and the 
Panel finds the reasoning in FSC/ETI  persuasive.  Our argument in the first written submission went 
to whether Brazil had carrie d its burden of bringing a prima facie  case, in order to assist the Panel to 
fulfill its obligation under DSU Artic le 11 to make an objective assessm ent of the matter before it.  
Brazil may consider that it should not have to m eet this burden, but unde r DSU rules as currently 
agreed, it must.
91  Finally, we note our statement in the firs t submission that “[w]hile the United States 
cannot specify the precise date on which this will occu r, the United States is  confident that the ETI 
Act will be repealed in the reasonably near future.”92 
 121. How do you respond to the reference in pa ragraph 43 of EC third party oral statement 
with respect to the relevance of Article 17.14 of the DSU, and, in particular, the phrase "a final resolution to that dispute" (em phasis added)?  Please explain the use, and 
relevance (if any) of the term "disputes" in Articles 9.3 and 12 and Appendix 3 of the DSU, and please cite any other provisions you consider relevant. USA, BRA  
 230. The United States considers the EC’s references  to be irrelevant to the resolution of this 
dispute.  As noted in the US first written subm ission, the United States intends to implement the 
DSB’s recommendations and rulings in the  FSC/ETI  dispute.  Further, the i ssues raised in the US first 
written submission related solely to whether Brazil ha d met its burden of argumentation in this dispute 
and not to the substantive correctness and applicabilit y, or lack thereof, of the adopted findings in 
FSC/ETI.  Nor did the US arguments relate to the bread th of the US obligation to implement the 
DSB’s rulings and recommendations in that dispute.  The United States consider s that Brazil’s burden 
in this dispute requires, at a minimum, that it identify those aspects of the measure which are WTO-
consistent and explain why that is the case. 
                                                     
 
91See TN/DS/W/45 (Brazilian proposal in ongoing DSU review:  "Brazil understands that one of the 
drawbacks of the current dispute settlement mechanism is the n ecessity for a Member to litigate a case de novo  
through all the established phases even if the same meas ure nullifying or impairing bene fits of this Member has 
already been found WTO inconsistent in previous pane l or appeal proceedings initiated by another Member."). 
92US First Written Submission, para. 189. WT/DS267/R/Add.2 
Page I-132  
 
ANNEX I-3 
  
COMMENTS OF BRAZIL TO ANSWERS 
TO QUESTIONS POSED BY  THE PANEL FOLLOWING 
THE FIRST SUBSTANTIVE MEETING OF THE PANEL 
 
22 August 2003 
  
TABLE OF CONTENTS 
 
Page
 
I. PRELIMINARY ISSUES...................................................................................................... 136 
II. ARTICLE 13(B): DOMESTIC  SUPPORT MEASURES................................................... 141 
A. “ EXEMPT FROM ACTIONS ”.................................................................................................... 141 
B. “ SUCH MEASURES ” AND ANNEX 2 OF THE AGREEMENT ON AGRICULTURE ........................ 145 
C. “ DO NOT GRANT SUPPORT TO A SPECIFIC COMMODITY ” ...................................................... 146 
D. “ IN EXCESS OF THAT DECIDED DURING THE 1992  MARKETING YEAR ” ................................ 148 
III. EXPORT CREDIT GUARANTEES................................................................................ 156 
IV. STEP 2 PAYMENTS ......................................................................................................... 166  WT/DS267/R/Add.2 
Page I-133 
 
 
Table of Cases Cited 
Short Title Full Case and Citation 
EC – Bananas (III) Appellate Body Report, European Communities – Regime for the 
Importation, Sale and Distribution of Bananas , WT/DS27/AB/R, adopted 
25 September 1997 
US – Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports of 
Woven Wool Shirts and Blouses from India , WT/DS33/AB, adopted 
23 May 1997 
Brazil - Aircraft Appellate Body Report, Brazil – Export Financing Programme for 
Aircraft , WT/DS46/AB/R, adopted 20 August 1999 
Guatemala – Cement 
(I) Appellate Body Report, Guatemala – Anti-Dumping Investigation 
Regarding Portland Cement from Mexico , WT/DS60/AB/R, adopted 
25 November 1998 
Canada – Aircraft (21.5) Panel Report, Canada – Measures Affecti ng the Export of Civilian 
Aircraft . Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/RW, 
adopted 20 August 1999 
Canada - Aircraft Appellate Body Report, Canada – Measures Affecting the Export of 
Civilian Aircraft , WT/DS70/AB/R, adopted 20 August 1999 
US - DRAMS Panel Report, United States – Anti-Dumping Duty on Dynamic Random 
Access Memory Semiconductors (DRAMS ) of One Megabit or Above from 
Korea , WT/DS99/R, adopted 19 March 1999 
Canada – Dairy Appellate Body Report, Canada – Measures Affecting the Importation of 
Milk and the Exportation of Dairy Products , WT/DS103/AB/R and 
WT/DS113/AB/R, adopted 27 October 1999.  
US - FSC Appellate Body Report, United States – Tax Treatment for “Foreign 
Sales Corporation”, WT/DS108/AB/R, adopted 20 March 2000. 
US – FSC (21.5) Appellate Body Report, United States – Tax Treatment for “Foreign 
Sales Corporation”. Recourse to Article  21.5 of the DSU by the European 
Communities, WT/DS108/AB/RW, adopted 29 January 2002. 
Argentina – Footwear Panel Report, Argentina – Safeguard Measu res on Imports of Footwear , 
WT/DS121/R, adopted 12 January 2000. 
Mexico – HFCS (21.5) Appellate Body Report, Mexico – Anti-Dumping Investigation of High 
Fructose Corn Syrup (HFCS) from the United States. Recourse to 
Article 21.5 of the DSU by the United States , WT/DS132/AB/RW, 
adopted 21 November 2001. 
Korea - Beef Panel Report, Korea – Measures Affecting Imports of Fresh, Chilled and 
Frozen Beef , WT/DS161/R and WT/DS169/ R, adopted 10 January 2001 
Chile – 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 – Byrd Amendment Appellate Body Report, United States – Continued Dumping and Subsidy 
Offset Act of 2000 , WT/DS217/AB/R and WT/DS234/AB/R, adopted 
27 January 2003 
Canada – Aircraft II Panel Report, Canada – Export Credits and Loan Guarantees for 
Regional 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. 
 WT/DS267/R/Add.2 
Page I-134  
 
List of Exhibits 
Market Revenue and US Government  Payments to US Upland Cotton 
Producers Exhibit Bra- 169 
PFC, MLA, DP and CCP Payments per Base Acre of Covered Crops Exhibit Bra- 170 
“Counter-Cyclical Payments under the 2002 Farm Bill,” NCC, August 
2003 Exhibit Bra- 171 
Rice Outlook, USDA, 13 August 2003, Table 1 Exhibit Bra- 172 
Revised Estimate of Support Grante d by Commodity via Countercyclical 
Payments.  Exhibit Bra- 173 
“Income Protection – Cotton Crop Provisions”, USDA Federal Crop 
Insurance Corporation, 2000-321 Exhibit Bra- 174 
“Cotton Crop Provisions”, USDA Federal Crop Insurance Corporation, 
99-021 Exhibit Bra- 175 
“Course Grain Crop Provisions”, USDA Federal Crop Insurance 
Corporation, 98-041 Exhibit Bra- 176 
“ERS Briefing Room: Farm Income and Costs: Farm Income Forecasts” Exhibit Bra- 177 
“Facts About Texas and Agriculture”, Texas Cooperative Extension, The 
Texas A&M University System Exhibit Bra- 178 
JunJie Wu, “Crop Insurance, Acreage Decisions, and Nonpoint-Source 
Pollution,” American Journal of Agricultural Economics 81, May 1999 Exhibit Bra- 179 
Keith J. Collins and Joseph W. Gla uber “Will Policy Changes Usher in a 
New Era of Increased Agricultural Ma rket Variability?”, Second Quarter 
1998. Exhibit Bra- 180 
US General Accounting Office, Report to the Ranking Minority 
Member, Committee on Agriculture, Nu trition and Forestry, US Senate, 
Former Soviet Union: Creditworthiness of Successor States and US 
Export Credit Guarantees , GAO/GGD-95-60 (February 1995) Exhibit Bra- 181 
2004 US Budget, Federal Credit Supplement, Table 8  Exhibit Bra- 182 
US Budget for FY 1992 Exhibit Bra- 183 
US Budget for FY 1993 Exhibit Bra- 184 
Congressional Budget Office Staff Memorandum, An Explanation of the  
Budgetary Changes Under Credit Reform , April 1991 Exhibit Bra- 185 
Congressional Research Service Issue Brief for Congress, Agriculture  
and the Budget , IB95031, (16 February 1996) Exhibit Bra- 186 WT/DS267/R/Add.2 
Page I-135 
 
 
O.A. Cleveland Newsletter, 25 April 2003; O.A. Cleveland Newsletter, 
8 August 2003 Exhibit Bra- 187 
Testimony of James Echols, Chairman of the National Cotton Council 
before the Committee on Agriculture, Nutrition and Forestry of the US 
Senate, 17 July 2001 Exhibit Bra- 188 
Cotton and Wool Outlook, USDA, 13 August 2003 Exhibit Bra- 189 
Affidavit of Marcelo Pinheiro Franco Exhibit Bra- 190 
 WT/DS267/R/Add.2 
Page I-136  
 
I. PRELIMINARY ISSUES 
 
(3) If the request for consultations in this di spute omitted certain products in relation to 
export credit guarantees, on what basis is it ar gued that it failed to identify the measures at 
issue in accordance with Article 4.4 of the DSU? 
 
Brazil’s Comment on US Answer:  
1. In paragraphs 5-6 of its 11 August Answer  to Question 3, the United States argues that 
footnote 1 to Brazil’s request for consultations does not expand the scope of the request, with regard 
to the US export credit guarantee programmes, be yond upland cotton.  This is inaccurate.  The 
footnote number falls immediately after the words “upland cotton”  in the first sentence of the first 
paragraph of the request.  With reference to “ upland cotton”, the footnote reads, “[e]xcept with 
respect to export credit guarantee programmes as explained below”.
1  Although the United States 
claims that there is no explanation “below”, there is indeed such an explanation.  In particular, Brazil 
described its potential claim as follows, on page 4 of the request: 
  Regarding export credit guarantees, export and market access enhancement provided under the Agricultural Trade Act of 1978, as amended, and other measures such as GSM-102, GSM-103, and SCGP programmes, Brazil is of the view that these programmes, as applied and as such, violate Articles 3.3, 8, 9.1, and 10.1 of the Agreemen t on Agriculture and are pr ohibited export subsidies 
under Article 3.1(a) and item (j) of the Illustrative List of Export Subsidies included in Annex I to the 
SCM Agreement.
2 
  The Panel will note that there is no limitation in  this sentence to any particular commodity or 
commodities. 
 
2. At paragraph 7 of its 11 August Answer, the United States asserts that “the statement of 
evidence attached to Brazil’s consultation request did not include any evidence related to measures 
other than those for upland cotton.”  This too is inaccurate.  The United States conveniently leaves the 
word “available” out of the term “statement of availa ble evidence” used in Articles 4.2 and 7.2 of the 
SCM Agreement.  Brazil was required to provide a statement
 of the evidence available  to it at the 
time.  It was not required to attach exhibits w ith the evidence; nor was it required to provide a 
statement regarding all of the evidence that it would eventually present to this Panel.  In paragraph 3 
of its statement of available evidence, Brazil addres sed what it knew at that point about the US export 
credit guarantee programmes:  
 US export credit guarantee programmes, since th eir origin in 1980 and up [to] the present, 
provide premium rates that are inadequate to cove r the long-term operating costs and losses of the 
programmes; in particular there were losses caused by  large-scale defaults totaling billions of dollars 
that have not been reflected in in creased premiums to cover such losses. 
 3. This sentence speaks not just to the existe nce of the US export credit guarantee programmes, 
but also to the way in which they constitute expor t subsidies, given the explicit use of the language 
included in item (j) of the Illustrative List of Expor t Subsidies.  The statement fulfils the requirement 
in Articles 4.2 and 7.2 of the SCM Agreement.  The Panel will also note that there is no limitation in 
this sentence to any particular commodity or commodities.  
4. In footnote 3 to its response, the United Stat es states that it “will be making a request for a 
preliminary ruling” that Brazil’s consultation request  was broader than its statement of evidence, in 
                                                     
 
1 WT/DS/267/1, p. 1. 
2 WT/DS/267/1, p. 4. WT/DS267/R/Add.2 
Page I-137 
 
 
violation of Article 7.2.3  As demonstrated above, Brazil’s re quest, and the accompanying statement 
of available evidence, do not support the United Stat es’ assertion.  Both the request and the statement 
of available evidence address the US export cred it guarantee programmes without limitation to any 
particular commodity or commodities.   
5. Moreover, even if the United States were to ma ke this request for a preliminary ruling and the 
Panel were to grant it, it would not affect Brazil’s claims.  Brazil’s compliance with Article 7.2 of the 
SCM Agreement can have no effect on its claims  under the Agreement on Agriculture, or on its 
prohibited subsidy claims under the SCM Agreement, or  on its actionable subsidy claims with respect 
to upland cotton.  
 
6. Finally, according to the Panel’s Working Pr ocedures, requests for preliminary rulings by a 
party were to have been made “not late r than its first submission to the Panel”.
4  Thus, the US request 
would not be timely.  Brazil submits this informati on at this stage in the hope of avoiding another 
lengthy procedural objection by the United States. 
 
(4) Is it argued that the export credit gu arantee programmes concerning upland cotton are 
each a separate or independent measure,  in that they operate independently? 
 Brazil’s Comment on US Answer: 
 7. In paragraph 11 of its 11 August Answer to Question 4, th e United States argues that “each 
export credit guarantee issued is a separate measure”.  It is not for the United States to define the 
measures that are the subject of Brazil’s challe nge.  Brazil’s requests for consultations and 
establishment identify the measur es at issue as the GSM 102, GSM 103 and SCGP programs, both as 
such and as applied.  In its submissions, Braz il has demonstrated that the programmes constitute 
export subsidies under Articles 1.1 and 3.1(a) of th e SCM Agreement, since they are unique financing 
vehicles that are not available on the market fo r agricultural commodity transactions and as such 
provide something better than is available on the ma rket.  Brazil has also demonstrated that the long-
term operating costs and losses for the programs outpace premiums collected, under item (j) of the Illustrative List (item (j) speaks to the long-term  operating costs and losses of “programmes,” and not 
individual guarantees). 
 
(8) Does the United States confirm that the qu estions referred to by Brazil in paragraph 92 
of Brazil’s oral statement were posed to the United States in the consultations?  
 
Brazil’s Comment on US Answer: 
 8. In paragraph 17 of its 11 August Answer, th e United States concedes that Brazil posed the 
questions included at Exhibit Bra-101.  The Panel will note that many of the questions included in 
Section 9 of Brazil’s list of questions cover export credit guarantees for all commodities.  The 
United States therefore concedes that Brazil consulted with it on the matters raised in those questions.  
As Brazil discussed in paragraphs 95-98 of its Statem ent at the First Meeting of the Panel, panels and 
the Appellate Body have concluded that for a matter to be properly within the scope of a request for 
establishment, actual consultations must have been  held.  That has also been the United States’ 
position in a number of other disputes, including US – DRAMS  and Japan – Agricultural Products .
5 
 9. The refusal of the United States to answer Brazil’s questions cannot hinder Brazil’s ability to 
pursue its claims against the CCC export guarantee pr ogrammes without any limitation to a particular 
                                                     
 
3 US 11 August Answer to Question 3, para. 7 and footnote 3 to that paragraph.  
4 Working Procedures of the Panel, 27 May 2003, para. 12. 
5 Oral Statement of Brazil, para. 96-97. WT/DS267/R/Add.2 
Page I-138  
 
commodity or commodities.  If it did, responding Members would have every incentive to refuse to 
answer any questions during consu ltations, thereby halting dispute se ttlement proceedings altogether. 
 
(10) What actual prejudice, if any, has the United States suffered as a result of the alleged 
omission of products other than upland cotto n from the request for consultations?   
 
Brazil’s Comment on US Answer: 
 
10. Brazil agrees that “a Member cannot proceed  to a panel unless the Member has consulted on 
that measure”, as the United States argues in paragr aph 19 of its response.  Brazil’s request for 
consultations included the CCC export guarantee pr ogrammes in connection with all commodities, 
however, and the United States concedes, in para graph 17 of its answer to Question 8, that it 
consulted with Brazil via the list of questions included in Exhibit Bra-101. 
 11. Brazil does not agree with the United States’  assertion, at paragr aph 20 of its 11 August 
Answer, that the consultation request is of a “juris dictional nature”.  While the Appellate Body has 
concluded that a complain ing Member’s request for establishment  is jurisdictional in nature, and 
strictly delimits a pane l’s terms of reference
6, it has not made this statement with respect to a request 
for consultations .  In fact, in Brazil – Aircraft , the Appellate Body concluded that there is no 
requirement for a “precise and exact identity”  between a request for consultations and a request for 
establishment, which suggests that a request for consultations is not jurisdictional in nature.7  
 
12. In paragraph 23 of its 11 August Answer, the United States argues, without any proof, that it 
“has suffered an inability to prepare, respond, and consult with respect to allegations on measures 
never presented to the United Stat es in accordance with the DSU”.  As noted above, Brazil’s request 
for consultations specifically addressed potential claims against the US export credit guarantee 
programs in connection with all commodities, and not just upland cotton.  Moreover, the 
United States acknowledges that Brazil posed qu estions to it regarding those programmes in 
connection with all commodities.  The questions were provided to the United States in writing on 
22 November, in advance of the consultations session.8  In paragraph 92 of its Oral Statement at the 
First Meeting of the Panel, Brazil offered extr acts from those questions, which clarify that 
consultations regarding the US e xport credit guarantee programs were not limited to upland cotton.   
 
13. The United States, therefore, was aware, both from Brazil’s request for consultations and from Brazil’s extensive list of questions, that th e consultations included US export credit guarantee 
programs with respect to all commodities, and not ju st upland cotton.  That the United States refused 
to respond to Brazil’s questions does not mean that it had an “ inability ” to prepare, respond, and 
consult with Brazil – it means that the United Stat es made a strategic decision not to do so.  The 
United States had more than seven months from re ceipt of Brazil’s questions until it filed its First 
Submission to “prepare and respond” to Brazil’s cl aims.  This demonstrates that no due process rights 
were violated nor any prejudice caused.  The Unite d States alone bears responsibility for any alleged 
“prejudice” it has suffered as a result of its own strategic decision.  
14. In paragraph 24 of its 11 August Answer, th e United States argues that it “has not had [sic] 
proper opportunity to consult” with Brazil on the US export credit guarantee programs with respect to 
all commodities.  In paragraph 17 of its 11 August Answer to Question 8, however, the United States 
concedes that Brazil did pose questions on the US e xport credit guarantee programmes with respect to 
all commodities.  Consultations did, therefore, o ccur with respect to export credit guarantees covering 
all eligible agricultural products. The United St ates refused during meetings on 3-4 December, 
19 December 2002 and 17 January 2003 to provid e answers to Brazil’s questions.  With its 
                                                     
 
6 Appellate Body Report, EC – Bananas III , WT/DS27/AB/R, para. 142. 
7 Appellate Body Report, Brazil – Aircraft , WT/DS46/AB/R, para. 132. 
8 Exhibit Bra-101 (Brazil’s Questions for the Purposes of Consulations, 22 November 2002). WT/DS267/R/Add.2 
Page I-139 
 
 
consultations request and its extensive list of qu estions, however, Brazil fulfilled the requirement to 
consult with the United States on the full scope of the programmes.  
(11) Does the United States agree that Brazil’s request for establishment of the Panel can be 
understood to indicate that Brazil’s export credit guarantee claims relates to products other 
than upland cotton?  How, if at all, is this relevant?   
Brazil’s Comment on US Answer: 
 
15. At paragraphs 96-97 of its Statement at the First Panel Meeting, Brazil noted that in other 
disputes, the US position has been that “‘a Member s hould be permitted to refer a claim to a panel if it 
was actually raised during consultations, even t hough it may not have been included in the written 
request for consultations.’”
9  In its 11 August Answer to Ques tion 11, the United States now suggests 
that its position is different with respect to measures than it is with respect to claims.  According to 
the United States, while a Member can add claims  not present in its consultations request to its panel 
request, it cannot add measures .10 
 16. Brazil repeats that its request for consultations does in fact address the US measures (the GSM 102, GSM 103 and SCGP programs) in connection with all commodities.  Every measure included in its request for establishment was similarl y included in its request for consultations.  The 
US argument is therefore irrelevant.   
 
17. In any event, the US reliance on the Appellate Body’s decision in Guatemala – Cement (I)  is 
misplaced.
11  In that case, the Appellate Body explained that the text  of Article 6 of the DSU and 
Article 17.4 of the Anti-Dumping Agreement require d a distinction between measures and claims.  
The United States has, however, failed to explai n the textual reason why the distinction between 
measures and claims is relevant for the purpose of comparing a request for consultations with a 
request for establishment .  In fact, the Appellate Body has specifically held that Articles 4 and 6 of 
the DSU do not  “require a precise and exact identity  between the specific measures that were the 
subject of consultations and the specific measures id entified in the request for the establishment of a 
panel”.12  Nor has the United States offered any logical reason why a Member should be allowed to 
add claims not covered by its consu ltations request to its request for establishment, but not measures.  
If anything, a defending Member would seem to suffe r greater prejudice by the addition of claims 
than by the addition of measures, since th e Member is likely more familiar with its own measures than 
it would be with another Member’s  claims. 
 
(16) What, if any, prejudice in terms of presenta tion of its case does the United States allege, 
should the Panel proceed to consider the meas ures constituting the cottonseed payments under 
the Agriculture Assistance Act of 2003? 
 
Brazil’s Comment on US Answer: 
 
18. There have been many disputes in which Pane l found that measures, which were replacement 
measures to measures originally consulted on, were  included in the panel’s terms of reference, Korea 
– Beef13 and Chile- Agricultural Products (Price Band )14, to name a few.  The Agricultural Assistance 
Act of 2003 is in the nature of a revised measure, as Brazil has argued in pa ragraphs 145-150 of its 
                                                      
9 Panel Report, US – DRAMS , WT/DS99/R, para. 6.8. 
10 US 11 August Answer to Question 11, para. 25. 
11 US 11 August Answer to Question 11, para. 26 note 9 
12 Appellate Body Report, Brazil – Aircraft , WT/DS46/AB/R, para. 132. 
13 Panel Report, Korea – Beef , WT/DS161/R and WT/DS169/R, para. 563-564.  
14 Appellate Body Report, Chile – Agricultural Products (Price Band) , WT/DS207/AB/R, para. 143-
144. WT/DS267/R/Add.2 
Page I-140  
 
Oral Statement.  Brazil also notes that the Unite d States has identified no prejudice to its ability to 
defend this measure in this dispute.  
(17) (a) What is the relationship of the Agricultural Assistance Act of 2003 to other 
legislation in the request for establishment of the Panel?   
 
 (b) Do the legal instruments follow directly one after another, or are there temporal 
gaps?  Are payments authorized under a broad legislative authority or are they specific to each legal instrument?   
 
 (c) Please provide any implementing regulations.  Do these implementing 
regulations resemble those relating to previous programmes or payments?  Are payments made retrospectively?  How if at all is this relevant?   
 
Brazil’s Comment on US Answer 
 
19. The United States argues that the four legisla tive acts that authorize cottonseed payments for 
the MY 1999, 2000 and 2002 crop are completely unrela ted measures and that – while the regulations 
implementing these payments are very similar – this is immaterial to the question of whether such payments are part of a single programme.
15   
 
20. If a Member like Brazil would be prevented from challenging yearly renewed measures that 
provide support under the very same mechanism – and in fact under nearly identical regulations16 – 
than another Member like the United States could continue to enact yearly measures and limit the challenge by WTO Members to old measures without  a prevailing challenge having any effect on its 
current and future identical measu res.  The result would put a complaining Member in the impossible 
situation of having to challenge identical measures year after year, just because they are based on 
legislation that “bears no relation”
17 to preceding identical  legislation on the same matter .   
 21. The Panel in Argentina – Footwear  rejected similar arguments to those made by the 
United States:  
Moreover, it appears that an interpretation whereby these subsequent Resolutions are considered to be 
measures separate and inde pendent from the definitive safeguard measure, and thus outside our terms 
of reference, could be contrary to Article 3.3 of the DSU. Such an interpretation could allow a 
situation where a matter brought to th e DSB for prompt settlement is not resolved when the defendant 
changes the legal form of the measure through a se parate but closely related instrument, while the 
measure in dispute remains essentially the same in substance . In this way, Members could always 
keep one step ahead of any WTO dispute settleme nt proceeding because in such a situation, the 
complaining Member would indeed, challenge a “m oving target”, and panel and Appellate Body’s 
findings could already be overtaken by events when they are rendered and adopted by the DSB.
18 
 22. Brazil maintains that the Agricultural As sistance Act of 2003 constitutes a subsequent, 
separate but closely related instrument, that is essen tially the same as the legal instruments authorizing 
the MY 1999 and MY 2000 cottonseed payments and that  is, therefore, within the Panel’s terms of 
reference.  
                                                     
 
15 US 11 August Answer to Question 17, para. 39-43. 
16 Compare  Exhibit US14-US16. 
17 US 11 August Answer to Question 17, para. 39. 
18 Panel Report, Argentina – Footwear , WT/DS121/R, para. 8.41 (emphasis added). WT/DS267/R/Add.2 
Page I-141 
 
 
II. ARTICLE 13(B): DOMESTIC SUPPORT MEASURES 
 
A. “EXEMPT FROM ACTIONS” 
 
(20) In paragraph 8 of its initial brief (dated 5 June, 2003), the United States argued that the word "actions" as used in the phrase "exempt from actions" in Article 13 of the Agreement on Agriculture includes the "bringing of a case" and consultations.  In paragraph 36 of its first 
written submission (dated 11 July, 2003), the United States stated as follows:  
"[P]rior to this point in the process, the DSU rules did not afford the United States any 
opportunity to prevent the dispute from proceeding through consultations and panel 
establishment automatically, regardless of the US insistence that its measures conform to the 
Peace Clause." Is it the United States’ understanding that the drafters used the phrase "exempt from actions" knowing that under the DSU it would not be possib le fully to exempt "actions", as the United 
States interprets that term? 
 (21) In US - FSC and US - FSC (21.5) the Appellate Body made findings under the SCM Agreement relating to export subsidies in resp ect of agricultural products without making a 
finding in respect of Article 13 of the Agreement on Agriculture.  How is this relevant to the 
United States’ interpretation of the phrase "exempt from actions" as used in Article 13? USA  
 Brazil’s Comment on US Answers: 
 
23. The United States and the European Communities maintain that the complaining party has the 
burden of proof under Article 13 of the Agreement on Agriculture.  More specifi cally, they claim that 
Article 13 is not in the nature of an affirmative de fence.  Brazil’s comment will again show that their 
position is untenable.  24. In its 11 August Answer to Question 20 of th e Panel, the United States asserts, under the 
“exempt from action” argument, that “Brazil has attempted to improperly invoke dispute settlement 
procedures notwithstanding the Peace Clause.”
19  According to the United States, a dispute settlement 
procedure could only be initiated af ter a determination of non-compliance with Article 13 has been 
made.  In its 11 August Answer to Question 21, th e United States then dismisses the findings in US – 
FSC by simply stating that they do not address th e peace clause and that the issue was not raised by 
either party in that case.20  Therefore, those rulings and recommendations “provide no guidance for 
purposes of this dispute”. 
 25. The EC maintains that “Article 13 is more ak in to a threshold permitting further action if the 
threshold is not complied with.”
21  The EC affirms that Article 13 “is an integral part of the 
Agreement on Agriculture ”.22  In that sense it would be comparable to Article 6 of the ATC, 
Article 3.3 of the SPS Agreement, and Article 2.4 of  the TBT Agreement, which were found not to be 
affirmative defences by  the Appellate Body.23  According to the EC, those provisions, like Article 13 
of the Agreement on Agriculture, “provide certain rights to WTO Members, but cannot be seen as 
exceptions”.24 
 
                                                      
19 US 11 August Answer to Question 20, para. 47. 
20 US 11 August Answer to Question 21, para. 48. 
21 Third Party Submission of the EC, para. 11. 
22 Third Party Submission of the EC, para. 12. 
23 Third Party Submission of the EC, para. 12. 
24 Third Party Submission of the EC, para. 12. WT/DS267/R/Add.2 
Page I-142  
 
26. Brazil disagrees.  The Appellate Body addressed  the issue of burden of proof on numerous 
occasions.  In US – Shirts and Blouses , the Appellate Body made a general finding stating that 
 ... the burden of proof rests upon the party, whether complaining or defending, who asserts the affirmative of a particular claim or defence. If that party adduces evidence sufficient to raise a 
presumption that what is claimed is true, the burden then shifts to the other party, who will fail unless 
it adduces sufficient evidence to rebut the presumption.  In the context of the GATT 1994 and the WTO Ag reement, precisely how much and precisely what 
kind of evidence will be required to establish such  a presumption will necessarily vary from measure 
to measure, provision to provision, and case to case.
25 
 
27. When examining Article 6 of the ATC, Article  3.3 of the SPS Agreement, and Article 2.4 of 
the TBT Agreement, the Appellate Body did not st ray from this principle.  In fact, it was the 
cornerstone of all determinations concerning the above-cited provisions.  Paragraph 275 of the 
Appellate Body report in EC – Sardines  reads: 
 
In EC – Hormones, we found that a "gen eral rule-exception" relationship between 
Articles 3.1 and 3.3 of the SPS Agreement do es not exist, with the consequence that 
the complainant had to establish a case of inconsistency with both Articles 3.1 and 
3.3.196 We reached this conclusion as a c onsequence of our finding there that 
"Article 3.1 of the SPS Agreement simply excludes from its scope of application the 
kinds of situations covered by Article 3.3 of that Agreement".197  Similarly, the 
circumstances envisaged in the second part of Article 2.4 are excluded from the scope 
of application of the first part of Article 2.4. Accordingly, as with Articles 3.1 and 3.3 
of the SPS Agreement, there is no "general  rule-exception" relationship between the 
first and the second parts of Article 2.4. Hence, in this case, it is for Peru – as the 
complaining Member seeking a ruling on the inconsistency with Article 2.4 of the 
TBT Agreement  of the measure applied by the Eu ropean Communities – to bear the 
burden of proving its claim. (emphasis added) (footnotes omitted)26 
 
28. With regard to Article 6 of the ATC, the Appellate Body found that provision to be a 
fundamental part of the rights and obligations of WTO Members concerning non-integrated textile 
and clothing products covered by  the ATC during the transition period.  Consequently a party 
claiming a violation of a provision of the WTO Agr eement by another Member must assert and prove 
its claim.  In this case, India claimed a violation by the United States of Article 6 of the ATC .  We 
agree with the Panel that it, therefore, was up to  India to put forward evidence and legal argument 
sufficient to demonstrate that the transitional safe guard action by the United States was inconsistent 
with the obligations assumed by the United States  under Articles 2 and 6 of the ATC. (emphasis 
added)27  
 29. Unlike the EC, Brazil believes that these Appe llate Body findings underscore the striking 
differences between Article 13 of the Agreement on Ag riculture and the other provisions cited by the 
EC and which the Appellate Body found not to be  in the nature of an affirmative defence. 
 
30. First, Brazil notes that in all Appellate Body findings, the complaining party claimed a 
violation of the provision at issue.  The complaining party tried to impute the burden of proof on the respondent by alleging that those provisions also contained language that pr ovided an opportunity for 
an affirmative defence under an “exception” to the general rule. 
 
                                                     
 
25 Appellate Body Report, US – Shirts and Blouses , p. 14. 
26 Appellate Body Report, EC – Sardines , para. 275. 
27 Appellate Body Report, US – Shirts and Blouses , p. 16. WT/DS267/R/Add.2 
Page I-143 
 
 
31. Article 13 of the Agreement on Agriculture is entirely different.  The peace clause imposes no obligations on WTO Members.  As the EC rightfully stated in paragraph 6 of its Initial Submission of 
10 June 2003:  
a Member is not under an obligation to act consistently with Article 13 of the 
Agreement on Agriculture  – failing to respect Article 13 implies that a Member no 
longer enjoys protection thereof.  Consequently ... Article 13 of the Agreement on 
Agriculture  can only be seen as a defence
 against a claim brought under other aspects 
of the WTO Agreements which regulate the provision of subsidies.  It would seem 
bizarre if before Brazil could bring a cl aim with respect to subsidies which it 
considered did not respect the US’s obligations, Brazil had first to establish that 
potential defences did not apply . (italics in original) (underlining added)28 
 32. Brazil entirely agrees with the characterizati on of Article 13 as a potential defence against 
claims brought before the WTO.  In fact, as the Panel is well aware, in  Brazil’s requ est for the 
establishment of the Panel, Brazil does not claim that  the United States violated Article 13.  Such 
violation is indeed impossible, since Article  13 of the Agreement on Agriculture imposes no 
obligations whatsoever on WTO Members.  Articl e 13 simply provides shelter to Members that 
invoke its exemption from actions based on certain ot her provisions of the WTO Agreements.  Again, 
as the Appellate Body stressed every single time it a ddressed the issue, “the burden of proof rests 
upon the party, whether complaining or defending, w ho asserts the affirmative of a particular claim or 
defence.”
29 
 33. Second, Brazil’s interpretation is entirely comp atible with the findings of the panel and the 
Appellate Body in US – FSC .  Brazil, unlike the United States, considers these finding to be very 
relevant to this dispute.  In US – FSC , the United States decided not to invoke Article 13 of the 
Agreement on Agriculture as a possible defence agains t the challenges brought by the EC.  The panel 
and the Appellate Body did not need to address Artic le 13 simply because it was not used as a defence 
by the respondent.  This situation is not necessarily  unusual.  For example, a respondent that knows, 
in advance, that it is not complying with the requi rements of Article 13, may well choose to directly 
rebut the prima facie case of th e complainant by providing rebuttal arguments and evidence without 
attempting to use the Article 13 shelter. 
 
34. Indeed, interpreting Article 13 of the Agreement on Agriculture as a “threshold”
30 provision is 
at odds with the Appellate Body’s findings in US – FSC , US– FSC  (21.5), Mexico – HFCS  (21.5) and 
US – Byrd Amendment .  In Mexico – HFCS (21.5), the Appellate Body held that 
 
We believe that a panel comes under a duty to address issues in at least two instances.  
First, as a matter of due process, and the proper exercise of the judicial function, panels are required to address issues that are put before them by the parties to a dispute.  Second, panels have to address and dispose of certain issues of a 
fundamental nature, even if the parties to the dispute remain silent on those issues .  In 
this regard, we have previously observed that  ‘[t]he vesting of jurisdiction in a panel 
is a fundamental prerequisite for the lawful panel proceeding.’  For this reason, panels 
cannot simply ignore issues which go to the root of their jurisdiction – that is, to their authority to deal with and dispose of matters.  Rather, panels must deal with such 
issues – if necessary, on their own motion – in order to satisfy themselves that they 
have authority to proceed . (emphasis added) (footnote omitted)
31  
                                                      
28 Initial Third Party Submission of the EC, para. 6. 
29 Appellate Body Report, US – Shirts and Blouses , p. 14. 
30 Third Party Submission of the EC, para. 11. 
31 Appellate Body Report, Mexico – HFCS (21.5) , WT/DS132/AB/RW, para. 36. WT/DS267/R/Add.2 
Page I-144  
 
35. The Appellate Body applied this reasoning to itself in US – Byrd Amendment .  In that case, 
the Appellate Body examined an issue related to the Panels jurisdiction, although it was not addressed 
before the Panel or, indeed mentioned in the notice of appeal.
32  If Article 13 of the Agreement on 
Agriculture were a threshold provision affecting th e jurisdiction of a panel or the Appellate Body, 
both the panels and the Appellate Body in US – FSC  and US – FSC  (21.5) would have had to address 
the issue of peace clause exemption of the claims brought by the EC.  The fact that none of them did 
is further evidence that Article 13 is not a “thr eshold” or jurisdictional provision.  As Brazil 
maintains, Article 13 of the Agreement on Agriculture is an affirmative defence. 
 36. Further, Brazil does not claim that Article 13 is  an “exception”.  Brazil does not claim that the 
United States “violated” Article 13 and, therefor e, Brazil does not bear the burden of proving any 
such assertion.  Actually, Brazil simply does not believe  that Article 13 is at all relevant to claims 
raised under the SCM Agreement or GATT Article XVI  until the respondent claims that it is exempt 
by the provisions of the peace clause.  The res pondent claiming such exemption has the burden of 
proving that it is entitled to it.
33  If the respondent does not claim such protection, Article 13 is moot, 
as demonstrated by the US – FSC  case. 
 37. In paragraph 11 of its Oral Statement of 24 Ju ly, the EC points out that no “credible response” 
was given to the argument it put forward suggestin g that Brazil’s approach “has perverse effects”.
34  
The EC claimed that   
if Article 13 is considered an affirmativ e defence, when a complainant brings a 
dispute under Articles 5 and 6 of the SCM Agreement and, for instance, Article 6 of the Agreement on Agriculture , the complainant would be required to prove a breach 
of Article 6 while at the same time the defe ndant would also be required to prove that 
it had not infringed Article 6 of the Agre ement.  The burden of proof cannot switch 
between parties simply on the basis of whether the complainant cites the SCM 
Agreement  or not ...” (italics on the original)
35 
38. Brazil fails to see the conundrum that seems to puzzle the EC.  If the complainant cites the 
SCM Agreement or, better still, allege s a violation of the SCM Agreement together with a violation of 
Article 6 of the Agreement on Agriculture , the burden of proving both assertions rests on the 
complainant irrespective of the fact that the res pondent may invoke Article 13.  If the complainant 
fails to establish the violation of Article 6 of the Agreement on Agriculture , then the task of the 
respondent to invoke the Article 13 shelter agains t a possible violation of the SCM Agreement is 
made that much easier.  In fact, the burden of proof concerning the violation of Article 6 of the 
Agreement on Agriculture  will simply start with the complainant.  As the Appellate Body noted in 
US – Shirts and Blouses , if the complainant “adduces evidence su fficient to raise a presumption that 
what is claimed is true, the burden shifts to th e other party, who will fail unless it adduces sufficient 
evidence to rebut the presumption”.  Therefore, th e burden of proof may well switch between parties, 
but not “on the basis of whether the complainant cites the SCM Agreement ”, as the EC suggested in its 
Oral Statement.  39. In sum, Brazil reemphasizes that the peace clause is in the nature of an affirmative defence.  
 
                                                     
 
32 Appellate Body Report, US – Byrd Amendment , WT/DS217/AB/R and WT/DS234/AB/R, para. 206-
208. 
33 Appellate Body Report, US – Shirts and Blouses , p. 14. 
34 Oral Statement of the EC, para. 11 
35 Oral Statement of the EC, para. 11. WT/DS267/R/Add.2 
Page I-145 
 
 
B. “SUCH MEASURES” AND ANNEX 2 OF THE AGREEMENT ON AGRICULTURE 
 
(22) Please explain the difference, if any, be tween the meaning of “defined” and the meaning 
of “fixed” in the phrase “a defined and fixed base  period” in paragraph 6(a) of Annex 2 of the 
Agreement on Agriculture.    
Brazil’s Comment on US Answer: 
 
40. The United States 11 August Answer to Questi on 22 renders the meaning of the word “fixed” 
meaningless by isolating the phrase “relative position” from the full dictionary definition.
36  T h e  
complete definition includes the phrase “definite, permanent, and lasting”.37  There is nothing 
“permanent” about the US interpretation of the mean ing of “fixed base period” for the PFC and direct 
payment programmes.  For further comments on the issu e, Brazil refers the Panel to paragraphs 10-12 
of its Rebuttal Submission.   (24) How often can a Member define and fix a base period in accordance with paragraph 6 of Annex 2 of the Agreement on Agriculture?  Brazil’s Comment on US Answer: 
 41. Brazil agrees with the United States’ statemen t that there is “no requirement in paragraph 6 
that a particular base period be used for a decoupl ed income support measure nor that the same base 
period be used for purposes of ever y decoupled income support measure.”
38  But this misses the point.  
The legal and factual question is whether a measure for which a new base period is “ fixed ” has the 
same structure, design, and eligibility crite ria as an older replaced measure which had a different  base 
period.  The evidence demonstrates that PFC payments  and direct payments have a similar structure, 
design, and eligibility criteria.39  
 
(29) Please explain the meaning of the words "the fundamental requirement" as used in 
paragraph 1 of Annex 2 of the Agreement on Agriculture.   
 
Brazil’s Comment on US Answer: 
 
42. The United States argues in response to this question that “compliance with the fundamental 
requirement of the first sentence will be demonstr ated by conforming to the basic criteria of the 
second sentence plus the applicable policy-specific criteria of paragraphs 6-13.”40  Brazil disagrees 
that compliance with the basic and policy-specifi c criteria is a sufficient condition for compliance 
with the fundamental requirement.  For example, th e volume of direct payments that conform to the 
criteria in paragraph 6 is not limited.  However, the amount of support a Member provides may be so 
large that the payments create significant production and trade-distorting effects.  Therefore, even if 
direct payments conform to the basic and policy- specific criteria in Annex 2, they may still have 
considerable production and trade-distorting effects.  Brazil refers to its arguments in support of the 
“stand-alone” nature of the fundamental requirement.41  
 
                                                      
36 Brazil 11 August Answer to Question 22, para. 20.   
37 The New Shorter Oxford English Dictionary, 1993 edition, p. 962.  
38 US 11 August Answer to Question 24.   
39 See Rebuttal Submission of Brazil, para. 10.     
40 US 11 August Answer to Question 29, para. 59. 
41 First Submission of Brazil, para. 163-165; Brazil’s 11 August Answer to Questions 27-28, para. 32-
43. WT/DS267/R/Add.2 
Page I-146  
 
(32) If the first sentence of paragraph 1 of Annex 2 expresses a general principle which 
informs the interpretation of the criteria in Annex 2, please explain how this affects the assessment of the direct payments programme’s compliance with paragraph 6 of Annex 2.   
 
Brazil’s Comment on US Answer: 
 
43. Contrary to the US argument at paragraph 68 of its 11 August Answers, there is no conflict 
between the Brazil’s position regarding the fruits, ve getables and wild rice pr ohibition and Annex 2, 
paragraph 1 “fundamental requirement”.  The undis puted facts show that this prohibition on the 
production of certain crops channels  production to other crops that are permitted to be produced to 
receive the payment.
42  This channeling of payments creates  production and trade distorting effects 
inconsistent with Anne x 2, paragraph 1.   
 44. Further, the United States engages in a wishfu l interpretation when it states in paragraph 68 of 
its 11 August Answer that “paragraph 6(b) should be read to prevent a Member from requiring a 
recipient to produce  certain crops”.  This interpretation would render Annex 2,  paragraph 6(e) a 
nullity.  Paragraph 6(e) provides that “no producti on shall be required in order to receive such 
payments”.  The US interpretation of paragraph 6( b) as not requiring the production of “certain crops” 
is the same as 6(e)’s prohibition on not requiring production of “any crops”.   45. Paragraph 6(b) is distinct from paragraph 6(e) because it provides a clear test that the amount  
of payment cannot be related to the type of productio n.  There is no factual dispute among the parties 
that the amount of PFC and direct payments falls when base acres are used to produce fruits, 
vegetables, tree nuts, and wild rice.  There is no factual dispute that the 1996 FAIR Act and the 2002 
FSRI Act require  the prohibition or reduction in payments if these crops are produced on base 
acreage.  Given these two undisputed facts and the cl ear text of Annex 2, paragraph 6(b), the only 
conclusion is that PFC and direct payments do no t meet the policy specific criteria of Annex 2.  
   
C. “DO NOT GRANT SUPPORT TO A SPECIFIC COMMODITY” 
 
(33) According to the United States’ interpret ation of the word “grant”, when can a Member 
claim that a measure is not exempt from action under Article 13(b)?  what if the measures is 
enacted annually?  Can the Member obtain a remedy in respect of that measure under the DSU? 
 
Brazil Comment to US Answer:  
 46. Brazil’s addresses in detail the US “statute of limitations” argument at paragraphs 88-96 of its 
Rebuttal Submission, as well as at paragraphs 40-47 of its Oral Statement.    
(37) In the United States’ view, why did the drafters not use the exact term “product-
specific” in Article 13(b)(ii)? 
 
Brazil Comment on US Answer:  
 
47. The United States’ 11 August Answer once again reveals that it equates the term “support to a specific commodity” with “product-specific”.  Br azil notes again that neither the phrase “product-
specific” nor “AMS” is found in the text of Artic le 13(b).  Given the use of such terms in the 
Agreement on Agriculture, the Drafters must be presu med to have used the term “support to a specific 
commodity” for a reason.  The US answer ignores the likely reason which is that “support to a 
specific commodity” is qualified by the term “such measures” which includes the universe of non-
                                                     
 
42 See Rebuttal Submission of Brazil, para. 7. WT/DS267/R/Add.2 
Page I-147 
 
 
green box support measures in the chapeau  to Article 13(b).  This universe of measures from which 
such support may be found is not limited to  simply “product-specific” measures.   
 
(38) Given the fact that subsidies available for more than one product could have various 
effects on production, how does the United Stat es demarcate between product-specific support 
and non-product specific support?   
Brazil’s Comment on US Answer: 
 
48. The United States demarcation line does not take  into account the defi nition of “non-product 
specific” in Article 1(a) which is “pr ovided in favour of agricultural producers in general ”.  This “in 
general” language shows where the line betwee n product-specific and non-product specific must be 
drawn.  Any support that is not provided to producers “ in general ” cannot, by definition, be non-
product specific support.  It must instead fall into the category of “product-specific support”.  The United States fails to recognize that the term “in ge neral” is directly related to and qualifies the phrase 
“support . . . provided for an agricultural product in favour of the producers of the basic agricultural 
product”.   49. The “demarcation” line drawn by the Unite d States between “product-specific” and “non-
product specific” support is necessary to justify the na rrow US specificity test for Article 13(b)(ii).  
The United States argues that support could only be  “product-specific” if “production is necessary for 
the support to be received.”
43  Yet, the Article 1(a) notion of “support” “provided for an agricultural 
product in favour of the producers of the basic agricultu ral product” is very broad.  It could include 
any type of support, regardless of whether production was required or not.  For example, if the facts 
demonstrate that $1 billion of support were received  by the “producers of a basic agricultural product” 
(such as in the case of CCP payments to upla nd cotton producers in MY 2002), the language of 
Article 1(a) would support the finding that this s upport is “product-specific”.  The only restraint on 
such a conclusion is if it could be shown that all,  or most of the producers of agricultural products 
received the same type of support.  However, none of the five domest ic support payments at issue in 
this dispute comes even close to such an “in gene ral” finding.  The inclusion of such subsidies as 
“support to a specific commodity” is confirmed by the context of Article 13(b)(ii) which includes 
Annex 3 of the Agreement on Agriculture as discu ssed in paragraphs 17-22 of Brazil’s Rebuttal 
Submission. 
 50. Further, the United States never addresses the premise of the Panel’s question, i.e, that 
subsidies for more than one product could have va rious effects on production.  This is exactly the 
situation with PFC, market loss, direct payments, CCP payments, and crop insurance subsidies.  The 
evidence (which consists in large part of the statements of present or former USDA economists) 
shows the production enhancing effect s of each of these subsidies.   
 51. The US 11 August Answer highlights the narrowness of its Article 13(b)(ii) specificity test.  Trade and production-distorting amber box support from each of these five subsidies increases US production and sustains high levels of US exports of upland cotton.  Yet, under the US specificity test, 
it could never be deemed “support to” upland cott on because no production of upland cotton is legally 
required.  The Panel should reject this approach  and find that these programmes provide support to 
upland cotton.  
(39) If “such measures” in Article 13(b)(ii) refers to all those in the chapeau of Article 13(b), 
why are they not included in the potential co mparisons with 1992?  In what circumstances can 
measures which grant non-product specific support  lose exemption from action under Articles 5 
and 6 of the SCM Agreement  and Article XVI of GATT 1994?  
 
                                                     
 
43 US 11 August Answer to Question 38, para. 81. WT/DS267/R/Add.2 
Page I-148  
 
Brazil Comment to US Answer:   
 
52. The United States 11 August Answer does not address the second of the Panel’s questions 
directly.  But based on the argument in the “answer,”  the direct answer to the question would have 
been “ there are no circumstances in which measures wh ich grant non-product sp ecific support  lose 
exemption from action under Articles 5 and 6 of the SCM Agreement and Article XVI of GATT 1994 .”  
The arguments presented by the United States in its an swer confirms that its interpretation creates a 
broad new category of “exempt” non-green box supp ort – those presumptively trade and production-
distorting measures it labels “non-product specific”.  The US constructs this new exempt category by 
improperly interpreting the phrase “product-specific”  to include only non-green box support legally 
requiring the production of upland cotton.  This incorrect definition is inco nsistent with the fact that in 
analogous situations involving calculation of AMS,  paragraphs 12-13 of A nnex 3 of the Agreement 
on Agriculture require all types of non-green box support providing support to the producers of an agricultural commodity be included in the amount tabulated.  These points are further discussed in 
paragraphs 13-67 of Brazil’s Rebuttal Submission. 
 
53. The US 11 August Answer to the first question in paragraph 84 indicates that it interprets the 
phrase “such measures” as only including “product-sp ecific” support.  Even apart from the incorrect 
US definition, such an interpretation renders a nullit y the reference to most of the “measures” referred 
to in the “such measures” phrase of Article 13(b)(ii).  If the drafters had intended to limit the universe of non-green box support in the manner suggested by the United States, they would have used the 
phrase “product-specific” instead of  “such measures”.  The better in terpretation that does not render 
the chapeau  a nullity is that suggested by Brazil:  any type of support listed in the chapeau which 
provides “support to a specific commodity” must be in cluded within the support to be counted for the 
purpose of the required 13(b)(ii) comparison.    
D. “IN EXCESS OF THAT DECIDED DURING THE 1992 MARKETING YEAR” 
 General Comment by Brazil on the US Answers to Questions 47-69  
 
54. Brazil notes that the United States has not full y answered many of the questions posed by the 
Panel.  The United States further announced in va rious questions that it would provide its views on 
certain questions posed by the Panel in its rebu ttal submission.  In the answers provided, the 
United States has continued to pursue its overly simp listic view of an alleged “decision” to provide a 
rate of support of 72.9 cents per pound in MY 1992.  Brazil has pointed out that this rate of support 
does not accurately reflect the operation of the US support system to upland cotton and that it ignores 
restrictions on the availability of support and cost s associated with the participation in the support 
programmes.
44  Professor Sumner has attempted to correct the overly simplistic US approach and has 
presented data to that respect.45  
 55. A fundamental flaw exposed by the US 11 A ugust Answers is the inability of the US “72.9 
methodology” to account for a number of differe nt types of “support to upland cotton”.  In its 
11 August Answer to Question 67, the United States provides a calculation of upland cotton AMS that 
lists as “product-specific” support Step 2 paymen ts (user marketing certificates), cottonseed 
payments, storage payments, and interest subsidies, in addition to deficiency  payments, and marketing 
loan payments.  Yet, the United States “72. 9 methodology” does not – and cannot – account for 
cottonseed payments, Step 2 payments, storage pa yments and interest rate subsidies.  The 
United States takes no account of these subsidies – no matter how large the expenditures may be – 
because they do not fit within the US met hodology.  So they simply disappear.   
 
                                                     
 
44 Oral Statement of Brazil, para. 36;  Brazil’s 11 August Answer to Question 66(c), para. 120-128. 
45 See Exhibit Bra-105 (Statement of Professor Sumner at the First Meeting of the Panel). WT/DS267/R/Add.2 
Page I-149 
 
 
56. Any methodology that cannot account for all of the support “decided” and “granted” in MY 
1992 and during the implementation period cannot be legitimate.  A methodology that would sanction 
the cover-up of hundreds of millions – if not billions  – of dollars of expenditures cannot be justified 
by the object and purpose of Agreement on Agriculture or by any reasonable reading of the text of Article 13(b)(ii).   
 
57. With these general points in mind, Braz il comments on the answers provided by the 
United States.  
(43) What are the precise differences between deficiency payments and counter-cyclical 
payments that lead you to classify the former as product-specific and the latter as non-product 
specific?  How do you classify market loss assistance payments? 
 
Brazil’s Comment on US Answer: 
 58. The US 11 August Answer at paragraph 87-90  reveals its erroneous interpretation of the 
phrase “product-specific” in Article 1(a) of the Ag reement on Agriculture.  The United States ignores 
the phrase “in general” and assumes that “non-produc t specific” support is a huge residual category of 
support that includes everything except  support which requires  production of a specific product.  
Further, the United States’ answer ignores the fact  that all types of support in favour of domestic 
producers of a basic commodity are included in  the analogous AMS calculation of Annex 3 – 
including “product-specific” support where the recipient is not required to produce a specific 
commodity.  Brazil outlines the erroneous US inte rpretation in paragraphs  13-23 of its Rebuttal 
Submission.    59. The improper narrow US interpretation of “p roduct-specific” is highlighted in its discussion 
of counter-cyclical payments where the only relevant fact is that a producer receiving CCP payments 
need not plant any crop at all.  Brazil addresses in detail the evidence demonstrating that CCP payments are “support to” upland cotton in para graphs 48-52 of its Rebuttal Submission.   
 60. With respect to market loss assistance pa yments, Brazil notes that it provides a detailed 
analysis of how such payments are “support to upl and cotton” in paragra phs 29-35 of its Rebuttal 
Submission, as well as in paragraphs 50-54 of its Oral  Statement.  Contrary to the US statement in 
paragraph 92 of its 11 August Answers, Brazil has always asserted that  market loss assistance 
payments are “support to a specific commodity”, i.e., to upland cotton.    
(46) What is the relevance, if any, of the concept of “specificity” in Article 2 of the SCM 
Agreement and reference to “a product” or “subs idized product” in certain provisions of the 
SCM Agreement to the meaning of “support to a specific commodity” in Article 13(b)(ii) Agreement on Agriculture? 
 
Brazil’s comment to US Answer:   
 61. For the reasons set forth in Brazil’s 11 Augus t Answer to this question, Brazil believes that 
Article 2 of the SCM Agreement provides useful cont ext in interpreting the concept of specificity in 
Article 13(b)(ii).  Brazil notes that the very narrow US notion of specificity (only support requiring  
recipients to produce the commodity in question) for Article 13(b)(ii) is quite different than the very 
broad concept of specificity applying to all comm odities (including agricultural commodities) as set 
out in the US SAA referred to in Brazil’s answer.  The United States has not provided any reasons 
why there should be such a radically different concept of specificity involving non-green box 
domestic support measures under Article 13(b)(ii) and all types of products (including agricultural 
goods) under the SCM Agreement.  Brazil sees no basis for such a significant difference.  
 WT/DS267/R/Add.2 
Page I-150  
 
(48) Does Article 13(b)(ii) require a comparison of support granted with support decided?  
How could such a comparison be made?  Brazil’s Comment on US Answer: 
 62. Brazil comments on the US 11 August Answer to Question 48 in the context of its Rebuttal 
Submission at paragraphs 68-96.  
(54) Please identify all United States legal and regulatory and administrative instruments 
decided during the marketing year 1992, with th e respective dates of decision, that decided 
support for upland cotton. 
 Brazil’s Comment on US Answer: 
 
63. As Brazil has noted in its general comment at paragraphs 54-57 above, the United States 
focuses solely on the alleged target price decision of 72.9 cents per pound.  This simplistic approach 
does not accurately reflect the actual operation of the US support programmes to upland cotton.  As 
detailed by Professor Sumner in his Statement at the First Meeting, the United States took a number of decisions concerning support for the 1992 marketing year.
46   
 64. Professor Sumner – who actually participated  in the decision making process concerning the 
MY 1992 acreage reduction programme decision – expl ained during the First Meeting of the Panel 
that the decision on the percentage of upland cotton base that farmers participating in the deficiency 
payment programme had to leave idle was a conscious decision based on, inter alia , budgetary 
considerations.  Given expectati ons about production and prices in the upcoming marketing year, the 
decision on the acreage reduction programme was also  a decision on expected participation.  The 
United States could base expected participation on historical experience about participation in the 
deficiency payment program.  Professor Sumner i ndicated that USDA was able to fairly accurately 
predict actual participation.  The decision on th e amount of mandatory acreage reduction is, thus, a 
decision on the level of participation.  65. Professor Sumner’s testimony is supporte d by the Chief and Deputy Chief Economist of 
USDA who have explained that the aim of the acr eage reduction programme was “to balance supply 
and demand”
47, i.e., to influence prices and thereby US budgetary outlays.  They furthermore report 
that the United States implemented the acreage reduc tion programme with a view of reducing costly 
government stocks, and that the United States – with  further budget considerations in mind – reduced 
target prices.48   
 
66. Furthermore, the United States ignores various required additional administrative decisions 
that were necessary to make its domestic suppor t programmes operative.  These decisions include 
decisions on the deficiency payment rate, on weekly Step 2 payment rates and on a weekly-determined adjusted world price setting the amounts of marketing loan benefits available for that 
week.  By taking all of these decisions, the United St ates directly influenced the expenditures related 
to the MY 1992 crop.
49  In addition, as the United States now reflects in its AMS data, the 
                                                      
46 Exhibit Bra-105 (Statement of Professor Daniel Sumner at the First Meeting, para. 7-8). 
47 Exhibit Bra-180 (“Will Policy Changes Usher in a New Era of Increased Agricultural Market 
Variability?,” Keith J. Collins, Joseph W. Glaube r, Choices, Second Quarter 1998, p. 27). 
48 Exhibit Bra-180 (“Will Policy Changes Usher in a New Era of Increased Agricultural Market 
Variability?,” Keith J. Collins, Joseph W. Glaube r, Choices, Second Quarter 1998, p. 27). 
49 Brazil acknowledges that the United States could not possible 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. WT/DS267/R/Add.2 
Page I-151 
 
 
United States considers storage payments and interest subsidies50 as product-specific support to 
upland cotton.  Consequently, under the US ap proach, these product-specific domestic support 
measures need to be taken into account for purposes of the Article 13(b)(ii) decision.  Yet, the 
United States fails to account for these programmes in  its list of decisions taken concerning support to 
upland cotton, just as it failed to account for variou s decisions relating to the deficiency payment, 
marketing loan and Step 2 programmes.   
 67. Brazil also notes that the United States fa iled to answer Question 54 that asked the 
United States to identify “all” instruments that d ecided support for upland cotton.  This would also 
cover instruments other than product-specific inst ruments.  However, the United States has only 
followed its simplistic view of what kind of deci sion it took and has not provided information on other 
decisions.  This appears to be an attempt to avoi d the conclusion under all other approaches: that the 
United States provided support in  MY 1999-2002 in excess of that decided during the 1992 marketing 
year.  (55) Please provide a copy of the instruments in which the rate of support for upland cotton 
during the marketing year 1992 was decided, indicating the date of the decision.  Brazil’s Comment on US Answer: 
 
68. As noted in Brazil’s Comment to the previous  question, the United States failed to identify a 
list of decisions taken with respect to support for upland cotton in MY 1992.  As a consequence, the 
United States also failed to provide copies of those instruments.
51 
 
(57) If the United States decided on a rate of  support for MY1992, does that not mean that it 
decided on whatever budgetary outlay was required to meet that rate of support, even if the 
exact amount was not known at that time? 
 Brazil’s Comment on US Answer: 
 
69. At the outset, Brazil refers the Panel to the general comment made in respect of the set of 
questions referring to the term “decision” in Article 13(b)(ii) of the Agreement on Agriculture.  Also 
this answer suffers from the simplistic picture the United States draws of its MY 1992 support 
programmes to upland cotton.    70. Brazil disagrees with the United States that it could not be said that the United States decided 
on budgetary outlays.  Indeed, for all of the US programmes, there was a decision to authorize 
whatever budgetary outlays would be necessary to meet the rate of support.
52  In addition, the 
United States ignores that it has ad mitted that there were other prog rammes that meet its definition of 
“product-specific” and that do not provide a rate of  support: Step 2, cottonseed, storage payments and 
interest subsidies.  The United States accounted for those subsidies by providing budgetary outlays in 
its upland cotton AMS calculation, but it does not pr ovide any information on the decision taken with 
respect to those domestic support measures and the rate of support provided by them.  In addition, the 
United States took specific administrative decisi ons on the deficiency payment rate for MY 1992 
(20.3 cents per pound53), weekly Step 2 payment rates as we ll as weekly decision on the adjusted 
world price and, thus, the rate of marketing loan be nefits.  By taking these decisions, the United States 
decided on the payment rates that resulted from the “rate of support” and, therefore, on the amount of 
budgetary outlays it would use from its unlimited spending authority. 
                                                      
50 Brazil notes that the United States nowhere provides any information concerning the type and 
conditions of payments that are covered by these terms. 
51 See paras. 63-67 supra . 
52 First Submission of Brazil, para. 141. 
53 Exhibit Bra-4 (“Fact Sheet: Upland Cotton,” USDA, January 2003, p. 5). WT/DS267/R/Add.2 
Page I-152  
 
 71. Brazil further disagrees with the US assertion at paragraph 113 of its 11 August Answers that 
the programs decided by the United States require d an unlimited budgetary authority in both MY 
1992 and in later marketing years.
54  Even at prices of zero cents per pound, the amount of US 
expenditure for the deficiency payment and the ma rketing loan programme in MY 1992 was, in fact, 
limited by decisions restricting the participation in the programs to farmers that historically had grown 
upland cotton, who were eligible, and who decided to  participate based on the eligibility criteria.  By 
contrast, participation in the MY 2002 marketi ng loan programme, the crop insurance programme, 
and the Step 2 programme, for instance, is no l onger limited and now has an unlimited budgetary 
authority coupled with mandatory payment provisions .  In particular, the marketing loan programme 
is now unlimited whereas in MY 1992, eligibility to ma rketing loan benefits wa s restricted to upland 
cotton grown on acreage that was enrolled in the deficiency payment programme.  72. In sum, the United States not only “decided on wh atever outlay was required to meet that rate 
of support”, it also took various administrative deci sions that implemented the rate of support and 
transposed it into specific payment rates that resulted in identifiable budgetary outlays.  The 
United States took those decisions with respect to  all of the programmes including crop insurance and 
Step 2, as well as with respect to storage payments and interest subsidies.
55  Thus, the collective effect 
of these multiple decisions was to decide on the am ount of expenditures for MY 1992.  The only way 
to express this multitude of decisions and conduc t the required comparison with MY 1999-2002 is to 
use total monetary amounts of budgetary expenditures. 
 
(60) Can you provide information on the suppo rt decided in 1992 and the years with which 
you believe it should be compared, on a per s upport programme / per unit of production basis / 
per annum basis? If possible, please specify how, if  at all, budget outlays may be transposed into 
units of production, and which units of production are best to use. 
 
Brazil’s Comment on US Answer:  
73. Brazil notes that the United States has not pr ovided, as requested, an y per support measure, 
per unit figures of support that it decided in 1992 and support it granted in other years.  Nor did the United States provide any information whatsoever on how to account for Step 2 payments, cottonseed 
payments, storage payments and interest subsidi es because there is no way such measures could be 
measured using the simplistic US rate of support only approach.   
 74. In addition, the United States does not respond to the Panel’s request to transpose this rate of 
support into budgetary outlays per pound of producti on.  Brazil refers the Panel to paragraphs 84-85 
of its Rebuttal Submission, where it provides a new chart reflecting new information provided by the 
United States for various programmes.
56 
 
(61) Does the United States consider that Article 13(b)(ii) permits a comparison on any other 
than a per pound basis?  
Brazil’s Comment on US Answer:  
75. The United States admits that Article 13(b)(ii) , and in particular the term “decided”, permit a 
comparison different from comparing a rate of support, had the US domestic support measures been 
structured (i.e. decided) differently than characterized by the United States.
57  This admission is 
significant, because, in fact, the US measures were structured quite differently from what the 
                                                      
54 US 11 August Answer to Question 57, para. 113. 
55 US 11 August Answer to Question 67.   
56 US 11 August Answer to Question 67, para. 129-134. 
57 US 11 August Answer to Question 61, para. 118. WT/DS267/R/Add.2 
Page I-153 
 
 
United States asserts.  Professor Sumner58 established that the US support programmes in MY 1992 
did not provide a rate of support of 72.9 cents per pound to each poun d of upland cotton produced in 
the United States.  Numerous restrictions on the availability of the support by the deficiency payment programme and the marketing loan programme existed.   In addition, participation in both programmes 
was costly to farmers, as farmers were mandated to  set aside a certain percentage of acreage every 
year.  USDA Chief Economist Keith J. Collin s and USDA Deputy Chief Economist Joseph W. 
Glauber explain that   
[s]everal programme changes beginning w ith the 1985 Farm Act reduced the ability 
of deficiency payments to stabilize inco mes by fixing programme payment yields, 
reducing the amount of acreage eligible fo r payments, and tightening payment limits. 
In addition, many producers elected not to  participate in farm programs, making a 
large portion of production not covered by payments and a large portion of producers 
ineligible for them by the early 1990s.
59  
76. This statement confirms the existence of sever e restrictions on the availability of deficiency 
payments and the cost of participating in the pr ogrammes.  Were there no cost associated with the 
programme, no rational farmer would op t to not take the “free money”, i.e., nearly everybody would 
participate.  These conscious decisions by USDA a nd other US Government agencies must, therefore, 
be reflected in the claimed rate of support pr ovided by the various non-green box domestic support 
measures during MY 1992.  
77. Brazil agrees with the European Communiti es that such a mélange of domestic support 
measures decided in MY 1992 must be accounted for “in monetary terms”.
60  While the European 
Communities advocates using an AMS-like approach for the support decided in MY 1992,61 Brazil 
considers that an expenditure approach more accura tely reflects the text of Article 13(b)(ii), which 
does not refer to AMS or “product-specific”.  Br azil emphasizes that the domestic support measures 
that need to be included in this approach are a ll those domestic support measures that provide support 
to upland cotton.  78. Furthermore, the US “72.9 methodology” is  inconsistent with the object and purpose of 
Article 13(b)(ii) and of the Agreement on Agricu lture to correct and prevent restrictions and 
distortions in world agricultural markets.   
 
79. Accepting the US interpretation that eligibility criteria and participation costs of a programme 
are irrelevant would enable Members like the United States to avoid the disciplines of the SCM 
Agreement on trade-distortive subsidies.  For ex ample, the United States in MY 1992 decided and 
applied restrictive support programmes that require d costly land set aside programs, low payment 
yields, restricted payments to 85 per cent of elig ible acres, tied benefits from the marketing loan 
programme to participation in the costly defi ciency payment programs, and applied payment 
limitations, among others.  The US interpretations  would allow it in MY 2002 to lift all of these 
restrictions and maintain the rate of support without affecting its entitlement to peace clause 
exemption.  The approach taken to its extreme w ould allow a Member that decided a rate of support 
of 72.9 cents per pound for 0.0001 per cent of its pro duction in MY 1992, to provide a rate of support 
of 72.9 cents per pound to 100 per cent of its producti on in MY 2002 without a ffecting its entitlement 
to peace clause exemption.  Every legitimate comp arison must take account of economic realities of 
support regimes in MY 1992 and in later marketing years during the implementation period.  And 
these realities show that the support increased massively. 
                                                     
 
58 Exhibit Bra-105 (Statement of Professor Daniel Sumner at the First Meeting of the Panel). 
59 Exhibit Bra-180 (“Will Policy Changes Usher in a New Era of Increased Agricultural Market 
Variability?,” Keith J. Collins, Joseph W. Glaube r, Choices, Second Quarter 1998, p. 28). 
60 EC Answer to Third Party Question 22, para. 47 and 49. 
61 EC Answer to Third Party Question 22, para. 49. WT/DS267/R/Add.2 
Page I-154  
 
 
(66) Could you please comment on the relative m erits of each of the following calculation 
methods for purposes of the comparison of suppo rt to upland cotton with 1992, irrespective of 
whether a particular measure should be included or excluded:   
 (a) Total budgetary outlays (Brazil’s approach) 
  (b) Budgetary outlays per unit of upland cotton: Could you please calculate and 
provide an estimate for the marketing years 1992 and 1999-2002, respectively, and draw the Panel’s attention to any factors / qualifications that the Panel 
would need to be aware of.  
 Brazil’s Comment on US Answers: 
 
80. Brazil comments jointly on both of the 11 August Answers provided by the United States.  In 
essence, the United States rejects any approach based on budgetary outlays as ex post or retrospective 
and as does not reflecting its alleged single decision taken during MY 1992.
62  Based on the same 
argument, the United States also declines the Pane l’s request for information on how to calculate 
budgetary outlays per unit of upland cotton.63  Therefore, Brazil refers the Panel to its own 11 August 
Answer to Question 60 and 66(b) for the only ev idence in that respect as well as to Brazil’s 
reservations concerning this approach.64 
 
81. The United States maintains that because its support programmes depend on a price-gap, only 
a rate of support approach can reflect the US decision.65  It further maintains, that any budgetary 
approach would automatically reflect also producers’ planting and participation decisions and market prices, factors that the United States alleges, it could not have decided.
66  However, Brazil has 
demonstrated that the anticipated participation in the deficiency payment and marketing loan 
programme was an important aspect of the decision on the acreage reduction programme.  Professor Sumner has indicated that, based on historical participation data and projections about other 
programme parameters, the United States in MY 1992 had a very good idea of the participation rate 
that would result from the setting of a 10-per cent acreage reduction rate under the deficiency payment programme. 
 
82. Further, Brazil has demonstrated above that  the range of programme decisions the United 
States has taken, including decisions on deficiency  payment rates, adjusted world prices and Step 2 
payment rates in connection with decisions on ot her programme parameters, impacted the amount of 
budgetary outlays.  Thus, while the United States cer tainly did not decide on market prices, it took a 
number of decisions that translated these market  prices into actual expenditures for MY 1992. 
 83. The European Communities and other third parti es to this dispute agree with Brazil that the 
appropriate basis for a comparison of the support decided in MY 1992 with support granted in later 
marketing years during the implementation peri od is a approach base d “on monetary terms”.
67  Given 
the special situation of the EC with respect to the peace clause decision, it may be appropriate to use 
an ex ante AMS-like approach to its decision during MY  1992 compared to the actual AMS for later 
marketing years.68  But even that decision would be expressed in “monetary terms”.   
                                                      
62 US 11 August Answer to Question 66, para. 119-120. 
63 US 11 August Answer to Question 66, para. 120. 
64 See Brazil’s 11 August Answer to Question 60, para . 94-98 and Brazil’s Answer to Question 66(b), 
para. 117-119. 
65 US 11 August Answer to Question 66, para. 119. 
66 US 11 August Answer to Question 66, para. 119. 
67 EC Answer to Third Party Question 22, para. 47. 
68 EC Answer to Third Party Question 22, para. 47-49. WT/DS267/R/Add.2 
Page I-155 
 
 
 84. Total expenditures for MY 1992 and total expenditures for marketing years during the 
implementation period are the only legitimate bases fo r the comparison required by Article 13(b)(ii) 
of the Agreement on Agriculture.  All other cal culation methods are either not supported by a Vienna 
Convention analysis of Article 13(b)(ii) (US rate of suppor t approach;  US rate of support approach as 
modified by Professor Sumner), or have major shortc omings that should lead them to be used them 
with extreme caution (budgetary outlays per unit).  Brazil notes that its expenditure approach and the 
analogous AMS calculation yield identical results, if one were to account for deficiency payments in 
terms of expenditures rather than by using the form ula approach offered by Annex 3, paragraph 10-11 
of the Agreement on Agriculture.
69  
 
(d) Per unit rate of support for upland cotton (Pro f. Sumner’s approach at the first session of the 
first substantive meeting). 
 Brazil’s Preliminary Comment on US Answer: 
 
85. Brazil will further comment on any answer pursu ant to the US promise to provide “a detailed 
critique of Mr. Sumner’s analysis.”
70  As for the 11 August US comme nts, Brazil has earlier in its 
22 August Comments to Questions 66(a) and (b) argue d that Professor Sumner properly accounted for 
all US decisions.71  Concerning the inclusion of crop insu rance subsidies, PFC and market loss 
assistance payments, as well as direct and counter-c yclical payments, Brazil has demonstrated in its 
Rebuttal Submission72 and in comments to Questions 38 and 43 that these domestic support measures 
constitute support to upland cotton as well as product-specific support.  Thus, there is no basis to 
exclude these payments from any US calculation of upland cotton AMS.  
(67) The Panel requests the parties to calculat e and submit estimates of the AMS for upland 
cotton for marketing years 1992, 1999, 2000, 2001 and 2002.  For this purpose the parties are 
each requested to submit AMS calculations for upland cotton (using the budgetary-outlay/non-
price gap methodology employed by the United States in respect of cotton in its DS Notifications (e.g., G/AG/N/USA/43) and using the formats and supporting tables in document G/AG/2) on the same basis as would be the case in calcul ating a product specific AMS for the purposes of 
the calculation of the "Total Current AMS" in any year in accordance with the relevant 
provisions, including as appropriate Article 1(a), (b) and (h), Article 6 and Annex 3 to the 
Agreement.    Brazil’s Comment on US Answers: 
 86. The United States’ calcula tion of upland cotton AMS is incomplete because it does not 
account for the product-specific support provided to upland cotton from PFC and market loss assistance payment, direct and counter-cyclical paym ents and crop insurance subsidies.  Brazil has 
discussed the nature of these programs as produc t-specific (and as constituting “support to upland 
cotton”) and the incorrect US interpre tation of “product-specific” elsewhere.
73  Brazil further notes 
that the United States has included in its calcu lation of upland cotton AMS storage payments and 
interest subsidies – product-specific support measure s that the United States has not mentioned so far 
during this dispute.74  Based on this and other new data supp lied by the United States, Brazil provides 
an update of its AMS calculation and of its analysis of total budgetary outlays.75 
                                                      
69 Brazil’s 11 August Answer to Question 60, para. 97, and to Question 67, para. 130. 
70 US 11 August Answer to Question 66, para. 121. 
71 See para. 81-85 supra . 
72 Rebuttal Submission of Brazil, paras. 24-67. 
73 Rebuttal Submission of Brazil, para. 13-67. 
74 Brazil notes that it has asked the United States in consultations for information on any other domestic 
support measures the provides support to upland cotton and that the United States did not mention these WT/DS267/R/Add.2 
Page I-156  
 
 
III. EXPORT CREDIT GUARANTEES 
 71 (a) Is an export credit guarantee a financia l contribution in the form of a "potential 
direct transfer of funds or liabilities (e.g. loan guarantee)" within the meaning of 
Article 1.1(a)(1)(i) of the SCM Agreement?  Why or why not?  Does it confer a benefit 
within the meaning of Article 1.1(b)?  Why or why not?  If so, to whom?  
  (b) How, if at all, would these elements be  relevant to the claims of Brazil, and the 
United States response thereto? 
 
87. In responding to this Question, the United States relies solely on Article 10.2 of the Agreement on Agriculture and – alternatively – rest ricts the use of context from the SCM Agreement 
to item (j) only.
76  Brazil addresses the United States’ arguments regarding Article 10.2 of the 
Agreement on Agriculture at paragraphs 99-100 of its Rebuttal Submission.  In determining what 
constitutes an export subsidy within the meaning of Article 10.1 of the Agreement on Agriculture, 
Brazil considers that the Panel should refer to Artic les 1(e) and 10.1 of the Agreement on Agriculture 
itself, as well as to contextual guidance included in  Articles 1 and 3 of the SCM Agreement, and in 
item (j) of the Illustrative List of Export Subsidies a nnexed to the SCM Agreement.   This is consistent 
with the Appellate Body’s decisions in US – FSC77 and Canada – Dairy .78 
 (73) The Panel could arguably take the view that Articles 1 and 3 of the SCM Agreement were relevant in assessing the WTO-consistency of United States export credit guarantees.  The 
United States has yet to submit any evidence or argumentation on this point, either as potential 
context for interpretation of the terms in Arti cle 10 of the Agreement on Agriculture or in 
relation to Brazil’s claims under the SCM Agreement.  The Panel would therefore appreciate 
United States views in respect of this situation, and invites the United States to submit relevant 
argumentation and evidence.  
 
Brazil’s Comment on US Answer: 
 
88. The United States argues that it does not need to address Articles 1 and 3 of the SCM 
Agreement because it “does not believe that Braz il has submitted evidence and argumentation that 
would establish a prima facie  case in favour of Brazil’s claims . . .”
79  Since the United States has 
surpassed its quantitative export quantity reduction co mmitment levels, Article 10.3 of the Agreement 
on Agriculture allocates the burden to the United Stat es to prove that its excess exports did not benefit 
from export subsidies, including export credit guarantees.80  Therefore, it is not Brazil, but the 
United States, that is faced with satisfying the elements of a prima facie case in favour of its defence. 
 
(74) If the Panel decides to refer to provi sions of the SCM Agreement for contextual 
guidance in the interpretation of the terms in Article 10 of the Agreement on Agriculture, should the Panel refer to item (j) or Articles 1 and 3 of the SCM Agreement or both?  
 
                                                                                                                                                                    
 
programs during consultations. See Exhibit Bra-101 (Brazil’s Questions for the Purposes of the Consultations, 
22 November 2002, Questions 15.1-15.6). 
75 Rebuttal Submission of Brazil, paras. 73-74. 
76 US 11 August Answer to Question 71, para. 137-139. 
77 Appellate Body Report, US – FSC , WT/DS108/AB/R, para. 136-140. 
78 Appellate Body Report, Canada – Dairy , WT/DS103/AB/R and WT/DS113/AB/R, para. 87-90. 
79 US 11 August Answer to Question 73, para. 140. 
80 See First Submission of Brazil, paras. 263-268. WT/DS267/R/Add.2 
Page I-157 
 
 
Brazil’s Comment on US Answer: 
 
89. In paragraph 141 of its 11 August Answer to  Question 74 (and again in paragraphs 189 and 
195 of its 11 August Answers to Questions 88(b) and (d), respectively), the United States asserts that 
“Brazil has not contested that challenged US expor t credit guarantee programs are within the scope of 
Article 10.2.”  The United States is incorrect.  While it is possible that GSM 102, GSM 103 and 
SCGP export credit guarantees might be included in any international agreement that Members might 
some day reach in negotiations pursuant to Artic le 10.2 of the Agreement on Agriculture, no one 
knows at this stage what the scope of that agreemen t, if any, will be.  The agreement might only cover 
export credits other than guarantees, like the OE CD Arrangement on Guidelines for Officially 
Supported Export Credits, which does not cover export credit guarantees.   
 90. In any event, the relevant question is not  whether export credit guarantees are “covered” by 
Article 10.2, but whether they are “exempted”  by Article 10.2 from the general export subsidy 
disciplines of the Agreement on Agriculture.  Brazi l’s position is that Article 10.2 does not exempt 
export credits like export credit guarantees from th e general export subsidy disciplines of the 
Agreement on Agriculture, including Article 10.1 ther eof.  If those export credit guarantees constitute 
export subsidies, then they are subject to those disciplines.  (In paragraph 142 of its 11 August Answer, the United States appears to concede this point, when it acknowledges that “[t]o determine 
the applicability of Article 10.1 to a particular m easure not described in Article 9.1 first requires a 
determination whether a subsidy exists.”) 
 
(75) (identical to Third Party Question 32) 
  The Panel’s attention has been drawn to Ar ticle 14(c) of the SCM Agreement (see third 
party submission of Canada) and to the panel report in DS 222 Canada- Export Credits and 
Loan Guarantees.  How and to what extent are Article 14(c) of the SCM Agreement, and the 
cited panel report, relevant to the issue of wh ether or not the United States export credit 
guarantee programmes confer a "benefit"?  What  would the appropriate market benchmark be 
to use for any comparison? Please cite any other relevant material.   (Third Party Question 33)  
 
 What is the relevant (if any) of Brazil’s statement that: “ … export credit guarantees for exports of agricultural products [sic] are not available on the marketplace by commercial 
lenders.”  
 
Brazil’s Comment on EC Answers on Third Party Question 32 (identical to Question 75) and 33 
and on US Answer to Question 75: 
 
91. The United States argues that item (j) alone is  relevant context for a determination whether 
CCC export credit guarantee programmes are export subsidies.
81  The European Communities argues 
that the fact that a particular financing instrume nt offered by a government (such as CCC guarantees) 
is not available on the marketplace does not mean that such financing confers a benefit per se  within 
the meaning of Article 1.1(b) of the SCM Agreement.82  The European Communities maintain that in 
circumstances in which a comparable type of fi nancing is not available on the marketplace, an 
“alternative” benchmark such as item (j) has to be  used for determining whether a benefit exists.83  
While Brazil agrees with the European  Communities that item (j) is an alternative  test for the 
existence of an export subsidy, Brazil strongly disag rees that Article 1.1 of the SCM Agreement is – 
as the European Communities effectively and the Un ited States explicitly argues – inapplicable in 
                                                      
81 US 11 August Answer to Question 75, para. 143. 
82 EC’s Answers to Third Party Questions, para. 68. 
83 EC’s Answer to Third Party 35, para. 67. WT/DS267/R/Add.2 
Page I-158  
 
such situations.  Article 1.1 defines the existen ce of a subsidy for the purposes of the SCM Agreement 
and provides relevant context for the interpretati on of the term “export subsidy” under the Agreement 
on Agriculture.  Article 1.1(b) requires a compar ison between what the recipient of a financial 
contribution received from the government and what  the recipient could have received on the 
marketplace.
84  The Appellate Body clarified that the sta ndard under Article 1.1(b) is not the cost 
incurred by the government (as under item (j)).85  The relevant standard is the “benefit to the 
recipient” standard.  92. This definition of a subsidy cannot simply be  read out of the SCM Agreement in a situation 
where there is no comparable commercial financing ava ilable.  Nothing suggests that Article 1.1(b) is 
inapplicable in such a situation.  The United States and the European Communities would certainly 
agree that a direct transfer of funds without cons ideration is not commercially available.  In these 
circumstances, a benefit within the meaning of Artic le 1.1(b) of the SCM Agreement is conferred.  A 
similar situation exists with respect to CCC guarantees.  A recipient of CCC guarantees cannot receive a similar financial contribution on commercial terms, as no such financing is available on the 
marketplace.
86  Thus, the CCC export credit guarantee programmes confer benefits.  Brazil notes that 
the United States agreed, in its third party submission in Canada – Aircraft II , that where there is no 
comparable financial product on the ma rket, a programme confers benefits per se .87   
 
(76) How does the United States respond to Brazil’s statement that :  "...export credit 
guarantees for exports of agricultural exports [sic] are not available on the marketplace by 
commercial lenders."?    
Brazil’s Comment on US Answer: 
 
93. The United States asserts that export cred it insurance may be a comparable commercial 
product to CCC export credit guarantees.
88  As noted in paragraph 103-104 of Brazil’s Rebuttal 
Submission, the United States acknowledges that ther e are distinctions between insurance coverage 
and guarantees.  Thus, the terms of insurance covera ge by private, market-based financial institutions 
cannot serve as a benchmark against which to determine whether the CCC guarantee programmes 
confer “benefits,” within the meaning of Article 1. 1(b) of the SCM Agreement.  As the United States 
has elsewhere noted, “[i]f the commercial mark et does not offer a particular borrower the exact terms  
offered by a government, then the government is pr oviding a benefit to the recipient whenever those 
terms are more favourable than the term s that are available in the market.”89  M o r e o v e r ,  t h e  
United States has not provided actual terms for insu rance coverage by private, market-based financial 
institutions.  Brazil understands that private, market-based insurance c overage for agricultural 
products is not available for periods extending near ly as long as periods provided by CCC guarantees. 
 
(77) How does the United States interpretation of "long term operating costs and losses" in 
item (j) as claims paid give meaning to both "costs" and "losses"?  Do claims paid represent 
"losses" or "costs" or both?  If claims paid is represented by "losses", what would go into the 
"cost" element of item (j)?  Could the United States expand on why it disagrees with the items which Brazil identifies for inclusion in the examination to be conducted under item (j)?  
  
                                                     
 
84 Appellate Body, Canada – Aircraft , WT/DS70/AB/R, para. 157. 
85 Appellate Body, Canada – Aircraft , WT/DS70/AB/R, para. 160. 
86 See also Rebuttal Submission of Brazil, paras. 103-105. 
87 Panel Report, Canada – Aircraft II , WT/DS222/R, Annex C-2 (para. 7).  See also Answers to 
Questions by Brazil, para. 151. 
88 US 11 August Answer to Question 76, para. 144. 
89 Panel Report, Canada – Aircraft II , WT/DS222/R, Annex C-2 (para. 7). WT/DS267/R/Add.2 
Page I-159 
 
 
Brazil’s Comment on US Answer: 
 
94. In paragraph 145 of its response, the United St ates suggests that claims and defaults must 
exceed “revenue from whatever source it may be derived”  to meet the elements of item (j), despite the 
fact that item (j) limits the revenue to be used to offset operating costs and losses to “premium rates”.  
On the other hand, the United States maintains that  it is only legitimate to account for claims and 
defaults in the context of item (j), and not for ot her operating costs and losses such as interest on debt 
to Treasury90, even though those sorts of other costs a nd losses are covered by the ordinary meaning 
of the terms included in item (j).91  This is incongruous, and not supp orted by the text of item (j). 
 
95. Further, Brazil refers the Panel to its Re buttal Submission and to its 22 August Comments to 
the US Answers to Question 81 below for a more de tailed discussion on the elements that are to be 
included in an item (j) analysis.  
(78) Can the United States provide supporting documentation for data used relating to 
"costs and losses" in paragraph 173?  Could the United States confirm that the figures cited in 
paragraph 173 of its first written submission relate to the SCGP? Why did the United States cite these figures after stating that it is not po ssible to make any assessment of the long-term 
operating costs and losses of this programme?    Brazil’s Comment on US Answer:   
 
96. The United States has failed to provide the s upporting documentation requested by the Panel.  
The data mentioned in paragraph 149 of the Un ited States’ 11 August Answer could have been 
provided for review and analysis by the Panel and Br azil.  As a result, Brazil requests that the Panel 
reject the United States’ assertions in paragraph 173 of the US First Submission. 
 
(80)  (identical to Third Party Question 35) 
  Did the drafters of the Agreement on Agriculture include export credit guarantees in Article 9.1 of the Agreement on Agriculture? Why of why not?  
 
Brazil’s Comment on EC Answer:  
97. Brazil agrees with the European Communities that “Article 9.1 represents a list of export 
subsidies … that are subject  to reduction commitments.”
92  Export credit guarantees are not included, 
as they do not constitute per se  export subsidies subject to reduc tion commitments.  Only if export 
credit guarantees confer a benefit within the meaning of Article 1.1(b) and/or Article 14(c) of the 
SCM Agreement, or if they are provided at premium rates that are inadequate to cover the long-term operating costs and losses of the export credit guarantee programme, do they constitute export 
subsidies to be assessed against the export subs idy reduction commitments of a Member.  In these 
circumstances, export credit guarantees must not be provided in a manner inconsistent with 
Article 10.1 of the Agreement on Agriculture. 
 
98. Because export credit guarantees are not – under a Vienna Convention  interpretation of 
Article 10.2 of the Agreement on Agriculture – excl uded from the general export subsidy disciplines 
in AoA Article 10.1, their provision counts toward s the export subsidy reduction commitments of a 
Member.  Article 10.2 states that after agreem ent on disciplines governing the provision of export 
credits is reached, these credits can only be provided in conformity th erewith.  Brazil does not want to 
speculate on whether the internationally-agreed disciplines will subject export credit guarantees to 
                                                     
 
90 First Submission of the United States, para. 178. 
91 See Oral Statement of Brazil, para. 123. 
92 EC’s Answers to Third Party Questions 35, para. 70. WT/DS267/R/Add.2 
Page I-160  
 
reduction commitments.  In any event, under the cu rrent regime governing the provision of export 
credit guarantees, they are subject to the anti-ci rcumvention disciplines in Article 10.1 of the 
Agreement on Agriculture and count towards a Memb er’s export subsidy redu ction commitments, if 
they constitute export subsidies within the meaning of  the Agreement on Agriculture (and, by context, 
the SCM Agreement). 
 
(81) How does the United States respond to the following in Brazil’s oral statement 
  (a) paragraph 122 (rescheduled guarantees)  
 
Brazil’s Comment on US Answer: 
 
99. Although “rescheduled amounts are counted as receivables , not losses,” that does not mean 
that rescheduled amounts are actually collected, or  even expected to be  collected.  CCC’s 2002 
financial statements demonstrate that many of CCC receivables are classified as “uncollectible” – in 
fact, $3.34 billion of total receivables of $6.93 billion are classified as “uncollectible.”
93  Moreover, as 
noted in Brazil’s 11 August Comment on Question 77 (at paragraph 162), the US General Accounting 
Office has stated that historically, the majority of  GSM support that is rescheduled is “in arrears”.94  
Based on this evidence, it is simply not accurate for the United States to argue, in paragraph 155 of its 
11 August Answer, that  “[t]he history of rescheduled Commodity Credit Corporation (CCC) export 
credit guarantee claims over the long-term (the 10-year period 1993-2002) confirms” that “the 
United States does in fact collect on the rescheduling.” 
 100. Brazil also notes that the United States h as not provided any documentary evidence that 
would support its assertion.   (c) paragraphs 125 ff. (guaranteed loan subsidy)  Brazil’s Comment on US Answer:  
 
101. In paragraphs 108-110 of its Rebuttal Submission, Brazil summ arizes the several bases on 
which the Panel can rest a finding that the GSM 102, GSM 103 and SCGP programmes constitute 
export subsidies under item (j).  The United States  criticizes one of those bases – the FCRA cost 
formula – as inappropriate because it allegedly reli es on “estimated” rather than “actual” data about 
the costs of the programmes.
95  This appears to be the United Stat es’ sole defence, which Brazil again 
notes applies only to the FCRA cost formula and not the other evidence and bases summarized by 
Brazil in paragraphs 108-110 of its  Rebuttal Submission.  In any event, Brazil rebuts the US 
arguments concerning “estimated” versus “actual”  data in paragraphs  111-119 of its Rebuttal 
Submission, and asks the Panel to refer to Brazil’s arguments therein.  
                                                     
 
93 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 the Financial Statements, p. 14). 
94 Exhibit Bra-152 (GAO, Statement of Allan I. Mendelowitz, Director, Trade, Energy and Finance 
Issues, National Security and International Affairs Divisi on, before the Task Force on Urgent Fiscal Issues of 
the Committee on Budget of th e US House of Representatives, Status Report on GAO’s Reviews of the Targeted 
Export Assistance Programme, th e Export Enhancement Programem, and the GSM-102/103 Export Credit 
Guarantee Programmes , GAO/T-NSIAD-90-53, 28 June 1990, p. 14).  See also  Exhibit Bra-181 (US General 
Accounting Office, Report to the Ranking Minor ity Member, Committee on Agriculture, Nutrition, and 
Forestry, US Senate, Former Soviet Union:  Creditworthiness of Successor States and US Export Credit 
Guarantees , GAO/GGD-95-60 (February 1995), p. 50-52 (demonstrating that most of the rescheduled Russian 
and Former Soviet Union GSM clai ms have been in arrears)). 
95 See US 11 August Answers to Questions, paras. 157-161, 162-163, 169-172, 173. WT/DS267/R/Add.2 
Page I-161 
 
 
102. Brazil notes that the United States has o ffered no documentation a nd data to support the 
figures included in paragraph 160 of its 11 Augus t Answer.  The Panel should not accept these 
unsupported assertions by the United States.  103. At paragraphs 122-123 of its  11 August Answer to Question 81(c), the United States asserts 
that “[a] cohort consists of all transactions associ ated with each type of guarantee issued during a 
particular year”, and that “[n]ot until the cohort is  closed can one make an assessment as to whether or 
not that particular cohort represents a cost to the Fe deral Government”.  Brazil notes that a “cohort” is 
not necessarily composed of all guarantees issued in a particular year.  As the US Office of 
Management and Budget notes, cohorts may also be divided according to risk categories, with annual 
reestimates calculated according to  those risk category-based cohorts.
96  The United States in fact 
acknowledges at paragraph 148 of its 11 August Answer  to Question 86 that “[a]ll countries eligible 
for any of the CCC export credit guarantee progr ammes are categorized according to risk”. 
 
 (d) paragraphs 127-129 (re-estimates, etc.)  
 
Brazil’s Comment on US Answer:  
 
104. In paragraph 163 of its 11 August Answer, the United States asserts that the “net total for all 
cohorts for guarantees issued since 1992 currently stands at a downward re-estimate of $1.9 billion”, 
suggesting that by the time a cohort is closed and final data becomes available, the cohort becomes 
profitable.  Although the United States offers no ci tation, the $1.9 billion lifetime reestimate figure 
appears to be taken from the Federal Credit Supp lement attached to the 2004 US budget.  As 
discussed further in paragraphs 115-117 of Brazil’ s Rebuttal Submission, however, the United States 
fails to note that when these total lifetime reestim ates for all cohorts of guarantees disbursed since 
1992 are netted against the total original  subsidy estimates adopted each budget year during the 
period 1992-2002, the resulting loss is nearly $1.75 billion . 
 
 (b) paragraph 123 (interest on debt to Treasury) 
 Brazil’s Comment on US Answer:  
 105. The United States’ 11 August Answer addresses in terest rate reestimates under the FCRA cost 
formula.  Paragraph 123 of Brazil’s Statement at the First Panel Meeting, however, to which the 
Panel’s question refers, does not address the treatm ent of interest paid by the CCC to the Treasury 
Department under the FCRA cost formula.  Rather, in  paragraph 123 of its Oral Statement at the First 
Meeting of the Panel, Brazil was responding to the US assertion that Brazil’s constructed formula  for 
determining whether the CCC guarantee programmes’  operating costs and losses outpaced premiums 
collected should not have included interest paid  by the CCC to the Treasury Department.  In 
paragraph 123 of its Oral Statement, Brazil argue d that under the ordinary meaning of the term 
“operating costs”, interest paid by the CCC to the Treasury Department should be included in an 
assessment of the programmes under item (j).  Brazil’s arguments have nothing to do with interest rate 
reestimates under the FCRA cost formula.  The United States’ answer is, therefore, only relevant in so 
far as the United States now seems to acknowle dge that, for the purposes of Brazil’s revised 
constructed formula, interest paymen ts to Treasury are properly included.
97  
 
                                                      
96 Exhibit Bra-116 (OMB Circular A-11, p. 185-16 – 185-17). 
97 US 11 August Answer to Question 81(b), para. 167. WT/DS267/R/Add.2 
Page I-162  
 
 (e) Exhibits BRA-125-127  
 Brazil’s Comment on US Answer:  
 
106. The United States’ 11 August Answer is in correct.  Reestimates are recorded in the 
“programme account” segment of the CCC guarantee programme budget, in line item 00.07 (interest 
on reestimates is recorded in line 00.08).
98  Furthermore, Brazil has cons istently also included the 
financing account in its exhibits, including – contrary to the US allegation99 – in Exhibit Bra-127.  
 
 (f) the chart on page 53 of Brazil’s oral statement at the first session of the first 
Panel meeting relating to "Guaranteed Loan Subsidy and Administrative 
Expenses of US Export Credit Guar antee Programmes GSM-102 GSM 103 and 
SCGP"? 
 
Brazil’s Comment on US Answer: 
 
107. Brazil refers the Panel to pa ragraphs 111-119 of Brazil’s Rebuttal Submission for discussion 
of the US arguments concerning “es timated” versus “actual” data. 
 
 (g) In respect of (a)-(f) above, how and to wh at extent do the information and data 
presented for the export guarantee programmes concerning "programme" and 
"financing", "summary of loan levels", "subsidy budget authority", "outlay 
levels", etc., in particular in Exhibi ts BRA-125-127, reflect "actual costs and 
losses" of the GSM-102, GSM-102 and SCGP export credit guarantee programmes(see e.g. Brazil’s closing oral statement at the first session of the first substantive meeting, paragraph 24)? 
 
Brazil’s Comment on US Answer: 
 
108. Brazil refers the Panel to pa ragraphs 111-119 of Brazil’s Rebuttal Submission for discussion 
of the US arguments concerning “es timated” versus “actual” data. 
 (84) Is the Panel correct in understanding that, under the GSM-102 and GSM-103 programmes, the exporter pays a fee calculated on the dollar amount guaranteed, based on a 
schedule of rates applicable to different credit pe riods?  How and on what basis are the fee rates 
fixed?  Do the fee rates ever change?  If so, how and for what reason?  Would it be necessary to amend the legislation and/or regulations in order to adjust the fee rates?   
  
Brazil’s Comment on US Answer: 
 
109. As noted in Brazil’s 11 August Comment on Question 84 (at paragraphs 192-194), GSM 102 
and GSM 103 fees are charged according to a fee sc hedule that does not account for the country risk 
involved or the credit rating of the borrower.  Th e US Department of Agriculture’s Office of the 
Inspector General noted in June 2001 that “the  fees CCC charges fo r its GSM-102 and GSM-103 
export credit guarantee programmes have not been changed in 7 years and may not be reflecting 
current costs”.
100  It repeated this statement in February 2002.101   
                                                      
98 See Exhibits Bra-88 to Bra-95 (US budgets for the years 1996-2003); Exhibits Bra-125 to Bra-127 
(US budgets for the years 1994, 1995 and 2004).  See also Exhibit Bra-184 (US budget for fiscal year 1993); 
Exhibit Bra-183 (US budget for fiscal year 1992). 
99 US 11 August Answer to Question 81(e), para. 168. 
100 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).   WT/DS267/R/Add.2 
Page I-163 
 
 
110. Moreover, the US General Accounting Offi ce (“GAO”) analyzed CCC’ s failure to charge 
guarantee fees that take account of country risk or the creditworthiness of individual borrowers.  
Brazil quotes at length from the GAO study, sin ce it provides further corroborating evidence that 
beneficiaries of CCC guarantees receive terms better than available on the market, and that CCC guarantee fees do not cover the cost s of the CCC guarantee programmes: 
 
Although GSM-102 recipient countries vary si gnificantly from one another in terms 
of their risk of defaulting on GSM-102 lo ans, CCC does not adjust the fee that it 
charges for credit guarantees to take account  of country risk.  CCC fees are based 
upon the length of the credit period and the num ber of principal paym ents to be made.  
For example, for a 3-year GSM-102 loan with semiannual principal payments, CCC 
charges a fee of 55.6 cents per $100, or 0.56 per cent of the covered amount.  For 3-year loans with annual principal payments, the fee is 66.3 cents per $100.
[ ]  CCC fees 
that included a risk-based component might not cover all of the country risk, but they could help to offset the cost of loan defaults. 
USDA officials told us that including a fee for country risk could reduce the 
competitiveness of GSM-102 exports.  However, they said they did not have recent or current data to support their claim. 
The US Export-Import Bank, which provides credit guarantees to promote a variety 
of US exports, uses risk-based fees to defray the cost of defaults on its portfolio.  
Under its system, each borrower/guarantor is rated in one of eight country risk 
categories.  Exposure fees vary based on bot h the level of assessed risk and the length 
of time provided for repayment.  For example, in the case of repayment over 3 years, a country rated in the lowest risk category is charged a fee of 75 cents per $100, whereas a country in the highest risk ca tegory is charged a fee of $5.70 per $100 of 
coverage.  Thus, the bank’s fee structure in cludes a substantial added charge for high 
country risk.  According to the bank, its sy stem is designed to remain as competitive 
as possible with fees charged by official export credit agencies of other countries. 
Under section 211(b)(1)(b) of the 1990 Farm  Bill, CCC is currently restricted from 
charging an origination fee for any GSM-102 credit guarantee in excess of an amount equal to 1 per cent of the amount of credit extended under the transaction.
[102]  This 
restriction was initially enacted in 1985 fo llowing proposed administration legislation 
to charge a 5-per cent user fee for expor ts backed with credit guarantees.  Some 
Members of Congress were concerned that such a fee would adversely affect the 
competitiveness of GSM-102 exports.  Under the 1-per cent restriction, CCC would be considerably limited in the size of the f ee that it could charge to take account of 
country risk should it decide to do so.  For example, as previously noted, CCC 
charges 0.56 per cent for a loan payable in 3 years and with principal payments due 
annually.  The most it could increase the f ee would be 0.44 per cent.  In contrast, the 
Export-Import Bank currently charges fees as high as 5.7 per cent for 3-year loans.
103 
                                                                                                                                                                     
101 Exhibit Bra-154 (US Department of Agriculture Office of Inspector General Great Plains Region 
Audit Report of the Commodity Credit Corporation’s Fina ncial 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.”). 
102 The United States confirmed in paragraphs 179-180  of its 11 August Answer that this remains the 
case. 
103 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. 135-136).  Although 
government support from the Export-Import Bank does not constitute a market benchmark for the purposes of WT/DS267/R/Add.2 
Page I-164  
 
111. Brazil notes that CCC fees for GSM 102 ha ve not changed materially since the GAO 
published its report in 1995.
104  Moreover, the United States conf irmed in its 11 August Answer to 
Question 84 (at paragraph 180) that US law prohibits CCC from charging fees in excess of one per cent of the guaranteed dollar value of the transaction.  (85) Is the Panel correct in understanding that , under the SCGP, the exporter pays a fee for 
the guarantee calculated on the guaranteed portio n of the value of the export sales? How and on 
what basis are the fee rates fixed?  Do the f ee rates ever change?  If so, how and for what 
reason?  Would it be necessary to amend the legisl ation and/or regulations in order to adjust the 
fee rates?  Please explain any "risk" assessment involved in the programme .   
 
Brazil’s Comment on US Answer: 
 
112. As noted in Brazil’s 11 August Comment on  Question 85 (at paragraph 195), SCGP fees do 
not vary according to the country risk involved or the credit rating of the borrower.  With or without 
the “risk sharing” described in paragraph 183 of  the United States’ 11 August Answer, Brazil notes 
the United States’ acknowledgement that “CCC does not determine the creditworthiness of importers 
participating in the SCGP.”
105  This presents further corroborating evidence that beneficiaries of CCC 
guarantees receive terms better than available on the market, and that CCC guarantee fees do not 
cover the costs of the CCC guarantee programmes.  (86) Is there a risk categorization in relatio n to three export credit guarantee programmes 
(GSM-102, GSM-103 and SCGP)? Does this have any impact on premiums payable and the ability of the CCC to on-sell the guarantees ?  
 
Brazil’s Comment on US Answer: 
 
113. Brazil notes the United States’ acknowledgement th at “[a] country’s risk classification has no 
impact on the premiums payable under the US e xport credit guarantee progra mmes”.  CCC’s failure 
to account for country risk provides further co rroborating evidence that beneficiaries of CCC 
guarantees receive terms better than available on the market, and that CCC guarantee fees do not 
cover the costs of the CCC guarantee programmes. 
 
(87) What proportion of CCC (export-related and total) long term opera ting costs and losses 
are represented by GSM-102, GSM-103 and SCGP programmes?  
 
Brazil’s Comment on US Answer: 
 
114. The United States asserts that funding fo r the CCC export guarantee programs is provided 
from the US Treasury, and is not “financed out of ” the CCC.  This suggests that the CCC export 
guarantee programs are not self-sustaining.  This suggests in turn that the CCC export guarantee 
programmes meet the elements of item (j) and, thus, constitute export subsidies. 
 (88a) Is the Panel correct in understanding that the United States’ argument is that, at present, by virtue of Article 10.2 of the Agreeme nt on Agriculture, there are no disciplines on 
agricultural export credit guarantees under th e Agreement on Agriculture (or the SCM 
Agreement)?   
 
                                                                                                                                                                    
 
Article 1.1(b) of the SCM Agreement, Brazil offers this example to demonstrate that the CCC guarantee 
programs do not even meet non-market  benchmarks. 
104 Brazil’s 11 August Answer to Question 77 and 84, para. 167, 193-194. 
105 US 11 August Answer to Question 85, para. 138. WT/DS267/R/Add.2 
Page I-165 
 
 
Brazil’s Comment on US Answer: 
 
115. The United States incorrectly argues, in para graph 187 of its 11 Augus t Answer, that “[i]f 
export credit guarantee programmes were already subject to export subsidy disciplines, then 
Article 10.2 would be unnecessary.”  The negotiators  may have considered it useful to negotiate 
additional disciplines for export credit guarantees one day, but that does not mean that they intended 
for export credits to be exempted from the genera l disciplines of the Agreement on Agriculture while 
those negotiations were pending.  116. The United States also argues in paragraph 187 that Brazil’s use of the term “specific” 
disciplines somehow defeats Brazil’s interpretation of Article 10.2.  Brazil uses the term “specific” 
disciplines merely as a way of distinguishing between  one actual and one potential category of export 
subsidy disciplines under the Agreement on Agriculture:   (i) those “general” di sciplines that apply to 
export credit guarantees today; and (ii) those “specifi c” disciplines that would additionally apply to 
export credits upon the completion of the negotiations called for by Article 10.2. 
 
 (b) Does the United States agree with the following proposition:  a WTO Member 
may therefore extend agricultural export credit guarantees without charging a premium, and for an indefinite period, in a ddition to any other terms and conditions it 
may wish?  How would this reconcile with the title of Article 10 of the Agreement on Agriculture ("Prevention of Circumventi on on Export Subsidy Commitments"), and 
with other commitments contained in the Ag reement on Agriculture? Please cite any 
relevant material, including any past WTO dispute settlement cases.  How would this 
reconcile with the United States’ own statement, at paragraph 21 of its closing oral statement that "of course, the United States may not provide subsidies without any limit".   
 
Brazil’s Comment on US Answer: 
 
117. Please see Brazil’s 22 August Comment on the United States’ 11 August Answer to Question 
74 for observations on the United States’ assertion, in  paragraph 189, that “Brazil has not contested 
that US export credit guarantee programmes are encompassed by the terms of Article 10.2.” 
 
118. The United States argues that an interpretation of Article 10.2 of the Agreement on Agriculture that exempts export credits from the ge neral export subsidy disciplines of that agreement 
is consistent with the title of Article 10 – “Prevention of Circumvention of Export Subsidy 
Commitments.”
106  The United States’ argument is absurd .  Since negotiations on specific disciplines 
pursuant to Article 10.2 have not been concluded, the United States’  interpretation of Article 10.2 
would leave export credit support completely undisciplin ed, and open to the abu se outlined in the text 
of the Panel’s question.  In this way, the United States’ interpretation of Article 10.2 facilitates , rather 
than prevents , circumvention of its export subsidy commitments. 
 119. The United States also argues that the porti on of Article 10.2 calling for Members to work 
toward the negotiation of specific di sciplines on export credits also contributes to the prevention of 
circumvention.  As the ordinary meaning of the first portion of Article 10.2 demonstrates, however
107, 
Members are not even required to actually negotiate specific disciplines for export credits, let alone to 
reach actual agreement on those sp ecific disciplines.  All Members ha ve agreed to do is to work 
toward the development of those specific disciplines,  which does not in itself prevent circumvention. 
 
 (c) If, as the United States argues, there are no disciplines on export credit 
guarantees in the Agreement on Agriculture, how could export credit guarantees 
                                                      
106 US 11 August Answer to Question 88(b), para. 190. 
107 See Oral Statement of Brazil, para. 102. WT/DS267/R/Add.2 
Page I-166  
 
"conform fully to the provisions of Part  V" of the Agreement on Agriculture 
within the meaning of Article 13 (how can you assess "conformity" or non-conformity when there are allegedly no disciplines against which such an 
assessment could occur)?   
 
Brazil’s Comment on US Answer: 
 
120. The United States argues that since export cr edit guarantees are not subject to export subsidy 
disciplines in the Agreement on Agriculture, they “ca nnot be out of compliance with Part V” of the 
that agreement.  The pertinent question is whet her export credit guarantees can, under the terms of 
Article 13(c), “conform fully to the provisions of Pa rt V” of the Agreement on Agriculture.  In this 
regard, the United States ignores the conclusions of the panel in Canada – Aircraft (21.5) .
108  A s  
noted in Brazil’s 11 August Comment on Question 88 (c) (paragraphs 200-202), if the United States is 
correct that CCC export credit guarantees are not subject  to the disciplines in Part V of the Agreement 
on Agriculture, then CCC guarantees cannot logically “c onform fully to the provisions of Part V” and 
trigger the exemption from action provided for in Article 13(c).   
 121. Alternatively, the United States suggests that  Article 13(c) does not apply to export credit 
guarantees because “export credit guarantees are not e xport subsidies within the meaning of either 
Article 9.1 or 10.1” of the Agreement on Agri culture.  This assertion is not supported by the 
United States with any reference to the tools of interpretation included in the Vienna Convention , and 
is fundamentally incorrect.  Brazil has demonstrated that the GSM 102, GSM 103 and SCGP export 
credit guarantee programs administered by the CCC cons titute export subsidies within the meaning of 
Articles 10.1, 1(e) and 8 of the Agriculture Agreem ent, Article 3.1(a) of the SCM Agreement, and 
item (j) of the Illustrative List of Export Subs idies attached as Annex I to the SCM Agreement.
109 
  (d) Is the United States advocating the view that its own export credit guarantee 
programmes, which pre-dated the Uruguay Round, are effectively 
"grandfathered" so as to benefit from some sort of exemption from the export subsidy disciplines of the Agreement on Agriculture?  How, if at all, is it relevant that the SCGP did not, according to the United States, become relevant for upland cotton until the late 1990’s (i.e. after the entry into force of the WTO 
Agreement)?   
 
Brazil’s Comment on US Answer: 
 
122. Please see Brazil’s comment on the United States’ 11 August Answer to Question 74 for 
observations on the US assertion in paragraph 189 that  “Brazil has not contested that SCGP provides 
export credit guarantees within the meaning of Article 10.2.”  
IV. STEP 2 PAYMENTS 
 
(92) Does the United States confirm that Ex hibit Bra.65 represents a sample contract for 
exporters of eligible upland cotton to conclude with the CCC under the FSRI 2002, and that an 
application form (Exhibit Bra-66) needs to be  filled out with data on weekly exports and 
submitted to the USDA FAS. Is Exhibit Bra-66- Form CCC 1045-2 also a valid example? If not, please identify any differences or distinctions.  
(96)  Is a domestic sale a “use” for the purposes of Step 2 payments? Is a sale for export, or 
export, considered a “use”?  
                                                     
 
108 Panel Report, Canada – Aircraft (21.5) , WT/DS70/RW, para. 5.143-5.145. 
109 First Submission of Brazil, para. 271-294; Oral  Statement of Brazil, para. 116-133; Brazil’s 
11 August Answers to Quetions, para. 139-168, 175-189 and 192-199. WT/DS267/R/Add.2 
Page I-167 
 
 
Brazil’s Comments to the US Answers:   
 
123. Brazil notes that the Step 2 regulations make a clear distinc tion between “domestic users ” and 
“exporters”.110  “Domestic users ” may only receive payment upon “proof of purchase and 
consumption of eligible cotton by the domestic user . . .”.111  The agreement for domestic users 
provides that a domestic user is a person regularly  engaged in manufacturing eligible upland cotton 
into cotton products in the United States and that “i n the event that the cotton is not used for that 
purpose, the payment received shall be re turned immediately and with interest”.112  T h e r e  i s  n o  
requirement that “exporters” prove, prior to recei ving payment, that exported US upland cotton be 
“used” for anything upon export.  Rather, the paymen t is a function of “proof of export of eligible 
cotton by the exporter”.113  Thus, the structure of the Step 2 programme clearly differentiates between 
“export” and “use”.  Article 3.1(b) applies the phrase “contingent upon use.”  Article 3.1(a) uses the 
phrase “contingent . . . upon export performance”.    124. In relation to Exhibit US-21, Brazil agrees with the United States that the two different forms 
that have to be annexed to the User/Exporter Ag reement have different objectives depending on the 
final destination of upland cotton.  That is, if the upland cotton is used domestically, then the CCC-
1045UP-1 form has to be completed and annexed to  the User/Exporter Agreement.  If the cotton is 
exported, then the CCC-1045UP-2 form has to be used .  However, contrary to the US statement at 
paragraph 201 of its 11 August Answ er to Question 92, the latter mak es no reference whatsoever to an 
“Exporter User.”  Indeed, the term “exporter user” is not contained either in the Step 2 regulations nor 
in the form that has to be annexed to the Us er/Exporter Agreement if the upland cotton will be 
exported.  This is consistent with the fact that an exporter is not a “user” under the Step 2 programme 
and the act of exporting is unlikely a final “use” of upland cotton.  In sum, Step 2 export payments are 
not made contingent upon “use,” but contingent upon “ export ”.   
  (93) Please elaborate why the United States deems that Step 2 payments upon submission of proof of export are not subsidies contingent upon export. Is it the US contention that, in order 
to be contingent on export, exportation must  be the exclusive condition for receipt of the 
payment?   
(99) How does the United States respond to  Brazil’s arguments in paragraphs 71-75 of 
Brazil’s Oral Statement at the first session of th e first panel meeting concerning the relevance of 
the Appellate body Report in US- FSC(21.5)  
 Brazil’s Comment on US Answers:  
 
125. The United States in its 11 August Answer to Question 93 states at paragraph 202 that “all upland cotton produced in the United States is eligib le for the benefit of the Step 2 cotton subsidy”.
114  
Furthermore, it submits that “when the entirety of production of a good in a country is eligible to 
receive a subsidy, no cont ingency on export exists”.115 
 
126. Brazil provides a detailed comment to these assertions in its Rebuttal Submission.116  In fact, 
Step 2 payments are not made to every pound of  upland cotton that is “used”.  Rather, Step 2 
payments are made on every pound of upland cotton that is exported by eligible  exporters  or that is 
                                                      
110 Exhibit Bra-37 (7 CFR 1427.104) 
111 Exhibit Bra-37 (7 CFR 1427.108(d)).  
112 Exhibit US-21 (Upland Cotton Domestic User / Exporter Agreement, Section, Section B1)  
113 Exhibit Bra-37 (7 CFR 1427.108(d)) 
114 US 11 August Answer to Question 93, para. 202. 
115 US 11 August Answer to Question 93, para. 202. 
116 See Rebuttal Submission of Brazil, paras. 129-130. WT/DS267/R/Add.2 
Page I-168  
 
used by eligible
 domestic users .  No Step 2 payment is made for upland cotton exported or used by 
ineligible persons, or for upland cotton that is neith er used domestically nor exported, but that is for 
instance stored, stolen or incidenta lly destroyed by for example fire.  
 
127. Furthermore, the criterion whether Step 2 payments are available to all upland cotton produced in the United States is entirely irrelevant  for Brazil’s claims under Article 3 of the SCM 
Agreement.  That provision prohibits the payment of subsidies that are contingent upon export or 
contingent upon the use of domestic over imported goods.  It follows that a subsidy is prohibited if its 
payment is conditional on the existence of one of the tw o situations:  export or use of local content.    
 (107) At paragraph 135 of its first written subm ission, the United States states: “The subsidy 
is not contingent upon export performance…”(empha sis added). Again, in the course of the first 
Panel meeting, the United States admitted that the Step 2 payments were “subsidies”. Does the United States thus concede that Step2 payments  constitute a “subsidy” within the meaning of 
the WTO Agreement? 
 
Brazil’s Comment on US Answer: 
 
128. The arguments provided by the United States are not responsive to the question posed by the Panel.  Brazil reiterates that Exhibit Bra-69 is not relevant for its de jure  claims.  Whenever a Step 2 
payment for exported or domestically used upland cotton takes place, the payment is made 
inconsistently with Articles 3.1(a)  or 3.1(b) of the SCM Agreement and with Articles 3.3 and 8 of the 
Agreement of Agriculture in the case of Step 2 export payments.  Step 2 export payments are 
contingent upon export performance and Step 2 do mestic payments are contingent upon use of 
domestic over imported upland cotton.  Neither the respective share of Step 2 export and domestic 
payments nor the share of eligible US upland cotto n production materially affects this conclusion.  
 
(111) Does the United States maintain its argument that actions based on Article 3.1(b) of the 
SCM Agreement are conditionally « exempt from ac tions » due to the operation of Article 13 of 
the Agreement on Agriculture?   (112) In the event that the Panel finds that Article 6.3 of the Agreement on Agriculture does 
not preclude an examination of Brazil’s claims under Article 3.1 of the SCM Agreement and 
Article III:4 of GATT 1994, how does the United St ates respond to the merits of Brazil’s claims 
relating to Step 2 payments under those provisions?   
 
(113) Is it necessary for measures directed at  agricultural processors included in AMS to 
discriminate on the basis of the origin of goods? 
 (115) What is the meaning and relevance (if any) to Brazil’s claims under Article 3 of the SCM Agreement and Article III:4 of GATT 1994 of the phrase "measures directed at 
agricultural processors shall be included to the ex tent that such measures benefit the producers 
of the basic agricultural products" in the Agreement on Agriculture?  
 
(116) With respect to paragraph 32 of the oral statement of the EC, are subsidies contingent 
on the use of domestic goods consistent with the Agreement on Agriculture? Does the phrase 
“provide support in favour of  domestic producers” in Article 3.2 of the Agreement on 
Agriculture refer to, and/or permit such subsidies?   
 
Brazil’s Comment to the US Answers: 
 
129. Brazil addresses the US 11 August Answers to  the questions listed above in its Rebuttal 
Submission at paragraphs 131-144.  Brazil further re fers the Panel to paragr aphs 78-86 of its Oral 
Statement and to its 11 August Answ ers to Questions 100-102 and 115-116.WT/DS267/R/Add.2 
Page I-169 
 
 
ANNEX I-4 
  
 Please refer to Section V. of Annex D-4.