Document: WT/DS341/R Page A-1 ANNEX A FIRST WRITTEN SUBMISSIONS BY THE PARTIES Contents Page Annex A-1 Executive Summary of the First Written Submission of the
Document codes: WT/DS341/R
Complainant: EU
Respondent: Mexico
Third parties: Canada, China, Japan, Norway, U.S.
Dispute stage: Panel
Agreements cited: Art. VI  GATT 1994Art. 1, 11, 12, 13, 14, 15, 16, 22  Subsidies and Countervailing Measures (SCM)Art. 13, 21.1  Agriculture

ANNEX A

FIRST WRITTEN SUBMISSIONS BY THE PARTIES

Contents Page
Annex A-1 Executive Summary of the First Written Submission of the
European Communities
A-2
Annex A-2 Executive Summary of the First Written Submission of Mexico A-13

ANNEX A-1

EXECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION
OF THE EUROPEAN COMMUNITIES

(30 March 2007)

I. FACTUAL BACKGROUND

1. With 98 per cent of the world's olive trees, the area around the Mediterranean accounts for the
bulk of world olive oil production. Olive trees take as long as ten years to reach maturity. They
produce an annual crop, which is harvested in the winter. The great majority of olives produced in the
EC are used in the production of olive oil, though there is significant production of table olives and of
olives for use in prepared foods.

2. The production of olive oil starts with the cr ushing of the fruit to produce a paste, which is
then malaxated. Oil extracted by purely physical means qualifies as 'virgin'. The remaining pomace
contains oil that can be extracted by mechanical and chemical means and it is called 'refined olive oil'.
The last remaining oil can be removed from the pomace by chemicals, and is known as 'olive-pomace
oil'.

3. The number of olive growers in the EC is 2. 5 million, including in Italy 1.1 million, Spain
450,000 and Greece 850,000. Olive producer organisations (PO) administer the EC aid scheme,
grouping and verifying aid applications and distributing the aid itself.

4. Like the growing of olives, their processing in to oil is highly fragmented. In 2002 there were
more than 10,000 mills in operation in the EC. The fragmentation of the sector applies also to
bottling/canning firms. Regarding refining and oliv e pomace plants, the number of operators remains
stable because of the minimum size required, the co mplexity of the plant an d the machinery needed.
The following table contains data collected by the EC Commission from Member States:

 Spain Italy
Olive oil growers 450,000 1,100,000
Mills 1,715 6,076
Refineries 29 13
Olive pomace plants 53 45
Bottling /canning plants 440 300

5. In the great majority of cases the companies that are engaged in exporting are completely
independent of those who grow olives and produce olive oil.

6. Wide fluctuations in production are a featur e of olive growing. They are linked to the
uncertainties of the climate (for example, drought in Spain in 1995/96 and frost in Greece in 2001/02
seriously affected the harvest, whereas the excepti onal Spanish harvest in 2001/02 was so large as to

lead to a drop in world prices) and the phenomenon of alternate bearing. The EC is the dominant
producer (2.464 thousand tonnes in 2001/2002, out of a world production of 2.826 thousand tonnes)
in the international market for olive oil and the larger exporter (325 thousand tonnes in 2001/2002, out
of world exports of 395 thousand tonnes).

7. Since the 1990s significant quantities of olive oil have been consumed outside the production
areas. World consumption of olive oil has been pr ogressing fairly steadily, without the fluctuations
that are a feature of production. Between 1995/96 and 2002/03 the average annual increase in
consumption was 6 per cent, with even higher relativ e growth in new markets, such as Mexico. The
EC is also a considerable importer of olive oil, although up to 80 per cent of importing is done under
inward processing arrangements.

8. The EC production aid scheme applicable during the investigation period (April –
December 2002) used by Mexico in the olive oil investigation was set out in a series of EC
Regulations. These measures are no longer in force, and a single payment scheme, not based on
production, is applied to olive oil and table olives since 1 January 2006.

9. The functioning of the scheme was based on the establishment of National Guaranteed
Quantities (NGQ) for each Member State: i.e., the maximum quantity (expressed in olive oil)
produced by olive growers for which the aid woul d be provided. The maximum amount of aid per
unit was fixed for the marketing years 1998/1999 to 2003/2004 at EUR 1,322.5 per tonne, but the rate
actually paid to farmers was reduced to the exte nt that overall production in their Member State
exceeded the NGQ. In years when the production of a Member State was below its NGQ, 80 per cent
of the difference was added to its NGQ for the fo llowing year and the remaining 20 per cent was
distributed among other Member States that had exceeded their NGQs in the current year.

10. The aid was paid to the growers only in respect of the eligible production. With certain
exceptions, olive trees planted after 1 May 1998, and those not covered by a cultivation declaration,
were not eligible for aid.

11. Before 1 December of each marketing year (November to October) olive growers had to
submit to the local producer organization a 'crop declar ation' giving data relating to the farm such as
location, area and number of olive trees. The olives were handed over to an approved mill for
extraction of the oil. The mill owner issued a certif icate to the grower stating the amounts of olives
received and of oil that they had produced. The grower had to present this certificate and an aid
application to the producer organization before 1 July.

12. Member States collected the relevant inform ation and passed it to the EC Commission, which
determined the level of production and the advance pa yment (up to 90 per cent) that could be given
(after 16 October). The final payment was not ca lculated until the following May, and might not be
received by growers for another three months.

II. LEGAL ANALYSIS

A. STANDARD OF REVIEW

13. Regarding the review of 'factual components' of findings made by investigating authorities,
the Appellate Body said in US – Softwood Lumber VI (Article 21.5 – Canada) , para. 93, that a panel
must neither conduct a de novo review nor simply defer to the conclusions of the national authority
and that a panel's examination of those conclusions must be critical and searching, and be based on
the information contained in the record and the e xplanations given by the authority in its published
report. The Appellate Body stressed that a panel mu st examine whether, in the light of the evidence

on the record, the conclusions reached by the inv estigating authority are r easoned and adequate, and
offered guidelines for determining when an authority's conclusions were 'adequate'.

14. In US – Line Pipe (para. 217), the Appellate Body said, in regard to the examination of 'other
factors' causing injury, that the explanation must be clear and unambiguous, it must not merely imply
or suggest an explanation, and it must be a strai ghtforward explanation in express terms. Likewise,
speaking of the term 'reasoned conclusi on', the Appellate Body explained in US – Steel Safeguards
that such a conclusion is "not one where the conc lusion does not even refer to the facts that may
support that conclusion" (para. 326).

15. In US – Lamb the Appellate Body said (para. 106) that "a panel can assess whether the
competent authorities' explanation for its determination is reas oned and adequate only if the panel
critically examines that explanation, in depth, and in the light of the facts before the panel [; p]anels
must, therefore, review whether the competent author ities' explanation fully addresses the nature, and,
especially, the complexities, of the data, and responds to other plausible interpretations of that data".
It concluded that "a panel must find, in particular , that an explanation is not reasoned, or is not
adequate, if some alternative explanation of the facts is plausible, and if the competent authorities'
explanation does not seem adequate in the light of that alternative explanation".

16. In these cases the Appellate B ody has also enunciated the obligations that must be respected
by investigating authorities. The EC places great emphasis on the duty to provide reasoned and
adequate explanations because Mexico's failure to do so was a recurring feature of its Resolutions.
The Ministry for the Economy of Mexico (the "Mini stry") systematically failed to explain how the
facts in the record supported its findings and conclusi ons, or even to refer to such facts when stating
these conclusions. Furthermore, even when an expl anation was provided it was often not clear what
aspect of the rules the Ministry was applying.

B. CLAIMS AND LEGAL ARGUMENTS

17. The EC considers that the investigation carried out by the Ministry into alleged subsidized
imports of olive oil from the EC was seriously defective in a number of ways.

18. The first claim is that Mexico failed to hold consultations under Ar ticle 13.1 of the SCM
Agreement before the initiation of the investigation on 2 July 2003. The invitation to pre-initiation
consultations was sent two days after the initiatio n and the first consultations took place only on
17 July 2003, a day after the initiation of the investigation was published.

19. The second claim is that Mexico initiated the investigation in the absence of an application
made by or on behalf of the domestic industry as required by Article 11.4 of the Agreement.

20. In its investigation the Ministry accepted the applicant Fortuny's assertion that until the early
months of 2002 it constituted the entire domestic industry for products like those imported, and
furthermore that it ceased production of olive oil in March 2002. Thus, at the time of the application
(12 March 2003), Fortuny was not a producer of the 'like product' and yet it was treated by the
Ministry as constituting the Mexican domestic industry.

21. Article 11.4 requires that the investigating au thorities' determination (that the application is
made by or on behalf of the domestic industry) should be reached only 'on the basis of an examination
of the degree of support for, or opposition to, th e application expressed by domestic producers of the
like product'. In the present case it is evident th at the Ministry did not carry out a realistic
investigation of this kind. In the Final Resolution the Ministry refers to enquiries that it made in the
course of the investigation regarding the possible existence of other producers of olive oil (although
even these enquiries were inadequate). At the time of the initiation of the investigation the Ministry

accepted a statement provided by Fortuny from a gove rnment department in one Mexican state that
Fortuny was the sole Mexican producer, and attemp ted no investigation regarding the existence of
other producers. This is confirmed by the Minist ry's later resolutions, which indicate that the only
checks which it made were ones concerning Fortuny's assertions about its own production.

22. The third claim is that Mexico failed to apply self-restraint in initiating the investigation
, as
required by Article 13(b)(i) of the Agreement on Agriculture . First, this provision prevented
countervailing measures being imposed except when a determination was made of injury or threat
thereof. Consequently, no action could be taken in respect of claims based on 'material retardation'.
Nevertheless, although material re tardation was the basis of Fortun y's claim, the investigation was
initiated and countervailing measures were imposed.

23. Secondly, Article 13(b)(i) required the authoriti es to 'show due restraint' before initiating an
investigation, whatever kind of injury was allege d. However, nothing indicates that the Ministry
showed due restraint before initiating the investigati on or gave even the least consideration to this
issue. On the contrary, the Mexican authorities ap pear to have embarked on the investigation with
exceptional haste. Thus, they did not wait to hold the consultations with the EC that they were
obliged to, but plunged into the investigation at the first possible moment. Again, the Ministry clearly
did not investigate the full extent of the domestic industry support, but only took account of Fortuny's
position. Moreover, Mexico converted an appli cation based on 'material retardation' to the
establishment of a domestic industry it into one of 'material injury' of an industry.

24. The fourth claim is that Mexico failed to re quire the complainant to provide non-confidential
summaries of confidential information, and failed to disclose essential facts , in breach of
Articles 12.4.1 and 12.8 of the SCM Agreement.

25. Confidential information was presented by Fo rtuny, but that neither the Final nor the
Preliminary Resolution contains any reference to non-confidential summaries being either required or
provided. Although Article 12.4.1 has no explicit oblig ation for the investigating authority to require
the production of appropriate non-confidential su mmaries, such a requirement is a necessary
concomitant of the rules that it contains, as the Panel explained in Guatemala – Cement II
(para. 8.213).

26. Mexico is in also breach of the specific requirement in Article 12.8 of the SCM Agreement to
make disclosure to interested Members and parties before adopting definitive measures. Neither the
EC nor the exporting EC companies nor their associations received any communication from the
Ministry that constituted a disclosure of this kind.

27. The fifth claim is that Mexico failed to comply with the time limit
 set by Article 11.11 of the
SCM Agreement regarding the completion of the investigation . The Mexican investigation into olive
oil was initiated on 2 July 2003 and, consequently, it should have been concluded by 2 January 2005.
However, the definitive measures were not adopted un til 1 August 2005. Mexico is in clear breach of
the obligation in Article 11.11: it gave no reasons why the circumstances were 'special' and would
therefore have justified exceeding the one year limit, and it exceeded the absolute limit of 18 months.

28. The sixth claim is that Mexico failed to pr ovide a reasoned and adequa te explanation of the
existence of subsidization, to calculate the benefit conferred on the recipient , and to apply the method
used to each particular case as required by Articles 1.1 and 14 of the SCM Agreement.

29. The Ministry failed to provide a reasoned and adequate explanati on for the imposition of
countervailing duties on EC exports of olive oil in the light of Mexico's obligations under Articles 1.1
and 14 of the SCM Agreement. The EC will look first at the Ministry's conclusion that the EC aid in

question constituted a countervailable subsidy, and then at its application of this conclusion to the
individual exporters.

30. The Ministry attempted to bridge the gap be tween the persons who r eceived the subsidy (the
olive growers) and the persons exporting the products to Mexico, by focusing on the product linked to
the subsidy, and the question whether it was olives or olive oil.

31. As regards products, the term th at one finds repeatedly in the SCM Agreement's provisions on
countervailing duties is 'subsidized imports'. Article 15 makes clear that it is when subsidized imports
are causing injury that countervailing duties may be imposed. The crucial issue therefore is whether
the olive oil imported into Mexico from the EC can be described as 'subsidized'.

32. The GATT 1994 addresses the issue of the relationshi p of the subsidy and the product in
Article VI:3, which speaks of a 'bounty or subsidy de termined to have been granted, directly or
indirectly, on the manufacture, production or export of such product', where 'such product' is 'any
product of the territory of any contracting party im ported into the territory of another contracting
party'. Two points should be noted. Firstly, the provision assumes that subsidies can be given
'indirectly'. Secondly, the conferring of the subs idy must be linked to some activity concerning the
product.

33. The Agreement refers to the notion of benefit. Firstly , by Article 1 it is explicitly made an
element of the notion of subsidy. Secondly, sp ecifically in regard to the rules on countervailing
duties, Article 14 addresses the 'calculation of the amount of a subsidy in terms of the benefit to the
recipient'. The importance of identifying the benefi ciary of the benefit that constitutes the subsidy
was emphasized by the Appellate Body in Canada – Aircraft (para. 154).

34. Finally, reference should be ma de again to Article VI:3 of the GATT 1994, and in particular to
the definition given there of the term 'countervailin g duty': 'a special duty levied for the purpose of
offsetting any bounty or subsidy bestowed, directly or indirectly, upon the manufacture, production or
export of any merchandise'. Clearly, what is to be offset is the benefit conferred by the subsidy.

35. Where, as in the present case, the subsidy is gi ven to one person, but it is another person that
has exported the product to the Member claiming th at injury has been cau sed, the authorities must
establish that the subsidy has in some way 'passed through' to the second person. The issue is one that
has arisen in US – Softwood Lumber IV. In that case the Appellate B ody observed that (para. 140)
that "the phrase “subsid[ies] bestowed ... indirectly”, as used in Article VI:3, implies that financial
contributions by the government to the production of inputs used in manufacturing products subject
to an investigation are not, in principle, exclude d from the amount of subsidies that may be offset
through the imposition of countervailing duties on the processed product". However, "where the
producer of the input is not the same entity as the producer of the processed product, it cannot be
presumed […] that the subsidy bestowed on th e input passes through to the processed product", "in
such case, it is necessary to an alyze to what extent subsidies on inputs may be included in the
determination of the total amount of subsidies bestowed upon processed products".

36. The nature of the enquiry that is necessary in order to determine whether and to what extent
there is pass through of input subs idy benefits was indicated by the panel in a GATT Subsidies Code
dispute (US - Canadian Pork). According to this panel the basic criterion was how much prices of the
input product were lowered. The panel suggested that among the relevant considerations were the
degree to which swine were internationally traded, and the per unit cost of producing the additional
output of swine that the subsidies may have caused.

37. In US – Countervailing Measures on Certain EC Products , para. 127, the Appellate Body has
also used the criteria of arm's-length sale and "fair market value" when considering whether a subsidy

given to a state-owned company can be taken to benefit the private body that emerges when that
company is privatised (in this instance the term 'pass through' was not used).

38. In its Final Resolution, the Ministry asserted th at the supply of olive oil and its prices were
affected by the subsidy. Firstly, the supply increased because olive production was rendered more
attractive than that of other crops. Secondly, the increased supply led to lower prices.

39. However, these propositions are mere assertions and, even if true, they would not explain how
a subsidy could have passed through to the exporte rs. The Resolutions contain no indication of any
attempt by the Ministry to support its statements wi th evidence. This cannot have been for lack of
basic data. Much information regarding the producti on, prices and exports of olives and olive oil was
available to it. The EC provided arguments to show the lack of c onnection between the levels of the
production subsidy and those of prices over the period between 1992 and 2003.

40. The EC also explained how the arrangement of enterprises involved in the olive oil business
meant that olive growers were quite distinct from o live oil exporters, and that prices were determined
not by the production subsidies but by the operation of demand and supply. The EC criticised the
failure of the Ministry not to extend its enquiries to olive growers, but to limit them to exporters
and/or producers of olive oil.

41. In this context it is worth referring to an Aust ralian investigation into imports of EC olive oil,
which was virtually contemporaneous with the Mexi can investigation. The report of the Australian
investigating authority of 24 May 2004, which was known to the Ministry, shows the kind of
enquiries that should be made in this context, as well as indicating the conclusions that would result
from an objective investigation: that olive oil expo rters were at arm length in the sales chain, that
olive oil produced by the growers is an input pr oduct to the goods exported to Australia, that pass
through of benefit could not be demonstrated and that market forces alone dictate the price of each
transaction.

42. The second of the weaknesses affecting the Ministry's arguments about increased supply
causing lower prices is that even if that were true it would not lead to the c onclusion that the olive oil
exported from the EC constituted 'subsidized imports'. A particular feature of the international market
in olive oil is the dominant position of EC pro duction and exports. Depending on the level of
international demand, if the EC harvest is large prices may fall, but this effect will be felt immediately
throughout the international market.

43. The Ministry also argued that 'because it is not an investigation on a subsidy on a consumable
(olives) but on olive oil, which is the product itsel f exported to the United Mexican States for that
reason, the investigating authority is not obliged to carry out an analysis of the system for pass
through of the subsidy since Regulation 136/66/EEC establishes indisputably that the programme of
aid is for olive oil.'

44. This attempt to exclude the issue of p ass through because the subsidized product and the
exported product were in some way the same is wrong or, even if correct, would be irrelevant.

45. The Ministry's argument is wrong because it assumes that the subsidy was given on the
production of olive oil. In fact, the aid was give n to those who (a) grew olives, and (b) had them
crushed to produce olive oil. In concentrating on the second of these steps the Ministry completely
overlooked the first. Thus, even if it could be established (which the Ministry does not try to do) that
the olive oil that emerged after the second stage was the same as the oil that was exported to Mexico,
the olive that was produced after the first stage certainly was not.

46. In this context further mention should be made to the contemporaneous Australian
investigation into olive oil from the EC. In that case the investigating authority found that the oil
produced by the crusher was not the same produc t as that imported into Australia because the
imported oil had first been filtered a nd blended by the exporter. It c oncluded that the oil sold by the
producer was an upstream product of the exported oil.

47. The Ministry's arguments regarding the samen ess of the subsidized and the exported products
are irrelevant because they are in effect an applicati on of a test of 'likeness', and there is no WTO rule
specifying such a test as between, on the one hand, the product on the production of which the aid is
granted and, on the other, the product that is e xported to the Member taki ng countervailing measures.
The sole requirement of likeness that is found in WTO countervailing duty law is the one which exists
as between the 'subsidized import' and the produc t being produced in the importing country. This
requirement arises only in the context of injury causation, as defined in the SCM Agreement.

48. Even supposing that such a transfer of the subsidy had occurred, the Ministry failed to make
appropriate adjustments to the value that the subsid y would have had for the exporters. The Ministry
rejected several claims without giving a reasoned or adequate explanation for that rejection.

49. Firstly, the Ministry refused to make any adjustment for the fact that a proportion of the
exports from the EC to Mexico consisted of oil that had not been in any way subject to the EC aid
scheme. For the most part this consisted of oil on inward processing arrangements. This was oil that
had been imported into the EC from non-EC count ries (mostly from Tunisia) and blended with EC-
origin oil before being exported to Mexico. Of course, such oil could in no way be said to have
benefited from the EC's aid programme. Oil of th is kind was estimated to be about 7 per cent of
Spanish production and 10 per cent of Italian production.

50. Secondly, the Ministry calculated the margin of subsidy for each company by comparing the
amount of the subsidy with the exporter's sales prices adjusted to an ex-factory level. The effect of
such a comparison is to produce an artificially high margin.

51. The Ministry was also guilty of serious failings in the way in which it went about its
investigations when it was making adjustments for costs incurred between the receipt of the subsidy
and the export of the olive oil to Mexico. The Mi nistry abandoned its obligation to investigate the
relevant facts. The Ministry undertook the task of investigating the costs incurred by companies
engaged in bringing the olive oil to market with a view to making adjustments to the benefit derived
from the aid. However, the Ministry also asked th ese companies to give an account of the costs of
other companies that had been in volved with the oil. An investigating authority cannot escape its
responsibility to investigate and determine the leve l of subsidization by passing the task on to
exporting companies.

52. Secondly, the Ministry continued addressing ques tions to the companies on this issue after the
date when the investigation should have finished.

53. The seventh claim is that Mexico failed to give a reasoned and adequa te explanation of the
existence of a domestic industry and consequently acted inconsiste ntly with Article VI:6 of the
GATT 1994 and Articles 15.4, 15.5 and 16 of the SCM Agreement.

54. Fortuny was the complainant in the Mexican proceedings that led to the imposition of
countervailing duties against olive oil from the EC. It appears that a company named 'Formex Ybarra,
SA de CV' ('Formex Ybarra') was engaged in both importing and producing olive oil until
October 2001. In May 1999 it placed distribution of olive oil in the hands of a related company,
Distribuidora Ybarra, SA de CV ('Distribuidora Yba rra'). In October 2001 Formex Ybarra underwent
certain further changes. Fortuny took over the production activities of Formex Ybarra but, unlike its

predecessor, it did not import olive oil. Fortuny continued to rely on Distribuidora Ybarra for
distribution of a large part of its olive oil, until it ceased production. Fortuny and Distribuidora
Ybarra ceased to be related in December 2001, and Distribuidora Ybarra was purchasing increasing
amounts of olive oil from foreign suppliers.

55. The Ministry accepted Fortuny's claim that it was the only olive oil producer in Mexico (until
it ceased production in 2002), but it signally failed to provide a reasoned and adequate explanation for
this conclusion. The Ministry failed to carry out a proper investigation of this matter.

56. Firstly, it contacted a Mexican firm, Maprinsa, alleged by the exporters to be producing olive
oil. The Ministry reported that Maprinsa explai ned that it was engaged solely in bottling and
packaging olive oil, and not in producing it. Howe ver, the Ministry apparently made no attempt to
discover from Maprinsa whether the oil that it bought was of Mexican or foreign origin. Secondly,
the Ministry showed a similar lack of initiative when investigating two other firms that were revealed
to be engaged in bottling only, and in regard to yet two more firms that were named as possible
producers the Ministry either relied on a third party's view or did nothing at all to determine the nature
of their activities. In addition, the Ministry simp ly dismissed artisan production as irrelevant because
it was not distributed through the same channels as imports. Thirdly, the Ministry contacted a
national association of oil and edible fat industries, but this association merely confirmed that Fortuny
was the only olive oil producer registered with it and that it had no regist rations of any domestic
producer other than Fortuny. Fourthly, it contacted several government organisations, but these
proved unable to provide relevant in formation. Despite this failure the Ministry made no further
efforts to gain information from government sources.

57. The Ministry's shortcomings in the determ ination of the existence or non-existence of
producers should be seen in the light of the data produced by the International Olive Oil Council
(IOOC), which, presumably relying on Mexican government sources, shows Mexican production
levels of 1000 tonnes in 1999/2000, 1500 tonnes in 2000/01, and 2000 tonnes in 2001/02.

58. The failure to determine properly whether or not there were producers of olive oil in Mexico
during the investigation period completely undermines the reliability of the injury finding made by the
Ministry. As a consequence, the Ministry has fa iled to provide a reasoned and adequate explanation
of its conclusions. More specifically, the failure to investigate properly the extent of the domestic
industry means that the Ministry could not possibly comply with the stipulation in Article 15.1 that a
determination of injury for the purposes of Article VI of GATT 1994 must involve an objective
examination of the impact of the subsidized impor ts on the domestic producers of the product. As a
consequence, the obligation in Article VI:6 would necessarily be infringed.

59. The Ministry's finding on industry suffers fata lly from the fact that it rests on a finding that
there was no domestic production during the period of investigation used for the determination of the
existence and amount of subsidy.

60. That some level of domestic production must ex ist is clear from the terms of Article 16.1 of
the Agreement. Thus, the existence of domestic producers is essential, and those producers must have
'output'. Consequently, if, as the Ministry maintains, there was no output, there can have been no
production, and if there was no production there can have been no industry.

61. This interpretation is reinfor ced by considering the context of Article 16. Article 15.4 lists the
factors to be considered in examining the impact of the subsidized imports and the important feature
of these factors (such as sales, market share, profits , and productivity) is that all refer to an activity
that is ongoing and to the condition of an existin g industry. The same conclusion follows from a
consideration of Article 15.5, which speaks of subs idized imports that 'are … causing injury'. The
reference is clearly to the present, to what is ha ppening when the investigation is carried out, not to

what might have happened in the past. Likewise, at another point Article 15.5 speaks of 'any known
factors … which at the same time are injuring the domestic industry'.

62. The Appellate Body has said in US – Softwood Lumber IV (para. 64) that the object and
purpose of the SCM Agreement is to strengthen and improve GATT disciplines relating to the use of
both subsidies and countervailing measures, while recognizing at the same time, the right of Members
to impose such measures under certain conditions. In a similar vein it has described them as
reflecting a 'delicate balance between the Members that sought to impose more disciplines on the use
of subsidies and those that sought to impose mo re disciplines on the application of countervailing
measures (US – Countervailing Duty Investigations on DRAMS , para. 115). These views suggest that
it would be a mistake to look for particular economic theories as an aid to interpretation.

63. In conclusion, the investiga tion of injury is not an inquest into the causes of an industry's
death, but an examination of its present condition and of the present causes of that condition. For that
to be possible there must be an industry presently in existence; in other words, there must be existing
producers.

64. In support of its argument that there need be no national production during the investigation
period the Ministry invoked a decision of a Binational Panel established under the North American
Free Trade Agreement, where the anti-dumping proceedi ngs were found not to be affected by the fact
that production at the only domestic producer had ceased.

65. However, that determination differs from the present investigation in a number of important
particulars which serve to make its observations irrelevant. Firstly, the panel was interpreting
Mexican law, whereas the present dispute is entirely governed by WTO rules. Secondly, the situation
being considered by the Binational panel was not one where domestic production had ceased during
the course of the investigation, but only after the e nd of the investigation period. In the present case,
the applicant had no production at the time when th e subsidy investigation was commenced or at any
point in time during the investigation period.

66. The sole facts on which the Ministry relied for its acceptance of the applicant as constituting
the domestic industry were (a) that it had previously produced olive oil, (b) that it allegedly had been
forced to stop producing because of the imports of olive oil from the EC, and (c) that it intended to
recommence production, and did indeed do so to some degree, following the investigation period.

67. None of these considerations, some of wh ich were in any case unfounded, alter the basic
inadequacy of the Ministry's findings. In particul ar, if the fact that there had previously been a
domestic producer of olive oil was acknowledged to be sufficient, the concept of domestic industry
would entirely lose its integrity. If other producer s had existed during the investigation period then
they would have constituted the domestic industry. However, because of the Ministry's failure to
adequately investigate this possibility any considera tion of the injury suffered by that industry would
be purely speculative.

68. The eighth claim is that Mexico has failed to give a reasoned and ade quate explanation of its
injury determination , based on positive evidence, and involving an objective examination of all
relevant economic factors and indices having a bearing on the state of the industry. As a consequence
it has violated Article VI:6 of the GATT 1994 and Articles 15.1 and 15.4 of the SCM Agreement.

69. The complaint by Fortuny alleged the existence of the third of the types of injury mentioned
in Article VI:6 of GATT 1994 : it alleged subsidization that was such as to 'retard materially the
establishment of a domestic industry'.

70. However, in the Initiation Resolution the Minist ry concluded that "there is evidence that the
injury to the domestic industry is linked to the subsidies granted to imports from the European
Union". In other words, it referred to injury that had already occurred. Furthermore, the factors listed
in the Resolution were largely ones concerning allege d past harm to the domestic industry, although it
also found that 'resumption of operations would be economically viable if the distortion caused by
subsidized imports is eliminated.' This ambiguous approach continued throughout the investigation.
The Ministry's ultimate conclusion came down in favour of 'material injury'.

71. In any case, a simultaneous finding of both 'mat erial injury' and 'material retardation' on the
same facts is not possible, as the GATT panel in Korea – Resins declared.

72. As a first step in the determina tion of injury Article 15.1(a) of the SCM Agreement requires
investigating authorities to make an objective examin ation of 'the volume of the subsidized imports
and the effect of the subsidized imports on prices in the domestic market for like products'.

73. As regards volume, the Ministry looked at imports from the EC and other countries in
successive 9-month periods (April to December) in three years, 2000, 2001 and 2002 (the last of these
periods being the subsidy investigation period). It found that there had been significant increases.

74. As regards 'the effect of the subsidized imports on prices in the domestic market for like
products', the Ministry concluded that there was 'signi ficant price undercutting' by EC olive oil of that
of Fortuny in the years 2000 and 2001. Of c ourse, because Fortuny ceased selling in March 2002,
there were no data for undercutting for that year, th e subsidy investigation period. However, the only
calculations of subsidization that the Ministry had made were for the investigation period in 2002. Its
determination of 26.5 per cent subsidization in 2 002 was invoked to explain the level of undercutting
for the years 2000 and 2001.

75. Such a disjunction cannot be reconciled with the obligation in Article 15.1 of the Agreement
that determinations of injury must be 'based on po sitive evidence', and that they must 'involve an
objective examination' of the effect of the subsidized imports on prices in the domestic market for like
products. Likewise, it conflicts with the basic ob ligation on national authoriti es to give reasoned and
adequate explanations of their decisions.

76. It is also worth noting that in making the undercutting calculation, the Ministry never
explained the basis for the prices assigned to domestic (F ortuny's) olive oil. In fact, the efforts of the
Ministry to identify buyers of Fortuny's oil, or ev en firms that had received offers from Fortuny, were
wholly unsuccessful.

77. In relation to Article 15.4. (evaluation of all relevant economic factors and indices having a
bearing on the state of the industry) the Ministry was faced with the problem that during the
investigation period there was no production. That in itself would be sufficient to prevent any
examination of injury that was compatible with Article 15.4, and this fundamental flaw may account
for the confused state of the Ministry's presentation of data pertaining to injury. Furthermore, the time
frame is repeatedly moved, sometimes the focus is on what happened in the investigation period and
earlier, and sometimes on what Fortuny planned for the future. The objectiveness of the examination
was also undermined by the choice of investigation pe riods of nine months in three successive years,
of which the last period, although coinciding with the investigation period for subsidization, started
only after the shut down of Fortuny's production.

78. In addition, some of the trends noted by the Ministry appear to contradict the notion that
Fortuny was suffering injury in the period prior to its cessation of production. Thus, production,
prices and employment actually increased at this time. The profit data also show a marked increase in
performance in 2001, which is also reflected in return on investment.

79. The ninth claim is that Mexico has failed to properly consider
, as required by Article 15.5 of
the SCM Agreement, any known factors, other than the a lleged subsidized imports, which were
causing injury to the domestic industry.

80. The Ministry's failure to identify an indus try that had suffered material injury has the
consequence that its conclusions regarding causation in general, and the effect of 'other factors' in
particular, were made in a vacuum, and have no si gnificance. Moreover, the Ministry's analysis of
'other factors' was marked by failures that were sufficient in themselves to render that analysis
ineffective.

81. The EC and the exporters raised a number of factors, other than exports from the EC, which
they said were causes of any injury that was suffered by the alleged Mexican industry.

82. The Ministry's examination of these factors was cursory. Firstly, it said that there did not
seem to be a problem with new brands since at leas t nine new brands (Spanish and Italian) had had no
problems entering the domestic market in spite of their being previously unknown. Secondly, the
Ministry said that one would expect higher relativ e prices in the market for products of recognised
brands, whereas olive oil imported from the EC was sy stematically lower priced. As regards the loss
of links with the distribution network, the Minist ry ignored Fortuny's experience of the period from
2000 to 2002 in favour of comments regarding the future. Likewise, in regard to the issue of guaranty
of supply, the Ministry looked only to the future in the form of Fortuny's expected levels of
production. Regarding the alleged lack of a guaranty of product quality the Ministry confined itself to
calling for more information. Finally, the Minist ry gave no consideration to the high level of
Fortuny's costs.

83. The Ministry's analysis fails completely to provide the reasoned and adequate explanation of
the Ministry's conclusions that is required by WTO law, as elaborated in the jurisprudence.

84. Finally, according to Article 19.1, th e EC requests that the Panel accompany its
recommendation with a suggestion to Mexico that a complete repeal of the measure against EC olive
oil would be the most appropriate and/or effective way of bringing the measure into conformity with
its WTO obligations. In this respect two factors are of particular relevance. Firstly, the initiation of
the investigation was accompanied by serious proce dural defects, notably regarding the holding of
consultations, the exercise of due restraint, the adequacy of the complaint, the provision of non-
confidential summaries, and the time limit regarding the completion of the investigation. Secondly,
the basis for imposing countervailing duties has disappeared because at the beginning of 2006 the
system of EC production aids was replaced by an entirely different system.

ANNEX A-2

EXECUTIVE SUMMARY OF THE FIRST WRITTEN
SUBMISSION OF MEXICO

(18 May 2007)

LEGAL ARGUMENTS

A. CLAIMS CONCERNING PROCEDURAL VIOLATIONS ALLEGEDLY COMMITTED
BEFORE OR DURING THE COURSE OF THE INVESTIGATION

1. Mexico complied with Article 13.1 of the Agreement on Subsidies and Countervailing
Measures (SCM) in inviting the European Communities (EC) to hold consultations
before initiating its investigation

1. In its first written submission (FWS), the EC appears to argue that the Ministry of the
Economy (hereinafter "the Ministry") decided to initiate the investigation on 2 July 2003, that on
4 July it invited the EC for consultations in accord ance with Article 13.1 of the SCM Agreement and,
as a result, consultations were held only on 17 July, in violation of the above-mentioned article.

2. The EC's claim is unfounded since, in accordance with foot note 37 to the SCM Agreement,
the investigation was initiated on 16 July, the date of publication of the Initiation Resolution (IR) in
the Diario Oficial de la Federación or DOF (Official Journal). This footnote says that initiation is the
formal action by which an investigation is commenc ed, which may vary according to the legal system
of each Member of the World Trade Organization (WTO). Pursuant to Article 85 of the Mexican
Foreign Trade Law (FTL) and Article 7 of the Fede ral Tax Code (FTC), any general administrative
provision, such as the initiation of an investigation, shall enter into effect on the day following its
publication in the DOF. This means that the i nvestigation was initiated on 16 July 2003 and not
2 July.

3. Consequently, having invited the EC for cons ultations on 4 July, Mexico clearly complied
with the requirements of Article 13.1 of the SCM Agreement, as it made this invitation before the
initiation of the investigation. Therefore we request the Panel to find and conclude that there is no
substance to the claim made by the EC.

2. Mexico initiated its subsidy investigation on the basis of an application made by the
domestic industry, in compliance with Article 11.4 of the SCM Agreement

4. In its FWS, the EC wrongly maintains that Mexico violated Article 11.4 of the
SCM Agreement, on two grounds: (a) During the inv estigation period Fortuny was not producing, an
indispensable requirement under Articles 16.1 and 11.4 of the SCM Agreement; and (b) the degree of
support or opposition among the rest of the domes tic producers was not examined (it is also
maintained that the measures taken in the course of the investigati on to determine whether there were
other domestic producers were inadequate).

(a) The Ministry treated Fortuny as a domestic producer in a manner consistent with the SCM
Agreement

5. The EC stresses that as Fortuny was not producing during the investigation period it cannot be
regarded as a producer and claims to base this conclusion on Articles 16.1 and 11.4 of the
SCM Agreement. We note that these are general pr ovisions applicable to all, not just some, subsidy
investigations.

6. If the EC's claim were correct, these articles could not be applied in matters concerning
material retardation, since the domestic producers would not be producing. The same thing would
happen if production were temporar ily suspended because of planned or unforeseen stoppages, in
cyclic or seasonal industries, or if production had been suspended and could not be resumed, despite
everything being in place, because subsidized im ports were preventing the domestic product from
finding a market.

7. As pointed out in paragraph 7.147 of the final report of the panel in Mexico – Corn Syrup ,
Article 4.1 of the AD Agreement (and hence 16.1 of th e SCM Agreement) is in fact applicable in the
case of material retardation of the establishment of a domestic industry, and for this reason the EC's
claim lacks substance. We therefore believe th at Articles 16.1 and 11.4 of the SCM Agreement
should be interpreted in a reasonable manner and not strictly, so that the fact that domestic producers
were not producing at a particular moment would not prevent their being treated as producers.

(b) Fortuny was a producer and repr esented the Mexican domestic industry

8. The investigating authority (IA) found that Fo rtuny was the legal and business successor of
Formex Ybarra in its olive oil production activiti es, which had continued uninterrupted from the
1940s until 2002. Fortuny had, and has, the appr opriate installations and qualified personnel for
producing olive oil. The Ministry had evidence to s how that Fortuny did produce the identical or like
product during the determination of injury period. Moreover, Fortuny has never been involved in
liquidation or insolvency proceedings, re-registrati on, change of corporate purpose or anything else
that might imply the termination of its activities as an olive oil producer.

9. Thus, being an entity with a legal and commercial existence on the domestic market, it cannot
be regarded as defunct because production was interrupt ed. The nature of the injury suffered is
therefore not considered to be material retardati on. We reiterate that Fortuny stopped producing olive
oil after a period of more than 55 years of uninte rrupted production, which is why it had information
about the indicators needed to determine injury.

10. The fact that Fortuny requested the initiation for material retardation is irrelevant. We do not
see why the IA should have to restrict itself stric tly to the grounds mentioned by the applicant. There
is no such provision in the SCM Agreement, which is why we refer to the argument in which we
explained why it should be considered that if a WTO Agreement is silent on a particular point, there is
a reason for it, since if a provision is to be applied in another context, the negotiators would have said
so explicitly. Consequently, Mexico was under no obligation to initiate the investigation on grounds
of material retardation. In fact, the Ministry , anxious not to make an incorrect assertion and
proceeding with the utmost moderation, initiated th e investigation on grounds of "injury" in the
general sense as defined in footnote 45 to the SC M Agreement, switching to "material injury" in the
light of the information provided by the parties in the course of the investigation. The Ministry
initiated the investigation upon determining that th e application included sufficient and relevant
evidence of the existence of a subsidy, injury, and a causal link between both (paragraphs 54 to 121 of
the IR).

11. Consequently, there was nothing to prevent the finding th at the applicant did exist and was an
olive oil producer and that it was therefore inappr opriate to conclude that the injury caused was
material retardation. This was confirmed by th e exporters, who argued that the situation of the
domestic industry was adjusting to material injury and not to material retardation since it was not a
new industry (paragraphs 279 of the Final Resolution (FR) and 219 of the Preliminary
Resolution (PR)).

12. With regard to the degree of support, the EC argues that the Ministry did not carry out a
realistic investigation because it did not investigate whether there were other producers. We believe
that in order to initiate an inves tigation, the evidence does not necessarily
 have to be of the quality of
that required for a preliminary or definitive determin ation, since it does not have to be anything more
than circumstantial evidence sufficient for the IA to decide to initiate an investigation, during which it
will determine whether it is appropr iate to apply a countervailing duty. Support for this position can
be found in paragraphs 7.74 and 7.76 of the final panel report in Mexico – Corn Syrup, paragraph 8.35
of the final panel report in the Guatemala – Cement II dispute and paragraph 7. 81 of the final panel
report in Argentina – Poultry. In the olive oil investigation, the Ministry determined that there were
sufficient facts to justify the assumption that Fort uny was indeed the only domestic producer and that
these consisted of the statement from Fortuny (paragra phs 22 and 47 of the IR) to the effect that it
represented 100 per cent of domestic production, co rroborated by two important documents: (a) a
specialist publication of the Ministry of Agricultu re, Livestock, Rural Development, Fisheries and
Food (SAGARPA), which is an authoritative source of agricultural information indicating that
Formex Ybarra (Fortuny) was the only olive oil pr oducer; and (b) a statement by the Agricultural
Promotion Department of the State of Lower Califor nia confirming that the applicant had production-
ready installed capacity. Thus, even where th ere was only one domestic producer, the Ministry
determined that Fortuny constituted the entire dom estic industry, as supported by the findings in
paragraph 6.72 of the final panel report in EC – Bed Linen.

3. The investigating authority complied with its obligations under Article 13(b)(i) of the
Agreement on Agriculture

13. In its FWS, the EC argues that Mexico violated Article 13(b)(i) of the Agreement on
Agriculture by failing to observe the following two restrictions on the imposition of countervailing
duties: (a) Countervailing measures may only be impo sed if there is a determination of injury or
threat of injury; and (b) due restraint should be shown in initiating any investigation.

14. First, it is important to point out that Article 13(b)(i) is applicable to the period preceding the
initiation of an investigation, hence the EC's claim concerning the imposition of measures has no
merit. Moreover, for a rule to be violated two el ements must be present: (a) a rule in force; and
(b) an action at variance with that rule. In the o live oil investigation, the due restraint clause was not
applicable after initiation as it expired on 31 Decemb er 2003, in accordance with Article 1(f) of the
Agreement on Agriculture. Consequently, no rule was in force after initiation.

15. Moreover, due restraint does not constitute a different standard for investigations of
agricultural products. Even if it were so, we reiterate that it is only a pplicable at the time of initiation
of the investigation, as acknowledged by the WTO it self, the United States (US) and the EC. Due
restraint is not a prohibition on initiation, but an a ppropriate and reasonable st andard for initiation.
Thus, in addition to the fact that the Ministry did apply a reasonable standard (as demonstrated by the
sending out of a request for supplementary information or " prevención"), it should be taken into
account that the subsidy was first granted long be fore the investigation was initiated (1966), that
injury to the domestic industry began long before th e initiation, that Mexico waited almost to the end
of the period of validity of the due restraint clause to initiate the investigation and that there was an
ample interval between the application for and the initiation of the investigation.

16. Accordingly, we consider that the Ministry did not act in a manner inconsistent with
Article 13(b)(i) of the Agreement on Agriculture.

17. With respect to the first restriction and the statement that Mexico unduly imposed
countervailing measures because meas ures could not be adopted in response to complaints made by
the applicant relating to material retardation, we note that there is no provision in the SCM Agreement
to the effect that an IA must abide strictly by the terms of the initial application, which is why Mexico
was not obliged to initiate the investigation on ground s of material retardation. Indeed, the Ministry
initiated the investigation on grounds of "injury" in the general sense of footnote 45 to the
SCM Agreement and issued its determination of "m aterial injury" in the light of the information
supplied by the interested parties during the investiga tion. We recall that, as explained in our FWS, if
a WTO Agreement is silent on a particular point, th ere is a reason for it, since if the negotiators had
intended the requirements of a provision to be applic able in another context, they would have said so
explicitly.

18. Article 11.2 of the SCM Agreement states that th e application is to include evidence of the
existence of injury within the meaning of Article VI of GATT 1994, that is to say, in accordance with
footnote 45 to the SCM Agreement, and not that the m ode of injury alleged in the application is that
which the IA has necessarily to investigate. Thus , having reviewed the information and evidence in
the application, the IA sent the above-mentioned " prevención" in order to clarify and/or supplement
data on the injury suffered. From the application a nd the applicant's reply, the IA decided to initiate
an investigation for injury in general, as reflect ed in paragraph 54 of the IR, and then, during the
investigation, determine the specific nature of the injury suffered by the domestic industry. This was
because, in principle, it was not po ssible to initiate an investigation for retardation when the domestic
industry had existed since the 1940s and still existed. The impositi on of measures was based on the
existence of material injury and not material retard ation. Thus, the authority did not act in a manner
inconsistent with the WTO Agreements.

19. As regards the second restriction, the EC main tains that the Ministry violated the Agreement
on Agriculture for the following reasons: (a) The IA initiated the investigation with exceptional haste
(as shown by the supposedly belated holding of c onsultations); (b) in examining the degree of
support, it did not spend enough time on familiarizing itself with the domestic industry; and (c) it
converted an application based on material retardatio n into one based on material injury. There is no
basis for the EC's claims and we therefore request that the Panel reject them. We note that the lack of
due restraint should be demonstrated positively, not merely by means of assertions.

20. Regarding the alleged "exceptional haste", it is not clear why initiating an investigation
promptly is at variance with due restraint and how th at could constitute a violation of Article 13(b)(i)
of the Agreement on Agriculture. As regard s the consultations under Article 13.1 of the
SCM Agreement, we refer to the comments above. Even if initiating an investigation promptly is
regarded as a violation of due restraint, a period of four months elapsed between the application for
the initiation of an investigation and the publication of the IR, largely due to the "prevención" (request
for supplementary information), which is why we do not consider there to have been the alleged haste
mentioned by the EC.

21. With regard to the degree of support, the EC's argument is not based on the facts of the case.
We refer to the paragraphs detailing the efforts made and the criteria used by the IA to determine the
domestic industry, which demonstrate that the IA proceeded with due restraint.

22. Similarly, regarding the claim that the IA t ook an application based on material retardation
and converted it into one based on material injury, we reiterate that nothing in the WTO Agreements
prevents an IA, even if the application is based on retardation, from initiating an investigation for
injury on the basis of footnote 45 to the SCM Agreemen t. The IA analysed the data in the application

and the reply to the request for supplementary info rmation and on that basis decided to initiate an
investigation for injury, in a manner consistent with Article 13(b)(i) of the Agreement on Agriculture.

23. The EC's assertions do not therefore constitute a prima facie presumption of a violation on
Mexico's part, so we request that its claims be di smissed. In this regard, we refer to the Appellate
Body (AB) report in United States – Wool Shirts and Blouses, paragraphs 99 and 100 of the AB report
in EC – Hormones, and paragraph 129 of the AB report in Japan – Agricultural Products II.

24. Moreover, as a treaty must be interpreted in accordance with its text, and considering that if a
WTO Agreement is silent, there is a reason for it to be so, it is impossible to make a valid case for the
existence of obligations under the SCM Agreement which are not stipulated in that Agreement. Thus,
we repeat, there has been no violation of the Ag reement on Agriculture that could be imputed to
Mexico.

4. Mexico acted in a manner consistent with Articles 12.4.1 and 12.8 of the SCM
Agreement

25. We note that this EC argument can be divided basically into two parts. Firstly, it is
maintained that the Ministry acted in a manner inconsistent with Article 12.4.1 of the
SCM Agreement because, without an y justification, it failed to ensu re that the interested parties
furnished non-confidential summaries of their c onfidential information and that these summaries
contained sufficient detail, all of which prejudiced the opportunities for the EC and the exporters to
defend their interests. Secondly, it is claimed th at the essential facts that served as a basis for the
decision to apply definitive measures were not disclosed, in breach of Article 12.8 of the
SCM Agreement.

26. We do not consider the EC's assertions to constitute a prima facie presumption of a violation
on Mexico's part. In this respect, we consider it impo ssible for a panel to rule in favour of a party that
has not established such a presumption and we therefore request that the claim be dismissed and refer
to the considerations set forth in paragraphs 66 to 70 of our FWS.

27. With respect to the EC's first premise, Me xico believes that all the provisions of the
SCM Agreement have a raison d'être and that in this context, in accordance with the jurisprudence
established in paragraph 6.38 of the final panel report in Argentina – Ceramic Tiles , the purpose of
Article 12.4.1 of the SCM Agreement is to provide a mechanism which allows interested parties to
become acquainted with the content of confidential information, while at the same time protecting the
interests of the parties providing that information.

28. Thus, as the basic purpose of the relevant provisi ons of the SCM Agreement is to enable the
parties to acquaint themselves with the confidential in formation they need to defend their interests, it
would be best to focus on determining whether in this investigation the par ties were acquainted with
such information so as to be able to defend their interests properly. In order to be able to determine
this, it is necessary to analyse both the legal frame work applicable to that investigation and the
questions of fact as reflected in the administrative file.

29. With regard to applicable standards, Mexi can legislation concerning access to confidential
information establishes a sufficient mechanism for th e interested parties to acquaint themselves with
that information, so it is quite wrong to suggest that the EC or the exporters would not have been able
to acquaint themselves with that data. As stated in Articles 80 of the FTL and 147 of its Regulations,
Mexico allows the legal representatives of all interested parties access to all the confidential
information contained in the investigation file, provided that they comply with certain requirements.
This, so that the parties are acquainted with it and, in full exercise of their right to defend themselves,
may put forward their arguments relating to that information.

30. Thus, even if there are no public summaries, th e parties may become acquainted with all the
confidential information. We consider that such access undermines any claim that the parties' right to
due process was adversely affected, since, we repeat , all the confidential information could have been
consulted and not only the public summaries. Thus, th e objective indicated in the final panel report in
Argentina – Ceramic Tiles is entirely fulfilled by the Mexican lega l regime. In fact, the record shows
that the joint legal representative of the exporters did consult, on several occasions, the confidential
information contained in the administrative file, as can be seen from the entries in the Access Control
Register of the IA (Exhibit MEX-2), from which it is clear that the exporters were acquainted with the
information which the EC claims they could not see.

31. In addition, it is important to note that th e interested parties did furnish non-confidential
summaries of all the confidential informati on with which they supplied the Ministry , in compliance
with both the international rules and the IR notifica tion and the IA's requests for information, since in
all these it is stated that the parties are under an obl igation to furnish all their information in public
and confidential versions. Thus, all the interest ed parties furnished public summaries of all the
documents they supplied that contained confidential information.

32. It is therefore untrue to say that the rights to due process of the EC and its exporters were
undermined since, firstly, under the Mexican legislat ion they were always able to obtain access to all
the confidential information in the administrative file on the investigation (which they in fact did) and,
secondly, there actually were public summaries of all the confidential information.

33. With respect to the EC's claim regarding Ar ticle 12.8 of the SCM Agreement, it should be
recalled that according to paragraph 6. 125 of the final panel report in Argentina – Ceramic Tiles , as
the manner in which an authority is to comply with the disclosure obligation is not prescribed, parties
may be informed of the essential facts in a numbe r of ways, for example, by issuing a special
document, a verification report, a preliminary dete rmination, etc. In this case, the Mexican IA
disclosed the essential facts by making them available to the interested parties in the PR, which is
consistent with the WTO Agreements. The PR descr ibes in detail the treatment of the information,
arguments and evidence furnished by the parties, what information was taken into account and what
was rejected and why, which refutes the EC's asserti on to the effect that the parties were not provided
with this information. Consequently, the EC's arguments are completely unfounded.

5. Mexico complied with the provisions of Article 11.11 of the SCM Agreement

34. The EC argues that the investigation lasted mo re than 24 months, and that Mexico acted in
breach of Article 11.11 of the SCM Agreement. It claims that: (i) Mexico did not explain why the
circumstances were "special", thereby justifying th e extension from 12 to 18 months; and (ii) it
exceeded the absolute limit of 18 months for concluding the investigation.

35. The EC also tries to excuse the lack of coopera tion on the part of both the interested parties
and the EC itself, suggesting that they were "placed … in the dilemma that if they wished to defend
their interests they would have to condone the Mini stry's failure to respect Article 11.11" and also
arguing that even though this was their "only means of insisting on the importance of the rules of the
[SCM] Agreement", the Ministry presumed that th e points they were maintaining had not been
established and that in effect they were penalized for the IA's own failures.

36. With regard to the publication of the reasons why the circumstances were special, we consider
that the EC's interpretation of Article 11.11 of th e SCM Agreement is incorrect, as this article does
not establish an obligation to issue a notice explaining the special circumstances. It is certainly not
possible to be accused of violating an obligation not specified in the SCM Agreement. What should

be examined is whether there were circumstances jus tifying an extension of the time limit rather than
whether a formal explanation of those circumstances was offered.

37. With regard to the 18-month time-limit, it should be pointed out that, as can be seen from the
various resolutions (initiation, preliminary and final), the volume of information involved represented
a serious procedural burden for the parties, so th at all the interested parties (exporters, importers,
applicant and the EC itself) requested numerous ex tensions in the course of the proceeding (the
corresponding list is annexed to our FWS). In most cases, the IA granted these extensions in order to
observe due process and to gather as much info rmation as possible so as to make a correct
determination. These extensions, the verification visit to the applicant's premises, and the action
taken by the IA in response to the questions put by the parties themselves all served to prolong the
proceeding.

38. We consider that Article 11.11 of the SCM Agreement protects the parties from any
unjustified delay or inaction, so that they are not le ft defenceless and so that the delay does not work
in favour of one of the parties, which was not th e case with this investigation. The IA was not
inactive, biased or negligent, quite the opposite. Given the complexity of the case, there was no
alternative but to extend the time limit so as to ensure a sound basis and a proper determination.

39. At the same time, the public hearing raised vari ous concerns and questions that could not be
ignored. The IA therefore asked for replies to these questions in writing and also requested the
information necessary to clarify the significance of th e data and the questions related thereto. In
addition, during the hearing and subsequently, by written communication, the exporters asked the IA
to carry out an on-the-spot investig ation at Fortuny to verify, on its premises, the information that it
had submitted. This investigation was carried out on 19 January 2005.

40. Thus, it is incongruous to assert that the right s of the interested parties were adversely
affected because the extensions requested were gr anted and because their requests for various forms
of administrative action (such as the on-the-spot investigation) were accepted. The Ministry
considered it better to ensure the rights of the par ties than to ignore these requests and conclude the
investigation on time.

41. With regard to the EC's lack of cooperation, we consider its assertion completely unfounded.
The EC admits that it did not provide the informatio n requested, but also maintains that there were no
valid grounds for requesting that data. In principl e, there is no article to support its actions, since
under no circumstances would it have been excused from submitting the information requested from it
in the investigation. We see no reason why "the onl y way of stressing the importance of the rules of
the SCM Agreement" was to refuse to provide inform ation. The same applies to its assertion that
providing this information would be tantamount to "condoning" the actions of the Ministry.
Accepting the EC's assertion would be tantamount to handing over complete control of the
investigation to the parties, which is unacceptable, as they could refuse to provide information under
any pretext. It would be impossible to gather data during an investigation or make a proper
determination. In addition, Article 12.7 of the SCM Agreement does not indicate any exceptions to
the obligation upon the parties to provide the inform ation requested, which means that the IA could
validly use the "facts available" to make its determ inations. Therefore, we respectfully request the
Panel to reject the EC's arguments.

B. CLAIMS CONCERNING THE CONDUCT OF THE INVESTIGATION AND THE FINAL
AFFIRMATIVE DETERMINATION

1. Mexico did provide a reasoned and adequate explanation of the existence of
subsidization, did calculate the benefit conferred on the exporters of the product
investigated and did apply the method used to each particular case as required by
Articles 1.1 and 14 of the SCM Agreement

42. This claim can be divided into two parts: (a) subsidization in general; and (b) calculation of
the subsidy margins.

(a) Subsidization in general

43. The EC argument has no basis in the SCM Agre ement. Under the SCM Agreement there is
no obligation to make the pass-through analysis clai med, which is why we request that the Panel
reject this claim. Moreover, the subsidy progr amme is set out in Regulation 136/66/EEC and has
been notified to the WTO Committee on Agricultur e as a subsidy granting mechanism. Being
regulated by a legal instrument, the programme ex ists and was in effect during the investigation
period. In fact, the EC has never claimed otherwi se. It is a subsidy whose existence, validity and
application are beyond dispute.

44. Regulation 136/66/EEC indicates that: (a) Aid is expressly established for olive oil
production; (b) for checking the quantity of olive oil eligible for the aid, oil yields are fixed for each
marketing year; and (c) the reas on for subsidizing olive oil is its economic importance in certain
regions of the EC and the fact that it is the most important source of oil and fats.

45. Thus, the subsidy is intended to encourage th e production of olive oil. The Regulation is
categorical in this respect, which is why the IA assumed that the subsidy was being granted for the
production of this product. The IA did not focu s on a product linked to the subsidy, but on the
subsidized product. We feel it is incorrect that the subsidy was granted to someone other than the
exporter, since it is designed, regulated and implemen ted to aid olive oil production. In the light of
this, we do not see why there should be any need to analyse the transfer of the subsidy.

46. In our opinion, countervailing duties are not desi gned to offset a benefit or a subsidy, but to
offset the injury caused by an actiona ble subsidy. As we shall see, this is the reason why, rather than
countervailing duties being imposed for the entire margin of subsidy, a reference price was
established to offset the injury suffered by the domestic industry, thereby interfering as little as
possible with imports of the European product.

47. In addition, Mexico notes that in order to interpret the SCM Agreement properly, and
according to the AB report in United States – Carbon Steel , where a WTO agreement is silent on a
specific issue, there is a reason for this inasmuch as when the negotiators intended that a provision be
applied in another context, they di d so expressly. Thus, it is impossible to make a valid argument for
the existence of obligations under the SCM Agreem ent which are not mentioned in the Agreement
itself. The SCM Agreement does not establish the duty to analyse the transfer of the subsidy, hence
there is no obligation at all in this sense.

(b) Calculation of the subsidy margins

48. The EC states that even if there had been a pass-through analysis, the calculation of the
subsidy margins would have been inconsistent with the SCM Agreement.

49. With respect to the claim concerning the p ass-through analysis, we refer to the above
considerations, which show that the methodology used by the IA was correct.

50. Concerning the adjustment for imported oil of non-Community origin, no adjustment was
made because the interested parties did not prop ose a methodology or submit relevant documentary
evidence that would have enabled the IA to quantify, for each expor ting company, the percentage of
olive oil that had not benefited from aid and then make the corresponding adjustment. The exporters
repeatedly refused to provide relevant information th at would have enabled the Ministry to make this
adjustment. As is noted, the authority gave the interested parties ample opportunity to provide a
methodology and documentary evidence in support of th eir request and asked that if this information
was not specifically available, they propose an a lternative calculation method. Despite this, the IA
never received a reply from the exporters, which is w hy it decided to reject their request. Thus, the
absence of the adjustment was for reasons imputable to the exporters and not the Ministry.

51. With regard to the comparison of the amount of the subsidy with the exporters' ex-factory
sales prices, we consider that in order to clarify the situation, it is important to point out that an IA has
at least two ways of establishing margins of dumping or subsidy: (i) ad valorem; and (ii) in specific
or unit terms.

52. The Ministry established subsidy margins in un it terms (dollars/kg). When an IA calculates
specific
 subsidy margins, the use of export prices at ex-f actory level or at c.i.f. level does not affect
the result, as shown below. For determining the subsid y margin two export prices are required, those
that the IA determined using the method described in paragraph 150 of the FR. Thus, the Ministry
calculated two export prices: (i) the ex-factory export price (subsidized price); and (ii) the
constructed price (unsubsidized price), which was obtained by adding the unit amount of subsidy to
the subsidized export price. The following example shows how the margin of subsidy in unit terms is
unaffected by the use of ex-factory or c.i.f. prices:

 • Scenario 1:

53. Suppose that the price at which the goods were exported to Mexico was 3 € per kg and that
the unit amount of subsidy was 0.64 € per kg. By applying the method described, we obtain the
following result:

Ex-factory export price
or subsidized price
(€/kg)
Unit amount of
subsidy (€/kg)
Constructed export price or
unsubsidized price (€/kg)
Margin of
subsidy (€/kg)
A B C = A+B D = C-A
3.00 0.64 3.64 0.64

 • Scenario 2:

54. Suppose that the price at which the goods were exported to Mexico was 3 € per kg, that to
obtain the price at c.i.f. level 1 € per kg is added (t he additional cost to obtain the export price at the
importing country frontier) and that the unit amount of subsidy was 0.64 € per kg. By applying the
method described, we obtain the following result:

Ex-factory export
price or subsidized
price (€/kg)
C.i.f. export price or
subsidized price
(€/kg)
Unit amount of
subsidy (€/kg)
Constructed export
price or
unsubsidized price
(€/kg)
Margin of
subsidy (€/kg)
A B = A+1 €/kg C D = B+C E = D-B
3.00 4.00 0.64 4.64 0.64

55. As can be seen, in both scenarios
 the margin of subsidy in specific terms was 0.64 € per kg
for each exporting company. As stated earlier, the ma rgin of subsidy was not affected by considering
ex-factory or c.i.f. export prices. Therefore, the EC's claim to the effect that Mexico artificially
increased the margin of subsidy for each exporte r by using the ex-factory sales prices in its
calculations is incorrect.

56. With regard to the exporters being asked fo r cost information from other companies, it is
important to note that these were not isolated requests sent out for no good reason. The purpose of the
IA's requests was to obtain data and evidence to deal with a request by the exporting companies, the
associations and the EC Delegation to the effect that the olive oil subsidy could not be passed through
in its totality to the product exported to Mexico, si nce there were processes intermediate between the
production of the oil and its exportation. In respon se, the Ministry tried to gather information to
calculate the percentage represented by olive oil in the production cost structure for the oil from
extraction to exportation, which proved to be impos sible because this data was not provided. Aware
of the difficulty of gathering data, the Ministry repeatedly asked for alternative calculation methods,
as a much more accessible option, but still did not receive any reply.

57. If an interested party asks for certain adjustment s, it has an obligation to provide the elements
which make it possible for the proposed adjustment to be accepted. Even though this was not done,
the Ministry decided to calculate an adjustment factor that reflected the percentage represented by
subsidized olive oil in the production cost structure for the oil, using the facts available in accordance
with Article 12.7 of the SCM Agreement.

58. Finally, with regard to the exporters' allege d dilemma when it came to providing information
requested by the IA, because the time-limit for concl uding the investigation had already expired, we
refer to the considerations set out in the relevant paragraphs of our FWS.

59. It is therefore quite wrong to suggest that the Ministry acted in a manner inconsistent with the
SCM Agreement and the Panel is therefore requested to reject the EC's claims.

2. Mexico did correctly define the domestic industry

60. The EC maintains that Mexico failed to identif y its domestic industry on the basis of positive
evidence and consequently acted inconsistently with Article 15.1 of the SCM Agreement.

(a) The Ministry properly determined that Fortuny was the sole domestic producer

61. Mexico considers it important to point out that, as stated in paragraphs 97 and 99 of the
AB report in United States – Softwood Lumber VI (Article 21.5), the examination of the conclusions
of the IA must be based on the information contai ned in the record and on the reasoning found in its
resolutions. Accordingly, the work of th e Panel does not consist of carrying out a de novo
examination nor of replacing the judgement of th e Ministry with its own reasoning, but only of

determining whether the IA could reasonably have arrived at the conclusions contained in its
Resolution.

62. The EC relies on isolated sentences and paragra phs of the FR which do not constitute a prima
facie presumption of violation, as explained in paragraphs 66 to 70 of our FWS, hence we request that
the assertions be dismissed. Nevertheless, even if this presumption had been established, its argument
would still be erroneous, since the Ministry's exha ustive efforts and the evidence available showed
that the applicant was the sole domestic producer.

63. A comprehensive reading of paragraphs 212 to 255 of the FR clearly shows why it was
concluded that Fortuny met the requirements of re presentativeness and legitimacy for the purposes of
requesting and conducting the present anti-subsidy in vestigation, in terms of the provisions of
Articles 11.4 and 16 of the SCM Agreement. This section describes the efforts made by the authority
to inquire into the alleged existence of other domestic producers.

64. As for the EC's assertion that the IA made no a ttempt to obtain information on the origin of
the oil marketed by Maprinsa, this is unfounded. The exporters declared that Maprinsa was a
producer of olive oil and that it obtained this oil fr om a plant located in Mexico City. In response,
Fortuny indicated that it had sent samples of the oil to the laboratory Bufete Químico, S.A. de C.V.
for analysis and that it was not olive oil but canola oil.

65. In order to ascertain the accuracy of the cont radictory information, the Ministry sent an
information request to Bufete Químico and to Mapr insa. Bufete Químico confirmed the authenticity
of the samples sent to it for analysis and that the o il sold by Maprinsa was not olive oil. As indicated
in paragraphs 193 and 194 of the PR, in its reply Maprinsa stated the following: (i) It only bottled and
packaged olive oil and other products; (ii) it did not produce olive oil but only bought it and packaged
it for distribution; (iii) it did not belong to any in dustrial chamber; (iv) the olive oil manufacturers
known to it were: Olivarera Tulyehualco, Olivos de California and Conservas Vermex; and (v) it
bought oil from those offering the lowest price and then packaged it, and its most regular suppliers
were Olivarera Tulyehualco, Olivos de California, Wal Mart and Importaciones Colombres.

66. Contrary to the statement by the EC, Maprinsa declared that the oil which it packaged could
be Mexican or imported, as it bought oil either fro m these producers or from importers. Moreover,
with regard to the alleged domestic producers, it should be noted that Wa l Mart and Importaciones
Colombres are marketing companies. The Minist ry requested information from Conservas Vermex
and Olivarera Tulyehualco and both companies rep lied that they did not produce olive oil but only
packaged it. Consequently, in a ddition to the fact that neither of them were producers, the product
they were marketing was not olive oil but canola oil.

67. Consequently, the ASOLIVA and ASSITOL asso ciations subsequently claimed that by
simply bottling the "imported product", Maprinsa could be deemed a domestic producer. Even
though there was no obligation to examine this argum ent since the oil packaged by Maprinsa was not
the product investigated, the Ministry examined it a nd determined that pursuant to the criteria laid
down in the Free Trade Agreement between Mexi co and the European Union, packaging is
insufficient to confer the status of originating pr oducts, which is why Maprinsa cannot be considered
a domestic producer. Furthermore, the Ministry sent various information requests to the Mexican
Industrial Property Institute (IMPI) in order to veri fy the use and registration of trademarks and the
existence of other possible brands registered by do mestic producers of olive oil. From the replies
given by the IMPI, it was not possible to identify any other domestic producers.

68. As regards other possible producers, both ASOLIVA and ASSITOL indicated that Aceites
Navarra did not produce olive oil but only packaged it. Consequently, it could not be considered a
domestic producer either. With regard to Llanos de San Francisco, it is clearly stated in a specialized

publication by SAGARPA, the specialized government authority in Mexico for the agricultural and
livestock sector, that "Llanos de San Francisco is pr oducing olive oil on an experimental basis". In
this connection, we consider that an experimental producer cannot be considered a domestic producer
as it is at the evaluation and sampling stage and is thus not really an economic agent in the industry
inasmuch as, inter alia, its product is not yet involved in the ma rket and the final specifications of the
product to be sold have not been defined.

69. Regarding the EC's argument that the Ministry had dismissed artisanal production because it
was not distributed through the same channels as the imports, it must be pointed out that, contrary to
what may happen in some other countries, Mexico's production sector in general is largely made up of
micro-enterprises or establishments that are little more than workshops with low technology and often
composed of two or three people. Moreover, very few of them are organized in trade unions or
similar groups and it is therefore extremely difficult to obtain information on their existence. In our
case, information was requested from government ins titutions, the interested parties, and entities that
were not interested parties but which could provide information.

70. Contrary to the claim by the EC, the Ministry did not
 dismiss artisanal production because it
was not distributed through the same channels as the imports. It was Fortuny who alleged this, but the
Ministry did not accept that. The IA did not dismiss artisanal production. Quite the contrary, it sent
requests for information to various entities re questing them to identify any domestic producer
 of olive
oil. The Ministry never limited its search to manufacturers whose productio n was marketed through
the same channels as the imported product. The Ministry issued requests for information on any
domestic producer of which the recipients were aware. All channels were exhausted in order to obtain
this data; nevertheless, the efforts made were in vain.

71. The EC continued their claims by stating that the IA had contacted the ANIAME, which had
only confirmed that Fortuny was the sole olive oil producer registered therewith, and that this reply
"does not inspire confidence". In our view, this statement cannot constitute a prima facie case of
violation by Mexico, so we request that it be rejected. In this regard, we reiterate what is stated in our
FWS to the effect that an IA must take into acc ount all the information provided by the parties or
obtained by itself, as found by the AB in its report on the United States – Softwood Lumber VI
(Article 21.5) case. With regard to the reliability of th e reply by the ANIAME, two factors must be
considered: (a) the ANIAME is the Mexican associa tion of edible oils and fats manufacturers and,
consequently, its information was important to the investigation; and (b) the information submitted
by the ANIAME reaffirmed the other evidence indicating Fortuny as the only domestic producer.

72. The EC also claims that the Ministry cont acted various government offices, which were
unable to provide relevant information, and did not make further efforts to obtain more data. This
information alone cannot be considered a prima f acie case of violation by Mexico either, so we
request that it also be rejected. Firstly, there we re no other government bodies in addition to those
from which information was requested which could provide information on the existence of domestic
olive oil producers. The Mi nistry sent requests to all
 government offices that could provide
information on the existence of domestic producers. The IA requested information from the Office of
the Federal Attorney-General for Consumer Affa irs, the IMPI, and the Directorate-General of
Standards, which is responsible for official tec hnical standards regarding commercial matters. None
of them provided information suggesting the existence of other domestic producers of olive oil.

73. Moreover, in order to obtain further data on producers other than Fortuny, the Ministry
requested information from the fo llowing non-party companies: the Asociación Nacional de Tiendas
de Autoservicio y Departamentales, A.C . – ANTAD (National Association of Self-Service and
Department Stores), which groups some of the ma jor self-service and commercial distribution chains
in Mexico, the Grupo Gigante and Comercial Mexica na, and companies which did not belong to the
ANTAD, such as Nueva Wal Mart, Grupo Corvi, Serv icio Comercial Garis and La Europea México,

asking them for information on any domestic oliv e oil producer known to them. In their replies
(submitted as annexes to our FWS), most of the entiti es replied that the olive oil they marketed was
imported and that they had not received any offers to market olive oil from Mexican companies.
Despite these efforts, it was still not possible to ob tain information on any producer other than the
applicant.

74. The EC also claims that the Ministry's passivity can be seen from the fact that the information
on which it based itself is inconsistent with that from the IOOC, which – "presumably" based on
Mexican Government data – shows that produc tion in Mexico was 1,000 tonnes in 1999/2000,
1,500 tonnes in 2000/2001 and 2,000 tonnes in 2001/2002. However, the EC itself presented a table
in which, in contradiction to the data from th e IOOC, the Food and Agriculture Organization of the
United Nations (FAO) showed that Mexican production barely reached 200 tonnes. As can be seen in
Table 9 of the PR, domestic production (by Fortun y) ranged from 254 to 310 tonnes between 2001
and 2002, which is consistent with the inform ation from the FAO submitted by the EC. This
indirectly confirmed that the applicant was the only Mexican producer as it produced 100 per cent of
the production cited by the FAO and the EC. Furt hermore, the information on the global market for
olive oil taken into account by the Ministry w as that presented by ASOLIVA and ASSITOL (annexed
to our FWS), which does not mention Mexico as an olive oil producer. Thus, the parties could not
demonstrate the existence of any other domestic producer either (except for Maprinsa, whose situation
has already been explained).

75. Thus, the authority had information from the interested parties, government organizations and
other entities not party to the investigation, and fro m all this information it was not possible to infer
that other domestic producers existed. Moreover, d espite the invitation issued through the initial and
preliminary resolutions, no company came forward as a domestic producer. All the evidence led to
the conclusion that the domestic industry was com posed of Fortuny. Consequently, the IA conducted
an objective examination of the information obtained as well as that furnished to it, acting consistently
with Article 15 of the SCM Agreement. The Mini stry was proactive and made an impartial and
objective evaluation of all the information obtained. We therefore consider the EC's claims to have
no basis whatsoever and we renew our request that they be rejected.

(b) The domestic industry exists and suffered material injury

76. The EC states that, as no olive oil was produced during the period investigated, it cannot be
claimed that there was a domestic industry and th at the investigation should focus on the present
situation and not on what might have occurred in the past. According to the EC, the IA based itself on
a decision by the Binational Panel established und er the North American Free Trade Agreement
(NAFTA). Furthermore, it claims that the Minist ry did not take proper action to identify other
domestic producers.

77. In relation to the claim concerning the identifi cation of other domestic producers, we refer to
the comments above. With regard to the Binational Panel (case MEX-USA-00-1904-01), the Ministry
did not base its conclusions on the findings in this procedure but on the following: (a) if the mere
absence of production sufficed to consider that there was no domestic industry, then the form of injury
consisting of material retardation in the establishm ent of such an industry would lose all meaning;
(b) cases in which production has been temporaril y suspended because of planned or unforeseen
stoppages would not be admissible; (c) material inju ry or threat of material injury could not be
determined in the case of cyclic or seasonal industri es; and (d) injury could not be determined in
cases where a domestic industry had suspended its production and could not resume it, even though
all the necessary means were available, because of the subsidized imports. The FR explains the
reasons why the IA rejected the Binational Panel's decision.

78. Likewise, the IA did not focus on determining what happened to the domestic industry prior
to the period investigated. The Ministry's conclusions are clear in sofar as the material injury caused
to the domestic industry consisted of the fact that the subsidized imports prevented it from resuming
its activities.

79. Lastly, with regard to the relevance of the pr oduction element in determining the existence of
a producer, we refer to the considerations in our FWS, which explain that Fortuny was a domestic
producer as it had produced for many years and that there was sufficient documentary proof to
consider that it represented 100 per cent of the dom estic industry, which was subsequently confirmed
during the course of the investigation.

3. Mexico made a proper determination of in jury in accordance with Article 15 of the
SCM Agreement

(a) Nature and existence of the alleged injury

80. Regarding the alleged ambiguity of the type of in jury analysed, we refer to the paragraphs in
which we explain why there is no obligation on the IA to confine itself to the type of injury alleged by
the applicant. The investigation was initiated into in jury in the general sense of footnote 45 to the
SCM Agreement, which is totally valid. We see no reason for any confusion whatsoever. We
consider that there is no violation of the SCM Ag reement because the IA di ffers from the applicant's
description of a situation prejudicial to domestic production. From a factual standpoint, it is an
industry that cannot resume activities because of the unfavourable situation deriving from subsidized
imports.

81. The PR and the FR determined that the situa tion faced by the domestic industry conformed to
the concept of material injury as it was not a new industry (we recall that it had existed and produced
for decades and was not the subject of procedures that implied the termination of its production
activities) but had simply suspended its activities and could not resume them because of the
subsidized imports. Even the exporters argued th at the situation in the industry corresponded to
material injury and not to retardation, and the IA agr eed with this. The analysis of injury is clear in
respect of the type of injury cau sed because the Ministry obtained re levant information to analyse the
domestic industry during a sufficiently long and repr esentative period. If that had not been the case,
there would be no reason for the IA to request in formation from Fortuny on the indices mentioned in
Articles 15.2 and 15.4 of the SCM Agreement concer ning the company's prior activities over a period
of at least three years. The statement by the EC therefore has no substance.

82. With regard to the argument that the factors taken into account by the IA concerned injury
that had occurred before the period investigated, it appears that the EC assumes that the injury was the
suspension of activities at Fortuny, which is incorr ect. The Ministry determined that the material
injury caused to Fortuny consisted of preventing the company from resuming its activities. The
suspension of activities was only one element of th e situation during the period analysed for the
purposes of injury, which was impossible not to anal yse, as it was also relevant for evaluating the
viability of resumption of activities if the injury caused was offset. Consequently, it was relevant to
include this information in the analysis of inju ry, and it was never considered to be an element
supporting a determination of material retardation, contrary to the EC's claim.

83. We consider it important to emphasize that the Ministry never issued a simultaneous finding
of both material injury and material retardation. We do not know the EC's basis for making such a
statement, since the resolutions clearly establish that the measure was taken because of material
injury.

(b) Examination of volumes and prices

84. Regarding the volumes of imports, the EC does not make a claim as such, so there is no prima
facie case of violation. We therefore request that its assertion be rejected. Moreover, the FR contains
a comprehensive analysis of the effects of these imports on prices on the Mexican market. Thus, we
believe that this issue has been properly explained.

85. In the light of the above, the IA noted that the prices of the subsidized product fell during the
first two years of the period of analysis of injury and that this trend was reversed when Fortuny
suspended production. The IA complied with Artic les 15.1(a) and 15.2 of the SCM Agreement by
undertaking an objective examination based on positiv e evidence of the effect of the subsidized
imports on prices, the results of which showed that the prices of the imports were even below
domestic production costs. The IA based itself on concrete and potential information.

86. Regarding the alleged absence of data on the dom estic industry's prices, it suffices to refer to
paragraphs 312 to 316 of the FR, which clearly indica te the way in which the Ministry considered the
prices of the domestic product and which include the effect of the imports on prices and the existence
of undercutting in relation to both the domestic pric es and production costs. In this respect, there was
concrete information (historical data) and potential information (period of suspension of activities and
their possible resumption). The undercutting margin in question was determined in comparison with
the actual prices and costs recorded (not estimated ). The subsidy largely explains the difference
compared to the actual domestic costs and prices recorded for this period.

87. Moreover, it is wrong to say that the IA was not able to obtain information on Fortuny's prices
through its buyers. In addition to the actual prices indicated, Distribuidora Ybarra provided
information on prices that coincided with those s ubmitted by Fortuny. This was verified by the
Ministry itself. Therefore, the information on prices provided by Fortuny was confirmed by
Distribuidora Ybarra (the main buyer of Fortuny) an d verified by the IA. In addition, Distribuidora
Ybarra declared that it had ceased to purchase fro m Fortuny for price reasons, which is proof of the
existence of undercutting.

88. It is not clear to us why, according to the EC, a comparison between import prices and
domestic costs is irrelevant when analysing injury . Any company sets up and operates in the hope of
generating profits by selling a product at a price hi gher than its production cost. Consequently, it
cannot be ignored if the price of the subsidized import is lower than the domestic producer's
production costs. If a company is confronted by pr ices below its costs and cannot wage a "price war",
it is logical that it will suspend its activities and find it difficult to resume them. If, in addition, the
low prices of the competition are the result of an unfai r practice that has an artificial impact on prices,
then a small company such as Fortuny simply can not compete, and much less with the financial
resources of the EC, which is the major global producer.

89. The evidence available showed that there we re significant margins of undercutting by the
subsidized imports with respect to domestic prices and costs, and that the domestic industry incurred
operating losses. Furthermore, the Ministry also took into account the comparison between the
relative prices of the imports and the estimated pr ices and costs of the domestic industry during the
period when activities were suspended and the resumption project.

(c) Determination of material injury

90. We consider it incorrect to state that the deteri oration of Fortuny ceased to be of significance
because the company was unable to resume operations. The examination by the IA to determine the
existence of injury covered three years includi ng the period investigated for the purposes of the
subsidy. Moreover, its analysis of trends and pe rformance relating to the relevant factors was not

limited to comparable periods of each year, but also took into account monthly or annual data so as to
gain a more precise picture of the situation. Furt hermore, in conformity with Article 15.4 of the
SCM Agreement, the IA specifically examined th e actual and potential effects of the imports on
domestic production. In this respect, the FR reflect s the growing trend in imports, together with the
effects on prices and on the domestic industry.

91. With regard to the trend in domestic production, there was monthly information for the whole
period from January 1999 to December 2002, which confirms that even taking into account the
information in annual terms, there was a clear dow nward trend in domestic production. The analysis
cannot concentrate on a single isolated indicator, nor can it only be based on comparison between one
year and another. Accordingly, if we take in to account production for the periods January-December
of the various years analysed, there was apparently a recovery in April-December 2001 and 2000, but
if 2001 is compared to 1999, there is a decrease of 60 per cent in producti on until operations were
suspended in 2002. There must be a full-scale ev aluation in this respect. There was a continual
decrease in the applicant's produc tion indices, which confirmed that the subsidized imports from the
EC were worsening the situation of the domestic i ndustry to the point of interrupting its operations
and preventing their resumption.

92. With regard to the absence of production during the period investigated, reading the FR in full
reveals the extremity of the situation faced by the domestic industry as a result of the effects of the
subsidized imports. Furthermore, we reiterate that the Ministry determined that the material injury
consisted of preventing the resumption of operations and not the suspension itself. It is not possible to
claim that the analysis of injury caused by the subsidy should be limited to the period investigated,
since it should include an examination of the releva nt economic factors in the domestic industry over
a broader and sufficiently representative period in or der to reach a positive determination. For this
reason, the statement on the alleged irrelevance of the deterioration at Fortuny has no substance.

93. Regarding the focus during the period investigated and Fortuny's future plans, we reiterate
that the material injury caused to the applicant was the prevention of resumption of its operations.
Thus, the analysis was based on the facts that had caused the domestic industry to suspend its
activities and on the conditions that would allow it to resume operations, considering whether the
elimination of the effects of the subsidy was a cond ition for such resumption. In this context, the
analysis must take into account what occurred durin g the period investigated and in previous periods
in order to discover what made Fortuny suspend operations, and the analysis of feasibility of its
business plan in order to see whether it was possible to resume operations if the subsidy was offset.
In fact, it is not possible to know with certainty what factors prevent the resumption of activities when
the circumstances which led to the temporary shutdow n of operations are not known. Consequently,
the IA's exhaustive analysis is consistent with th e SCM Agreement, which states that the indices for
the domestic industry must be analysed both in actual and potential terms.

94. Regarding the use of nine-month periods for each year in the evidence of injury, the EC does
not present a prima facie case for violation by Mexi co and simply states that it undermined the
objectivity of the analysis of injury. We therefore request that this assertion be rejected.

95. Furthermore, the SCM Agreement does not cont ain any directive on how the analysis of
injury in a subsidies investigation should be condu cted in terms of the period to be considered for
each of the years analysed. In accordance with paragraphs 61, 65 and 69 of the AB report in United
States – Steel Products from Germany , we consider that as there is no indication in the
SCM Agreement as to how the analysis of injury should be conducted as regards the periods to be
used, there is thus no violation of the Agreement when using nine-month periods for each year.

96. Nevertheless, the analysis of injury was conducted by comparing the periods April to
December in 2002, 2001 and 2000, and the indices fo r April to December for one year were thus

compared with those for the same period in the other two years and not with those for any other
period, irrespective of whether during each nine-mont h period the situation was better or worse than
in the half-year January to June. In this way, if the Ministry had found that the indices for April to
December in 2002, 2001 and 2000 had shown an extremely negative situation in the domestic
industry but had been the same year after year, it would not have determined that injury had been
caused, even when the period April to December was less favourable to the domestic industry than
January to March.

97. The information used by Mexico therefore a llowed a comparison of the relevant indices for
the domestic industry with previous comparable sim ilar periods, as a nine-month period in one year is
structurally the same as the equivalent period in th e preceding year. Consequently, by definition, the
structure is the same. Thus, in order to avoid bias or fluctuations, the same periods of each year were
compared. By using comparable periods for the analysis of injury, possible distortions were
eliminated and it was possible to compare properly the information for the period investigated with
that for prior comparable periods. Consequently, the objectivity of the analysis of injury was not
affected.

98. With regard to the analysis of the factors provided in Article 15.4 of the SCM Agreement,
paragraphs 328 and 367 of the FR show that the IA examined each and every one of them. It is
necessary to clarify that when an index shows a vari ation it is not immediately reflected in the other
factors. The economic situation of a company is no t automatically and immediately affected by such
a variation. Consequently, even when two or three of Fortuny's indices increased slightly prior to the
suspension of activities, this does not mean that th ere was no material injury. We recall that the
material injury caused to the domestic industry consists of not being ab le to resume operations. It is
therefore Fortuny's actual situation during the period i nvestigated that is relevant. In fact, even where
the injury consists of the suspension of operati ons, the increase in these indices would not indicate
absence of injury, as immediately after the improvement they deteriorated to the extent that operations
were suspended.

99. As a result of the foregoing, Mexico requests th e Panel to determine that the IA undertook its
analysis of injury consistently with Article 15 of the SCM Agreement and Article VI.6 of the
GATT 1994.

4. Mexico did properly consider, as required by Article 15.5 of the SCM Agreement, other
factors which were causing injury to the domestic industry

100. The EC states that the analysis of non-attributio n of injury must consist of more than listing
other factors of injury and then dismissing them w ith mere qualitative assertions. It states that an IA
must explain the nature and extent of the harmful effect of these other factors, preferably on a
quantitative basis, and that the Ministry did not comply with this criterion.

101. It suffices in this regard to turn to paragra phs 415 to 437 of the FR to see that quantitative
reasons were taken into account wh en determining that the other factors did not contribute to the
injury suffered by the domestic industry. The EC 's arguments are therefore mere assertions which do
not constitute a prima facie case of violation by Mexico, and for this reason we request that the
allegation be dismissed.

102. In fact, the IA analysed the factors mentioned in Article 15.5 of the SCM Agreement: (a) The
analysis of the volume and price of non-subsidized im ports is found in paragraphs 416 to 425 of the
FR, where it is stated that the subsidized imports from the EC accounted for over 93 per cent of total
imports and that the share of non-subsidized impor ts fell during the period analysed for the purposes
of injury; (b) the analysis of the contraction in demand or changes in the pattern of consumption is to
be found in paragraph 429 of the FR and paragraphs 330 to 332 of the PR, where it is explained that,

far from there being a contraction in demand, there w as an increase; (c) restrictive trade practices by
foreign and domestic producers and competition among them are referred to in paragraph 337 of the
PR, which states that there are no indications of su ch practices; (d) developments in technology are
mentioned in paragraph 337 of the PR, which states that there is no information on whether these are
affecting the market; (e) export performance is re ferred to in paragraph 337 of the PR, which states
that there are no indications of whether this was a ffecting the domestic industry (particularly as there
were no exports throughout the period analysed for the purposes of injury); and (f) other known
factors which might have caused the alleged inju ry such as those menti oned in the following
paragraphs.

103. The EC claims that the factors listed in para graph 221 of its FWS were not examined by the
IA. We consider its argument to be without substa nce, as Mexico did analyse these factors. It should
be noted that the fact that the EC mentioned a list of "possible" factors which, in its view, had affected
the domestic industry does not mean that it submitted evidence that these factors did in fact have any
effect on the domestic industry and still less that such evidence was sufficient to prove that.

104. In this regard, the importer, Distribuidora Ybarra provide d elements to the Ministry in order
to determine whether any of the factors mentioned by the EC were the cause of injury to the domestic
producer. In this respect, Distribuidora Ybarra i ndicated that it had ceased to purchase products from
Fortuny because of its prices
. Thus, the problem was neither the alleged loss of a distribution
network, problems of supply nor the quality of the product, but the low prices of European oil.

105. In addition, concerning the loss of the di stribution network previously supplied by
Distribuidora Ybarra, it is important to note that in the PR it was indicated that the applicant had the
necessary distribution resources to carry out its ac tivities (107 lorries, market stalls and vans,
217 supervisors, sales persons and promoters and 24,000 m2 of warehouses). Consequently, there was
no loss of distribution network and therefore this was not a cause of injury.

106. With regard to the loss of the Spanish brand Ybarra, both the importers and exporters
submitted a "market survey" as proof of this claim. However, the survey did not show the alleged
preference for the Spanish brand, only that it was known, and consequently, as there is no link
between the content of this document and the clai m, the Ministry did not consider the document a
relevant element to prove that the injury caused to Fortuny derived from loss of the Ybarra brand.
Moreover, even if the findings of the survey were those indicated by the importers and exporters, the
preference for the Ybarra brand would also have affected the market share of Italian brands and of the
other Spanish brands of olive oil, as well as that of other new brands. In contradiction to the
statement by the importers and exporters, however, the volumes of these brands showed a marked
increase. Consequently, the Ministry rejected the claim by these interested parties.

107. Regarding the consumers' alleged mistrust of th e Fortuny product, it is important to point out
that none of the interested parties indicated this as being a possible cause of injury. Nevertheless,
bearing in mind that the reason put forward by Di stribuidora Ybarra for ceasing to purchase Fortuny's
oil was the price itself and not problems regarding consumer preferences related to aspects other than
the price, it may be assumed that this was not a cause of injury for the applicant either.

108. Regarding Fortuny's allegedly high costs, the Ministry did not only analyse them but also
took into account several additional factors. All this can be seen in paragraphs 368 to 414 of the FR,
in which all the elements that would allow Fortun y to resume its production activities are considered.
The way in which production costs were consid ered in order to determine whether it was
economically feasible to resume operations is refl ected throughout these paragraphs. The conclusion
reached at the end of the feasibility analysis is th at the subsidized imports from the EC were being
sold in Mexico at low prices and that this did not allow Fortuny to resu me operations, a conclusion
that corresponds to the information provided by Distribuidora Ybarra and mentioned above.

109. In addition, it is important to bear in mind th at olive oil production is given a subsidy in the
EC, that this subsidy allows olive oil to enter th e Mexican market at prices below the domestic price
and even below the domestic production costs, thereby allowing new brands from unknown producers
to emerge in Mexico. This allowed a traditional deal er such as Ybarra to dissociate itself from the
domestic industry and devote itself entirely to imports, which led to an increase in imports in both
absolute and relative terms.

110. The IA therefore did not only analyse the fact ors indicated by the EC but, in addition,
examined all the aspects which it considered migh t have influenced the situation in the domestic
industry, therefore, the EC's argument has no substance.