Document: WT/DS257/R Page C-1 ANNEX C THIRD PARTY RESPONSES TO QUESTIONS FROM THE PANEL Contents Page Annex C European Communities Response to Questions from the Panel at the Third Party Session C-2
Document codes: WT/DS257/R
Complainant: Canada
Respondent: U.S.
Third parties: China, EU, India, Japan
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. 10, 11, 32, 1, 2, 12, 14, 19, 22  Subsidies and Countervailing Measures (SCM)Art. VI, X:3  GATT 1994Art. 21  Subsidies and Countervailing Measures (SCM)

ANNEX C
THIRD PARTY RESPONSES TO
QUESTIONS FROM THE PANEL
Contents Page
Annex C European Communities Response to Questions from the Panel at
the Third Party Session
C-2

ANNEX C
EUROPEAN COMMUNITIES RESPONSE TO QUESTIONS
FROM THE PANEL AT THE THIRD PARTY SESSION
(24 February 2003)
Q1: Paragraph(2) of the preamble of the EC regulation 1973/2002 (Exhibit US-15) provides
that that when "prices or costs do not exist or are unreliable, then the appropriate benchmark
should be determined by resorting to terms and conditions in other markets" (emphasis added).
What in the EC's view would be a situation:
(a) where prices or costs are unreliable and recourse could be had to market
conditions in other markets?
(b) Where prices or costs do not exist and recourse could be had to market
conditions in other markets?
Reply
1. The European Communities would first observe that the second preambular paragraph of
Regulation 1973/2002 (“the amending Regulation”) is referring to the issue addressed in the addition
to Article 6(d) of Council Regulation (EC) 2026/97 (“the amended Regulation”). This addition
provides as follows:
If there are no such prevailing market terms and conditions for the product or service
in question in the country of provision or purchase which can be used as appropriate
benchmarks, the following rules shall apply:
(i) the terms and conditions prevailing in the country concerned shall be
adjusted, on the basis of actual costs, prices and other factors available in that
country, by an appropriate amount which reflects normal market terms and
conditions; or
(ii) when appropriate, the terms and conditions prevailing in the market of
another country or on the world market which are available to the recipient
shall be used.
2. This language addresses the problem that arises where there are no “prevailing market terms
and conditions” for a product or service. The second preambular paragraph of the amending
Regulation states:
It is prudent to provide for clarification as to what rules should be followed in cases
where a market benchmark does not exist in the country concerned. In such situation
the benchmark should be determined by adjusting the terms and conditions prevailing
in the country concerned on the basis of actual factors available in that country. If
this is not practicable because, inter alia , such prices or costs do not exist or are
unreliable, then the appropriate benchmark should be determined by resorting to
terms and conditions in other markets.

3. Sub-questions a) and b), as the European Communities understands them, are based on a
distinction between situations where prices are unreliable and situations where prices do not exist.
The European Communities would like to note that the preambular phrase “prices or costs do not exist
or are unreliable” is merely an illustration of circumstances in which terms and conditions in the
market of another country or on the world market would need to be used in accordance with the
dispositive part of Article 6(d)(ii) of Council Regulation (EC) 2026/97.
4. As to the question in which situations recourse to terms and conditions outside the market of
the country of export will be required, the European Communities regrets that it is not possible to
indicate more precisely circumstances in which the criteria contained in Article 6(d) of Council
Regulation (EC) 2026/97 as amended would be found to be met, because they have only entered into
force in November 2002 and have not yet been tested in actual investigations.
Q2. Is it the view of the EC that market conditions exist where the government is the price
leader, due to its market power, and the priv ate players on the remaining market are mere
price takers? Are the prices of the private players in such circumstances reliable in the view of
the EC for purposes of establishing in-country market conditions?
Reply
5. Article 14(d) of the SCM Agreement envisages the use of “prevailing market conditions” as
benchmark for “adequate remuneration”. The European Communities notes that the term “price
leader” is not provided for under the SCM Agreement. The expression “price leader” is broad and
ambiguous. When used in the context of antitrust law, that notion might even refer to a provider who
holds a significantly bigger market share in relation to all other suppliers, e.g., 20 per cent market as
opposed to others with 1-5 per cent each. However, the mere existence of such “price leader” - be it
the government or a private player - does not mean that there are no “prevailing market conditions”
where prices are otherwise driven by demand and supply.
6. The European Communities considers that an assessment of whether there are exceptionally
no prevailing market conditions must be made on a case-to-case-basis taking account of all the factors
set forth in Article 14(d) of the SCM Agreement . Such assessment is complex and will differ
considerably between the myriad types of products (industrial commodities, e.g., computers,
renewable and non-renewable natural resources, e.g., lumber or oil) and different types of services.
Therefore, it is difficult to elaborate general criteria.
7. However, as the European Communities pointed out already, where there is evidence for
imports of a product in combination with a significant market share of private operators, a finding
based on the mere generalisation that this market is distorted solely because the government is a price
leader would not be sufficient.
1
Q3. In its oral statement (para. 28), the EC st ates that the disclosure in a written document
sent to the parties is "the usual practice" in the EC pursuant to Article 12.8 SCM Agreement.
For the panel's information, what does the EC do in this respect when it does not follow that
"usual practice"?
Reply
8. The European Communities confirms that disclo sure of the essential facts and considerations
on the basis of which definitive action will be taken is consistently made in writing.

1 See, Third Party Submission by the European Communities, para. 32.

Q4. In noting, at paragraph 12 of its oral statement, that "the USDOC did not make a de
jure specificity determination although certain stumpage programmes were restricted to certain
enterprises owning saw mills", is the EC implying that the USDOC erred in not doing so?
Reply
9. The European Communities considers that the USDOC’s specificity determination before the
Panel is based on a flawed assessment of benefit and therefore did not consider it possible on the basis
of the evidence available to it to comment on whether there is an additional violation of Article 2.1 of
the SCM Agreement.
10. The European Communities simply wished to note that on the basis of the factual aspects of
the case available to the European Communities, it would have seemed logical to explore first de jure
specificity before resorting to the de facto test. However, the difference between a de jure or de facto
determination is essentially one of evidence. A de jure case is based on the legislation pursuant to
which the granting authority operates, whereas a de facto case requires the compilation of factual
evidence concerning the use of the subsidy. It is essentially the choice of the investigating authority
which avenue it pursues.